Senate Standing Committee on Rules

All right. The Senate Rules Committee will come to order. Before we begin today's agenda, I'd like to establish quorum. Can we please call the roll?

[Roll Call]

All right, we've established quorum. If there are no objections, I'd like to take up first on today's agenda. Governor's appointment not required to appear. Starting with item 2B. The appointment of Gina Castro Rodriguez. A Member of the Board of State and Community Corrections. I'll entertain a motion. Thank you. That was moved by Senator Laird.

Can we please call the roll?

[Roll Call]

All right, that is a 3-0. Next item on the Governor's appointments not required to appear is Item 2c. Richard Stein for the California Arts Council. I'll entertain a motion. Thank you. That motion was made by Senator Laird. Can we please call the roll?

[Roll Call]

All right, that is 4-0. The last item for Governor's appointments not required to appear is item 2D. Nicholas Hardiman for the California Housing Finance Agency Board of Directors. I'll entertain a motion.

I would move Nicholas Hartman.

Thank you. We have a motion by Senator Laird. Can we please call the roll?

[Roll Call]

All right, we have four votes. Next, I'd like to take up item three. Reference to bills, to committees. I'll entertain a motion, so move. Thank you. We have a motion by Senator Reyes. Can we please call the roll?

[Roll Call]

All right, that is 4-0. The next items I'd like to take up are items four through eight. Committee appointments, Subcommitee ratifications and joint Committee appointments. I'll entertain a motion. Thank you. We have Senator Reyes, who has made the motion. Can we please call the roll?

[Roll Call]

That is 4-0. Next, I'd like to take up items nine through 11. Rule waiver request by Senator Perez and Padilla to suspend SR 22.5. Bill introduction, limitation to introduce additional measures. I'll entertain a motion. We have Senator Lehrer, who's made a motion. Can we please call the roll?

Quick question. Are we holding the roll for Senator Grove on these items? You're not closing the roll, Right? I'm just making sure we're keeping it open. Right. Okay.

I'll entertain a motion. Thank you, Senator Laird, can we please call the roll?

[Roll Call]

All right. Next we have our final items before we go to Governor's appointees. Items 12 through 17. Floor Acknowledgments are entertained. A motion. Thank you, Senator Laird, for the motion. Can we please call the roll?

[Roll Call]

All right. Now we will return to governor's appointee required to appear. Item 1A, the appointment of Andy Nakahata as Executive Director of the California Infrastructure and Development Bank. Mr. Nakahata, you're welcome to come forward. Mr. Nakahata, you'll have the opportunity to provide one to two minutes for your opening testimony to the Committee.

In your opening, you're welcome to introduce any guest and we'll be keeping time here and let you know when you have reached your time. You may begin.

Great. Thank you. Good afternoon, President Pro Tem Limon and Committee Members. Thank you for the opportunity to come before you today. My name is Andy Nakahata and I'm honored to be considered for the California Infrastructure and Economic Development Bank's next Executive Director.

First, I'd like to recognize my wife Allison Fong, who is here today, and my sons Daschle and Paxton, who are watching from college. I also want to thank Governor Newsom for his confidence in me, Director Dee Dee Myers for her guidance and the Members of this Committee for your time and consideration.

I've spent more than 30 years in finance working for multinational banks and a financial guarantee company. My career has focused primarily on infrastructure finance, structuring complex transactions, managing risk and achieving the lowest cost of cost of capital for borrowers. For nearly three decades, I've worked with I Bank from the private sector.

Over the past year, I've had the privilege of serving from within. That experience has strengthened my appreciation for Ibank's mission and the dedicated team that carries it out. What makes I Bank unique is its reach. IBank's work spans the full breadth of California's economy.

We support small businesses in communities across the state and help finance infrastructure projects that strengthen our long term economic resilience. Work that requires careful stewardship. After three decades in the private sector, entering state service was a deliberate choice. As a proud third generation Californian, and the son and grandson of small business owners.

I see this role as an opportunity to leverage the financial experience and networks that I've built over my career to benefit this great state. I look forward to continuing to strengthen our infrastructure, support small businesses and help ensure California's continued growth. Thank you again for your consideration. I welcome your questions.

Any questions or comments? Senator Laird,

Thank you. And I'm just sorry, even though we have met, sorry we didn't get to meet about this appointment, you mentioned in your opening comments the reach that you have and if you look at the small business loan guarantees that you have, how do you make sure there's some sort of equity and where you reach around the state?

I mean, we will hear from Senator Grove, I'm sure on some remote places that exist in her district. I have San Benito county where it just took me three hours to get to a rural place there.

From my how do you make sure that someplace like San Benito county or the rural places in Senator Grove's district are equally represented in what you do?

Thank you. Thank you for question it's really through a combination of a number of different factors. One is working closely with our financial development corporations who work directly with our participating lenders. And it's really encouraging them to expand our program and expand the reach of our program. And part of that is obviously financial driven by them.

The more of the work they do, the more that they are compensated for their work. And then also it's just by monitoring. We monitor where we are doing business. We monitor what, what counties we're doing business in. And then it's giving them feedback and looking to see how we can push further.

And it's also by working with my staff to go and speak at various events, job events and economic development all around the state in order to make sure people are aware of the I Bank's programs. I find that it is probably the least recognized, greatest jewel that the state of California has.

And so it's getting out and telling people that we exist and what our programs do and that we're here to help them.

And if you you were mentioning that you sort of do this data in the aggregate. Well, let's just say you find out that there's eight counties that over a year or two you have not made a loan to. What do you do to try to address reaching into those eight counties?

It's really picking up the phone and working with my staff and talking with our FDC Financial Development Corporation bank presidents because they're the ones directly talking to the Lenders, and it's really inquiring with them, are there lenders and CDFIs? We should be one looking at who service those territories and who are embedded in those communities.

And if we're not working with them or if they're not interested in our program, why not? And to the extent of, you know, if they don't want to work with us and they know about us, that's okay, that's their prerogative, but they need to at least have heard about us.

That's great. And I think sometimes even though we're putting things on the record in questions back and forth, you can just interpret that it's our concern that this happen.

So you could just infer that, I think from me then another question I had is how do you measure sort of the effectiveness in evaluating whether financing is required for a project to go forward? What's your process for that kind of analysis?

For our infrastructure, state revolving Fund program. Yes. Thank you. We really spend time one, it's just working directly with the entity or community who were. Who applies to us. And at this point, it's not a matter of demand outstripping the resources. You know, we're really looking primarily to just evaluate projects and make sure that they're creditworthy.

And as long as they're credit worthy, we really look to work with the programs. And part of my effort, frankly, and what I'd like to see is greater demand from local communities to borrow from us and use us as a resource.

And to the extent that we have the problem that we're then having to prioritize how we use our resources, that would be a great problem to have.

Well, when you indicate that you're going to check to see if they're credit worthy, are there instances where you find out they're not quite credit worthy and you then will work with them to sort of have a project that can move forward?

So creditworthy is usually looking to make sure they have enough revenue coverage to repay the loan. And so it may be working with them to decrease the loan size, which then obviously decreases the loan debt service payments to something that which may be achievable for them.

And that may be working with them to realize what that level is and then encouraging them to look for other partners and other resources which can help Fund a project. We're never usually the sole source of funding and so usually they're bringing multiple sources to the funding to the table.

Okay, thank you. Because I know that. And then also maybe a last question. You were lucky enough to get assigned to the transportation infrastructure accelerator project. And it's estimated that the demand for that could be just short of $9 billion. How are. Are you going to sort of have a strategy for raising that capital? And over what timeline would you do that, do you think?

So we're in the process of evaluating that now. Part of that is we are looking for resources in terms of both staff and being able to hire external consultants in order to evaluate what the demand is. But we will be.

We are working with CAISO directly and any project that comes through needs to come through the CAISO transmission planning process and needs to be approved by that. And so it's really working in tandem with CAISO to evaluate the projects that come out of their. Their process which then fit within the transmission accelerator mandate as well.

And just I know that from what you just said, you have a lot of process still to go through. But does. I don't. I don't have a rel basis for judging that number is 8.9 billion, a massive number. That's daunting.

And you think you'll have trouble doing it or if you spread it out over a long period of time, that's really doable. How do you sort of make that assessment?

So each one of these projects, given the size and scope mandated by SB254 is generally a multi billion dollar project. And we expect the accelerators funding to be a portion of their capital stack and they'll bring other sources of funding to the table.

So it'll be seeing how much each developer or participant chooses to use of the accelerators financing, knowing that there are some limitations on what can be done with the financing.

Okay, I appreciate that. Thank you. You were very responsive. I look forward to, barring some incredible testimony I don't see coming, I look forward to supporting you.

Thank you.

Thank you, Senator Reyes.

Thank you Madam PT Also on the climate incentives bridge loan, that isn't to Fund the entire project, but rather they expect to get reimbursables and other incentives. Then your loan is to provide that bridge, is that right?

So for the transmission catalyst, it's really providing a portion of their financing. We would expect that each one of them will likely put some equity into the project. They may be working with external lenders as well. And then as a once they can get accelerator financing, that also triggers the tax incentives carried on the legislation.

How do you measure the effectiveness? To your knowledge, does I bank have a good track record for their loans?

In terms of I bank loans, one of the ways we measure them is by repayment and default rates. Certainly for our Small Business Finance center, we have a strong track record. Those are obviously business loans to small businesses.

And we have a default rate right around 2%, which, given the nature of those loans, is, I think, very commendable.

Wonderful. Now, on the California Small Business Loan Match, the question was asked by my colleague about making sure that this greatest jewel in California is presented to all counties. How do you work with small business development centers for outreach or do you.

It's really. It's really by working through the network.

You know, there are a number of established economic development networks throughout the state, and it's going to some of the conferences they sponsor, you know, speaking at events that we're invited to speak at and just making sure that we're getting the word out and we're present and people know that this is a resource available to them.

My colleague talked about San Benito. I would like to talk about San Bernardino. You do track law in activity by region or by county, right?

Yes.

So you would be able to tell, I don't know if right now, but you'd be able to tell which counties, as was asked, have not received your services, correct?

Correct. I don't know that off the top of my head, but I could. I have that on my computer at the office? Yes.

So for those pockets, for those areas, for those counties like San Bernardino and the Inland Empire that are overlooked, what additional if the outreach that you have tried has not worked and has not brought in some of those counties that really need your services?

Because, as I noted, you are the greatest jewel in California, what more can be done to make sure that there is more equity so that those counties like San Bernardino are included and are provided, do receive the benefit of I Bank?

So the limitation we have is that we need to have lenders who are working within those areas who are willing to make loans, and we guarantee those loans. And so it's really working with our partners of the state to make sure that there are lenders in those communities, you know, but that's not something that we can mandate. But we. If there are lenders in the communities, we can work with them.

One of the questions that my colleague from San Benito normally asks is, if we call you, will you return the call?

Well, I told him I would call everybody but him back. And I gave your staff my cell phone number.

Wonderful. I appreciate that very much. I will be reaching out to you.

Great. Thank you.

My Last question, Madam P.T. i'm sorry, is do you do or are you willing to do Workshops in those areas that have been overlooked, whether it's in the form of a zoom or in person with the other Senators and myself in our respective areas, not just those of us on rules, but in the caucus who would offer that to you?

Is that something you would be willing to do?

We're always, look, we're always happy to partner with anyone in the Legislature who's interested in helping us serve their communities.

Wonderful. Thank you so much.

Thank you. Thank you, Madam PT Hi.

Hi.

So I have a few questions. You said in your statement, and maybe I miswrote it down or didn't write it down correctly, you're not concerned or you're not worried about demand or supply of resources.

Your actual goal is to make sure you reach out to different businesses or different, not businesses, but different entities and have them apply for the loans that are available to you.

So this is specific to our infrastructure State revolving Fund program where we loan money to municipalities. And the demand hasn't been as high as I would have hoped over the last several years. And so we're not, we're right now not running out of money in that program.

And so we are encouraging municipalities to engage with us and, you know, frankly, learn more about the program.

Okay. So how's your experience been leading up to public finance and investment banking shaped your approach in managing the infrastructure projects at California Infrastructure and Economic Development Bank?

Have, like, what's your, I mean, I know you have a great background, but how's it shaped your, I guess, involvement in government now to apply that wonderful expertise you have to make government work better.

So all my experience has been based on working within teams. And it's always knowing that, you know, no one person's ever going to be the driving factor or the person who's going to be the one who makes something work.

Generally, the best results always going to be by developing a strong team and really working, working the entire project or financing through that team. And that's the way I work with the I Bank. We have an incredible team who are incredibly dedicated to their programs and the mission of Ibank.

And frankly, I will tell you that they are the experts in their programs and they should be the experts in their programs. And my job is to help empower them and frankly, work with them and make sure they have the resources to be able to deliver their programs to the state of California.

So a little bit of outside of the box thinking. I think all of us on the diocese of the PT have financially distressed hospitals. Is there a plan to allow financially distressed hospitals to apply for these low infrastructure, these low interest rate loans.

And the reason why is because they have to do infrastructure improvements with some seismic, sometimes tear down half the hospital and rebuild. And that's a substantial dollar amount that most hospitals can't afford.

So under our current authorization, we can lend to public hospital districts and we have engaged recently in a conversation with one public hospital district who decided to look at other financing options as well. So we certainly are open to that and have no limits against it.

We work with not for profit health care providers in terms of we serve as a conduit and help them access the tax exempt bond market if they're interested in issuing a bond. And then similarly we could serve as a conduit for a for profit healthcare institution as well, but they would generally be issuing a taxable bond.

Okay, and then on the just a little information that I'd like to know on the California Transmission Accelerated Volume Fund, that CTARF Fund does that. When you say transmission, what does the word transmission mean?

Transmission is the getting energy from the source to the user and it's everything that happens in between. We're not going to be all the parts of it, but we're going to be the big line because the legislation requires that this be for 120 kilovolt energy higher lines.

So that's what I wanted to make sure that it meant was the transmission piece for energy delivery. Again, they hate it when I talk about my district. But we have a project that was approved under the Biden Administration and then kept under the Trump Administration.

There were only three kept under the Trump Administration that Biden had issued on energy production. And this is one of the three. It delivers 6 cent a kilowatt power to the end user. Imagine municipalities paying 6 cents instead of 41 cents and it can be immediately dispatched through the transmission lines that are available out there.

It's 1000 hours of battery storage. Nothing catches on fire. It's all underground in a depleted oil field. It's synthetic geothermal actually. It just heats the water inside the reservoir. But you know there's, when you take out water from the reservoir, you have a little bit of oil that comes out too. And there's a huge problem with that.

What I know they're not looking for financing. They have financing both I said from the Biden Administration and the Trump Administration.

What are some where agencies where you work in corel collaborate with like this project's been in the works in the state of California since 2017 and we could deliver 6cent a kilowatt energy to every Californian, including municipalities, firefighting, fire stations. I mean, just imagine that's a 75% savings on your utility Bill.

Is there a tariff or a transmission line cost? Do you know of that? Maybe PG&E goes, well, I don't have to do anything but deliver the power. I'm going to charge you blank dollars. Is that something that you guys get involved in or not?

No, not the infrastructure itself. That would really go into, you know, CAISO and CPUC's bucket.

Okay.

We're really assigned with the financing of the transmission line.

Got it.

Thank you. Thank you. And I actually wanted to just piggyback on something, a theme that I heard which was a little bit about. And you, you referenced this too that you had that you have not seen some of our local municipalities leverage some of the resources that the I Bank has.

And I actually wonder if you can speak a little bit more to that on what you are thinking of changing what is in the process to change so that we can see some of our local municipalities leverage some of those resources.

So part of it is work that I've been doing over the last year. And one step has just been talking.

Each municipality generally, if they're looking at a project and they're looking to access the capital markets, has a municipal advisor and has been engaging with those advisors because frankly, a lot of times they're the gatekeepers of information into the staff.

And so I've been meeting with and working with the municipal advisors to talk to them about our program and why I think it could have an advantage versus the direct capital market. Direct capital markets borrowing. So it's a combination of that. And then it's just been trying to get more information out and make information readily accessible.

We've been working on a pro forma term sheet which we want to put on our website so that borrowers can look and say generally, what's the I bank looking for?

And it's really just making information more accessible because if people have the information, then they're going to learn more about it and they're going to be interested and try to. And they think this might be a program that could work for us.

Thank you. I don't have more questions. And so we're going to open it now to Members of the public who are here. If there are any folks here here in support wishing to testify, please come forward, step up to the microphone and just state your name and your affiliation and your position.

Good afternoon, My name is Sean Boyer and I'm a managing Director with Siebert Williams Shank, an investment bank. I'm here based here in Sacramento. I had the good fortune of knowing Andy Nakahata for. For over 30 years. Believe it or not. He's a lot younger than me, but I've known him for over 30 years.

And the three thoughts that come to mind when thinking about Andy is one, his exceptional expertise, two, principled leadership and three, commitment to the California community. So I'm very happy today and proud to support his nomination to serve as the next Executive Director of I Bank. Thank you.

Thank you.

Hello, my name is Jenna McGann and I'm a partner at the law firm of Oric Harrington and we are the nation's largest bond council, including representing the. State of California and also working with Andy at the I Bank. And I wholeheartedly endorse his nomination.

Thank you.

Good afternoon. Brandon Dias, also with Orrick, Herrington & Sutcliffe. I've been practicing in public finance for over 20 years now and have worked with Andy in a number of capacities over those years. And I support Andy's nomination to the Executive Director of Ibank as well.

Thank you. All right, seeing no other individuals here to speak in support. If there's anyone in opposition, please come forward. All right, seeing no one speaking in opposition. Any. Yes.

Senator Grove, I make a motion to move this governor's appointee to the full Senate floor for a vote.

Thank you so much. Senator Grove has made the motion. We're going to go ahead and call the roll.

[Roll Call]

Thank you. That appointment has been approved to move to the full Senate for confirmation. Thank you so much, Mr. Nakahata.

Great. Thank you very much.

All right, so we are going. Before we move into our Executive closed session, we're going to actually go through the rule one more time. And so we are going to begin with item 2B. Governor's appointments not required to appear. The appointment of Jenna Castro Rodriguez as a Member of the Board of State and Community Corrections.

All right, that item is approved. Three to zero. Next we have governor's appointments not required to appear. Item 2 C. Richard Stein for the California Arts Council.

[Roll Call]

All right, that item is approved. Five to zero. Next we have governor's appointments not required to appear. Item 2 D. Nicholas Hardiman for the California Housing Finance Agency Board of Directors.

[Roll Call]

All right, that item is approved. Five to zero. Next, we had item three, reference to bills and committees. Can we please call the roll?

[Roll Call]

All right, that item is approved. 50. The next items that are items four through eight, Committee appointments, Subcommitee ratifications and joint Committee appointments.

[Roll Call]

All right, that item is approved. 5 to 0. Next, we have items 9 through 11. Rule waiver request by Senator Perez and Padilla to suspend SR 22.45 Bill introduction limitation to introduce additional measures.

[Roll Call]

All right, that item is approved. Three to two. And then you did vote on items 12 through 17 for floor acknowledgments. And I think we are caught up on the public portion of this. So now we're going to be adjourning our public segment of the Senate Rules Committee, and we'll be convening Executive session. We'll take a few minutes while the room clears to begin our Executive session.