BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 696 HEARING: 6/22/11
AUTHOR: Hueso FISCAL: Yes
VERSION: 5/27/11 TAX LEVY: No
CONSULTANT: Ewing
INFRASTRUCTURE BANK'S LENDING PRACTICES
Requires the Infrastructure Bank to improve its analysis of
benefits in project selection.
Background and Existing Law
The California Infrastructure and Economic Development Bank
(I-Bank) supports economic development through its
authority to issue bonds, make loans and provide credit
enhancements. The Bank generally supports two types of
projects, public development facilities, which are
municipal in nature, such as sewers, roadways and ports,
etc., and economic development facilities, which are not
municipal in nature, such as industrial or commercial
facilities. These two types of projects supported by the
I-Bank reflect the consolidation of the California Economic
Development and Financing Authority (CEDFA) into the
Infrastructure and Economic Development Bank under SB 1184
(M. Thompson, 1998).
Prior to consolidation, the I-Bank was established to
support public infrastructure development, and the CEDFA
was established to support private infrastructure in the
interest of promoting economic development. Consolidation
was intended to result in a "one-stop shop" for
infrastructure investments. Despite the consolidation,
state law establishes different criteria for public versus
private infrastructure projects.
The I-Bank's activities are organized into the following
programs that include direct loans and conduit financing:
The Infrastructure State Revolving Fund Program
(ISRF) provides low-cost loan financing to local
agencies for public infrastructure projects.
The Industrial Development Revenue Bond Program
AB 696 -- 5/27/11 -- Page 2
(IDB) provides tax-exempt revenue bond financing for
eligible manufacturing companies.
The 501(c)(3) Revenue Bond Program offers
tax-exempt revenue bond financing for certain
nonprofit, public benefit corporations.
The State School Fund Apportionment Lease Revenue
Bond Program offers tax-exempt revenue bond financing
for school districts needing emergency apportionment
loans.
The Public Agency Revenue Bond Program provides
tax-exempt revenue bond financing for governmental
entities.
The Infrastructure Guarantee Program guarantees
bonds issued by other governmental entities.
Housed within the Business, Transportation and Housing
Agency (BTH), the I-Bank has a five-member board of
directors that approves projects. The board includes the
BTH Secretary, who serves as the chair, State Treasurer,
director of the Department of Finance, Secretary of the
State and Consumer Services Agency, and an appointee of the
Governor. The I-Bank's Executive Director is appointed by
the Governor and confirmed by the Senate.
The I-Bank does not receive direct state funding. Funding
comes from fees, interest income, and revenues tied to
financing activities.
Since 2000, the Infrastructure State Revolving Fund (ISRF)
Program has provided some $380 million for 88 projects.
Loans range from $250,000 to $10 million, with repayment
terms up to 30 years.
Eligible applicants include any subdivision of a local or
state government, including departments, agencies,
commissions, cities, counties, non-profit corporations
formed on behalf of an applicant, special districts,
assessment districts, and joint powers authorities.
Eligible projects include real and personal property,
structures, conveyances, equipment, thoroughfares,
buildings and supporting components, with the exception of
housing.
The application process includes a requirement for the
legislative body of an applicant to find, by resolution,
that a proposed project would promote economic development,
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enhance public infrastructure, and is consistent with the
general plan of affected local agencies.
In 2008, the Legislative Analyst found that the I-Bank
supported projects with little nexus to economic
development or existing land-use plans, and recommended
reforms to increase the I-Bank's focus. Those
recommendations were highlighted during a March 2011 public
hearing convened by the Assembly Committee on Jobs,
Economic Development and the Economy.
Proposed Law
Assembly Bill 696 directs the I-Bank to establish a
methodology to determine the economic benefits of projects
under consideration for loan support, and, as of January 1,
2013, restricts the I-Bank to approve loans only for those
projects that provide economic benefits and meet land use
criteria. Economic benefits include the creation or
retention of jobs, an increase in property taxes or sales
tax revenues, or other criteria determined by the I-Bank.
AB 696 also directs the I-Bank to consult with local and
regional revolving loan funds.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . The I-Bank's Infrastructure State
Revolving Fund Program should generate economic benefits
and conform to local land use plans. AB 696 requires the
I-Bank to establish a methodology for calculating
anticipated economic benefits and to use those criteria to
inform project selection.
2. A restriction without restriction . AB 696 tightens
requirements for the I-Bank to authorize loans only if they
contribute to economic development. The current
application process requires a finding of economic benefit,
but not proof. AB 696 leaves it up to the I-Bank to
determine how to calculate economic benefit, with no
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assurance that the new process will address the deficits of
the existing process. The new methodology, at best, will
result in better homework before a loan is made, but no
proof after a loan has been made.
3. Homework versus proof. AB 696 calls for the I-Bank to
improve its approach to forecasting economic impacts. The
Committee also may wish to consider an amendment that would
require the I-Bank to develop an evaluation strategy, in
consultation with industry and academic experts, to
document the economic impact of the I-Bank's programs on
the economy and land use goals. AB 700 (Blumenfield),
which the Committee will hear on June 22, addresses this
concern by requiring the I-Bank to establish goals and
measureable objectives.
4. Good for us, good for them ? AB 696's requirement to
establish a methodology for determining potential economic
benefits and for limiting bank support to projects that
will create economic benefits, applies only to public
infrastructure projects that receive loans. These
requirements would not apply to the Bank's conduit
financing, which covers both public and private
infrastructure projects. If these standards are good for
one component of the Bank's portfolio, why shouldn't they
be applied to the rest of the portfolio? The Committee may
wish to propose amendments extending the provisions of AB
696 to all of the I-Bank's activities.
4. Related legislation . AB 696 is not the only bill that
would affect the I-Bank:
AB 700 (Blumenfield) requires the I-Bank to adopt
two-year goals and measurable objectives, consistent with
state infrastructure, economic development and
environmental plans, and authorizes the I-Bank to pursue
streamlined administrative functions.
AB 893 (V. Manuel P�rez) directs the I-Bank to enhance
outreach and technical assistance to small and rural
communities to obtain financing for infrastructure
projects.
AB 1094 (John A. P�rez) expands the I-Bank's board from
five to seven members, and establishes the I-Bank as the
primary state agency to secure funding through any
AB 696 -- 5/27/11 -- Page 5
federal infrastructure financing authority.
Assembly Actions
Assembly Jobs, Economic Development & the Economy:4-2
Assembly Appropriations 12-5
Assembly Floor: 52-24
Support and Opposition (6/16/11)
Support : California Association for Local Economic
Development.
Opposition : Unknown.