BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Dave Cox, Chair
BILL NO: AB 2531 HEARING: 6/30/10
AUTHOR: Fuentes FISCAL: No
VERSION: 6/23/10 CONSULTANT: Detwiler
REDEVELOPMENT AGENCIES' POWERS
Background and Existing Law
The Community Redevelopment Law allows local officials to
set-up redevelopment agencies, prepare and adopt
redevelopment plans, and finance redevelopment activities.
Redevelopment officials have access to two extraordinary
powers to eradicate blight: State General Fund subsidies
that support property tax increment financing and
extraordinary eminent domain powers. The Law repeatedly
underscores the need for the public sector's intervention
when private enterprise cannot redevelop blighted areas.
During the current recession, unemployment and
under-employment have increased to levels not seen in
recent years. Local officials want to use their
redevelopment powers to retain and create jobs,
particularly in the emerging green sector industries and
for sustainable development.
Proposed Law
I. Redevelopment definition . The statutory definition of
redevelopment recognizes three themes:
Planning, development, replanning, redesign,
clearance, reconstruction, rehabilitation of blighted
areas.
Providing appropriate residential, commercial,
industrial, public, or other structures or spaces,
including recreational facilities.
Payments to schools and community colleges.
Redevelopment officials want legislators to expand this
definition so that they can directly engage in job creation
programs.
Assembly Bill 2531 expands the statutory "redevelopment"
definition to include activities that result in the
provision of employment opportunities. This provision
AB 2531 -- 6/23/10 -- Page 2
automatically expires on January 1, 2018. [See 1 & 1.5 of
the bill.]
II. Redevelopment description . Current law describes
three redevelopment activities:
The alteration, improvement, modernization,
reconstruction, or rehabilitation of structures.
The provision of open space, public or private
buildings, structures, and improvements.
The replanning, redesign, or development of
undeveloped areas that meet certain conditions.
Redevelopment officials want legislators to expand this
description so that they can provide direct assistance to
businesses and job programs.
Assembly Bill 2531 expands the statutory description of
redevelopment to include:
Direct assistance to businesses in connection with
new or existing facilities within project areas for
industrial or manufacturing uses. This direct
assistance can include loans, loan guarantees, other
financial assistance, and providing or replacing
machinery or equipment where the assistance will
either :
o Result in retaining or expanding
employment in industrial or manufacturing jobs,
or
o Achieve any of the following:
Reduce greenhouse gas
emissions.
Increase the use of clean,
renewable, or alternative energy.
Increase energy efficiency.
Increase the use of recycled
and locally sourced materials.
Increase efficiency in water,
wastewater, and stormwater systems.
Increase the efficiency of
construction methods.
Reduce demolition and
construction-induced pollution and waste
material generation.
Improve indoor air quality.
Reduce building operation costs
through operation and maintenance
AB 2531 -- 6/23/10 -- Page 3
efficiency.
Reduce public infrastructure
costs for development.
Job training, job placement, apprenticeship and
preapprenticeship programs relating to construction or
business operations in project areas.
This provision automatically expires on January 1, 2018.
[2 & 2.5]
III. Redevelopment purposes . Current law declares that
the fundamental purpose of redevelopment has three themes:
Expand the supply of affordable housing.
Expand job opportunities.
Provide an environment for social, economic, and
psychological growth and well-being.
Redevelopment officials want legislators to add a fourth
theme to this statutory declaration.
Assembly Bill 2531 adds the attraction and retention of
businesses in order to enhance employment opportunities to
the statutory declaration of redevelopment purposes. This
provision automatically expires on January 1, 2018. [3 &
3.5]
IV. Los Angeles economic development . Current law tells
community redevelopment agencies that they have access to
the services provided by city or county planning,
engineering, or other departments. If requested by the
city council or county board of supervisors, redevelopment
agencies can apply for federal housing and community
development grants and carry out those programs. Current
law tells redevelopment agencies that they can accept
financial assistance from public or private sources, and
they can accept other assistance for any redevelopment
project from the state or federal government, or public or
private sources.
The City of Los Angeles has a First Deputy Mayor who serves
as the Chief Executive for Economic and Business Policy,
advocating for investment and jobs by working with the
City's Department of Water and Power, the Port of Los
Angeles, and the Los Angeles World Airports. However, Los
Angeles doesn't have an economic or community development
AB 2531 -- 6/23/10 -- Page 4
department that coordinates municipal efforts to attract
and retain private investment and jobs. City officials
want their Redevelopment Agency to take on economic
development duties in addition to its existing
redevelopment efforts.
Assembly Bill 2531 allows the Redevelopment Agency of the
City of Los Angeles, if requested by the Los Angeles City
Council, to:
Prepare state and federal economic development
grant applications and to spend grant funds both
inside project areas and outside project areas, but
within the City.
Accept other assistance from the state and federal
government or public or private sources, and spend the
money for economic development activities both inside
project areas and outside project areas, but within
the City.
This authority for Los Angeles automatically expires on
January 1, 2018. [4] AB 2531 also contains a legislative
declaration regarding this special legislation for Los
Angeles. [11]
V. Plan amendments prohibited . The redevelopment plan for
every project area must include a time limit for creating
debt, a time limit on the receipt of property tax increment
revenues, a time limit on the plan's effectiveness, a time
limit on the use of eminent domain, and a cap on the amount
of property tax increment revenues.
Redevelopment officials can extend or raise these limits,
but the extensions and increases usually boost the amount
of property tax increment revenues which, in turn,
increases the amount of the indirect subsidies paid by the
State General Fund. Redevelopment officials want to
reassure state officials that their request to tackle job
creation and business activities won't increase the State's
costs.
Assembly Bill 2531 prohibits redevelopment agencies from
amending their redevelopment plans to increase or extend
the plans' limits to implement the authority that AB 2531
grants. This provision automatically expires on January 1,
2018. [5]
AB 2531 -- 6/23/10 -- Page 5
VI. Small business incubators . In the 1990s, the
Legislature allowed five redevelopment agencies to
experiment with small business incubators. Redevelopment
officials in Healdsburg, Long Beach, Los Angeles, Oakland,
and Signal Hill could help other public agencies and
private nonprofit corporations establish small business
incubators, including providing loan guarantees.
Redevelopment officials had to report about these
activities to their city councils. None of the five
agencies used that temporary authority. This provision
sunsetted on July 1, 1999 (AB 1813, McDonald, 1993).
Redevelopment officials say that private lenders and the
federal Small Business Administration are unwilling or
unable to make capital available to small businesses. They
want to help set up small business incubators to stimulate
investment and create jobs.
Assembly Bill 2531 allows redevelopment agencies to help
public agencies and private nonprofit corporations
establish small business incubators. AB 2531 allows
redevelopment agencies to provide loan guarantees to small
businesses located in project areas. The bill relies on an
existing statute to define "small business." This
provision automatically expires on January 1, 2018. [6]
VII. Construction projects . Current law generally does
not allow redevelopment agencies to construct buildings for
residential, commercial, industrial, or other uses.
However, redevelopment agencies can build foundations and
other structures as part of site preparation.
Nevertheless, current law specifically allows redevelopment
agencies to build:
Relocation housing.
Affordable housing, both inside and outside project
areas.
Public works inside project areas.
Public works outside project areas (SB 93, Kehoe,
2009).
School facilities inside project areas.
Transit and parking facilities in Los Angeles
County and larger cities.
AB 2531 -- 6/23/10 -- Page 6
Redevelopment agencies want the power to construct
buildings that they can fund under other provisions of AB
2531.
Assembly Bill 2531 allows redevelopment agencies to
construct buildings for public agencies and private
nonprofit corporations with small business incubators. AB
2531 also allows redevelopment agencies to construct
buildings for industrial and manufacturing purposes if they
meet the bill's criteria for efficient and sustainable
businesses. This provision automatically expires on
January 1, 2018. [7 & 7.5]
VIII. Construction loans . Current law allows
redevelopment agencies to loan money to rehabilitate
commercial buildings within project areas (AB 1290,
Isenberg, 1993). Redevelopment officials want to expand
their construction financing powers.
Assembly Bill 2531 allows redevelopment agencies to provide
loans, financial guarantees, or other financial assistance
to owners or tenants in a project area for:
Rehabilitating commercial structures in the project
area.
Retaining or expanding employment in the project
area.
Increasing the energy efficiency of buildings in
the project area.
New industrial or manufacturing buildings,
providing or replacing machinery equipment in those
facilities, or job programs in project areas.
This provision automatically expires on January 1, 2018.
[8 & 8.5]
IX. Facility and equipment loans . Current law allows
redevelopment agencies to finance facilities and capital
equipment within a project area. However, redevelopment
officials must find that the assistance:
Is necessary for the development's economic
feasibility, and
Can't be obtained on economically feasible terms in
the private market.
(AB 1290, Isenberg, 1993). Redevelopment officials want to
expand their ability to finance facilities and equipment.
AB 2531 -- 6/23/10 -- Page 7
Assembly Bill 2531 allows redevelopment agencies to
construct industrial or manufacturing buildings if they
meet the bill's criteria for efficient and sustainable
businesses. This provision automatically expires on
January 1, 2018. [9 & 9.5]
X. Legislative findings . Some redevelopment attorneys say
that the current law may already allow some of the
activities authorized by AB 2531. Because most of the
bill's provisions sunset on January 1, 2018, those
attorneys don't want AB 2531 to create the impression that
the sunset clauses eliminate the statutory authorities that
already exist. They want the Legislature to clarify the
bill's intent.
Assembly Bill 2531 declares that its purpose is to clarify
existing law and to provide additional authority to
redevelopment agencies to help businesses retain and
attract new jobs. AB 2531 declares that it shouldn't be
construed to limit or restrict the authority that agencies
had before the bill.
Comments
1. Jobs, jobs, jobs . Already called the Great Recession,
the current dismal economy has produced the highest rates
of unemployment and under-employment in decades. Private
firms have trouble finding investors willing to lend
capital to improve and expand their operations. Local
officials face increased demands for public services while
coping with declining sales tax revenues and shrinking
property tax bases. The Legislature created redevelopment
agencies so that local officials could fight blight.
Current law recognizes that redevelopment agencies'
intervention is essential when private firms won't invest
and other public programs can't fill the economic gaps. If
there were ever a time for redevelopment officials to focus
their attention on the retention and creation of new jobs,
it would be during this Great Recession. For the next
seven years, AB 2531 allows local officials harness
redevelopment agencies' extraordinary powers to help
private businesses keep existing jobs and grow the
workforce.
AB 2531 -- 6/23/10 -- Page 8
2. Mission creep . Redevelopment began 60 years ago as
slum clearance and urban renewal. Over the decades,
legislators expanded the original purposes to include
public works to stimulate private investment and develop
affordable housing. The focus remains on development
spending as the way to eradicate physical and economic
blight. A redevelopment agency can rehabilitate a run-down
movie house into a community theater, but it can't
subsidize the theater troupe. In 1993, legislators allowed
redevelopment officials to finance capital equipment, but
only in connection with the development or rehabilitation
of industrial or manufacturing facilities, and only when
private funding isn't feasible. AB 2531 allows
redevelopment officials to move away from paying for
physical projects to paying for programs and services. The
bill marks a significant departure from redevelopment's
traditional purposes. The Committee may wish to consider
whether legislators should endorse this temporary foray
into paying for programs, not just projects. Where does
this mission creep lead?
3. Duplication and overlap . Federal, state, and local
agencies run scores of vocational education, job training,
apprenticeship, and job placement programs. Thousands of
public employees deliver employment and unemployment
services through school districts, community colleges,
public universities, the State Employment and Development
Department, the State Department of Industrial Relations,
the State Department of Education, and the nearly 50 local
workforce investment boards. Section 2 of AB 2531 allows
the 425 redevelopment agencies to spend their property tax
increment revenues on job training, job placement,
apprenticeship, and preapprenticeship programs. In
2007-08, redevelopment officials took in nearly $5.4
billion in property tax increment revenues, up to half of
which was subsidized by the State General Fund's need to
backfill school districts' lost revenues. If legislators
want to spend more State General Fund money on jobs
programs, why run the money through the redevelopment
agencies? Why not just appropriate the funds to the state
government's existing jobs programs?
4. Good ideas for good actors, a bad idea for bad actors .
Some redevelopment agencies have excellent records in
spending public funds to attract and retain private
AB 2531 -- 6/23/10 -- Page 9
investment. Unfortunately, other agencies still struggle
to meet the minimum requirements of state law. Independent
annual audits reveal that some agencies don't even follow
Generally Accepted Accounting Principles, while others have
major audit violations. In the past, when redevelopment
officials asked for expanded powers, the Legislature
limited the exceptions to agencies with valid housing
elements, three years of clean audits, and no excess
housing funds. Earlier this month, the Committee approved
AB 1791 (Monning) which imposed those restrictions on the
agencies that are redeveloping Fort Ord. The Committee may
wish to consider amending AB 2531 to limit the bill's new
authority to redevelopment agencies that meet those minimal
requirements.
5. Protecting the public's investment . When redevelopment
officials help private owners develop and redevelop real
property in project areas, the public knows that the
agency's investment stays put. When redevelopment
officials use current law to help private companies invest
in capital equipment in conjunction with property
development, the public knows the location of that
publicly-subsidized machinery. When redevelopment agencies
use AB 2531 to pay for energy efficiency and green
technologies, experienced redevelopment officials will
insist on covenants that protect the public interest. But
the bill doesn't require that sound practice. The
Committee may wish to consider amending AB 2531 to require
redevelopment officials to ensure that their investments in
machinery and equipment remain in the project areas for at
least the duration of the loan.
6. Missing: oversight and accountability . Job creation is
an important goal and the redevelopment activities allowed
by AB 2531 may succeed. The bill sets up a bold
experiment; the new provisions automatically sunset on
January 1, 2018. However, nothing in the bill requires
redevelopment officials to monitor, report, or evaluate the
new spending. Because the State General Fund indirectly
subsidizes these new efforts, legislators have a fiscal
interest in the bill's outcomes. When redevelopment
agencies sponsor their bill in 2017 to extend the sunset
date, how will future legislators know that the agencies
accomplished what the 2010 legislators wanted? To create
accountability and provide oversight, the Committee may
wish to consider amending AB 2531 to:
AB 2531 -- 6/23/10 -- Page 10
Put the bill's language into a single, easily
understood statutory location.
Require redevelopment agencies that use the bill's
temporary authority to report on their activities.
Require a state agency (e.g., LAO, BSA) to report
to the Legislature by January 1, 2017 on the bill's
effectiveness at retaining and creating jobs.
7. Only in LA ? Most of AB 2531 applies statewide, but two
sections affect only the Community Redevelopment Agency of
the City of Los Angeles (CRA-LA). Section 4 of the bill
allows the Los Angeles City Council to direct the CRA-LA to
operate economic development programs citywide, not just
within the Agency's 23 project areas. As a charter city
with a strong-mayor form of government, Los Angeles has
broad latitude to organize its city government. For
example, the recently appointed First Deputy Mayor is
responsible for organizing a new "Office of Economic
Development and Business Policy" to coordinate all of the
City's job creation and business attraction programs. The
Committee may wish to consider why an agency committed to
redeveloping blighted areas should tackle a broader,
citywide mission. Will the CRA-LA lose its focus during a
seven-year experiment as an economic development agency?
8. Not fiscal . According to Legislative Counsel's Digest,
AB 2531 is not a "fiscal bill" which the Senate
Appropriations Committee must review. Nevertheless, the
bill will affect the State General Fund by allowing
redevelopment officials to spend their property tax
increment revenues over the next seven years to attract
businesses and create jobs. This expansion of
redevelopment's definition and purposes means that local
officials can divert funding away from physical
redevelopment projects to economic development programs.
Because about half of statewide property tax revenues go to
schools, it's fair to say that half of redevelopment
agencies' tax increment revenues come from schools. The
State General Fund must automatically backfill the
difference between what a school district receives in
property tax revenues and what the district needs to meet
its revenue allocation limit. In other words, these
payments to the schools are an indirect state subsidy to
redevelopment agencies. In 2007-08, redevelopment
agencies' property tax increment revenues totaled
$5,364,630,000. That year, the State General Fund paid
AB 2531 -- 6/23/10 -- Page 11
about $2.7 billion to school districts to backfill their
property tax increment revenue losses. The Senate
Appropriations Committee may wish to hear the bill.
Assembly Actions
Assembly Housing & Community Development Committee: 5-0
Assembly Local Government Committee: 7-0
Assembly Floor: 49-25
AB 2531 -- 6/23/10 -- Page 12
Support and Opposition (6/24/10)
Support : City of Los Angeles, California Contract Cities
Association, California Redevelopment Association, League
of California Cities; Cities of Apple Valley, Banning,
Burbank, Camarillo, Concord, Fairfield, Fullerton, Fremont,
Fountain Valley, Garden Grove, Huntington Beach, Lakewood,
La Quinta, Merced, Napa, Palmdale, Rancho Cucamonga,
Salinas, San Bernardino, San Jos?, San Leandro, Santa Cruz,
Santa Fe Springs, Sonoma, Taft, Thousand Oaks, Torrance,
Vista; Redevelopment agencies of Goleta, Lynwood, Merced
County, Napa, Rancho Cordova, Tehachipi; Community Health
Councils, IBEW Local 11, Los Angeles Area Chamber of
Commerce, Los Angeles Conservation Corps, Los Angeles
County Business Federation, Los Angeles County Federation
of Labor AFL-CIO, Los Angeles Economic Development
Corporation, San Carlos Chamber of Commerce, San Gabriel
Valley Economic Partnership, Valley Economic Alliance,
Valley Industry & Commerce Association.
Opposition : California State Association of Counties,
County of Los Angeles.