Senate Standing Committee on Budget and Fiscal Review

Take the hint.

The Senate Budget Committee on-- will come to order. We are starting with still being short of a quorum. So please, if you are in the building, come. Today, we will be hearing two bills. AB 107 is a budget bill junior, which includes a variety of changes to the Budget Acts of 2023, '24, '25.

They're largely technical in nature so that funds can be expended. There'll be some adjustments made to federal authority for various programs to reflect updated federal funds awards, but on that bill, let me be clear. There's no new items and there's no new state money. So these truly are technical in nature.

Second, AB 117 is a budget trailer bill that provides for the California State Transportation Agency to loan $590 million from the Transit and Intercity Rail Capital Program for projects within the region.

This agreement resulted from direction provided in the 25-26 Budget Act for the Department of Finance to negotiate with transit operators to support public transportation in the Bay Area. Our process today, we're going to hear on both bills, then we're going to come to the committee for questions and comments.

Then we'll go to public comment, and then is our expectation that we will take action. So that is our process for today. Let's see. 1, 2, 3, 4, 5, 6, 7, 8, 9. We're one short of a quorum, so somebody walks through the door, I will probably grab the quorum when we can. With that, let me ask my vice chair if he has any opening comments.

Thank you for the opportunity. I will withhold any comments now. I'll have, I'm sure, comments and questions after the presentation.

Great. Thank you. We have with us, Erika Li from the Department of Finance and Rachel Ehlers from the Legislative Analyst's Office. Let me ask if you have presentations to make on AB 107 and AB 117.

Good morning, Chair Laird, Vice Chair Niello, and members of the committee. Erika Li with the Department of Finance, and I do have a brief presentation on the budget bill junior, AB/SB 107 as well as a little bit more detail for AB/SB 117, the trailer bill on transit. So I will begin.

The first bill, AB/SB 107, includes amendments to budget bill items in the 2023, 2024, and 2025 Budget Acts, and as was stated, these are largely technical in nature, such as extending encumbrance periods, amending language to allow for technical assistance, augmenting federal trust fund authority, or correcting fiscal agents. I'll highlight a few more notable changes.

The bill makes various, again, largely technical adjustments to the Climate Bond or Proposition 4 funding appropriated in the '24 and '25 Budget Acts. It adds Control Section 15.01 to exempt from the Administrative Procedure Act the development and adoption of program guidelines and selection criteria necessary to effectuate or implement programs funded by Climate Bond appropriations that were already made in the 2025 Budget Act or related trailer bills.

And lastly, it moves $20 million in funding to promote California travel and economic development from Visit California to GO-Biz. And I will go on to the next bill, which is the AB/SB 117, which is a trailer bill on transit.

Again, as was mentioned by the chair and for a little bit of background, Control Section 91 of the 2025 Budget Act required the Department of Finance, in coordination with the California State Transportation Agency, or CALSTA, to examine different financing options that might be used to provide short-term financial assistance to four Bay Area transit agencies.

And this bill represents the agreed-upon regional approach that will also be cost-neutral to the state. And I just want to point that out as being--the latter part being--very important because of the state's fiscal condition.

And specifically, this bill provides a loan of up to $590 million to support San Francisco Bay Area Rapid Transit District, San Francisco Municipal Transportation Agency, Peninsula Corridor Joint Powers Board, and Alameda-Contra Costa Transit District.

The details of the loan are that CALSTA is required to loan up to $590 million to Metropolitan Transportation Commission--I'll call them MTC--by July of this year, and MTC is then required to use these funds to in turn issue loans to those specified agencies.

The money used to issue the loans--this is important--is the balance of funds awarded to MTC region projects through the Transit and Intercity Rail Capital Program. So this is not General Fund, it's TIRCP dollars that has not yet been allocated by the CTC or the California Transportation Commission.

All loans made pursuant to the section have a 12-year term of which only the first two years are interest only, and this interest rate is equivalent to the rate earned by the state Surplus Money Investment Fund during the loan period.

The bill also includes provisions intended to minimize impacts to regional projects, including oversight mechanisms and project protections. And with that, I will end my presentation and yield the mic back to you, Chair.

Thank you very much. Just before we go to the LAO, a quorum just arrived. Would you please call the roll?

[Roll call].

We have a quorum. Thank you very much. We will now move to the Legislative Analyst's to comment on these two items.

Hi. Good morning. Rachel Ehlers with the Legislative Analyst's Office. Just here to answer questions and be helpful as we can.

Great. Then we're going to bring the matter back before the committee. Are there questions or comments on either of these two bills? I'll go Archuleta, Niello. Then Seyarto. Mr. Archuleta.

Okay. Thank you, Mr. Chair. I'm so excited to see that California is stepping up to bring people to California to see our beautiful mountains and oceans and the tourism, and I think it's exciting, $20 million to promote, because it takes money to make money.

And I think what we have has been some-- we saw the weather across the United States earlier into the month, and so now that we get over our rainy season, we're going to just enjoy what we have. And the tourism is so important. I know what we're contributing to the movie industry, economic development, and so on.

It's so important. So when we talk out of our budget, we also have to talk about bringing money into the state. And I'm so happy we're doing that, and I congratulate the Governor for bringing this forward, and I'm going to be happy to move the bill at the appropriate time.

Thank you. We're going to go to Senator Seyarto, and then we have Niello and McNerney in line.

Thank you, Chairman. So as the usual, I have concerns about the manner in which we are going about addressing the delays that are caused when we are looking to do wildfire prevention and things like that and thinking that somehow that this part is the delay. This part is not the delay.

The delay is on all of the permits and all the other processing that occurs while this part is-- while this bidding process waits in the wings. It seems to me that the bidding process, if you're going to compromise that, is going to open the door for the reason that the bidding process is there in the first place, which is to avoid corruption. Many instances in the past have led to corruption when you have no bid contracts.

And this does not go away when we have emergency situations. And I will tell you right now, just because it's pouring rain does not mean that we are not going to have an emergency situation with wildfire prevention efforts because we have that as an ongoing problem. And there are ways for us to deal with that.

But to have a broader no-bid implication for other things, to me, is opening the door for the exact kind of corruption that the public is really tired of. When we get less bang for our buck, we're already doing that, but when we double down on less bang for our buck by doing no-bid contracts, that in itself is something that is going to make the public less confident in our abilities to manage their money. And so that's one of them.

My question on that particular issue is how are we going to--if we're going to do no-bid contracts--how are we going to ensure that they don't cost more than they should and that the process isn't being corrupted? Who's going to oversee that to make sure that that happens?

And what are the reporting requirements once we've done these no-bid contracts for these different bidders or different contractors to come in and do that? Do they have reporting contracts? What's going on with that?

Good morning. Lizzie Urie, Department of Finance. I believe you are referring to budget bill language being added to a State Parks Department of Recreation item. Would just note that this language was already approved by the Legislature as part of the 25-26 budget process, but was inadvertently left off of the Budget Act language. This is really to allow parks to implement projects. So again, this is consistent with language already agreed upon.

Thank you. And I'll go back to that again because I have several State Park versus city issues in my district. The problem isn't this. The problem is the State Parks won't give them the permits that they need to be able to do the projects and they're willing to pay for it themselves, not even use State Park money.

They just want the permits to be able to make their community safe. So I don't think this competitive, non-competitive bidding process is going to help the State Parks do their permitting and environmental studies and all those other things any faster. We need to focus on that before we focus on this.

I'm going to move on to the Transit Loan Oversight. Thank you very much, by the way. I'm sorry; I'm not as good at making or saying thank you, and I should be. So, I know you guys work hard to get this information together for us.

Here comes another thank you.

Oh, excellent. Come on down. Thank you for being here today. So on the Transit Loan Oversight, who is the oversight once we've loaned this money? Because here's my struggle with more and more money being now loaned, is, we're kind of hoping we're going to have the STA do their loan to bail out or to promote some projects.

But waiting in the wings is this hopeful measure that the taxpayers in the San Francisco area are going to pass. And that measure, I think, is probably the landing area for the loan repayments eventually.

How are we going to ensure that this loan doesn't come in, doesn't turn into a--if that doesn't pass--a waiver by us to just say, well, the loan is forgiven now; in other words, adding to the already 4 or 5 billion dollars that we have paid out to transit to try to shore up the system?

Because there's something wrong in the system and this is not fixing it. This is giving them more money to try to fix it, but at the same time, there's a market issue there, too. Market, and use, and who's using it and, and how much fare is being collected, all of that comes into play. And this is not-- to me, this is just putting more money into a loan that they're going to owe at the end and we don't know whether they're going to be able to pay that back.

There's some serious issues that need to be examined with this and I feel like, again, we are going way ahead of the game throwing money out there. We have no oversight what's happening to it, how it gets used. What happened to the 500 million dollar loan?

All we have is hopefully some projects that might get done because I also see this and the other thing is indicative of some of the issues that we have with our High-Speed Rail. And we have a bill that's trying to get rid of the oversight part of that even. Not the oversight, but the dissemination of information to the public about the rail. That's a bill that's out there.

I'm concerned about this lack of transparency for spending public dollars, and I don't know how-- how are we going to do the oversight on that? Who's going to be responsible for it? And is it going to be like so many other projects where we put a lot of money into it, we get done $37 billion into some spending, and we have absolutely no idea what happened and we have no improvement on the thing that was supposed to be fixed?

Hi. James Moore with the Department of Finance. I think it would be helpful to point out that the SB 63 measure that you're referencing is really independent of this loan. We have sufficient requirements on the securities of the loan that are from the existing STA program that goes out and would be sufficient if other revenues don't materialize that they may be planning to use as repayment.

The bill is very strict on repayment requirements and we would be able to take the State Transit's money from those locals to make sure that all the loans are getting repaid on time.

In theory, thank you. That's a good answer in theory. I have not seen anything that we have done in the past actually come to fruition like that. So I really appreciate you being here.

This is the part where I'm trying to be a little bit better about saying thank you and you giving me this information so that we can make responsible decisions about where we should go on some of these measures. Thank you. And I'll leave the rest of this for other people to ask questions.

But we really enjoy the trend to thank you, so thank you. We'll go to Senator Niello. Senator McNerney's on deck.

Thank you. I'll start with AB 117 so that we don't have to have people come back and forth. What bill is it that you referred to?

SB 63 was a bill in the previous session that authorizes a ballot initiative on the Bay Area to raise some additional funds for transit.

That's for the local sales tax?

Yes. I'm not-- it is-- that's what--

How did that bill happen to provide oversight for this loan?

Sure. I think that some of Senator Seyarto's questions were wanting to make sure that the-- if that didn't pass, how that might lead to some sort of issues with the repayment of this AB 117 loan, and I was trying to point out that those two are separate and even-- whatever happens with the SB 63 measure in November, the loan terms are tight on the AB 117 loan.

And we have securitization from existing funding streams not related to SB 63 so that in the event that they were planning to use SB 63 revenues that didn't come to fruition as repayment, we have sufficient securitization regardless of what happens with any regional measure.

I think one of the unspoken concerns is that if that sales tax measure doesn't pass, that the systems are-- will be considerably compromised in the ability to pay back this particular loan, that the next step will be to forgive it. And I think it's legitimate that that concern could exist out there.

And let me just say at this point, I hope that doesn't happen. But that's a great concern. So back to sort of a fundamental question. The reason that this is needed in the first place is because, basically, travel and commuter patterns in the Bay Area have fundamentally changed since the pandemic. Would you agree that that's probably what is largely causing the challenge of operational funding for the systems?

Sure. That's certainly a large part of it.

Yeah. So if that is the case, then by providing this assistance, we must have strong confidence that that's transitory. Would that be a-- is that what is sort of underlying the confidence behind the loan and the tax measure?

Sure. I would say that we had a whole Transit Transformation Task Force in the last calendar year where CALSTA convened the task force meeting with all the transit entities to see where to go to address some of the issues that you raised.

I think this loan is a little bit narrower in that we see the real presence of some short-term issues with the transit financial situation and we're looking at ways that we could--using a regional approach that didn't cost the state any money and didn't impact other projects--could resolve the problem that exists right now.

And so, I think that's what AB 117 is more focused on, but there are issues--sorry--there are steps being taken both by the individual operators and by CALSTA through its Transit Transformation Task Force to try to shore up some of those issues for long-term success.

The largest challenge is BART itself as opposed to the other transit entities, and my concern is that the change in travel and commute patterns is not transitory. The pandemic--fascinating occurrence, once in a century--that has changed a lot of things that has outlived the pandemic time period itself, and this could be one of them.

And I don't think we're paying enough attention to how that might continue to permanently, or at least much more long-term, affect the travel and commute patterns that any near-term funding will not be able to overcome.

And it will be particularly interesting to see how the voters react to the tax measure. If that tax measure fails--and it is a simple majority, I think--if it fails, that will be a considerable statement as to the support of people in the Bay Area toward the transit agencies, the confidence that it's only a temporary change in travel and commute patterns.

So this loan and the whole policy is fraught with very significant challenges as we move into, really, quite an unknown near and longer-term future. So those are the concerns that I have with regard to AB 117.

And I guess maybe the overall concern, I'll come back to a previous point made. If that sales tax return measure does not pass, I hope we don't then see a proposal come forward to us to waive the loan. I hope we don't see that. Now to the other bill, 107, AB 107.

There is-- without completely waiving everything, there's an emergency process that we could go through to speed up the timeline and yet not completely eliminate such things as the economic analysis and other things that can be done subsequently for appropriate analysis and oversight. Why would we not use that procedure?

Hi. Lizzie Urie, Department of Finance. So consistent with the 25-26 budget agreement, departments have been utilizing the the emergency regulations process to implement 25-26 Climate Bond funding. However, that process is not without its delays.

Previous natural resources bonds have included an APA exemption, which still allowed for departments to utilize an open and public process to transparently develop program guidelines. So this APA exemption does not prohibit the continued use of that open public process.

But it does not use it in this case.

The budget bill does include an APA exemption for 25-26 appropriations in the Climate Bond, yes.

Right. And that's my point. I realize that the emergency process isn't perfect. Nothing is perfect. And I guess it's a weighing of lack of oversight and lack of transparency versus relative speed.

And the emergency process arguably offers a better balance of the two because of the risks presented by the lack of oversight and the lack of transparency, which is what Senator Seyarto was pointing out, and I have to agree with him on that. I think the emergency process would make much more sense. Thank you very much.

Thank you. Senator McNerney was next and he stepped out. Senator Richardson, I'll recognize, and Senator Durazo is on deck.

Thank you, Mr. Chairman. I have one question and one clarification. Regarding AB 117, which is the Bay Area Transit Assistance, I just want to say for the record that last year, both the City of Los Angeles and the Bay Area had brought forward requests for loan assistance.

In the City of LA, it was regards to the tremendous amount of costs that were expended regarding the wildfires. And we hope to see something coming forward maybe with similar requirements in the near future.

The second thing I wanted to state, just for clarification for the laymen who are probably maybe in this cold wintery day or sitting cuddled up with a pillow and a blanket, just to clarify what has been said about this Bay Area Transit--

If this hearing goes into the evening, we'll be doing that.

I know, exactly. You see, I got my neck wrap on. But I just wanted to clarify again for the public's confidence that this loan, yes, there has been discussion about a sales tax measure that's going on the ballot. However, I want to make sure everyone understands that this loan--and I'm reading directly from the staff memo, number four--that this loan is pledged based upon the State Transit Assistance Program.

So the staff member who said STA--that stands for State Transit Assistance Program--what that's stating is, is that each community county receives X amount of dollars from this program to help do their projects.

And so what this is saying is, is if their initiative does not pass and they don't have the money to pay these loan payments, that the money would come out of the money they would normally receive from the state, State Transit Assistance Program revenues. The money Bay Area would normally receive, they would not receive to pay on this loan.

So I just want to make sure the public is clear. Finally, I have one question, and that is in relation to AB 107 on page two, number three. It says it's authorizing the California Tahoe Conservancy to utilize a portion of the Safe Drinking Water, Wildlife Prevention, Drought Preparedness, and Clean Air Bond Act of 2024 Prop 4 funding appropriated in the 2025 Budget Act for technical assistance to disadvantaged or severely disadvantaged communities and vulnerable populations. Could someone explain more detail of what we're envisioning these funds to be used for?

Sure. Vin Liu, Department of Finance. So the Climate Bond authorizes up to 10% of the funds allocated to the departments for these various chapters to implement technical assistance. In the case of the 2025 Budget Act, it's focusing on increasing public access as well as climate change risk reductions.

And so oftentimes, the Tahoe Conservancy will work with local entities to provide assistance to basically apply for the grant, accept the grant, implement the grant, and just work on those nuances to make sure that the funding gets out to the door to the correct programs and that they can actually implement it with any assistance they might need from the department.

So was this funding already allocated to the California Tahoe Conservancy?

Yes, that's correct.

Okay. And so they're just taking their pool of funds that they received to provide this assistance?

That is correct.

Okay. Thank you very much.

Thank you. And let me just say, at the outset of the hearing, I said there's no new money in this. So this is just with regard to existing money, and I appreciate it because you got to the bottom of that, but I would just re-emphasize that.

We're going to-- people made fun of me using the phrase, on-deck, so we're going to go to a Dodgers fan, Senator Durazo, and on-deck is an Angels fan, Senator Choi. I assume he's an Angels fan. If he's not, then I just caused him trouble in this district. Senator Durazo.

I swear he doesn't have to be. Okay. Thank you, Mr. Chair. On AB 107, my question is on the orphan oil and gas well plugging, is what efforts were made to include labor standards in that since we had an example--I think it was last year, two years ago--of a company from Texas getting the contract and bringing in workers from Texas. So I might have that a little bit confused, but what efforts were made here in this project?

Sure. Vin in Department of Finance. I don't have a response for you for that right now, but I can follow the office after speaking with the department.

Okay. Okay. So you're going to get that?

And I have another question.

Well, yes.

And just-- if you get that to the committee as well, we'll make sure everybody gets that response.

Absolutely.

Thank you. My question on AB 117, there-- maybe I should give you both of them, but I'll start with this one. Why was--and I think you started to answer this--why was a statewide diversified repayment model abandoned in favor of one concentrated on a single region? What was the benefit or what was the thought behind that?

James Moore with the Department of Finance. I think because this is a regional issue with four Bay Area Transit agencies needing these loans, and because MTC oversees all of those agencies as well as others in the Bay Area, we tried to keep it regionally focused to minimize downstream impacts from across the state and other operators.

But you don't think that there's this same need in other parts of the state?

Well, this proposal is the result of Control Section 91, which identified the four specific operators in the Bay Area, and so the proposal really is in response to that.

Okay.

Which didn't include any outside of the Bay Area agencies.

But I guess I'm referring to the model used. Why would that model benefit us or be a better model to follow other than there were four agencies that came to you?

I just would point out that the control section language is very specific to a particular region. We look for a regional solution, and I would just stipulate that in general, and back to Senator Richardson's point, the structure of the loan, both regional as well as net cost-neutral, is something that we would consider for other parts of the state as well.

I think the very specific nature of the control section for the transit issue was-- our goal was to keep it regional, but as it relates to potential other needs across the state, we would take the same consideration as well for that solution, as we did for this solution.

And that leads to the next question I have, which is, what safeguards ensure this loan does not jeopardize federal funding for major capital projects?

Sure. So there are a number of oversight mechanisms pursuant to this proposal, including the CTC and CALSTA monitoring the portfolio of the Bay Area Transit projects, how much has been awarded to projects in the region, how much has been allocated, how much has then been spent.

There are a few portions of the bill that require if a--it gets a little technical--but if it looks as if there's a decreasing amount of funds that have been awarded but not yet allocated--and so if everyone came in for an allocation, there might be a squeeze--that level is 350 million.

And if that happens, several things are forced to take place, including notification and a financial evaluation. If it's determined that it's necessary to safeguard against any sort of project impacts, the CTC can begin an allocation plan to change things around and prioritize projects based on things like federal eligibility or other things.

If the allocation plans end up still retaining some sort of impacts to projects, MTC is authorized to prioritize its entire portfolio of funding that it receives from the state in order to mitigate any of those impacts. And so we have several layers of oversight and then regional backfills and things like that to mitigate, to the greatest extent possible, any sort of material impact on any capital project.

And-- thank you. And how will the Legislature receive ongoing visibility into the repayment and project impacts?

I don't know that the bill specifies that. I know that there will be a loan agreement between CALSTA and the MTC and the constant monitoring at the CTC of how things are going, but I-- we'll have to get back on more specific legislative notification in the bill.

And we're always available at committees, subcommittee hearings as well, to speak on any updates the Legislature should want.

Right. And then, what principles are going to guide us or you, whether similar assistance is extended to other regions?

Sure. I think, as my colleague noted, some of the guiding principles that we had through this situation were cost-neutral to the state, using a regional model, and then creating some local oversight and enforcement mechanisms to mitigate project impacts, and I think those are all things that we would certainly be interested in in a similar proposal going forward.

Okay. Thank you.

Thank you. Despite me saying Senator Choi was on deck, Senator McNerney, who was in front of him in line, returned, so I'm going to recognize Senator McNerney, and then I'm going to go to Senator Choi when he's done.

Well, thank you, Chair, and basically what I want to say first of all is that I use the BART system. I use public transportation in the Bay Area. If the BART system was to reduce traffic and enter a death spiral, it would be an incredible hit to the economy of the San Francisco Bay Area, which is a large portion of California's economy. So what I'd like to know from the LAO is a little bit more about that 590 million dollar loan.

What's the rationale for having two years of interest-only payments and what would be the total payout in the life of the loan? And following up on Senator Seyarto's comments, how is that money going to be distributed in the life of the loan? Thank you.

Hi again. Rachel Ehlers with the LAO. I can take my first shot and then turn to the Department of Finance to add on anything. So my understanding is the rationale for the two years of interest only and then beginning to pay the principal is to allow for some time.

If the sales tax measure does pass in the Bay Area, it will take some time for the revenues from that new tax to start rolling in so that the agencies will have that funding available to be able to start paying back the loan. That's why the principal is a little bit delayed. It is tied to our state system for interest, the pooled--what is it, the pooled money account? The--

The Surplus Money Investment Fund.

Too many acronyms for me to remember-- so that the state ultimately at the end of the loan will be kind of held harmless for not having that cash in the state coffers to be earning interest. I think that's part of the intention.

And what's the interest that we're expecting to--

Well, that interest rate does vary, and we have not done the math to identify what the total would be, but again, I think the intention is to hold the state harmless over the full period so that those agencies that are borrowing the funds will not only have to pay back the principal but also the interest that the state has foregone for not having the cash in the state coffers.

That is all correct. I think having two years of interest-only payments really is to allow for greater flexibility, especially if many of these repayments are going to come from the sales tax measure where the money won't immediately be in the bank accounts. There's a bit of a ramp up there. And SMIF right now is about 4%.

And it would track as it changes over the life of the loan to make sure that the state is not losing out on any money it would have earned.

So, what's the outcome if the sales measure fails?

The Bill is independent from the sales measure and includes repayment terms and repayment securitization independent from SB 63.

And so, certainly, it would place the Bay Area in a more difficult position. But our ability to securitize the loan against existing funding streams means that we are able to force repayment, no matter what happens with any sort of regional measure.

Is the planned expenditures, are they rigidly defined at this point or are they flexible under the guidance of some state bureaucrat?

The proceeds from the loan, is that what you're asking?

Right.

They're relatively broad for operating expenditures. All four of these agencies are having operational shortfalls that they're hoping to shore up with things like the regional measure. But the proceeds from the loan have to be used for transit operating purposes and it's defined in the Bill.

So, that will then depend on the needs of the different transportation agencies.

They're all—the money has to be used for operating expenditures, but within that broader bucket, the agencies are going to be able to figure out how they need to plug the holes.

Okay, well, we're going to have to see some cooperation in the future which—okay. It's going to be hard fought. Thank you. I yield back.

Thank you very much. Senator Choi and then Senator Cabaldon.

Thank you very much, Chair, Many questions already have been raised, but I want to clarify myself.

Many people have raised, including Senator Seyarto, a fundamental question was that the operational fiscal difficulties right now, obviously they are facing the stories and trying to get the loan from the state of $590 million, but is that due to the lack of ridership from the Covid or are there any other fundamental reasons that why this budget, operational budget, didn't work out?

I am concerned. Not only this one is a separate issue from other areas such as Los Angeles Metro system may be in the same, because we all went through the Covid. Was the Covid the only thing to be blamed for or some other operational cost we are not hearing about? Can you explain that?

That's number one question that's—put it that way. And the second question would be without—obviously, right now, they need the money. That's the reason they are trying to borrow the money. This sales tax measure increase.

Can you specify how much tax you are trying to raise and how much that will make up the deficit in operational budget?

My third question would be from the ridership and the sales tax, are there any other, such as federal grants in operating, or is it sufficient or will it be sufficient from tax, existing tax and the tax, increased tax, plus ridership fares? That would be my third question. While I'm speaking regarding AB 107 as well, I am very troubled in the emergency situations.

What is really emergency situations that justifies exempting competitive bidding, particularly for the urgent wildfire resources and prevention efforts? Why the broader competitive bidding will help if not competitive bidding—would there be if there is a comparative bidding, there will there be much savings for us by exempting competitive bidding?

What kind of financial loss potentially are we talking about or even exempting oversight—that is troubling when there's an emergency situation might have happened because of a lack of oversights for the expenditures. We should increase oversight. What do you think about that?

You asked a number of questions. We'll start with AB 117 and go on to AB107. I'll just speak briefly and then hand the mic over to my colleague. But your first question was why we're seeing some of the deficits with the Ford transit agencies.

And it was stated earlier, it is largely a factor of changes in ridership as pursuant to Covid and I think more broadly you asked also about the sales tax and what that would raise. I'll turn that over to my colleague in regards to that, as well as your question about federal dollars coming from Washington.

Yeah, reliance on the—to clarify my question—reliance on the ridership fare, is that 90%, 30%? If you can clarify. I'm sure there are sales taxes and the portion. What other operational money are we depending upon? Other than two. Is that the federal grants year after year?

If you can kind of give us a rough division of by the percentage.

Sure. Well, SB 63, the regional measure in the Bay Area, there are—I believe it's a 14-year measure. It's split up into different districts within the larger tax district and each of those I believe—I think the city and county of San Francisco can increase its transactions tax by a little bit more than some of the other regions.

And so, I think we're looking at significant money being brought in. I think in the hundreds of millions of dollars a year.

But we can get back to your office with the Committee staff with some more specific numbers with regards to the San Francisco ballot measure that will be on the ballot in November. I don't have—for your last question—specific breakdowns of the percentages, but I will say that fares are a significant portion of many operating—many operators' revenues.

I would also point out that transit is a very diverse group of agencies, even within a region. And so, one region might be heavily reliant on fares, as I believe BART was prior to Covid. Others don't rely too much on fares, but rely on state, regional, and federal money.

There are billions of dollars a year that come to the state from the Federal Government through the Federal Transit Administration. There are additionally a couple billion dollars every year in formula funds going from the state to the various transit agencies.

Many of them have regional measures and other significant regional and then fares of course make up the difference. So, it's a varied stream. There's a lot of public support at all levels of government in formulas and competitive grants. And then, for certain operators, the fare revenue is a significant portion. But Covid changed a lot of that.

And so, part of this is trying to figure out a way forward that rebalances things.

And Lizzie Urie, Department of Finance. I wanted to follow up on your question about AB 107 regarding the park's competitive bidding language. Be happy to follow up with the Committee with more specifics, but generally, the language is necessary because in many rural areas, the Department struggles to find up to three competitive bids.

So, that is the reason for this language, but also happy to follow up with more details.

Okay, I mentioned the LA Metro ridership situation. If there's a comparison, if we blame the COVID 19 for the fall of the ridership, but I hear some of those sources that it is not the recovering. And then, also, there are so many issues such as safety issues and then also less stringent enforcement of the, what you call it, the free riders jumping over security gates.

Is that a factor for the continuously declining ridership and what other measures—are they BART system in particular? Are they taking to increase the ridership of the lost riders to come back? Is it really secure? Are there enough security members?

I mean, people have to feel comfortable to ride it, first of all. Do you know anything about that?

As I stated earlier, there was a Transit Transformation Task Force last year where all of the transit agencies convened with CALSTA and looked at all the different ways, many of which you've highlighted, things that affect transit ridership costs—who's comfortable riding.

Things like fare evasion, safety, were part of those discussions, as were changing commuting patterns, increased labor costs, all sorts of things. I think that broadly speaking, those are all important components of what the funding situation of any sort of operator.

And the agencies themselves and the state are always looking at ways to improve ridership and combat those issues.

Okay, even though I'm not—thank you very much.

We'll move to Senator Cabaldon.

Thank you, Mr. Chair. I'm pretty close to 100% happy, although I have comments about 107 and 117. First on 107, you know, it's interesting the way that we are fetishizing the Administrative Procedures Act as being all about accountability and transparency. It is, in many ways, similar to CEQA in that it is, in my view, it's fun—there are fundamental problems with it, where it's overused on the smallest of projects.

As folks know, I've been obsessing about CEQA shutting down a childcare center in my district, while, down the road in my district, there is a project of 400,000 people plus an industrial shipyard to be put at the delta—at the court where the delta and the Suisun Marsh come together, where CEQA is clearly underpowered.

And the same thing is true in the Administrative Procedures Act. It's a debate we should have, but the Administrative Procedures Act is not performing any accountability or transparency role when it comes to the ability of the Sonoma Land Trust to complete a bench project in a state park. That's not the purpose of it.

The impact analyses that some of my colleagues have noted, they are valuable in certain circumstances, just as CEQA's environmental analyses are essential in certain circumstances, that understanding what the impact is going to be on small business or a particular industry or the economy or local governments is a critical part of how we should be evaluating regulations.

But that's not what these natural resources projects are. They have nothing to do with any of that. There's no small business involved. There's no major sector of the economy involved. It's just pure process slop. And so, I appreciate the Governor taking on both of these issues. Last year, CEQA, this one, this year.

I wish somebody other than me would introduce a bill to reform both of these things rather than just keep exempting stuff, but that's where we're at.

And so, these are—if anything should be exempt from the Administrative Procedures Act, it is grants for projects for local communities, cities, counties, parks, districts, and nonprofits to be able to complete the projects that the voters overwhelmingly endorse when they, when they voted for the climate bond.

So, I hear the concerns about the AP—about APA compliance—but these are not the issues that we should be obsessing about. We should have a more—longer term; we should have a more open-ended exemption for those projects from the APA. Shouldn't have to just be project by project in the trailer bills.

On 117, it's been fascinating to hear and I'm looking forward to taking the same really, really, really, really, really fine-tooth approach to other regions' projects, because we've kind of talked about this as though some sort of gift to the Bay Area.

Now, I represent—80% of my constituents live in four of the Bay Area counties, the four Bay Area counties that are not part of the ballot measure, by the way.

And when we approved as part of the budget package last year, an agreement that this loan package would come forward, this is not what anyone in the Bay Area had in mind. This is not what we asked for. It is a compromise.

It is a hard, hard-driven negotiation between the Bay Area transit agencies and the Department of Finance, as it should be. And I'm pleased that the Department could reach an agreement to bring it forward and I'm very supportive of it. But this is not some gift.

These are only dollars that the Bay Area is already entitled to for its transit projects. And really, just those four counties in the Bay Area, which is why the counties I represent, they don't want anything to do with it. They're not asking to be a part of this. LA is not asking to be a part of this.

And nobody's asking to be a part of this deal because it is—it takes every last amount of slack that exists in the Bay Area on a cash flow basis to convert it into this loan, but the state's not putting anything at risk and it's not putting any cash into the deal.

And that's in order to support a region which, although it is not the primary host of the Olympics or FIFA or any of their major events, it is responsible for more than half of the state's economic growth.

More than half of the $43 billion that we heard about in the, in the budget presentation about increased revenues, not of the overall economy. The barrier is responsible for only 25 to 30% of the overall economy. But the growth is absolutely dependent on the Bay Area. And the Bay Area cannot function without a workable transit system.

So, the comments that have been made about the necessity of the sales tax measure are right on target. It's absolutely needed. Both of these are absolutely needed in order for the economic engine of California to be able to proceed.

But also, I don't worry so much about some of the concerns that have been raised about transit ridership, partly because I actually ride transit, like many people in the Bay Area. And when you actually ride it, your principal concerns are, is it coming, will it get me there on time, is it reliable?

It's not a daily assessment of, you know, fare skipping and that sort of thing. By the way, the BART has installed new machines for entry that prevent jumping over the turnstile. So, all of that's being taken care of. But these are not what real transit riders are grappling with.

What we have done in the last several years, and especially last year with the enactment of SB 79, is build our state housing policy on—very solidly on the foundation of transit success.

SB 79 and so many of our other policies, GGRF, the Climate Bond, they depend on transit-oriented development as being the significant contributor to the amount of housing that we produce to meet our million units per, you know, per year target.

So, if we don't make investments or if we don't at least allow the barrier to basically self-finance with the state just being the intermediary, in order to protect that system, our economy falls apart, our housing afford—our housing affordability falls apart. So, this is accomplished with zero contribution of cash from the state.

The state is not in any way in any risk.

I hope it's a template for other regions, but I can't imagine that it will be because no one else has the capacity or the financial and political commitment to make transit work at this stage, including my part of the Bay Area, as well as the Sacramento region, which I also represent. So, this is an important step.

Thank you to the Department of Finance for, for, for, for bringing—for negotiating this out. Thanks to the Bay Area agencies for, for being willing to go the extra mile to make this work. This is absolutely essential for the state of California and for the region to precede, and I strongly support both 107 and 117.

Thank you, Mr. Chairman.

Thank you very much. That completes our list. And before I go to public comment, I'm going to make a couple of brief comments myself.

And on the transit item, Senator Wiener had a select committee and when I was representing a Bay Area county, I attended and the transit system there were addressing security, fair evasion, as was just mentioned, cleanliness, and their ridership was rebounding.

So, that is not in this, sort of, this is more a financial transaction, but on point, those issues have been examined and there have been discussions on progress.

And even though this is not the Olympics, a one-day record was just set for transit around the Super Bowl for the number of riders that 30,000 people wrote transit the day of the Super Bowl in South Santa Clara County, so, that was significant.

On the issue of the Administrative Procedures Act, just a comment which is the process was actually followed and after lengthy time preparing was rejected by the agency in a way that we would have to come back around when everything that Senator Cabaldon said is right on point. It doesn't relate to it, yet the process was followed.

So, what's happening is what's here exempts the proposition for projects that are in the budget this year from it. So, that, because some of them—there's one, the Coastal Conservancy is having a board meeting on Thursday, and they are going to make grants that they'd been preparing to make for months and months.

They're going to make it contingent on action being taken, which happens to be contained in one of these two bills. So, that will actually address that. And I think the point is right, that whether it's fire projects or land conservation, they weren't hinging on this for oversight or review.

And so, it's very important that we approve this and start to get that money out the door. This is the eighth month of the fiscal year. We approved that in June. The regulations were supposed to be in place. So, it's very important because now it's holding up stuff, whether it's fire or land conservation or dam safety.

And approving this will allow those monies to go out the door. With that, we will move to public comment on either of these two bills. And let me just say to people listening, we hope to take action when public comment is done.

So, if you're a member of the Budget Committee, please make your way to room 1200 so we have enough people to consider that when it happens. Welcome to the Committee.

Thank you. Mr. Chair and Members. Beth Olhasso on behalf of Water Reuse California, Water Blueprint for the San Joaquin Valley Advocacy Fund, and Inland Empire Utilities Agency, in support of the Prop 4 APA exemption. Water recycling is very important dollars that need to get out and have actually been appropriated at the State Board.

Also, want to encourage the same inclusion for the budget this year. Having to go through the—we're going to be right back here next year. So, really just want to put a plug for that next year.

Thank you very much for this early action.

Thank you. I'm not supposed to comment on comments, but I meant to say there is a Bill moving for next year. We're taking care of this year and there is a Bill moving for next year and I hope to not be—have to break my structure about commenting on comments. So, welcome to the Committee.

Thank you. Good morning, Chair and Members. Julia Hall with the Association of California Water Agencies. Would just align my comments with Beth Olhasso on behalf of her clients. We're very supportive of this APA exemption and will continue to support the legislative effort to exempt future years with AB 35. Thank you very much.

Thank you.

Good morning, Mr. Chair and Members. Silvia Solis Shaw, here on behalf of City and County of San Francisco Mayor Daniel Lurie, as well as the San Francisco Municipal Transportation Agency. We urge your strong support for AB 117. This loan is critical for Bay Area transportation agencies and their operations.

MUNI is now faster, cleaner, more reliable, and we are seeing month to month increases in ridership to nearly 80% of pre-pandemic levels. We've also adopted several internal efficiencies, saving millions of dollars, as well as other revenue generating strategies.

MUNI and the other transportation—and the other transit agencies—in the Bay Area are essential to the continued economic recovery and growth in San Francisco and the Bay Area regionally, so, we urge your strong support of this measure. Thank you.

Thank you very much.

Thank you, Mr. Chair. Matt Robinson, on behalf of CalTrain. We are also one of the beneficiaries of the loan agreement. First, I just want to say thank you to the Administration, to the Legislature, for all their work over the last several months to get this finalized, based on, as you pointed out, Mr. Chair, something that was sketched out last summer.

A few things related to CalTrain. Prior to the pandemic, our farebox recovery ratio was 73%. That was one of the highest in the nation. The pandemic hit, like most commuter dependent systems, we saw our ridership plummet.

In 2024, we launched a fully electrified rail system, despite the loss of ridership, the first in the nation for a commuter railroad between San Francisco and San Jose. Since that has happened, our ridership has jumped 60% year over year.

We have seen our ridership shift from what has been largely commuters to now more event focused, more choice trips, so to speak, on the system. In fact, in 2025, we were named by the American Public Transportation Association as the fastest growing system in the United States.

Despite all of that, we still have an operating deficit staring us down the face this summer, when we are expected to, following the Super Bowl, provide additional service for six World Cup games that will take place at Santa Clara, without any additional revenues from the state, by the way. We anticipate that's going to cost us $12 million just for that service alone serving the World Cup.

We need this money to buy us the time to get to a local solution, which as you've heard today, we do have an option coming to the voters in the Bay Area this fall and we are hopeful that that will pass, that will shore up our financial situation as we continue to look at efficiencies and in improving our ridership model.

Thank you so much and I respectfully urge your support today for HB 117.

. Thank you very much.

Good morning. Charles Watson on behalf of BART, the. Bay Area Rapid Transit District. Echoing the comments of CalTrain, we want to thank the Administration and MTC for finalizing the language to provide temporary financial support to Bay Area transit agencies. While BART has not yet been able to take a formal position on AB 117, we definitely welcome it moving forward today.

And thank you to the Chair and. Senator Cabaldon for your reference to BART's next generation fare gates and our efforts on improving security and safety of the transit system. And thank you for your time.

Thank you very much.

Good morning. My name is Diane Casselberry. I am representing the Alameda Contra Costa Transit District, which is also known as AC Transit. We'd like to thank you for your—all the work that you have done to bring us to this place, and we are asking for your support on the Bay Area Transit loans.

Our ridership is currently at 40 million annually, so that's about 75% of our pre-pandemic levels and we are seeing ridership steadily growing. So, thank you so much and we respectfully ask that you support this.

Thank you very much.

Good morning, Chair Laird and Members. I'm Megan Cleveland with the Nature Conservancy. Wanted to align my comments with some previous ones regarding the APA exemption for Prop 4 funding. Really appreciate the early action on this.

It's critical to get those Prop 4 investments out the door for this year and we look forward to working with the Legislature to continue to address this issue. Thank you.

Thank you. Good morning, Mr. Chair, Members. Jake Schultz, on behalf of the Committee for Clean Water, Natural Resources, and Parks. We represent a broad statewide coalition of organizations dedicated to preserving and protecting California's natural resources for future generations. We support the AB 107 fix to incorporate an APA exemption for 2025 Proposition 4 appropriations to ensure the timely release of these funds. Thank you.

Thank you very much.

Good morning, Chair, Members. Colton Stemmler with Brownsley on behalf of the Bay Area Council. The Bay Area Council extends its support and gratitude for lawmakers for prioritizing the APA exemptions for Proposition 4. With this exemption, Proposition 4 funding will be treated like other past water and climate bonds. Progress can sometimes be slow in California, so, it's critically important that we not create new barriers to voter-approved water, wildfire, and coastal resilience funding as an urgent matter of public safety. Thank you.

Thank you.

Good morning. Chair and Members. Rebecca Marcus representing the California Climate and Agriculture Network, California Certified Organic Farmers, and American Farmland Trust. I align my comments with the previous speaker regarding the APA exemptions. Thank you.

Thank you.

Good morning. Will Abrams representing the Utility Wildfire Survivor Coalition. Of course, we're in support for Cal Fire funding moving forward, but just want to remind the Committee that victims still remain largely unpaid by the utilities. Southern California Edison continues to move forward to pay the least amount to the least amount of people.

And so, that—it really affects the state budget. And so, we really need to make sure that with whatever we consider with the budget, we're also considering the budget of our citizens and the budget of the utilities to make sure they are held accountable for fully paying their victims. We are trying to move legislation to accomplish that.

It is a budgetary issue for the state and I hope you'll consider that. Thank you.

Thank you very much.

Mr. Chairman and Members, Scott Wetch on behalf of the State Association of Electrical Workers. On behalf of our 1,000 transit workers at AC Transit in MUNI, in support of AB 117. Thank you.

Thank you very much.

Good afternoon, Mr. Chair and Members. Steve Cruz, on behalf of the San Jose Mayor's Office and the City of San Jose. We don't have a formal position on the Bill before you today and we remain supportive of the efforts to stabilize Bay Area transit agencies.

However, we are concerned that the Bill before you does put at risk critical...of dollars previously approved for BART Phase 2 Project. It remains a critical project for San Jose.

We're concerned that the proposal does not have proper guarantees that...funds will be available for the project, as cash flow needs to grow and to demonstrate to the Federal Government that are sufficient local funds to draw down for our federal match.

I know that Senator Cortese has expressed similar concerns and we're not asking for language changes today. However, I do know there was a minor amendment that was floating to change a "may" to a "shall" to strengthen the requirements that MTC prioritize these previously approved projects like BART.

But again, our intent today is, you know, to put it on record for at the moment of, you know, speak now, forever hold your peace, we want to make sure and put on record and our request is that the—there could be cleanup language to try to tighten up these provisions. So, thank you.

Thank you very much. Appreciate all the public comment. The matter is back before the Committee. I know there's at least one comment, but let's first take up AB 107. Is there a motion? Okay. Moved by Senator Archuleta. Comments? Seeing no comments. Then, would you please call the roll?

[Roll Call]

That is eight to four. We will put that Bill on call. Let's then move to AB 117. Is there a motion? Motion by Cabaldon. Are there comments? Senator Durazo.

Yeah. Thank you, Mr. Chair. Just quickly, questions were asked about the LA Metro by some of my colleagues in terms of the ridership.

I just want to add to the conversation that we are at in LA Metro about 83% of ridership, 83% of pre-Covid ridership, which is, we were doing very, very well. In June, after the federal ICE raids last year, it dropped by 10 to 15%. It was decline both in the bus and the rail system.

So, we're trying to grapple with that, and it was a pretty serious impact that it had on our ridership. But I'm confident we can get back to where we were. Thank you, Mr. Chair.

All right, Senator Seyarto.

On the ridership issue, I think it's important for us to understand when we're talking about ridership, we have fair paying ridership and then there's non fair paying ridership.

And if you guys could get us numbers that show us what the, you know, what the increase in fair paying ridership is versus non fair paying ridership and what that balance is and was in the past.

Because if it's all doing so much better, I'm kind of curious why we keep having to send at least a half a billion dollars a year in bailout and $5 billion over the last, I think is three years or four years. So, and I don't want to take up the, I don't want to take up the time of the.

Just to clarify your question, in terms of what the total dollars that come in through fares versus other revenue streams. Is that your?

No. We passed bills in the past that another rules that allow, like, students to ride for free. So, is the ridership increase coming from that sector or is it coming from the paying sector? Because that paying sector is the one that was optional.

They were susceptible to some of the issues we had talked about that have apparently been addressed. And so, you know, for some of us, we're curious what that increase has been, and it's attributable to people regaining their confidence, and those are the people that have the choice to ride or not to ride.

They're not stuck with having to ride. And so, I think it's, for us, it's better to make that issue really clear, so we understand that we're actually making progress on the part that was broken so that we don't have to keep coming up with bailouts.

The other part is if we're doing $590 million of loans, that means we're taking money away from projects. And I can understand the concerns of the Mayor of San Jose that their projects could be at risk if money has to go somewhere else. So, thank you very much. I don't have any further.

Thank you very much. Senator Choi.

Yeah. Regarding the free riders by escaping the fare or whatever you call, turnstile jumpers, I wonder, not just BART, but any transit system, it'll be common sense to have one security guarding and that cost versus lost revenue from skippers.

So, if somebody does that analysis and then invest money by placing a security at the turnstile, is it common sense?

Okay, thank you very much. We have a motion. Any further discussion? Then I would ask if you please call the roll on Assembly Bill 117.

[Roll Call]

That Bill is 9 to 4. We will put that on call. And since Senator Menjivar, since Senator Menjivar is here, I would ask that we lift the call on AB 107 and call the absent members.

[Roll Call]

And that is nine to four. And we will put that Bill on call. So, I would ask members of the Committee, we're going to recess, but I will call us back into session to lift the calls whenever a member that hasn't voted walked into the room. So, thanks, everyone, for their work in this hearing. We will stand—I'm sorry?

Found of that a bunch of people are delayed on flights, so, we will recess till 1:30 and come back in here and lift the calls for the members at 1:30. Both of them, they require 10 votes. Each of them has nine right now. So, we will recess till 1:30 and we will—both those bills are on call.

Thank you to everyone for participating in this hearing.

I will call the Senate Budget and Fiscal Review Committee back to order. We have two bills that are on call. I'll ask that we lift the call on AB107.

[Roll Call]

That Bill has 11 votes and it is out. We will move to AB117. The Committee on the Budget, Bay Area Transit Assistance, please call the absent Members.

[Roll Call]

That Bill has 11 votes is out. And I want to thank the two Members for flying all the way in to be able to be here to cast these votes. And the Senate Committee on Budget and Fiscal Review stands adjourned.