BILL ANALYSIS
AB 507
Page 1
Date of Hearing: April 21, 2009
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel P?rez, Chair
AB 507 (Arambula) - As Introduced: February 24, 2009
SUBJECT : Infrastructure and Economic Development Bank:
economic benefit
SUMMARY : Requires projects selected for funding under the
Infrastructure State Revolving Fund Program (ISRF) to only be
funded if the project meets specified land use and economic
development criteria. Specifically, this bill :
1)Adds new eligibility criteria for applicants for ISRF moneys
by authorizing the bank to select projects that meet both of
the following criteria:
a) The project has economic benefit, as defined; and
b) The project meets land use criteria, as determined by
the bank.
2)Defines economic benefit to mean, in the determination of the
California Infrastructure Bank (I-Bank), that the project
would provide for the creation or retention of jobs, growth of
the property tax base, or growth of sales tax base, as
determined by the I-Bank.
EXISTING LAW :
1)Creates the I-Bank, within the Business, Transportation and
Housing (BTH) Agency, to promote economic revitalization,
enable future development, and encourage a healthy climate for
jobs in California.
2)Authorizes the I-Bank to offer a variety of financial
undertakings including, but not limited to, the issuance of
tax-exempt and taxable revenue bonds to underwrite the cost of
infrastructure development that meets a speified public
purpose.
3)Requires projects funded by the ISRF comply with the criteria,
priorities, and guidelines adopted by the I-Bank. At a
minimum, those conditions need to be based on the state
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Environmental Goals and Policy Report and to the extent
relevant, the state Capital and Infrastructure Project
Planning Report.
4)Requires legislative bodies or sponsor seeking funding from
the I-Bank to adopt a resolution making affirmative findings
on each the following:
a) The project is consistent with the general plan of the
relevant local government jurisdiction;
b) The proposed financing is appropriate for the specific
project;
c) The project facilitates effective and efficient use of
existing and future public resources so as to promote both
economic development and conservation of natural resources.
Further, that the project develops and enhances public
infrastructure in a manner that will attract, create, and
sustain long-term employment opportunities; and
d) The project is consistent with the criteria, priorities,
and guidelines set forth by the I-Bank.
5)Requires the Governor to prepare the Environmental Goals and
Policy Report every four years for the purpose of defining the
state's 20 year growth and economic development strategy with
particular attention to statewide land use policy.
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose : According to the author's office, the purpose of the
bill is to implement a recommendation from the Legislative
Analyst's Office to provide further direction to the I-Bank to
ensure that loans from ISFR are made to projects that achieve
statutorily mandated objectives for economic development and
land use.
The author states that while the ISRF exists for the specific
purpose of providing infrastructure financing that promotes
economic development and improved land use, the LAO has found
that the program was not meeting those objectives. More
specific details on the LAO analysis is provided in Comment 4.
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2)Structure and operation of the I-Bank : The I-Bank was
established in 1994 to promote economic revitalization,
facilitate future development, and encourage a healthy climate
for job creation and retention. The I-Bank is organized
within BTH and is managed by a five-member board of directors
comprised of the BTH Secretary (chair), State Treasurer,
Director Department of Finance, Secretary, State and Consumer
Services Agency, and a Governor's appointee. The executive
director serves at the will of the I-Bank Board and is
responsible for the day-to-day operation of the organization.
The I-Bank has several programs that it uses to carry out its
mission. These programs include: the ISRF Program; the
Industrial Development Revenue Bond Program; the
Infrastructure & Community 501(c)(3) Revenue Bond Program; and
the Exempt Facility Revenue Bond Program. The chart below
shows recent budget information for the I-Bank.
-----------------------------------------------------------
| Infrastructure and Economic Development Bank |
-----------------------------------------------------------
|--------+------------+------------+------------+------------|
| Fiscal | Staffing | Total |Administrati| Local |
| Year | (PYs) | Funding | ve | Assistance |
|--------+------------+------------+------------+------------|
| | | (in | | (in |
| | | thousands) | | thousands) |
|--------+------------+------------+------------+------------|
| | 20 | $5,425| $3,248| $6,577|
|2005/06 | | | | |
| | | | | |
|--------+------------+------------+------------+------------|
| | | | | |
|--------+------------+------------+------------+------------|
| | 20 | $5,244| $3,067| $2,177|
|2006/07 | | | | |
| | | | | |
|--------+------------+------------+------------+------------|
| | | | | |
|--------+------------+------------+------------+------------|
| | 20 | $5,360| $3,183| $2,177|
|2007/08 | | | | |
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| | | | | |
|--------+------------+------------+------------+------------|
| | | | | |
|--------+------------+------------+------------+------------|
|2008/09 | 25 | $6,267| $4,090| $2,177|
|--------+------------+------------+------------+------------|
| | | | | |
|--------+------------+------------+------------+------------|
|2009/10 | 25 | $6,320| $4,143|$2,177 |
------------------------------------------------------------
*All amounts are from adopted budgets.
***Annually appropriated to BTH Agency for I-Bank
administration expenditures
**Continuously appropriated. Amounts used to fund ISRF
Program loan Disbursements.
Actual disbursements amounts were higher than amounts shown
in the budget
The I-Bank is financed through the California Infrastructure
and Economic Development Bank Fund, which receives fees,
interest income and other revenues. The cost of
administering the programs of the I-Bank are off-set by these
types of program income. The I-Bank is operated on a
revolving fund basis and thereby generates continuous funding
for new project investments.
Since its creation approximately a decade ago, the I-Bank has
issued over $300 million to local agencies in infrastructure
related revenue bonds, and has developed a level of expertise
in the implementation of successful local infrastructure
programs.
3)Infrastructure State Revolving Fund : The Infrastructure State
Revolving Fund (ISRF) Program provides low-cost financing to
public agencies for a wide variety of infrastructure projects.
Established through an initial $182 million capitalization and
maintained through the use of a leverage loan program, whereby
bonds are issued to raise upfront program capital and the loan
repayments are committed toward the repayment of bonds. Using
the leverage loan program has allowed the I-Bank to maintain a
somewhat steady flow of eight to 10 new loans each year.
Rating agencies have consistently rated bonds issued for the
leverage loan program as high quality debt of AA+.
ISRF Program funding is available in amounts ranging from
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$250,000 to $10 million, with loan terms of up to 30 years.
According to the LAO, average loan amounts are generally in
the range of $3 to $5 million. Interest rates are set on a
monthly basis. Preliminary applications are continuously
accepted. Since June of 2000, 81 ISRF Program loans have been
issued totaling nearly $377 million. Due to the separate
capitalization of the ISRF, the number of loans is primarily
limited by the stream of funds received by loan repayments.
Eligible applicants include local government entities,
including cities, counties, redevelopment agencies, special
districts, assessment districts, joint powers authorities and
non-profit corporations formed on behalf of a local
government.
Eligible project categories include city streets, county
highways, state highways, drainage, water supply and flood
control, educational facilities, environmental mitigation
measures, parks and recreational facilities, port facilities,
public transit, sewage collection and treatment, solid waste
collection and disposal, water treatment and distribution,
defense conversion, public safety facilities, and power and
communications facilities.
Under the provisions of the program, potential applicants
develop projects and prior to submitting applications contact
the I-Bank for a preliminary review. Applicants then have an
opportunity to adjust their projects to meet program
requirements. Each application to the ISRF Program is
accompanied by a resolution stating:
a) The project is consistent with the general plan;
b) The proposed financing is appropriate for the specific
project;
c) The project facilitates the effective and efficient use
of existing and future public resources so as to promote
both economic development and conservation of natural
resources. Further, that the project develops and enhances
public infrastructure in a manner that will attract,
create, and sustain long-term employment opportunities; and
d) The project is consistent with the criteria, priorities,
and guidelines set forth by the I-Bank.
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Applications are then scored based on the point system
detailed in the chart below. Those project applications that
meet a minimum of 80 points are funded. This program is
administered on a first come first serve basis and
applications can be accepted at any time. This means that
projects don't compete against each other; rather project
applications which meet the 80 point threshold are funded and
for which funding is available.
-------------------------------------------------------------
| ISRF Program - Project Scoring Criteria |
-------------------------------------------------------------
|-------------------------------+--------------+--------------|
| Criteria Categories | Individual |Total Maximum |
| | Maximum | Points |
| | Points | |
|-------------------------------+--------------+--------------|
|Economic Development Impact | | 50 |
|-------------------------------+--------------+--------------|
|Job Creation and Retention | 30 | |
|-------------------------------+--------------+--------------|
|Economic Base Employers | 10 | |
|[measures whether a project | | |
|will benefit employers that | | |
|bring in revenues from outside | | |
|the region.] | | |
|-------------------------------+--------------+--------------|
|Community Economic Development | 10 | |
|Plan [measurers the applicants | | |
|cooperativeness with local | | |
|economic and job development | | |
|programs] | | |
|-------------------------------+--------------+--------------|
| | | |
|-------------------------------+--------------+--------------|
|Community Economic Need | | 55 |
|-------------------------------+--------------+--------------|
|Unemployment Rate | 20 | |
|-------------------------------+--------------+--------------|
|Median Family Income | 15 | |
|-------------------------------+--------------+--------------|
|Change in Labor | 10 | |
|-------------------------------+--------------+--------------|
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|Poverty Rate | 10 | |
|-------------------------------+--------------+--------------|
| | | |
|-------------------------------+--------------+--------------|
|Land Use, Environmental | | 40 |
|Protection, and Housing | | |
|-------------------------------+--------------+--------------|
|Land Use | 20 | |
|-------------------------------+--------------+--------------|
|Environmental Protection | 10 | |
|-------------------------------+--------------+--------------|
|Housing Element | 10 | |
|-------------------------------+--------------+--------------|
| | | |
|-------------------------------+--------------+--------------|
|Others | | 55 |
|-------------------------------+--------------+--------------|
|Quality of life/community | 30 | |
|amenities | | |
|-------------------------------+--------------+--------------|
|Leverage | 15 | |
|-------------------------------+--------------+--------------|
|Project Readiness | 10 | |
|-------------------------------+--------------+--------------|
| | | |
|-------------------------------+--------------+--------------|
|Total Possible Points | |200 |
| | | |
-------------------------------------------------------------
Effectively implementing a program using a point system can be
challenging. Some projects may score high in one or two
categories, which can offset low scores in the other areas.
As an example, a water treatment facility serving a lower
income area may be an important community amenity, leverage
significant other dollars, be shovel ready, and allow for new
industrial development. On the other hand, this same project
may be sprawl inducing and provide little other land use
benefit. The author may want to consider statutory direction
that would require the I-Bank to modify its scoring criteria
to include a combination of minimum performance in each
category, as well as a total minimum performance threshold for
awarding funds.
4)LAO Analysis : In its 2008-09 analysis of the state budget,
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the LAO raised concerns over the projects being funded under
the ISRF Program. The LAO noted that while the purpose of the
program was to provide low cost loans to local governments for
infrastructure projects that promote economic development and
improve land use, many of the loans did not, in their opinion,
effectively meet these objectives.
More specifically, the LAO reported that two-thirds of all the
ISRF projects received loan funds without scoring any points
under the economic development benefit category. Relative to
land use, the LOA opinioned that the amount of points awarded
(maximum 20 points or only 10% of total score) seemed
insufficient to have any significant effect on local land use
decisions.
The LAO completes its comments by stating that as the ISRF
Program offers lower than market rates for financing
infrastructure they believe that the program can do a better
job in promoting the state's economic development and land use
objectives. The LAO recommends that legislation be introduced
to require all ISRF-funded projects demonstrate at least a
minimum level of economic and land use benefit.
Alternatively, the LAO recommends screening potential projects
for economic development and land use benefits to ensure the
state's objectives are met. AB 507 implements the latter LAO
recommendation.
In a related recommendation the LAO suggests expanding the
I-Bank's statutory reporting requirements. Currently the
I-Banks prepares a consolidated financial report which makes
it difficult to see the individual activities of the direct
programs including the IRSF. The LAO recommended that the
I-Bank prepare an expanded report that would include
program-level information and include:
a) The amount and source of main categories of revenues by
program;
b) The amount and type of major categories of expenditures
by program; and
c) A summary of the number of preliminary applications that
did not receive funding and the reasons the sponsor either
did not go forward with a final application or was turned
down.
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The author may want to consider including this expanded
reporting recommendation within the scope of the bill.
5)Shifting from self-certification to government determination :
AB 507 proposes a fundamental statutory shift in the review of
ISRF applications. Under current law, the applicant, usually
a local government, demonstrates it meets the specified ISRF
requirements through the adoption of a resolution. This bill
would require the I-Bank to undertake an independent review of
each project's economic development and land use impact.
Moving to this higher level of review could be more staff
intensive and cause delays in approving ISRF funds. Further,
the I-Bank reports that its board of directors has, on its
own, begun to require staff to provide additional information
on the impact of proposed infrastructure. In light of the
higher cost and already occurring administrative improvements,
the author may wish to take an intermediary step and consider
a change in statute that simply requires a change in the
scoring system to achieve the bills objective.
6)Environmental Goals and Policy Report (EGRP) : California's
community and economic development policy is driven by a
number of statutory mandates, the first of which is the EGRP.
The EGPR is the state's 20-year growth and economic
development strategy. Prepared every four years, it is
designed to serve as a guide for individual department plans
and overall state expenditures.
The EGPR analyzes the current context of the state's
environmental, economic and social setting; the driving forces
behind growth and development; and the outside influences that
affect many of the state's actions, policies, and programs.
Based on this analysis of existing conditions and influences,
the EGPR proposes cross-cutting and integrated goals and
policies for the state that will allow it to achieve the
overarching mission of sustainable development. The goals and
policies are then required by statute to be included within
key state programs and planning activities. As an example,
the I-Bank is required use the recommendations in the EGPR to
develop criteria, priorities, and guidelines for making ISRF
awards.
The ERPR was last updated in 2003. A key focus of the 2003
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EGPR was how to address the challenges the state faced in
meeting the needs brought on by the state's population growth,
the increasing interdependence between the state and global
economy, and the scarcity and/or high cost of accessing
resources. In proposing an implementation strategy, the 2003
update recommended a fundamental change in the way that state
government conducts itself.
Rather than keeping agency responsibilities in policy area
silos, the 2003 update made sustainability its foundational
principle. The ERPG advanced the economic development concept
that California could not successfully move forward if the
state did not address and operationalize how the core
interrelationships between economic development, social
justice and the environment work together. The ERPG advanced
this principle by proposing a comprehensive implementation
strategy that built upon the state's recently enacted planning
priorities, AB 857 (Wiggins), Chapter 1016, Statues of 2002:
a) To promote infill development and equity by
rehabilitating, maintaining, and improving existing
infrastructure, particularly in underserved areas, and to
preserve cultural and historic resources;
b) To protect, preserve, and enhance environmental and
agricultural resources, including working landscapes,
natural lands, recreation lands, and other open spaces; and
c) To encourage efficient development patterns by ensuring
that new infrastructure supports development that uses land
efficiently, is built adjacent to existing developed areas,
is in an area planned for growth, is served by adequate
transportation and other essential utilities and services,
and minimizes ongoing costs to taxpayers.
7)Proposed amendments : The author may wish to offer the
following amendments:
a) Clarify that only projects that meet the new criteria
qualify for ISRF funding.
b) Remove the specific requirement that the I-Bank
independently re-check each finding in the resolution.
8)Related legislation : Below is a list of related legislation.
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a) AB 1047 (V.Manuel P?rez) : This bill establishes a local
assistance program, within the I-Bank, to assist small and
rural communities obtain bond financing for infrastructure
projects. Status: Hearing scheduled in the Assembly
Committee on Jobs, Economic Development, and the Economy on
April 21, 2009.
b) AB 1380 (Bass) : This bill expands the membership of the
board of directors of the I-Bank from five to seven
members. Status: Hearing scheduled in the Assembly
Committee on Jobs, Economic Development, and the Economy on
April 21, 2009.
c) AB 1272 (Arambula) : This bill established a local
assistance program, within the I-Bank, to assist small and
rural communities obtain bond financing for infrastructure
projects. Status: Died pursuant to Article IV, Sec. 10(c)
of the California Constitution in 2008.
d) AB 1410 (Bass) : This bill authorizes the I-Bank to use
certain federal Community Development Block Grant moneys
provided through the federal American Recovery and
Reinvestment Act to create credit enhancements, loan
guarantees, low-interest loans. Status: Hearing scheduled
in the Assembly Committee on Jobs, Economic Development,
and the Economy on April 29, 2009.
REGISTERED SUPPORT / OPPOSITION :
Support
None received
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090