BILL ANALYSIS �
AB 696
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Date of Hearing: May 3, 2011
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel P�rez, Chair
AB 696 (Hueso) - As Introduced: February 17, 2011
SUBJECT : California Infrastructure and Economic Development
Bank
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 a new eligibility threshold for ISRF applications by
requiring the I-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 I-Bank.
2)Defines economic development benefit to mean, in the
determination of the California Infrastructure Bank (I-Bank),
that the project would provide some quantitative level of
economic benefit including, but not limited to, the creation
or retention of jobs, growth of the property tax base, or
growth of sales tax base.
EXISTING LAW :
1)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.
2)Creates the I-Bank, within the Business, Transportation and
Housing Agency (BTH), to promote economic revitalization,
enable future development, and encourage a healthy climate for
jobs in California.
3)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
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infrastructure development that meets a specified public
purpose.
4)Requires a legislative body 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.
FISCAL EFFECT : Unknown
COMMENTS :
1)Structure and operation of BTH and the I-Bank : BTH is the
state agency responsible for the oversight and coordination of
the activities of various departments, offices, and economic
development programs, with responsibility for maintaining the
strength and efficiency of California's infrastructure and
financial markets. These programs provide financial and
programmatic regulation important to the economic marketplace,
community development, and the safe and efficient flow of
commerce. Among the key economic development programs
overseen by BTH are:
The Small Business Board;
The Small Business Direct Loan and Guarantee Programs;
The I-Bank;
Technology-related programs;
California International Trade Promotion Activities; and
Community Development Block Grant Program.
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The I-Bank was established in 1994 to promote economic
revitalization, enable future development, and encourage a
healthy climate for jobs in California. Among other duties,
the I-Bank has the authority to issue tax-exempt and taxable
revenue bonds.
I-Bank activities are governed by a five-member board of
directors comprised of the BTH Secretary (chair), State
Treasurer, Director Department of Finance, Secretary of the
State and Consumer Services Agency, and a Governor's
appointee. The day-to-day operations of the I-Bank are
directed by the Executive Director who is an appointee of the
Governor and is subject to confirmation by the California
State Senate. Currently, the I-Bank has authority for 24
staff members.
The I-Bank is financed through the California Infrastructure
and Economic Development Bank Fund (CIEDB Fund) and the
California Infrastructure Guarantee Trust Fund, into which
fees, interest income and other revenues are deposited and
from which I-Bank expenses are paid. The cost of
administering the programs of the I-Bank are off-set by these
types of program income. Monies in these Funds are held
within the California State Treasury or by the bond trustee
for The Infrastructure State Revolving Fund (ISRF) bonds.
The I-Bank is operated on a revolving fund basis and thereby
generates continuous funding for new project investments. The
I-Bank does not receive any ongoing General Fund support for
loan or bond financing, and according to its 2009-10
independent audit, its program continues to provide sufficient
revenues to support all operating expenses.
The I-Bank administers two categories of programs: (1) The
ISRF which provides direct low-cost financing to public
agencies for a variety of public infrastructure projects; and
(2) Bond Financed Programs which provide financing for
manufacturing companies, nonprofit organizations, public
agencies and other eligible entities. There is no commitment
of I-Bank or state funds for any of the conduit revenue bonds.
Even in the case of default, the state is not liable.
Since its creation in 1994, the I-Bank has loaned over $400
million to local agencies and has developed a high-level of
expertise in the implementation of public infrastructure and
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financing programs. In addition, over $30 billion in conduit
revenue bonds have been issued by the I-Bank since 2000.
1)Infrastructure State Revolving Fund : The ISRF Program
provides low-cost financing to public agencies for a wide
variety of infrastructure projects. The ISRF Program was
established through an initial $182 million capitalization,
and it is 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
$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 over $400 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
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requirements. Each application to the ISRF Program is
accompanied by a resolution stating:
The project is consistent with the general plan;
The proposed financing is appropriate for the specific
project;
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
The project is consistent with the criteria, priorities,
and guidelines set forth by the I-Bank including the state
Environmental Goals and Policy Report and, if the applicant
is a state agency, the five-year infrastructure plan.
�Descriptions of the EGPR and five-year infrastructure plan
are provided in a separate comment.]
Applications are then scored based on the point system
detailed in the chart below. Project applications that
receive a minimum of 80 points are funded. This program is
administered on a first-come-first-serve basis and
applications are accepted at any time. This means that
projects do not compete against each other; rather project
applications which meet the 80 point threshold are funded, to
the extent 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 | |
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|�measures whether a project | | |
|will benefit employers that | | |
|bring in revenues from | | |
|outside the region] | | |
|-----------------------------+--------------+--------------|
|Community Economic | 10 | |
|Development Plan �measures | | |
|the applicant's | | |
|cooperativeness with local | | |
|economic and job development | | |
|programs] | | |
|-----------------------------+--------------+--------------|
| | | |
|-----------------------------+--------------+--------------|
|Community Economic Need | | 55 |
|-----------------------------+--------------+--------------|
|Unemployment Rate | 20 | |
|-----------------------------+--------------+--------------|
|Median Family Income | 15 | |
|-----------------------------+--------------+--------------|
|Change in Labor | 10 | |
|-----------------------------+--------------+--------------|
|Poverty Rate | 10 | |
|-----------------------------+--------------+--------------|
| | | |
|-----------------------------+--------------+--------------|
|Land Use, Environmental | | 40 |
|Protection, and Housing | | |
|-----------------------------+--------------+--------------|
|Land Use �based on EGPR] | 20 | |
|-----------------------------+--------------+--------------|
|Environmental Protection | 10 | |
|-----------------------------+--------------+--------------|
|Housing Element | 10 | |
|-----------------------------+--------------+--------------|
| | | |
|-----------------------------+--------------+--------------|
|Others | | 55 |
|-----------------------------+--------------+--------------|
|Quality of life/community | 30 | |
|amenities | | |
|-----------------------------+--------------+--------------|
|Leverage | 15 | |
|-----------------------------+--------------+--------------|
|Project Readiness | 10 | |
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|-----------------------------+--------------+--------------|
| | | |
|-----------------------------+--------------+--------------|
|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. AB 696 limits IRSF moneys to only those projects
that meet an I-Bank-defined economic and land use minimum
criteria. This requirement could be met in several ways. One
way would be to modify the scoring criteria to include a
combination of minimum performance in the economic and land
use categories, as well as the existing 80 points total
performance threshold for awarding funds.
1)LAO Analysis : In its 2008-09 analysis of the state budget,
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 its 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 LAO 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 completed its comments by stating that as the ISRF
Program offers lower than market rates for financing
infrastructure, it believes that the program can do a better
job in promoting the state's economic development and land use
objectives. The LAO recommended that legislation be
introduced to require all ISRF-funded projects demonstrate at
least a minimum level of economic and land use benefit.
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Alternatively, the LAO recommends screening potential projects
for economic development and land use benefits to ensure the
state's objectives are met. AB 696 addresses the LAO's
concerns by requiring all ISRF funded projects meet minimum
economic development and land use requirements.
2)Environmental Goals and Policy Report (EGPR) : 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 EGPR was last updated in 2003. A key focus of the 2003
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 EGPR 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 EGPR advanced
this principle by proposing a comprehensive implementation
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strategy that built upon the state's recently enacted planning
priorities, AB 857 (Wiggins), Chapter 1016, Statues of 2002:
To promote infill development and equity by
rehabilitating, maintaining, and improving existing
infrastructure, particularly in underserved areas, and to
preserve cultural and historic resources;
To protect, preserve, and enhance environmental and
agricultural resources, including working landscapes,
natural lands, recreation lands, and other open spaces; and
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.
No subsequent EGPR was prepared in 2007, and based on the
statutory four-year cycle, the next EGPR is due in 2011. As a
key policy document for guiding the state's economic growth
and development, it is anticipated that the Governor will call
for the update of the EGPR.
1)Five-year infrastructure plan : California's infrastructure
development activities are directed through a number of plans
and activities, the most important of which is the five-year
infrastructure plan. The purpose of the plan is to identify
state infrastructure needs and set out priorities for funding.
Although the plan is not required to identify specific
infrastructure projects to be funded, it is required to
provide sufficient detail to provide a clear understanding of
the type and amount of infrastructure to be funded and the
programmatic objectives to be achieved by this funding.
The plan is intended to complement the existing state budget
process for appropriating funds for infrastructure and is,
therefore, required to be annually updated by the Governor.
Several State programs, including the I-Bank, are directed to
ensure infrastructure projects are consistent with the
five-year plan. More specifically, existing law requires the
I-Bank, in establishing goals and objectives for ISRF, to
ensure that state sponsored projects are consistent with the
five-year infrastructure plan.
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Among other items, the five-year infrastructure plan is
required to include the following information:
Identification of new, rehabilitated, modernized,
improved, or renovated infrastructure requested by state
agencies;
Aggregate funding for transportation as identified in
the four-year State Transportation Improvement Program Fund
Estimate;
Infrastructure needs for Kindergarten through grade 12
public schools necessary to accommodate increased
enrollment, class size reduction, and school modernization;
The instructional and instructional support facilities
needs for the University of California, the California
State University, and the California Community Colleges;
and
The estimated cost of providing the identified
infrastructure, as well as a proposal for funding the
identified need.
In developing the plan, the selected infrastructure is
required to be consistent with the state planning priorities,
as discussed above. The Department of Finance is authorized
to audit state agency compliance with the overall five-year
infrastructure plan in proposing infrastructure projects to be
funded.
No five-year infrastructure plan has been provided since 2008,
however, some of the requirements are addressed through the
10-year Strategic Growth Plan.
1)Infrastructure and the post-recession economy : World class
infrastructure plays a key role in business attraction, as
multinational companies consistently rank the quality of
infrastructure among their top four criteria in making
investment decisions.
As California moves slowly toward economic recovery, growth in
the post-recession economy will likely be more resource and
capital constrained, placing even greater pressure on the
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state's infrastructure to support higher levels of service at
a smaller per unit price. In addition, some analysts believe
the global economy is experiencing a great "rebalancing of
economic power," whereby the U.S.' dominant economic position
will be challenged by other large economies like those in
Japan, China and the European Union.
The Brookings Metropolitan Policy Program has published its
own assessment of how this rebalancing will be experienced in
the U.S. and has noted four key trends to watch in the
post-recession economy. The first trend is that the economy
will be more export oriented and second, it will be fueled by
new, lower-carbon energy sources. The third trend identified
is that the next economy will be based on a higher level of
global innovation, which will require "a relentless pace of
innovation, adaptation, and embracement of new markets and
processes." The fourth key trend is that next economy will be
led by major metropolitan areas - not nations and not states.
California's historical comparative advantage in
innovation-based industries, networked global supply chains
and strong regional economies should give instate businesses
certain advantages in the post-recession economy. Other
components of the California economy, including the quality of
the state's infrastructure and the preparedness of its
workforce, are not as strong and could limit the state's
overall economic growth.
Research shows that as U.S. infrastructure has been in a
decline, infrastructure in other countries is rapidly
increasing. The 2010-11 Global Competitiveness Report by the
World Economic Forum places U.S. infrastructure 23rd in the
world, a drop from its rank of seventh in 2000.
The I-Bank has been monitoring these and other types of
trends, and with funding from a Rockefeller Foundation grant,
has been meeting with investors, builders and policy makers
engaged in infrastructure development to discuss innovative
financing techniques and ways in which to remove unnecessary
impediments to infrastructure development.
2) Oversight hearing : With California workers and businesses
facing some of the harshest economic conditions since the
Great Depression, the Chairman of the Assembly Committee on
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Jobs, Economic Development and the Economy (JEDE) has focused
the committee's efforts during the prior and current
legislative sessions on engaging the public in the recovery
dialogue. Through these activities JEDE has found that one of
California's challenges in moving forward is the state's aging
infrastructure and its inability to support the innovation
economy that is fundamental to retaining the state's global
competitiveness. In fact, research shows that California's
historical position as a leader in innovation and technology
is being challenged not only from abroad, but also by other
states that are investing in a range of infrastructure and
technology supporting activities.
On March 30, 2011, JEDE held an oversight hearing to examine
how infrastructure development impacts local, state and
federal economic recovery efforts, as well as the importance
of infrastructure in the post-recession economy. During the
course of the hearing, testimony was provided by senior staff
of the I-Bank and key stakeholder groups. A white paper was
prepared for the hearing and later revised to include
information learned at the hearing, identification of
follow-up actions and a summary of key program-level
recommendations. The white paper is available through the
JEDE Committee Office and will soon be hosted on the committee
website at www.assembly.ca.gov .
At the May 3, 2011 hearing of JEDE, four bills will be
presented related to the I-Bank, including legislation to:
reorganize the I-Bank as an independent agency (AB 700 by
Assemblymember Blumenfield); require public infrastructure
moneys be awarded based on minimum economic and land use
criteria (AB 696 by Assemblyman Hueso); expand the membership
of the I-Bank board and functions to more broadly reflect its
development and business creation potential (AB 893 by
Assemblyman V. M. P�rez and AB 1094 by Speaker John P�rez).
Amendments will be proposed by the Chairman reflecting the
recommendations from the oversight hearing.
3)Proposed amendments : Staff understands the author will be
offering amendments which do the following:
a) Require coordination of ISRF outreach and financing
activities with local Revolving Loan Funds (RLF) and
networks of RLFs;
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b) Authorize the I-Bank to establish one or more
advisory groups of economic development and finance
professionals to evaluate and make recommendations on
long-term changes to the overall I-Bank program for the
purpose of enhancing the state's economic competitiveness
and job creation activities; and
c) Authorize the I-Bank to periodically host, in
partnership with other public and private infrastructure
and economic development financial and investment
entities "Capital Ideas" roundtables to support the
development of innovative financing ideas that can result
in new and enhanced funding opportunities for California
communities and businesses.
4)Related legislation : Below is a list of related legislation.
a) Current Session :
i) AB 700 (Blumenfield) : This bill establishes a
free-standing I-Bank outside the structure of BTH,
including setting program objectives, accountability
standards and oversight mechanisms. Status: Scheduled
to be heard in the Assembly Committee on Jobs, Economic
Development and the Economy on May 3, 2011.
ii) AB 1094 (John A. P�rez) : This bill expands the
membership of the board of directors of the I-Bank from
five to seven members. Status: Scheduled to be heard in
the Assembly Committee on Jobs, Economic Development and
the Economy on May 3, 2011.
iii) AB 893 (V. Manuel P�rez) : This bill modernizes the
operations of the I-Bank, such as the inclusion of the
economic development community on the Board, mandating
outreach to communities, and adding new reporting
requirements about the number of jobs created and
retained, and the industries served. Status: Scheduled
to be heard in the Assembly Committee on Jobs, Economic
Development and the Economy on May 3, 2011.
b) Prior Sessions:
i) AB 1047 (V. Manuel P�rez) : This bill would have
established a local assistance program, within the
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I-Bank, to assist small and rural communities obtain bond
financing for infrastructure projects. Status: Held in
the Assembly Committee on Appropriations in 2009.
ii) AB 1380 (Bass) : This bill would have expanded the
membership of the board of directors of the I-Bank from
five to seven members. Status: Held in the Senate Rules
Committee in 2010.
iii) AB 1272 (Arambula) : This bill would have
established a local assistance program, within the
I-Bank, to assist small and rural communities obtain bond
financing for infrastructure projects. Status: Held in
the Assembly Committee on Appropriations in 2008.
iv) AB 1410 (Bass) : This bill would have authorized 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: Remained with Assembly Committee on Jobs,
Economic Development and the Economy in 2010.
REGISTERED SUPPORT / OPPOSITION :
Support
None received
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090