BILL ANALYSIS
AB 2065
Page 1
Date of Hearing: May 19, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2065 (Calderon and De La Torre) - As Amended: May 3, 2010
Policy Committee: Housing and
Community Development Vote: 8 - 0
Local Government 9 - 0
Urgency: Yes State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill allows the City of Downey to expand their
redevelopment area and use additional tax increment financing to
recoup rent and improvements it is making related to the Tesla
Motors project.
FISCAL EFFECT
1)The bill authorizes an expansion of an existing redevelopment
project area and allows up to $30 million in new tax increment
funding - which includes local property taxes diverted from
the county, special districts, and school districts - to be
used to finance repayment of rent and improvements made by the
City of Downey.
2)After accounting for pass-throughs required by current law,
about one-third of the total increment will represent property
taxes diverted from school districts, which under the terms of
Proposition 98, will be backfilled by the GF. Assuming about
$1 million in tax increment annually, the increase in GF costs
would be about $330,000.
3)This estimate assumes that, absent this increment, the project
would move forward and/or property tax growth would occur in
the parcels affected by this bill without the increment
financing.
SUMMARY (CONTINUED)
Specifically, this bill:
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1)Makes legislative findings that extraordinary measures are
required in order to address the current economic recession
and the unusually high employment rate, and that an amendment
of the territory specified in this bill to a project area of
the city of Downey will create 1,200 new clean-tech and
career-ladder jobs, encourage green technology production and
further stimulate economic revitalize in the region.
2)Allows the redevelopment agency of the City of Downey to add
two parcels, as described, to the redevelopment project area
within the city upon adoption of an ordinance, adopted by the
city council.
3)Specifies that the agency may only collect tax increment
dollars (TIF) for the purpose of reimbursing the city for
rental property expenses in the added area, in an amount not
to exceed $30 million from the added project area.
4)Exempts the amendment of the redevelopment plan adding the two
parcels described from the requirements of the Community
Redevelopment Law (CRL)
5)Provides that the Legislature finds and determines that the
prior comprehensive environmental analysis conducted and
certified by the City through an environmental impact report
(EIR) for the Downey Landing Specific Plan (specific plan),
dated February 2002, meets the existing law requirements of
having an EIR for a redevelopment plan amendment, and that no
further analysis under the California Environmental Quality
Act (CEQA) is needed for the purpose of expanding the project
area plan.
6)Establishes a time limitation on the redevelopment agency's
authority to establish loans, advances and indebtedness of no
more than 20 years from the effective date of the ordinance
unless the agency determines an extension is required.
7)States that loans or indebtedness may be repaid over a period
longer than 20 years and allows the redevelopment agency to
establish additional debt beyond the time period if necessary
to comply with the low- and moderate-income housing
obligations.
8)Establishes a time limitation of 10 years that may be extended
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to the project area to establish debt, if the redevelopment
agency makes specified determinations.
9)Establishes a 30-year time limit on the effectiveness of the
redevelopment plan on the added area after which the
redevelopment agency may only pay previously incurred
indebtedness, comply with the low- and moderate-income housing
obligations and enforce existing covenants and contracts.
10) Establishes a 45-year time limit from the effective
date of the ordinance to prepay indebtedness with proceeds
from the property taxes on the added area, except as necessary
to meet the low- and moderate-income housing obligations.
11)Permits the redevelopment agency, once it begins collecting
tax increment but before incurring any bonded indebtedness, to
subordinate the payments required to be made to affected
school districts or community college districts based on a
finding that the agency will have sufficient funds to pay both
the bonded debt payments and the school districts.
12) Makes the provisions of this measure inoperative on or
after January 1, 2012, if the City finds and declares that
Tesla Motors has not constructed a manufacturing operation on
the added parcels.
COMMENTS
1)Purpose . According to the author, this bill would allow the
City to adopt a new redevelopment project area via ordinance,
and thereby, facilitate expedited construction of a new Tesla
Motors automotive manufacturing facility. The author states,
"this time savings is critical given Tesla Motors aggressive
timeline to begin manufacturing of its all electric vehicle
line in the City of Downey. This bill also recognizes that it
will assist in the creation of approximately 1,200 new
clean-tech and career-ladder jobs, encourage green technology
production and stimulate the overall economic revitalization
of the region."
2)State subsidies, local spending . Because redevelopment
agencies divert property tax increment revenues away from
school districts, the State General Fund must backfill those
lost or forgone dollars. In 2007-08, statewide property tax
increment revenues totaled almost $5.4 billion. Because
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schools receive a little over half of the property tax
revenues, the State General Fund's indirect subsidy to schools
may be as much as $2.7 billion statewide. By allowing
redevelopment officials to extend the flow of property tax
increment dollars beyond the statutory deadlines, AB 2065
requires the State General Fund to pay more money to schools
in the future.
3)Tesla Motors . According to the City of Downey, Tesla Motors
has made a commitment to locate a manufacturing facility on
the part of the Downey Landing site to build an-all-electric
car, the Model S. The city states that Tesla has submitted
applications to permit the site. Tesla is renting the site
from a private owner. The city has committed to pay the rent
on the facility and make some infrastructure improvements on
the site for $14 million. Tesla estimates it will not make a
profit on the production of the Model S for five years. The
addition to the redevelopment project area authorized by this
bill, and the authorization for $30 million in tax increment
financing, represents the debt service costs on a bond that
would be issued to enable the city to recoup the payments they
are making for rent and improvements.
The U.S. Department of Energy awarded Tesla Motors $365
million in low-cost loans to finance equipment for the
production of the Model S, which is slated to have a retail
price of $57,400 and get up to 300 miles on a charge.
According to the City of Downey, Tesla Motors has until
January 2012 to use the federal funds. In addition to this
federal funding, through the California Alternative Energy and
Advanced Transportation Financing Authority, administered by
the California State Treasurer, Tesla Motors is expected to
not have to pay sales tax and use tax on the purchase of
manufacturing equipment.
The California Environmental Quality Act . CEQA obligates
public officials to consider the environmental effects of
their decisions. The lead agency that proposes to approve a
project must conduct an initial study to determine if the
project may have significant, adverse environmental effects.
If not, the lead agency issues a negative declaration and,
after a 30-day review period, proceeds with its review and
decision. If the lead agency finds minor effects that can be
mitigated, it issues a mitigated negative declaration and then
proceeds. If the lead agency finds that the effects of the
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project may be significant, it prepares an environmental
impact report (EIR), a document that show public officials how
to avoid or mitigate the project's environmental effects.
4)Substituting the 2002 Environmental Impact Report (EIR) . The
bill as currently written authorizes the City of Downey to use
the environmental impact report (EIR) for the Downey Landing
Specific Plan (specific plan), dated February 2002, The
committee and the Legislature may wish to consider whether it
is appropriate to use a 2002 EIR, which involved a movie
studio and small business park, to substitute for an EIR on an
automotive plant is appropriate. The committee may wish to
amend the bill to require that the Tesla project in the added
redevelopment area shall be subject to review and mitigation
requirements under CEQA.
5)California Redevelopment Law . The Community Redevelopment Law
allows local officials to set-up redevelopment agencies,
prepare and adopt redevelopment plans, and finance
redevelopment activities. The Law repeatedly underscores the
need for the public sector's intervention when private
enterprise cannot accomplish the redevelopment of blighted
areas. Before redevelopment officials can wield their
extraordinary powers of property tax increment funding and
property management (including eminent domain), they must
determine if an area is blighted.
A blighted area must be predominantly urbanized with a
combination of conditions that are so prevalent and
substantial that they can cause a serious physical and
economic burden that can not be helped without redevelopment.
In addition, a blighted area must have at least one of four
conditions of physical blight and at least one of seven
conditions of economic blight.
Predominantly urbanized means that at least 80% of the land in
the project area:
a) has been or is developed for urban uses (consistent with
zoning), or
b) is an integral part of an urban area, surrounded by
developed parcels.
The four conditions of physical blight are:
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a) unsafe or unhealthy buildings;
b) conditions that prevent or hinder the viable use of
buildings or lots;
c) incompatible land uses that prevent development of
parcels;
d) irregular and inadequately sized lots in multiple
ownerships.
The seven conditions of economic blight are:
a) depreciated or stagnant property values;
b) impaired property values because of hazardous wastes;
c) abnormally high business vacancies, low lease rates, or
a high number of abandoned buildings;
d) serious lack of necessary neighborhood commercial
facilities;
e) serious residential overcrowding;
f) an excess of adult-oriented businesses that result in
problems;
g) a high crime rate that is a serious threat to public
safety and welfare.
In order to fund redevelopment, a redevelopment agency keeps
the property tax increment revenues generated from increases
in property values within a redevelopment project area. When
it adopts a redevelopment plan for a project area and selects
a base year, the agency "freezes" the amount of property tax
revenues that other local governments receive from the
property in that area. In future years, as the project area's
assessed valuation grows above the frozen base, the resulting
property tax revenues --- the property tax increment --- go to
the redevelopment agency instead of going to the underlying
local governments.
To get the capital they need to carry out their activities,
redevelopment officials issue property tax allocation bonds.
Redevelopment officials also create long-term debt by signing
development contracts with property owners and builders, and
they take out loans from the underlying city or county.
Redevelopment agencies repay these debts by pledging the
property tax increment revenues that come from the project
area. By capturing property tax increment revenues over the
decades, redevelopment agencies gain access to a generally
steady, long-term revenue stream. Once the tax increment
revenues pay off these debts, the agency ceases to receive its
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share of tax revenues. The other local governments ---
cities, counties, special districts, school districts --- then
enjoy their earlier shares of the now-expanded property tax
base.
The diversion of property tax increment financing never harms
schools because the State General Fund makes up the missing
revenues. The State General Fund automatically backfills the
difference between what a school district receives in property
tax revenues and what the district needs to meet its revenue
allocation limit. When a redevelopment agency diverts
property tax increment revenues from a school district, the
State General Fund pays the difference.
6)Related Legislation . AB 2043 (Torrico) expands the eligible
uses of redevelopment funding to include mortgage assistance
to homeowners. That bill is currently pending in this
committee.
AB 2531 (Fuentes) gives redevelopment agencies additional
authority to provide loans, loan guarantees and other
financial assistance to businesses, assists nonprofits and
public agencies in establishing small business incubators, and
clarifies the City of Los Angeles' authority to apply for and
administer federal funding for economic development. That bill
is currently pending in this committee.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081