BILL ANALYSIS SB 341 Page A Date of Hearing: July 3, 2007 ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY Juan Arambula, Chair SB 341 (Lowenthal) - As Amended: April 11, 2007 SENATE VOTE : 39-0 NATURAL RESOURCES 9-0 ----------------------------------------------------------------- |Ayes:|Aghazarian, Brownley, | | | | |Fuentes, Fuller, Hancock, | | | | |Keene, Laird, Salda?a, | | | | |Wolk | | | | | | | | |-----+--------------------------+-----+--------------------------| | | | | | | | | | | ----------------------------------------------------------------- SUBJECT : Geographically-Targeted Economic Development Areas (G-TEDA) and the California Environmental Quality Act (CEQA) SUMMARY : Expands the ways in which a local government applying for an enterprise zone (EZ) designation may meet the requirements of CEQA, while eliminating the ability of these jurisdictions to limit subsequent environmental reviews based on the contents of the initial CEQA documents. Specifically, this bill : 1)Expands the options a finalist for an EZ designation may use to address potential environmental impacts of the proposed EZ to include a negative declaration and a mitigated negative declaration, in addition to the full environmental impact report (EIR), which is provided for in existing law. 2)Deletes the CEQA exemption authority on future projects within an EZ, if the effects of the projects were identified in the EIR prepared as part of the final application procedure, as specified. EXISTING LAW : 1)Provides for the establishment of G-TEDA programs to stimulate business and create jobs in depressed areas of the state SB 341 Page B including authorization for: a) A maximum of 42 EZs, each designated for an initial 15-year period by the Department of Housing and Community Development (HCD). b) A maximum of eight Local Area Military Base Recovery Areas (LAMBRAs), each designated for an eight-year period by HCD. c) A maximum of two Manufactured Enhancement Areas (MEAs) designated for a 14-year period by HCD. Limits MEA designation to impoverished areas along the California-Mexico border. d) One Targeted Tax Area (TTA) within the County of Tulare for a 15-year period. 2)Requires the lead agency in an EZ application, to file an initial study with HCD, the Governor's Office of Planning and Research, and all responsible agencies at the time that the EZ application is submitted to HCD. 3)Requires local governments that receive preliminary EZ designations to prepare an EIR prior to final enterprise zone designation. 4)Provides that no additional EIRs be required for projects within an EZ, if the effects of the project were: a) Mitigated or avoided as a result of the EIR prepared for the area; b) Examined in sufficient detail in the EIR to enable those effects to be mitigated or avoided by specific site revisions, the imposition of conditions, or other means in connection with the designation of the area; or, c) Identified in the final EIR, and the lead agency made written findings that specific economic, social, or other considerations made the mitigation measures or project alternatives identified in the EIR unfeasible. FISCAL EFFECT : Implementation of this bill has no significant state costs or financial impact. SB 341 was referred from the SB 341 Page C Senate Appropriations Committee under Senate Rule 28.8, based on the Chair's determination that the bill does not have any significant costs nor will it cause a serious reduction in revenues. COMMENTS : 1)Purpose of the bill : EZs play a key role in developing communities, while CEQA plays a key role in protecting the environment. This bill is important because it creates efficiency in the EZ designation process and upholds CEQA standards. According to the California Association of Enterprise Zones, an EZ designation related EIR can cost a community upwards of $100,000 and does not necessarily provide any additional environmental protection to the area. 2)California's G-TEDA programs : The four G-TEDA programs (EZ, LAMBRA, MEA, and TTA) comprise the second largest state investment in economic development. The G-TEDA programs are based on the economic principle that targeting significant incentives to lower income communities allows these communities to more effectively compete for new businesses and retain existing businesses, which results in increased tax revenues, less reliance on social services, and lower public safety costs. Residents and businesses also directly benefit from these more sustainable economic conditions through improved neighborhoods, business expansion, and job creation. Under the G-TEDA programs, businesses and other entities located within the area are eligible for a variety of local and state incentives. Local government incentives can include writing down the costs of development, funding related infrastructure improvements, providing job training to prospective employees, or establishing streamlined processes for obtaining permits. The state also offers a number of incentives, including: tax credits, special tax provisions, priority notification in the sale of state surplus lands, access to certain Brownfield clean-up programs, and preferential treatment for state contracts. Below is a chart comparing the state tax incentives offered to businesses located in a G-TEDA. SB 341 Page D ------------------------------------------------------------ | Comparison of State Tax Benefits by Targeted Area (2005) | ------------------------------------------------------------ |---------+--------+---------+---------+----------+----------| | | Hiring | Longer | Sales |Accelerate| Lender | | | Credit | NOL<1> | and Use | d | Interest | | | | Carry- | Tax |Depreciati|Deduction | | | | Forward | Credit | on | | | | | Period | | | | |---------+--------+---------+---------+----------+----------| |Enterpris| X | X | X | X | X | | e Zone | | | | | | |---------+--------+---------+---------+----------+----------| |Manufactu| X | | | | | | ring | | | | | | |Enhanceme| | | | | | | nt Zone | | | | | | |---------+--------+---------+---------+----------+----------| |Targeted | X | X | X | X | | |Tax Area | | | | | | |---------+--------+---------+---------+----------+----------| | Local | X | X | X | X | | | Agency | | | | | | |Military | | | | | | | Base | | | | | | |Recovery | | | | | | | Area | | | | | | ------------------------------------------------------------ ------------------------------------------------------------ |Source: Legislative Analyst's Office | ------------------------------------------------------------ By far, the largest G-TEDA business incentive is the income tax credit given for hiring certain targeted employment populations. According to the California Budget Project (CBP), in 2003, businesses located within an EZ claimed $299.3 million in hiring, and sales and use credits. Approximately $1.5 billion in tax credits and deductions have been claimed since 1986. CBP estimates that claims of G-TEDA related credits grew 19-fold between 1993 and 2003. According to the Legislative Analyst's Office, approximately 60% of the hiring credits are filed by small and medium-sized -------------------------- <1> NOL= Net Operating Loss SB 341 Page E businesses - businesses with assets under $5 million . However, approximately 65% of the total value of the credits claimed are from businesses with assets over $1 billion . Similarly, approximately 50% of the total value of the credits claimed went to companies with receipts of over $1 billion . 3)CEQA and EZ designation : Applying for an EZ designation is considered a discretionary act under CEQA. As such, applicants are required to evaluate the potential environmental impacts of the action prior to engaging in the actual activity. Under CEQA, the lead agency is responsible for undertaking an initial study to determine whether a project, (i.e. designation as an EZ), would have a significant adverse effect on the environment. If during the initial review, the lead agency determines a project will result in a significant adverse impact on the environment, an EIR must be prepared. In general, an EIR describes the proposed project, identifies and analyzes each significant environmental impact resulting from the project, and identifies possible mitigation measures to reduce the potential environmental adverse impacts. Sometimes, however, the initial study identifies no adverse effects of the project, and under general CEQA law in the Public Resources Code, the lead agency may adopt a Negative Declaration. CEQA law also authorizes the adoption of a Mitigated Negative Declaration when the initial study determines that the potential effect of the project could be significant, but the impacts can be reduced to a level that is less than significant through project revisions. Contrary to CEQA law in the Public Resources Code, the EZ Program requires the preparation of an EIR, regardless of whether the designation of the EZ would result in a negative environmental impact, or whether those impacts could be appropriately mitigated. It is not entirely clear on how this contrary application of CEQA was established. One theory is that the mandatory EIR was a public policy accommodation for allowing local jurisdictions to comply with CEQA in two phases: submittal of an initial study with the initial application and the EIR at the time of the final application. As the EZ designation process was designed to be very competitive, it is conceivable SB 341 Page F that the compromise would save unsuccessful applicants from meeting the full requirements of CEQA review. Another theory is that the EZ Program's environmental review requirements were an early version of the 1994 policy innovation of the Master EIR authority under CEQA, which provides detailed environmental review of plans upon which the analysis of subsequent related development projects could be based. To the greatest extent feasible, the Master EIR evaluates the cumulative impacts, growth inducing impacts, and irreversible effects of subsequent projects. In theory, future projects can move forward more quickly thereby saving time and money during the implementation stage of a project. While the origins of the EZ Program requirements for an EIR are unclear, it is clear that EZ administrators, consultants, and businesses are very interested meeting the general requirements of CEQA rather than the alternative process. The language in this bill was carefully developed in consultation with senior policy staff in the Senate with responsibility for CEQA related legislation. There is no known opposition to this bill. 4)G-TEDA Reforms : In the winter of 2005, the Assembly Committees on Revenue and Taxation, and Jobs, Economic Development, and the Economy (JEDE) held a series of hearings on the G-TEDA programs. A summary of these hearings, including background materials, are available on the JEDE Committee website at www.assembly.ca.gov During the course of these hearings, the Committees reviewed current and best practices related to designation, management and monitoring, and use of business incentives available through the G-TEDA programs. As a result of these hearings, JEDE developed a list of 47 recommendations on how to improve the overall G-TEDA programs. SB 341 addresses concerns raised during the hearings and puts forward an innovative solution to the recommendations on modifying the environmental review process. 5)EIRs and Other G-TEDAs : In developing a package of 2006 reforms, JEDE recommended that differences between the operation and management of the different G-TEDA programs be eliminated, unless the programmatic difference was necessary to accomplish a specific public purpose. This bill proposes SB 341 Page G to make important changes to the EZ CEQA compliance portions of the G-TEDA programs, but is silent on its application to the MEA, TTA, and LAMBRA programs. 6)Proposed amendments : Staff understands that the author will request amendments in Committee to add an urgency clause and specify that the provisions in this bill apply to EZ applications submitted on or after October 1, 2007. REGISTERED SUPPORT / OPPOSITION : Support California Building Industry Association California Business Properties Association California Chamber of Commerce California Retailers Association City of Santa Ana City of Live Oak City of Marysville City of Yuba City Long Beach Chamber of Commerce Siskiyou County Santa Ana Enterprise Zone Stanislaus County Wine Institute Yuba-Sutter Enterprise Zone 1 Individual Opposition None known Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916) 319-2090