BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 696 (Hueso)
Hearing Date: 08/25/2011 Amended: 06/28/2011
Consultant: Mark McKenzie Policy Vote: G&F 5-3
_________________________________________________________________
____
BILL SUMMARY: AB 696 would require the California Infrastructure
and Economic Development Bank (I-Bank) to do the following:
Develop a methodology and process for measuring the economic
development benefits of projects funded through the I-Bank.
Limit assistance, beginning January 1, 2013, to projects that
meet land use criteria and demonstrate economic development
benefits, including creation or retention of jobs, growth of
sales tax revenues, or growth of the property tax base.
Expand the applicability of requirements for ISRF projects to
all projects financed by conduit financing programs at the
I-Bank.
Consult with local and regional revolving loan funds and
networks of revolving loan funds to improve the infrastructure
and small business credit markets, as specified. The I-Bank
could also coordinate implementation of its revolving loan
fund with these entities for those purposes.
_________________________________________________________________
____
Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
Develop methodology $100 Special*
Project evaluation Unknown, potentially $100-$300
annuallySpecial*
Consultation and coordination Unknown costs to consult
with other Special*
revolving loan funds
____________
* California Infrastructure and Economic Development Bank Fund
_________________________________________________________________
____
STAFF COMMENTS: SUSPENSE FILE.
Existing law creates the I-Bank within the Business,
Transportation and Housing Agency, to promote economic
revitalization, enable future development, and encourage a
healthy climate for jobs in California. The I-Bank administers
AB 696 (Hueso)
Page 1
the Infrastructure State Revolving Fund (ISRF) program, which
provides direct low-cost loan financing for public
infrastructure projects, and several programs that provide
tax-exempt revenue bond financing for manufacturing companies,
nonprofit organizations, and specified public agencies.
Following consolidation efforts in 1999, the I-Bank received a
General Fund appropriation of $180 million to start up the ISRF
program. The program is maintained through the use of a
leverage loan program, whereby revenue 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, with an average loan amount of
$3 million to $5 million. According to I-Bank staff, the
initial $180 million appropriation can be leveraged up to three
times, for a maximum aggregate loan amount of $540 million.
Staff estimates that approximately $400 million has been loaned
out so far.
The ISRF program provides low cost loan financing to local
agencies for specified public infrastructure projects. The
program is intended to fund projects that promote efficient land
use and resource conservation while also providing economic
development opportunities, as specified in the State
Environmental Goals and Policy Report (EGPR). According to the
Legislative Analyst's Office (LAO) analysis of the 2008-09 state
budget, however, two-thirds of the 81 projects funded had failed
to demonstrate any economic development benefit, and land use
objectives received little weight in project selection. As
such, the LAO recommended enactment of legislation to require
that all ISRF-funded projects demonstrate at least a minimum
level of economic development and land use benefits.
AB 696 responds to these recommendations by requiring the I-Bank
to develop criteria for measuring the anticipated economic
development benefits of a project, and to require, as of January
1, 2013, all projects to meet land use criteria and demonstrate
economic development benefits, as specified. Staff notes that
the bill was recently amended to also apply the requirements for
projects in the ISRF program to projects financed through all
conduit financing programs administered by the I-Bank. This
could create both cost and policy concerns as determining land
use and economic development benefits, as specified in the EGPR,
AB 696 (Hueso)
Page 2
may be impractical for many projects financed through conduit
financing programs. To the extent this affects the demand for
financing through the I-Bank, there could be a reduction in
operating revenue derived from issuance fees.
Staff estimates that the I-Bank would incur one-time costs of
approximately $100,000, either in staff time or through a
contract with fiscal consultants, to develop measurable criteria
for demonstrating economic benefits, and to update existing
guidelines related to scoring of applications to ensure that all
projects approved after January 1, 2013 meet the updated
criteria. Evaluating applications to ensure that projects meet
land use criteria, as specified in the EGPR, and demonstrate
economic development benefits could be very costly since the
bill's provisions now apply to all projects financed by I-Bank
programs. The I-Bank indicates that economic benefit reports
prepared by private consultants can cost from several thousand
to tens of thousands of dollars. Overall costs related to this
provision are unknown, but would likely be several hundred
thousand dollars. It is unclear whether the I-Bank would be
responsible for these costs, or if applicants would provide
reports that demonstrate economic development benefits.
AB 696 would also require the I-Bank to coordinate ISRF outreach
and financing activities with local and regional revolving loan
funds to improve infrastructure and small business credit
markets. State benefits related to coordination among these
entities are unclear as the ISRF program funds public
infrastructure projects while local and regional loan funds
typically provide private loans to small businesses. The extent
to which the I-Bank can affect small business credit markets is
also unclear. Absent any demonstrable benefits related to this
provision, staff recommends that the bill be amended to strike
Section 1 of the bill.