BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Gloria Negrete McLeod, Chair
BILL NO: SB 1103 HEARING: 2/20/08
AUTHOR: Cedillo FISCAL: No
VERSION: 1/15/08 CONSULTANT:
Ali-Sullivan
Local Economic Development Subsidies
Background and Existing Law
Counties, cities, and their redevelopment agencies engage
in a wide variety of economic development activities to
build their tax bases. Local officials use their
regulatory powers, direct spending, and tax policies to
influence where, when, and how the private sector invests
capital and improves real property:
Regulatory tools include general plans, zoning, and
subdivision standards.
Direct spending includes building public works
projects like dams, water systems, sewers, levees, and
roads. Spending also includes grants, loans, and site
preparation.
Tax policies include lower tax rates for selected
taxpayers and tax abatements where officials return
the revenues to the taxpayers.
Local officials sometimes use their economic development
powers to induce businesses to relocate to their
communities. State law bans counties, cities, and
redevelopment agencies from subsidizing the relocation of
big box retailers and auto malls within the same market
area (SB 114, Torlakson, 2003).
How local officials use their regulatory powers is
relatively transparent because state law requires public
notice, public hearings, and environmental reviews. State
requirements for local budgets, annual financial reports,
and regular audits allow constituents to review most of the
direct fiscal decisions.
Some groups worry that local economic development subsidies
don't get the same public scrutiny as budgets and
regulatory decisions. They want local officials to require
"community benefit agreements" in which private developers
provide job training, local hiring and supplier
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preferences, community services, and affordable housing in
return for the local subsidies. Groups used this process
successfully in downtown Los Angeles for recent
redevelopment projects (1999-2001). To promote these
agreements, they want local officials to report more
information about local economic development subsidies.
Proposed Law
Starting on January 1, 2009, Senate Bill 1103 requires a
city, county, or redevelopment agency to provide
information before it approves any economic development
subsidy within its jurisdiction. The following information
must be available to the public in writing and through the
local agency's internet website:
The name and address of the beneficiary.
The start and end dates, along with the schedule
for the subsidy.
A description of the subsidy, including an estimate
of the total expenditure of public funds or revenue
lost to the local agency.
A statement of the subsidy's public purpose.
Projected tax revenue to the local agency as a
result of the subsidy.
Estimated number of jobs created by the subsidy,
broken down by full, part time, and temporary
positions.
SB 1103 defines an "economic development subsidy" as any
expenditure of funds or loss of revenue to a local agency
of $100,000 or more for stimulating economic development.
The bill provides a non-exclusive list of examples,
including:
Bonds Grants
Loans Loan guarantees
Enterprise zones Empowerment zone
incentives
Tax-increment financingFee waivers
Land price subsidiesMatching funds
Tax abatements Tax exemptions
Tax credits
The bill excludes spending on --- or revenue losses from
--- affordable housing from this definition.
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Before a city, county, or redevelopment agency grants a
subsidy, SB 1103 requires the local agency to hold a public
hearing unless another law already requires a hearing. The
information must remain available to the public during the
term of the subsidy.
Starting October 1, 2010 and every odd year thereafter,
local officials must provide a report on these subsidies.
For subsidies that last 40 years or more, there is a six
year reporting requirement. Every two years, starting
November 1, 2010, local officials must hold a public
hearing to consider comments on these reports. When a
subsidy ends, the local agency must file a final report.
Comments
1.Shedding light . Economic development subsidies are among
the most widely used tools that cities have to redevelop
underperforming areas and stimulate local economies. While
residents benefit from better economic conditions, it is
typically private developers who directly benefit from
these subsidies. SB 1103 provides transparency and
accountability for these decisions. By providing detailed
information at the inception of a project, local
communities will have the necessary information to see the
proposed subsidy's actual costs and benefits. Further, SB
1103 provides the public with biennial reports about a
subsidy's effects, along with a final report at the
completion of a subsidy. SB 1103 does not stop local
officials from giving subsidies for economic development;
instead, the bill gives the public insight into costs and
benefits they might not otherwise understand.
2.Mind your own business . City council members and county
supervisors are local elected officials, directly
responsible to their own constituents. How they promote
local economic development --- regulations, budgets, taxes
--- are questions that should be asked and answered within
each community. Unless there is a compelling statewide
interest in protecting individual rights and property
rights, the Legislature should honor the concepts of home
rule and local control. The Committee may wish to consider
whether state-mandated disclosure reports on economic
development are an unwarranted intrusion into local
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affairs.
3.What the Governor said . Governor Schwarzenegger vetoed SB
103 (Cedillo 2007), a bill that was nearly identical to
this year's SB 1103. His veto message affirmed the
Administration's commitment to open government, but claimed
that the bill did not offer any significant additional
information. The Governor said that "existing procedures
already ensure that the public is informed about all
decisions made by their local government representatives."
He further argued that new local reports would cost the
State General Fund millions of dollars and result in
delaying economic assistance. Given the Governor's
opposition to a nearly identical bill, the Committee may
wish to consider whether SB 1103 will fare better this
year.
4. Successful community involvement . Community benefit
agreements are a recent innovation in which interest
groups, public officials, and developers identify how
proposed projects may benefit local residents. Just as
developers ask for particular concessions --- fee waivers,
tax rebates, public works --- community groups ask for
hiring preferences, job training, and health care benefits.
Communities could use future economic development
subsidies to leverage community benefit agreements. SB
1103 begins to build the data base for these discussions,
but no one really knows how well the practice will work in
a wider context. Rather than create a permanent program,
the Committee may wish to consider putting a sunset on this
new mandate. After two biennial reporting cycles,
legislators could reassess the statute's usefulness.
Should SB 1103 require an evaluation in 2014 and a
potential sunset in 2015?
5.State-level attempts . For nearly 25 years, state law has
required the State Department of Finance to give
legislators an annual report on state tax expenditures (SB
1379, Alquist, 1984). The Legislative Analyst's Office
produces its own evaluation of tax expenditures which is
more detailed than Finance's annual report. The Franchise
Tax Board has looked into a wide range of tax expenditures
for state income and corporate taxes. The California
Budget Project report has offered, Maximizing Returns: A
Proposal For Improving The Accountability Of California's
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Investments In Economic Development (2002). State
officials have started to ask questions about tax
expenditures, but legislators have yet to ask the same
tough questions about the state's direct subsidies.
6.Legislative history . SB 1103 is very similar to SB 103
(Cedillo, 2007) and SB 1268 (Cedillo, 2006); both passed
this Committee on 3-2 votes. SB 1268 died in the Senate
Appropriations Committee. Although SB 103 passed both
houses, Governor Schwarzenegger vetoed last year's bill.
Support and Opposition (2/14/08)
Support : American Federation of State, County and
Municipal Employees AFL-CIO, Affordable Housing Coalition
of San Diego, The California Alliance for Consumer
Protection, California Tax Reform Association, Center for
Policy Initiatives, East Bay Alliance for a Sustainable
Economy, Los Angeles Alliance for a New Economy.
Opposition : California Redevelopment Association,
California Association for Local Economic Development,
California Taxpayers Association, League of California
Cities.