BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1292 HEARING: 7/6/11
AUTHOR: Roger Hernández FISCAL: Yes
VERSION: 6/28/11 TAX LEVY: No
CONSULTANT: Ewing
INFRASTRUCTURE BANK'S BONDS
Authorizes the Infrastructure Bank to sell bonds for the
Department of Public Health.
Background and Existing Law
The California Infrastructure and Economic Development Bank
(I-Bank) supports economic development and public and
private infrastructure investments through its authority to
issue bonds, make loans, and provide credit enhancements.
The I-Bank manages the following programs:
The Infrastructure State Revolving Fund Program
(ISRF) provides low-cost financing to local agencies
for public infrastructure projects.
The Industrial Development Revenue Bond Program
(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
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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.
The California Department of Public Health administers an
array of programs to promote public health, including the
Safe Drinking Water State Revolving Fund (SDWSRF) program
(SB 1307 Costa, 1997). Federal grants from the U.S.
Environmental Protection Agency capitalize the Fund. As a
condition of receiving those grants, the Department must
provide 20% matching funds on top of the federal
allocation. The Department uses the Fund to provide loans
to public and private entities to maintain and improve
public water systems and promote the goals of the federal
Safe Drinking Water Act.
The amount of funding available from the EPA is based on
Congressional allocations and evolving state needs. In
2010, California received $127 million. The Department
anticipates receiving $87 million in 2011. In prior years,
annual funding averaged about $67 million.
To meet its match requirement, the Department initially
relied on the State General Fund, but since has relied on
proceeds from various bonds, including Propositions 50 and
84. As those bond proceeds are exhausted, the Department
wants to use a new financing mechanism in partnership with
the Infrastructure Bank.
According to 2010 audits by the State Controller and the
U.S. EPA, the Fund has $133 million in unallocated cash and
pooled reserves, and $537.8 million in allocated but
unspent obligations. The Department spends that money as
loan recipients submit claims. There have been no reported
defaults on loans issued through the Fund since its
inception.
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Proposed Law
Assembly Bill 1292 authorizes the California Infrastructure
and Economic Development Bank to sell bonds on behalf of
the Department of Public Health and deposit those proceeds
into the Safe Drinking Water State Revolving Fund and
authorizes the California Department of Public Health to
repay those bonds from the Safe Drinking Water State
Revolving Fund.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . AB 1292 allows the California
Department of Public Health to partner with the
Infrastructure Bank to sell bonds and use the resulting
revenues to meet federal match requirements under the Safe
Drinking Water State Revolving Fund (SDWSRF) program.
Federal estimates from 2007 suggest that California has $39
billion in unmet water infrastructure needs. In prior
years, the Department used State General Funds and other
bond funds to meet the state's match requirements. AB 1292
enables the Department to partner with the Infrastructure
Bank to issue revenue bonds and ensure that California can
maximize access to federal funding to meet its drinking
water needs without putting additional demands on the State
General Fund or other bond funds.
2. Authority vs. delivery . AB 1292 expands the financing
mechanisms available to the Department of Public Health to
meet federal match requirements. But a June 2010 audit by
the U.S. EPA found that California is slow to spend the
money it already has. The Fund has more than $133 million
in unspent funds plus another $538 million in allocated but
undistributed funds. Before the Legislature gives the
Department access to new funding sources, legislators
should insist that the Department make better use of its
existing resources.
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3. Unmet needs . Every four years, the EPA surveys the
progress of states in meeting infrastructure needs to
comply with safe drinking water standards. While some
states saw declines in unmet needs, in the last two
surveys, California's unmet needs grew. The next survey is
due this year. State officials think that California's
unmet needs will have grown even more in the new survey.
An EPA audit indicates that other states are more
aggressive in leveraging state revolving funds, on average
spending 86.7% of funding in 2009. In that period,
California spent just 57% of its funds. The EPA expressed
this concern because Congress has highlighted the economic
development potential of this program. The Committee may
wish to consider amending AB 1292 to create clearer
expectations that the Department more assertively leverage
its authority to address unmet needs and spur economic
growth.
4. Good advice ? EPA's recent audit noted that the
Department needs to increase the speed with which it spends
Fund proceeds and called for the Department to establish
"programmatic and financial milestones and goals so it can
reach an acceptable range of performance." The Committee
may wish to consider amendments that direct the Department
to establish goals and milestones to ensure that it fully
leverages its authorities to meet unmet needs through the
Safe Drinking Water State Revolving Fund program.
5. Let's be clear . AB 1292 authorizes the Infrastructure
Bank to contract with the Department of Public Health and
with any agency as necessary to perform its mission, but
its language is ambiguous. It's not clear if the bill
meant to permit the Infrastructure Bank to offer its
conduit financing services to any state agency, or if that
broad contracting authority only allows the Infrastructure
Bank to contract for technical assistance in performing its
mission. The Committee may wish to consider amending AB
1292 to clarify that state agencies must seek legislative
authorization before accessing conduit financing through
the Infrastructure Bank, but that the Bank has broad
authority to enter into contracts when necessary to deliver
services.
6. Related legislation . A number of bills have passed
through the Committee relating to the Infrastructure Bank:
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AB 696 (Hueso) directs the I-Bank to establish
a methodology for determining the economic benefits
of projects under consideration and, as of January
1, 2013, restricts the I-Bank to approve only those
projects that provide economic benefits and meet
land use criteria.
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 Pérez) 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. Pérez) adds two legislative
members to the I-Bank's board of directors.
AB 1292 is modeled after AB 1571 (Costa, 2000), which
authorized the Infrastructure Bank to issues bonds and
deposit proceeds into the State Water Pollution Control
Revolving Fund Program in support of local projects under
the Clean Water Act.
Assembly Actions
Assembly Environmental Safety and Toxic Materials
Committee: 8-0
Assembly Appropriations Committee: 17-0
Assembly Floor: 78-0
Support and Opposition (6/30/11)
Support : Association of California Water Agencies;
California Association of Environmental Health
Administrators; California Conference of Directors of
Environmental Health, California Department of Public
Health; California Water Association; City of Long Beach;
San Gabriel Valley Municipal Water District; Three Valleys
Municipal Water District; Upper San Gabriel Valley
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Municipal Water District; Valley County Water District;
Water Replenishment District of Southern California.
Opposition : Unknown.