BILL ANALYSIS Ó
AB 893
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Date of Hearing: May 3, 2011
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Pérez, Chair
AB 893 (V. Manuel Perez) - As Amended: April 25, 2011
SUBJECT : California Infrastructure and Economic Development
Bank
SUMMARY : Requires the California Infrastructure and Economic
Development Bank (I-Bank) to provide technical assistance to
small and rural communities in obtaining financing for
infrastructure projects. Specifically, this bill:
1)Requires the General Obligation bond acts to contain, among
other provisions, a plan on how the bond act will be
administered including, but not limited to, outreach and
oversight to ensure that the objectives of the bond act will
be met.
2)Revises the membership of the I-Bank board, as follows:
a) Removes the Secretary of the Consumer Services Agency;
b) Adds a representative from the economic development
community, to be appointed by the Speaker of the Assembly;
c) Adds a representative from the business community, to be
appointed by the Senate Rules Committee; and
d) Adds as ex officio nonvoting members of the board the
chairpersons of the Senate and Assembly policy committees
that oversee infrastructure and economic development
issues.
3)Requires the executive director to oversee and to ensure that
outreach is coordinated with other similar federal and state
infrastructure development resources.
4)Modifies the annual reporting requirements to include:
a) A listing of outreach activities; and
b) Details on the number of jobs created, retained, and
indirectly impacted.
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5)Requires the I-Bank to provide technical support to small and
rural communities in the state in obtaining financing for
local infrastructure projects, as follows:
a) Requires the I-Bank to develop a competitive process for
selecting communities to be assisted, based on
infrastructure need and community readiness to undertake
the infrastructure project based on specified priority.
Also provides that the I-Bank widely advertise the
availability of services and encourage applications from
historically underserved communities;
b) Defines "technical support" to mean assisting
communities in developing strategic plans, writing grants,
applying for public and private loans and guarantees,
issuing bonds, and other activities directly related to
obtaining funding for infrastructure projects, as
specified;
c) Requires the I-Bank to provide no less than three
professional positions and one staff position to ensure the
implementation of the program;
d) Establishes within the California Infrastructure and
Economic Development Fund a technical assistance account
and specifies that only non-General Fund moneys may be
deposited into the account;
e) Requires the I-Bank to individually track each funding
source and its use to ensure that all funding conditions
are met; and
f) Authorizes the I-Bank to contract with other state,
local or federal entities for the purpose of providing
technical support to small and rural communities.
6)Requires a 60-day notification prior to adoption or
modification of criteria, priorities and guidelines to
appropriate entities.
EXISTING LAW :
1)Creates the I-Bank within the Business, Transportation and
Housing (BTH) Agency, to promote economic revitalization,
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enable future development, and encourage a health climate for
jobs in California. The I-Bank has the authority to issue
tax-exempt and taxable revenue bonds to underwrite the costs
of infrastructure development that meets certain public
purposes.
2)Provides that the board of directors is comprised of five
specified people, defines a quorum as 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;
d) Governor's appointee; and
e) Secretary of State Consumer Services Agency or designee.
3)Establishes the State G.O. Bond Law, that authorizes proceeds
from the sale of bonds to pay the costs of a state agency for
administering a bond funded program.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's purpose : According to the author, "AB 893 modernizes
the operations of the I-Bank, by including the economic
development community on the board, mandating outreach to
communities, and adding new reporting requirements detailing
the number of jobs created and retained and industries served.
This bill will assist communities that have been traditionally
underserved by state programs in obtaining funds for
critically needed local infrastructure projects. The
communities this bill seeks to assist are typically small and
rural incorporated and/or unincorporated areas that have
difficulty affording additional staff or consultants.
Generally, these communities are competing against larger
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communities for infrastructure funds."
2)Benefits of technical assistance programs : Technical
assistance, as provided in AB 893, is modeled after a
successful program that operated in the 1970's and 1980's, the
Rural Development Assistance Program (RDAP). Initially, the
RDAP was operated by the Department of Housing and Community
Development (HCD) as a pilot project with the federal
government. Under the program, technical advisors and loan
packagers were assigned to rural communities to assist them in
applying for infrastructure funding.
Between 1980 and 1982, the state leveraged $30 million in
housing and community facility construction while only
investing $272,000 in state and $132,000 in federal dollars.
HCD estimated over $130 million in local economic activity was
generated, 2,379 jobs were created, and over $8 million in
local and state taxes were paid as a result of this program.
3)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
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
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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
revenue bonds have been issued by the I-Bank since 2000.
4)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
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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
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.
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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.
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.
5)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
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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
6)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.
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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 JEDE May 3, 2011 hearing, 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); to require public infrastructure moneys be
awarded based on minimum economic and land use criteria (AB
696 by Assemblyman Hueso); to 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. Pérez and AB 1094 by Speaker John Pérez).
Amendments will be proposed by the Chairman reflecting the
recommendations from the oversight hearing.
7)Proposed Amendments : Staff understands that amendments will
be offered to do the following:
a) Expand the membership of the Board to include a
representative from labor appointed by the Governor;
b) Establish MOUs with related infrastructure financing
programs to expedite the joint use of funds;
c) Codify the state and federal California Finance
Coordinating Committee;
d) Authorize predevelopment loans from ISRF;
e) Authorize, as part of an overall project, financing of
brownfield cleanup including an immunity exemption, if the
clean-up plan was approved;
f) Authorize the establishment of a letter of credit
guarantee program;
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g) Authorize tribal nations as eligible applicants for
I-Bank programs; and
h) Make other technical changes.
8)Related legislation : Below is a list of related legislation.
a) Current legislative session:
i) AB 696 (Hueso) : This bill 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. Status: Pending in Assembly Committee on
Jobs, Economic Development and the Economy, May 3, 2011.
ii) AB 700 (Blumenfield) : This bill establishes an
independently administered I-Bank. Status: Pending in
Assembly Committee on Jobs, Economic Development and the
Economy, May 3, 2011.
iii) AB 750 (Hueso) : This bill establishes the
Investment Trust Blue Ribbon Task Force for the purpose
of considering the viability of establishing the
California Investment Trust. Status: Pending in the
Assembly Committee on Banking and Finance.
iv) AB 1094 (John A. Pérez) : This bill expands the
membership of the board of directors of the I-Bank from
five to seven members. Status: Pending in the Assembly
Committee on Jobs, Economic Development and the Economy,
May 3, 2011.
b) Prior legislative sessions:
i) AB 1047 (V. Manuel Pérez) : This bill establishes 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, May 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, August 2010.
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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, April 2008.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association for Local Economic Development
California Small Business Development Center
California Small Business Development Center U.C. Merced
Regional Network
CDC Small Business Finance
Inland Empire Economic Partnership
Yuba Sutter Economic Development Corporation
Opposition
None received
Analysis Prepared by : Toni Symonds / Mercedes Flores / J.,
E.D. & E. / (916) 319-2090