BILL ANALYSIS �
AB 700
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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 700 (Blumenfield) - As Introduced: February 17, 2011
SUBJECT : California Infrastructure and Economic Development
Bank
SUMMARY : Establishes an independently administered California
Infrastructure and Economic Development Bank (I-Bank) and
removes the Secretary of the Business, Transportation and
Housing Agency (BTH) as chairperson.
EXISTING LAW :
1)Creates the I-Bank, within BTH, to promote economic
revitalization, enable future development, and encourage a
healthy climate for jobs in California. The I-Bank is
authorized 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 specified public purpose.
2)Provides that the board of directors is comprised of five
specified people, defines a quorum at three people, and
specifies that an affirmative vote of three people is required
on any action taken by the board. The I-Bank board of
directors consists of the following:
a) The Director of Finance or designee;
b) The Treasurer or designee;
c) Secretary of Business, Transportation and Housing or
designee (Chair);
d) Governor's appointee; and
e) Secretary of State Consumer Services Agency or designee.
FISCAL EFFECT : Unknown
COMMENTS :
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1)Purpose : According to the author's statement: "AB 700 will
improve the organizational structure of the Infrastructure and
Economic Development Bank of California (I-Bank) in order to
enhance its efficiency and bring the Bank in line with
California's top infrastructure priorities. By establishing
the I-Bank as an independent agency, the I-Bank will work more
directly with the Governor, develop its annual budget and
submit it to the I-Bank board, the Governor's Office and then
to the Legislature, thus ensuring maximum efficiency and
expertise. By making these organizational changes the I-Bank
will be better able to assist the state in advancing
infrastructure projects of state and regional significance.
The most recent state infrastructure plan estimates that it
will cost $500 billion to rebuild California's infrastructure
including transportation, water, schools and other systems.
The California Infrastructure and Economic Development Bank
(I-Bank) is one of the most effective ways to finance targeted
investments that support California's top priorities. The
goal of AB 700 is to ensure that the I-Bank functions
effectively and efficiently so that it is able to develop
innovative financing mechanisms and participate in other
programs to assist the state with these important goals. In
addition, AB 700 will help provide the I-Bank with a unique
opportunity to position itself to leverage resources to
achieve maximum return on federal infrastructure dollars."
2)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 Direct Loan and Guarantee Programs;
The I-Bank;
Technology-related programs;
California International Trade Promotion Activities; and
Community Development Block Grant Program.
The I-Bank was established in 1994 to promote economic
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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 is 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
financing programs. In addition, over $30 billion in conduit
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revenue bonds have been issued by the I-Bank since 2000.
1)Management and internal control : AB 700 proposes to remove
the I-Bank from the administrative oversight of BTH in order
to streamline its administrative functions for a more
efficient and effective financing entity. State departments
and boards often express concerns of what appears to be
duplicative, overly restrictive, and seemingly useless
policies and procedures required by state agencies. For
smaller size government boards, such as the I-Bank, these
additional layers of administration can be particularly
impactful on the entities ability to carry out its primary
program function.
Internal controls are, however, part of public sector good
governance practices, and are essential to ensuring proper
accountability and transparency of government activities.
Seeking the proper balance between oversight/good governance
and administrative flexibility can be challenging. As an
already highly rated financial entity, it may be reasonable to
assume that the I-Bank has a clear understanding of any
changes that would be necessary to operate its program-related
activities as a free-standing entity. In the area of
administrative and management practices, however, it may be
judicious to take a more specific review of current
authorities and capacity to address the higher levels of
responsibility associated with a free-standing government
entity.
One way to cost-effectively add management capacity is to
contract for certain services with another state entity. The
I-Bank currently has broad contracting authority for any
activity or need related to the development of a project
and/or the issuance of bonds or other financial instruments.
Perhaps these authorities may be sufficient to cover
contracting for administrative activities; however, it may be
prudent to provide direct authority for such administrative
responsibilities as accounting, purchasing, human resources,
property management, information security, and cash
management, among others. In addition, it may be necessary to
add one or more staff to ensure that there is a proper
separation of authority so that, due the small size of the
I-Bank staff, one person is not directly responsible for areas
or issues that could result in a conflict of interest
violation and/or a poor internal control practice.
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Further, the Committee may want to consider placing certain
prerequisites on the implementation of the bill including a
requirement that:
The development and approval of a business and
management practices transition plan by the Office of State
Audits and Review at the Department of Finance;
The contracts for necessary administrative activities
are in-force and updated management practices manuals and
policies are in-place at the I-Bank, prior to the transfer
of authority;
The I-Bank is granted an exemption from the state hiring
freeze and it is staffed up to meet current workload and
management practices;
Modifications have been made to existing I-Bank
positions, consistent with workload and good internal
controls; and
A review is undertaken by the Office of State Audits and
Review at least three months prior to its new
organizational structure becoming effective and then an
audit six months later.
1)The state's all-purpose financing authority : In addition to
the programs discussed above, the I-Bank also serves as the
state's only general purpose financing authority with broad
statutory powers to issue revenue bonds and act on the state's
behalf in certain statutorily authorized circumstances. Below
is a list of examples of the types of financing by the I-Bank
in support of various State entities and programs.
a) Energy Efficiency Bonds. In April 2003, the California
Consumer Power and Conservation Financing Authority (CPA)
issued $28,005,000 in energy efficiency bonds on behalf of
the California Energy Commission (CEC). On October 25,
2004, the CPA assigned its rights and responsibilities for
these bonds to the I-Bank when the CPA's operations were
closed down as a result of budget elimination. In May
2005, the I-Bank issued a second series of revenue bonds in
the amount of $37 million to provide additional funding for
the CEC's Energy Efficiency Financing (EEF) Program, which
provides low-cost loans up to $3 million to schools,
hospitals and local governments for the installation of
energy-saving measures. The bonds are repaid from
previously approved EEF loans. Eligible projects include
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heating, ventilation, air conditioning, equipment control,
small co-generation and photovoltaic systems.
b) California Insurance Guarantee Association Bonds. In
August 2004, the I-Bank issued $750 million of revenue
bonds for the California Insurance Guarantee Association
(CIGA) pursuant to authorization contained in Chapter 645,
Statues of 2003 (AB 227). CIGA is an organization created
by the California Legislature in 1969 to pay claims of
insolvent insurance carriers that are licensed to do
business in the State of California. The proceeds of the
bonds were used by CIGA to pay claims and related expenses
that arose as a result of the insolvencies of insurance
companies providing workers' compensation insurance. The
bonds are repaid solely from special and regular premium
assessments on worker's compensation premiums paid by
insurance companies to CIGA.
c) Toll Bridge Seismic Retrofit Bonds. In August 2003, the
I-Bank issued $1.16 billion of long-term fixed rate revenue
bonds for Caltrans pursuant to authorization in Chapter
907, Statutes of 2001 (AB 1171). The bonds were rated in
the "AA" category by all three rating agencies and were
repaid solely from revenues and related interest earnings
generated by the $1 per vehicle seismic retrofit surcharge
collected on the seven Bay Area State-owned toll bridges.
Caltrans used the bond proceeds to fund a portion of the
construction of the new East Span of the San
Francisco-Oakland Bay Bridge.
d) Clean Water State Revolving Fund (CWSRF) Bonds. In
August 2002, the I-Bank issued $300 million of fixed-rate
revenue bonds to provide additional funding for the CWSRF
Program. The CWSRF, which is administered by the State
Water Resources Control Board (SWRCB), provides low-cost
loans up to $25 million per year to local agencies,
throughout the State, for the construction of wastewater
treatment and water recycling facilities. The bonds, which
are repaid by 98 previously-approved CWSRF loans from 50
different borrowers, received natural "AAA" ratings from
all three rating agencies. The bond issuance represented
the first time the State leveraged a federally funded state
revolving fund program, and joined over 20 other states
that have utilized this innovative financing technique to
expand lending capacity.
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In addition to the above programs, the I-Bank has also been
involved in other unique financings including Tobacco
Securitization Bonds, Tribal Compact Asset Securitization
Bonds, and Imperial Irrigation District Preliminary Loan
Guarantees.
2)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
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.
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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.
3)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
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 events 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 impacted local, state and
federal economic recovery efforts and California's economic
position in 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
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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.
4)Amendments : Staff understands the following amendments will
be offered in committee:
a) Change the title of the Executive Director to Chief
Executive Officer and make other related changes;
b) Require the I-Bank website maintain a web link to the
website of the Governor's Office of Economic Development
and/or other state website developed to be the state's
primary location for business assistance, retention and
attraction information;
c) Require I-Bank to establish a process for setting
two-year program goals consistent with the Environmental
Goals and Policy Report, state infrastructure plans and the
state economic strategy;
d) Require I-Bank to adopt an annual work plan to drive the
I-Bank's activities; and
e) Authorize the I-Bank to serve as a facilitator of
regionally significant infrastructure development projects.
5)Related legislation : Below is a list of related legislation.
a) Current Session
i) AB 696 (Hueso) : This bill requires projects
selected for funding under the Infrastructure State
Revolving Fund Program to only be funded if the project
meets specified land use and economic development
criteria. 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
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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
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: 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
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Biz Fed Los Angeles County Business Federation
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090