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bond issue, were in a position to immediately take advantage of that particular situation. Bonding front-end costs, as you know, are considerable. As a consequence, small businesses were in many cases, I think, unapprised of the existence of this legislation and were suspicious, and rightfully so, in many cases of government, and not aware of the advantages of this. Even when they were aware, they were not really able to take advantage of the situation, so they did not apply in any great numbers. We have had a few applications and we have granted a very few small bond issues for small companies. But, by and large, it was the larger companies, particularly the oil companies and the utilities, which managed to come in and obtain the bulk of this issue.

When I became chairman of this and when the authority changed four of the five members are new with this new administration—we found that, either in one stage or another, some $197 million was committed or nearly committed out of the $200 million bond issue. Almost all of that, as I said, had been committed to very large companies, with many of whom could probably have very well afforded to clean up their own pollution problems. When we had our first meeting, we set aside the remaining $312 million for small businesses.

Secondly, we turned down a request for a continuation of $23 million by Mobil Oil Co. There is also pending before us some $43 million in a request, a single request, by Standard Oil Co. of California. So, by and large, we have about $69 million left in this fund, which, linked with H.R. 78, could be utilized for small companies.

The front-end costs on a bond issue, Mr. Chairman, unless the company is extremely creditworthy and unless it is a sizable company, are just so much that most of the small companies cannot proceed at this point.

We have granted a couple of small issues in very special cases, and particularly we have been able to comfort a couple of cooperatives, such as Sunkist Growers, which is made up of a number of small growers, and we have been able to help them in cleaning up the pollution of their packing plants. But, beyond that, it is almost impossible for a small company to utilize this money.

We feel that, by and large, it serves a good purpose and with the proper guidelines laid down insofar as the companies that should be helped, Mr. Chairman, it will be worthwhile to go back to the legislature and ask for more money. If we could get H.R. 78 coupled up with this, through the ingenuity of the authority and through the guarantees of the SBA and hopefully the ingenuity of the financial institutions of California, we feel we could be of significant benefit to small and medium size companies. Therefore, I think we are almost in a position of being here today asking you to help us redress what I consider to be some of the grievances of small businesses in California, because up to this point, the large companies have been the principal beneficiary. We have the money, or would get the money to help them, or the authorization to help them. Now, we are willing to do that, but we really need this linkup that H.R. 78 will give us.

I want to say something here today, which I hope will not prejudice the other legislation, because I support that very much too. The House of Representatives has passed, I think, in the general agricultural appropriation, a $250 million appropriation, which would allow small

farmers 5-percent money from the Federal Government to help clean up their pollution problems. Now, this will mean that the small farmer will still have some advantage over the small manufacturer. And while I support the other effort wholeheartedly, I would think that if we do not get this linkup and could not, therefore, give our small manufacturers and other companies some benefit, that it would be extremely unfair and one-sided. I believe that secondly, we do have a massive cleanup problem in California. My own feeling is that unless we can get some help in order to help the small businesses, we will be not only unable to help the small businesses, but I think we will be also unable, or certainly unwilling, at this point, to go back to the legislature and ask for more help for the big businesses. If we cannot help the small businesses, I think the general attitude of the authority, and certainly the legislature, will be that we will not help those companies which are in a better position to help themselves than the small businesses.

On that basis, I urge the subcommittee give favorable consideration to H.R. 78.

Mr. SMITH. Mr. Unruh, on the basis of the fact that there are so many uses for soil and water conservation funds, I think it is rather doubtful, even if the agriculture appropriation is approved, that we can rely on that source for much help for pollution control for dairy farmers and feed lots. So, even if that passes, we are still going to have to look to something else.

Now, this $69 million out of $200 million, does that compare roughly to the requirements of small businesses, compared to bigger businesses

Mr. UNRUH. I really cannot answer that. I suppose that both of those amounts are grossly inadequate to even consequentially affect the cleanup problems we have on California Personally I would be willing to go back in and ask for another $200 million from the legislature, and I believe we could successfully prosecute that request if we were able to help small businesses in the process. I would think that probably the $69 million, as contrasted to the amount already let out, would, in fact, represent a reasonable breakdown between the costs of large business and small business. It might be overly generous to the small business, but if we are going to be over generous to anyone, it should be in that direction.

Mr. SMITH. What is happening to the small businesses that have not been able to take advantage of this program for the many reasons that you know, or have been made a matter of record? What have they done in view of the failure to obtain any money like this?

Mr. UNRUH. Well, when the deadlines are upon them, many of them will have, I think, no choice but to go out of business. I just left Congressman Bauman's office, and he has a small business and a prosperous business, I might add. He feels that if he cannot get help, not only in getting this kind of assistance, but in unsnarling some of the tape between the various environmental protection agencies, he simply will have no recourse but to go out of business.

Mr. Smith. In other words, it appears to you, from your experience, that small businesses, unless they have some kind of help, just will not be able, in many cases, to comply with these Government requirements especially since, as far as they are concerned, it is nonproductive equipment?

Mr. Unruh. That is correct. The impact of financing this type of pollution control equipment, and I think Mr. Ring of the Bank of America has done very good charts on this, which I believe he has submitted to this subcommittee on previous occasions, the impact of cleaning up air and water for small businesses is in geometric procession, and is a very staggering amount of money required. Even with this kind of help, and even with the benefit of perhaps long term financing at 4 or 5 or 6 percent below what could be obtained on the open market, assuming they could get it at all, it is still not really ironing out that difference, but it does help.

Mr. Smith. I want to thank you, Mr. Unruh. I believe the subcommittee, after it hears from Mr. Kleppe and considers whatever information he has for us, is ready to start markup sessions and try to do something about this.

Mr. Unruh. Thank you, sir, I appreciate your attention and your allowing me to come here today. Again, I urge the passage of this bill.

[Additional information submitted by the witness follows:]

POLLUTION CONTROL FINANCING IN CALIFORNIA Pollution control revenue bonds are essentially tax exempt debt obligations issued in the name of a public authority to facilitate financing of projects for private industrial firms. The issuing authority is created under a state law. The proceeds are available to borrowers to build and equip pollution control facilities. Forty-nine states have enacted such laws.

The central purpose of revenue bond financing is to make available to businesses an economical source of funds to meet the heavy cost of pollution control. Revenue bonds are advantageous because the interest they yield to the bondholders is exempt from federal and California income taxes. The borrowers benefit because the interest rate they pay on the tax-exempt bonds is less than on money raised through regular loans or bond issues. In addition, the term for repayment is usually longer than for regular loans.

In addition, as with facilities financed by other means, a firm may utilize depreciation, the investment tax credit, and rapid amortization to lessen the financial impact. These forms of assistance ease the way to acceptance of pollution control laws and regulations and minimize economic dislocations.

Pollution control revenue bonds are an obligation of the issuing authority, but their principal and interest are paid from the resources of the actual borrowers, the businesses financing their pollution control facilities. The credit and taxing power of the state or local governments are not involved. Thus the pricing of the bonds—interest and discount, if any—is based on the creditworthiness of the borrower.

In the November 1972 general election, the voters of California approved Proposition 3 authorizing the state legislature to create the California Pollution Control Financing Authority (CPCFA). The Legislature accordingly added Division 27 to the Health and Safety Code (commencing with section 39600) by adopting Chapters 1257/1972, 277/1973 and 1473/1974.

The purpose of the authority is to assist industries in California, through the issuance of revenue bonds to finance facilities and processes which will enable them to meet the environmental quality standards established by the local, state, and federal government.

The CPCFA is initially authorized to issue $200 million in revenue bonds. As of June 11, 1975, a balance of over $27,000,000 is available. This authorization may subsequently be augmented, subject to legislative review. Though CPCFA will be the issuing authority, repayment and servicing will be the obligation of the borrowing firm, and pricing will depend on the credit standing of the borrower in each case. Payment to bondholders will be made from fees, rentals, or other forms of payment by the borrower. The taxing power or credit of the State of California will not be a factor.

The specific procedure in California is as follows:

Applicants must submit an application on a prescribed form indicating the estimated amount required to cure the pollution problem, the proposed method of curing the problem, and details concerning the problem such as copies of documents served on them by governmental agencies indicating that there is a problem. The application fee is $100. Applications are accepted during the quarter, and after the close of each quarter, the Authority determines by resolution those projects which it will finance.

Priorities are established by law as follows:

a. First priority to projects necessary to meet an established federal, state or local deadline for correction of an existing pollution problem caused by existing facilities.

b. Second priority to projects necessary to enable existing facilities to comply with federal, state or local plans for environmental protection but for which no specific compliance date has been established.

c. Third priority to other eligible projects.

In the event eligible applications exceed funds available during the quarter, a further procedure of priorities is established as follows:

1. Projects estimated to cost less than one million dollars.

2. Projects estimated to cost more than one million dollars which provide for pretreatment of wastes discharged into a publicly operated sewerage system.

3. Projects estimated to cost more than one million dollars which provide for conservation and reuse of natural resources.

4. All other eligible projects estimated to cost more than one million dollars.

Projects to correct air pollution problems must be certified by the State Air Resources Board that:

(a) The project is necessary to further compliance with applicable federal, state, and local standards and requirements.

(b) The project is consistent with an approved regional, basin, or state plan for environmental protection.

(c) The facility as designed is in furtherance of the purpose of abating or controlling atmospheric pollutants or contaminants.

Projects for control of water pollution problems must be certified by the State Water Resources Control Board similar to the above, substituting water pollutants for atmospheric pollutants and adding a certification that the project cannot reasonably be financed by being included or otherwise participating in water pollution control project directly funded by a public agency.

Upon receipt of an appropriate application a copy is therefore forwarded to the staff of the Air Resources Board or the Water Resources Control Board, or both (as appropriate) for their review. At least a preliminary clearance is necessary before the application is submitted to the Authority.

If the application meets the above requirements and is of sufficient priority to be within available funds, it is submitted to the Authority for consideration of an “Initial Resolution”. The major purpose of the Initial Resolution is to comply with the Internal Revenue Code requirements that all projects must receive a bond resolution "or other similar action” from the Authority prior to start of construction. This is an extremely important requirement. Under California law no project is eligible if at the time an application is submitted financing has already been obtained from other sources.

When costs of the project are firm and the necessary legal documents have been drafted and approved by staff, a final resolution authorizing issuance of the bonds is submitted for Authority consideration. The particular legal form of the documents to provide such tax-exempt financing is produced by a qualified bond counsel with the cooperation of legal representatives for the applicant and a Deputy Attorney General. The documens necessarily vary at least to some extent for each project. The term of the bonds is related to the life of the pollution control project and to negotiations between the applicant and prospective purchasers of the bonds with the approval of the Authority. If the final resolution is approved, the bonds are sold by the State Treasurer. At the present time, issues which are too small to justify sale of printed bonds, are privately placed with banks or other financial firms.

The Authority is particularly interested in assisting small businesses to correct pollution problems. One of the problems which has not been resolved to date is the cost of the necessary legal documents to make the bond issue tax exempt. To date this cost has proved prohibitive for any project requiring less than one hundred thousand dollars. If Congress enacts legislation authorizing the Small Business Administration to guarantee the payment of rentals or other amounts due to finance correction of small pollution projects, a number of such projects could be combined into a single bond issue thus greatly reducing the overhead cost to each participant.

Any firm which believes its project fits the established criteria for revenue bond financing should contact its bank, investment banker, or financial advisor. The next step is the completion of application forms, which may be obtained from the Authority at the following address:

California Pollution Control Financing Authority,
State Capitol, Room 114,
Sacramento, California 95814,

Tel: (916) 445–9597. When properly arranged, all parties involved can benefit from tax-exempt pollution control financing. The firm gains tax benefits and a substantial saving in interest. The community benefits from the reduction and prevention of pollution. The state and the federal government benefit from prompt observance of their antipollution laws and regulations.

It is estimated that the interest rate on large tax-exempt loans will be approximately 2% per year less than the same loan would be if taxable. The differential for small loans for small companies may be as much as 5% per year. Actual interest rate depends on credit standing of the borrower.

DIVISION 27—HEALTH AND SAFETY CODE AS ENACTED BY CHAPTER 1257/72 AND

AMENDED BY CHAPTER 277/73 AND. CHAPTER 1473/74

DIVISION 27. CALIFORNIA POLLUTION CONTROL FINANCING

AUTHORITY ACT

CHAPTER 1. CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY

ARTICLE 1. GENERAL PROVISIONS AND DEFINITIONS

39600. This division may be cited as the California Pollution Control Financing Authority Act.

39601. The Legislature hereby finds that it is necessary and essential that the state, in cooperation with the federal government, use all practical means and measures to control and eliminate pollution hazards to the environment. The Legislature further finds and determines that industry within this state utilizes processes and facilities which have significant environmental impact. These processes and facilities shall be modified and supplemented to meet the quality standards established and to be established for the control of environmental pollution. Industry needs and requires new methods to finance the capital outlays required for the devices, equipment and facilities utilized in pollution control if they are to rapidly comply with the quality standards established by the state and federal governments, and the alternate method of financing provided in this division is in the public interest and serves a public purpose and will promote the health, welfare, and safety of the citizens of the State of California.

39602. It is the purpose of this division to carry out and make effective the findings of the Legislature and to that end to provide industry within the state with an alternative method of financing in providing, enlarging, and establishing pollution control facilities which are needed to accomplish the purposes of this division, all to the mutual benefit of the people of the state and to protect their health and welfare.

(Amended by Ch. 1473/74, effective 9/26/94.)
39603. As used in this chapter, unless the context otherwise requires :

(a) “Authority” means the California Pollution Control Financing Authority established pursuant to Section 39604 and any board, commission, department, or officer succeeding to the functions thereof or to whom the powers conferred upon the authority by this division shall be given by law.

(b) “Cost” as applied to a project or portion thereof financed under the provisions of this division embraced all or any part of the cost of construction and acquisition of all lands, structures, real or personal property, rights, rights-ofway, franchises, easements, and interests acquired or used for a project, the cost of demolishing or removing any buildings or structures on land so acquired, including the cost of acquiring any lands to which such buildings or structures may be moved, the cost of all machinery and equipment, financing charges, interest prior to, during and for a period after completion of such construction as determined by the authority, provisions for working capital, reserves for principal and interest and for extensions, enlargements, additions, replacements, renovations

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