BILL ANALYSIS Ó AB 664 Page 1 ASSEMBLY THIRD READING AB 664 (Ammiano) As Amended April 25, 2011 Majority vote LOCAL GOVERNMENT 9-0 APPROPRIATIONS 17-0 ----------------------------------------------------------------- |Ayes:|Smyth, Alejo, Bradford, |Ayes:|Fuentes, Harkey, | | |Campos, Davis, Gordon, | |Blumenfield, Bradford, | | |Hueso, Knight, Norby | |Charles Calderon, Campos, | | | | |Davis, Donnelly, Gatto, | | | | |Hall, Hill, Lara, | | | | |Mitchell, Nielsen, Norby, | | | | |Solorio, Wagner | ----------------------------------------------------------------- SUMMARY : Revises the special statute that controls how local officials can form, finance, and operate an infrastructure financing district (IFD) along the San Francisco waterfront, at the America's Cup district. Specifically, this bill : 1)Defines various terms for the purposes of an IFD created in the waterfront area of San Francisco, including the following: a) "America's Cup district" means a waterfront district that includes the waterfront area in the City and County of San Francisco designated as America's cup venues, excluding the Rincon Point-South Beach Redevelopment Project Area; b) "America's Cup enhanced financing plan" means an infrastructure district financing plan for an America's Cup district that contains provisions identical to those authorized for a Pier 70 district; c) "ERAF" as the Educational Revenue Augmentation Fund; d) "America's Cup ERAF-secured debt" means the debt that is secured by and will be repaid from the ERAF share and is incurred to finance, an America's Cup district enhanced financing plan; e) "America's Cup ERAF share" as the county ERAF portion of incremental tax revenue committed to an America's Cup AB 664 Page 2 district enhanced financing plan; and, f) "Cruise terminal project" means all phases of the Port of San Francisco's (Port) public works project to build new cruise terminal facilities at Pier 27 in San Francisco and includes any public access and public open space improvements on Pier 27. 2)Specifies that the America's Cup ERAF share produced in the America's Cup district shall only be used to finance the following: a) Construction of the Port of San Francisco's cruise terminal project at Pier 27; b) Planning and design work that is directly related to the Port's Pier 27 cruise terminal project; and, c) Planning, design, and construction of improvements to publicly-owned waterfront lands held by trustee agencies, such as the National Park Service and the California State Parks, and used a public spectator viewing sites for America's Cup related events. 3)Requires that an America's Cup enhanced financing plan provide that the proceeds of ERAF-secured debt are restricted for use to finance directly, reimburse the Port for its costs related to, or refinance other debt incurred, in the construction of the Port's cruise terminal project. 4)Requires 20% in the aggregate of the America's Cup ERAF share allocated to the Port be set aside to finance costs of improvement to federally or state owned waterfront lands approved by trustee agencies for the purpose of public spectator viewing sites for America's Cup related events. 5)Requires the San Francisco Board of Supervisors (Board), before any debt can be issued for the America's Cup district, to submit a fiscal analysis to the California Infrastructure and Economic Bank (I-Bank) for review and approval. 6)Authorizes the I-Bank to circulate the fiscal analysis to other state agencies, including, but not limed to, the Department of Finance, the Department of Housing and Community Development, and the Governor's Office of Planning and AB 664 Page 3 Research, and solicit their comments and recommendations. 7)Requires I-Bank within 30 days from receipt of the fiscal analysis, after considering the comments and recommendations, to take one of the following actions: a) Approve the fiscal analysis if the I-Bank can make the finding that the economic activity proposed to occur as a result of hosting the America's Cup even in California would result in an amount of revenue to the General Fund with a net present value that is greater than the amount of property tax increment that would be diverted from ERAF over the term of the America's Cup district, or, b) Return the fiscal analysis to the Board with specific recommendations for changes that would allow the I-Bank to approve the fiscal analysis. 8)Specifies that if the approved plan allocates to an America's Cup district, as applicable, 100% of the incremental tax revenue of San Francisco, then the IFD shall not make a payment to ERAF, but if the plan allocated less than 100% of the incremental tax revenue of San Francisco to an America's Cup district, as applicable, then the IFD shall pay a proportionate share of the incremental tax revenue into ERAF. 9)Declares that it implements IFD statutes and constitutional provisions. 10)Declares that the property tax increment revenues received under provisions of this measure are not "proceeds of taxes." EXISTING LAW : 1)Clarifies that an IFD can be formed on urban waterfront property. 2)Clarifies that IFDs can be used to finance public infrastructure projects on public trust lands. 3)Specifies that if all of the land within a proposed IFD belongs to a public agency, that agency is a landowner and will be allowed to vote on issues relating to the district. AB 664 Page 4 4)Waives the requirement for an election to form the IFD if all of the land within the proposed IFD is publicly owned. 5)Authorizes environmental remediation work as a type of project that is eligible for IFD spending in San Francisco. 6)Adds, for the purposes of San Francisco, five more examples to the statutory list of activities whose costs are eligible to be covered by an IFD: a) seismic and life-safety improvements; b) landmark rehabilitation; c) structural work on piers; seawalls, and wharves; d) hazardous material remediation; and, e) storm water management facilities, other utility infrastructure, or public access improvements. 7)Clarifies that if an IFD includes tideland and submerged lands, whether filled or unfilled, and finances facilities located on these lands, these facilities must serve and promote uses and purposes consistent with the public trust. 8)Specifies that facilities built by an IFD on tideland or submerged lands are public trust assets subject to the administration and control of the trust grantee of the public lands on which they are constructed. 9)Clarifies that if the facilities built on the trust lands are capitol facilities and are not owned by the public agency administering the public trust land, but are owned and operated by another entity that has a license from or an agreement with the public entity, then those facilities would not become public trust assets. 10)Requires that the proposed infrastructure financing plan for Pier 70 to include all of the following: a) A map and legal description of the proposed district that may include all or a portion of the district designated by the Board in its resolution of intention; b) A description of the public facilities required to serve the development proposed in the district, including those to be provided by the private sector, those to be provided by governmental entities without assistance under this chapter, those public improvements and facilities to be AB 664 Page 5 financed with assistance from the proposed district, and those to be provided jointly; and, c) A financing section that shall contain all of the following: i) A statement that specifies the maximum portion of the incremental tax revenue of San Francisco and of any affected taxing entity proposed to be committed to the district; ii) A limitation on the use of levied taxes allocated to and collected by the district providing that no less than 20% of that amount must be expended on shoreline restoration, removal of bay fill, or waterfront public access to, or environmental remediation of, the San Francisco waterfront; iii) A projection of the amount of incremental tax revenues expected to be received by the district, assuming a period of 45 years from the base year of the infrastructure financing plan; iv) Projected sources of financing public facilities to be assisted by the district, including debt to be repaid with incremental tax revenues; v) A limitation on the number of dollars of taxes that may be divided and allocated to the district. Taxes shall not be divided or be allocated to the district beyond this limitation, except by amendment of the infrastructure financing plan pursuant to the procedures in this subdivision; vi) A date on which the effectiveness of the infrastructure financing plan and all tax allocation to the district will end and a time limit on the district's authority to repay indebtedness with incremental tax revenues received under this chapter, not to exceed 45 years from the date of the Board's resolution of intent to issue bonds to be repaid with incremental tax revenues under this chapter; vii) An analysis of the costs to San Francisco of AB 664 Page 6 providing facilities and services to the district while the area is being developed and after the area is developed and of the tax, fee, charge, and other revenues expected to be received by San Francisco as a result of expected development in the district; vii) An analysis of the projected fiscal impact of the district and the associated development upon any affected taxing entity; and, ix) A statement that the district will maintain accounting procedures in accordance with procedures established for local governments overseeing trusting lands. 11)States that for Pier 70 IFD, the financing plan may contain a provision that allocates a portion of the incremental tax revenues of San Francisco and of other designated affected taxing entities to the Pier 70 IFD. 12)Prohibits a Pier 70 IFD plan from being formed for at least three full fiscal years after the effective date of this bill. 13)Prohibits any new debt secured by the ERAF share to be issued after the 20th year in which the IFD first incurs debt. 14)States that beginning in the 21st year after the IFD first incurs debt; it may collect only the amount of ERAF share necessary to meet ERAF-secured debt (payment and coverage) requirements. 15)Requires the dollar amount for the ERAF-secured debt to be specified in a schedule stating the amount of ERAF share required annually to meet the debt requirements until all ERAF-secured debt is paid in full. 16)Requires that all ERAF share above the annual debt requirements be paid into the state ERAF beginning in the 21st year after the district first incurs debt. 17)Provides that the portion of incremental tax revenue of San Francisco to be allocated to the Pier 70 IFD must be equal to the portion of the incremental tax revenue of the county ERAF proposed to be committed to the Pier 70 IFD. AB 664 Page 7 FISCAL EFFECT : According to the Assembly Appropriations Committee: 1)Diversion of future growth in certain property taxes from school districts to the IFD (referred to as "ERAF-increment revenues"). The state would be required to backfill the property tax revenues diverted away from ERAF, under the terms of Proposition 98 (whereby local property revenues allocated to school districts offset the state's contribution to K-14 education funding on a dollar for dollar basis). Diversion amounts would be approximately $2 million beginning in 2014, rising to $3.6 million in 2042. The net present value of the ERAF diversions over this time period is estimated to be $26 million. The diversions are on property tax revenues that do not currently exist, but will be the ERAF-increment that occurs as a result of the investment and improvements that are envisioned in the legislation and the plan for the IFD. 2)The actual impact of these diversions on the General Fund (GF) depends on the amount of future property tax growth associated with development in the IFD relative to what would have occurred absent the financing mechanism authorized by this bill and the actual economic impact of hosting America's Cup: a) If it is assumed that development of the area within the IFD would occur without tax-increment financing, the future loss to the GF is equal to the amount of ERAF revenues diverted under the bill (future annual increased expenditures of up to $4 million per year); b) If it is assumed that development would not take place without the increment-financing, there would be no General Fund impact. This is the more likely scenario as a strong case can be made that growth will not occur without tax increment or related public financing, and that the bill therefore will not negatively affect the GF; and, c) If it is assumed that San Francisco will host America's Cup and the estimated beneficial economic impacts do occur, then there will be approximately $85 million in new state and local revenues in 2013, with the state receiving about $60 million of the total. The net present value of the tax revenues generated from the America's Cup exceeds the net present value of the proposed ERAF property tax diversion. AB 664 Page 8 3)Administrative costs to the I-Bank of approximately $50,000 for the requirements to review and comment on the fiscal analysis. COMMENTS : Under the Burton Act (Chapter 1333, Statutes of 1968), the state conveyed certain state tidelands along the San Francisco waterfront, generally extending from Fisherman's Wharf to Candlestick Point, to the City and County of San Francisco, through its Port, in 1969 in trust for public trust and Burton Act trust purposes, subject to the obligation on the part of the City and County San Francisco to assume $55 million in state debt obligations then existing relating to the waterfront properties. The San Francisco waterfront is a valuable public trust asset of the state and provides special maritime, navigational, recreational, cultural, and historical benefits to the people of the region and the state. The Port of San Francisco has estimated 10-year capital plan liabilities of $1.9 billion to bring its existing facilities, including facilities listed or eligible for listing on the National Register of Historic Places, to a level of compliance with current codes. Realizing the goals of the Port's waterfront land use plan, the Bay Conservation and Development Commission special area plan and the Port's capital plan and removal of the deteriorating conditions along the San Francisco waterfront are matters of statewide significance. For several years, local officials were reluctant to form IFDs because they worried about the constitutionality of using tax increment revenue from property that was not within the redevelopment project area. When a 1998 Attorney General's opinion allayed those concerns, the City of Carlsbad formed an IFD in 1999 to fund the public works for a new hotel located adjacent to the Legoland theme park. That small project is the only example of local officials' use of the 1990 IFD law. San Francisco's proposal to set up large IFDs may attract more attention and the appellate courts may be asked to determine whether it is constitutional to divert property tax increment to IFDs. In 2005, the Legislature adopted SB 1085 (Migden), Chapter 213, Statutes of 2005, authorizing the Port of San Francisco to enact AB 664 Page 9 infrastructure financing districts to finance specified waterfront improvements. Due to the extraordinary unfunded capital plan liabilities on the Port's property, the City and County of San Francisco is seeking to make various changes to San Francisco's IFD law to authorize the use of IFD moneys on a more diverse group of projects. In February 2010, the BMW ORACLE Racing Team, sailing for the Golden Gate Yacht Club, won the 33rd America's Cup, off the coast of Valencia, Spain. On December 31, 2010, the team designated the City and County of San Francisco to host the 34th America's Cup sailing regatta. The team anticipates holding the 34th America's Cup match in San Francisco Bay in 2013, with preliminary races worldwide beginning in 2011 and in San Francisco Bay in 2012. The Port of San Francisco is currently conducting environmental review under the California Environmental Quality Act (CEQA) of the proposed 34th America's Cup Event at locations on Port property and Golden Gate National Recreation Area lands and proposed improvements to Pier 27 to build a new, state-of-the-art primary cruise terminal for the Port. As proposed, Pier 27 would serve as one of the central America's Cup 34 venues in the proposed America's Cup Village. The bidding for the America's Cup was not unlike bidding for other major worldwide sporting events such as the Olympics or the World Cup. For America's Cup 34, the Event Authority will use nine piers and a two acre upland parcel, rent-free. San Francisco (City) will fund the costs of compliance with CEQA and pay for all transportation and public safety requirements. The City will also fund the construction of the Pier 27 cruise terminal in preparation for the America's Cup Village. According to the Beacon Economics report on the 34th America's Cup, the state is projected to receive $61 million in direct tax benefits (in 2013 dollars) from the 34th America's Cup. The City is expected to realize approximately $23 million in tax proceeds (primarily hotel taxes). All of the City's projected tax proceeds projected to accrue from the America's Cup is expected to be spent covering city services (police, fire, transportation) for the event. In addition, the City has pledged its available property tax increment from future Event Authority long-term development sites to offset the costs of AB 664 Page 10 public improvements at those sites. In addition, the City is funding the construction of a new cruise terminal at Pier 27, currently estimated to cost $97 million. The Legislature may wish to ask the author to specify that the ERAF monies authorized under this measure be used for the purpose of overall maritime facilities in order to be consistent with the general provisions of IFD law related to San Francisco. This measure is similar to AB 1199 (Ammiano), Chapter 664, Statutes of 2010, which revised the special statute that controls how local officials can form, finance, and operate an IFD along the San Francisco waterfront, at Pier 70, on land that is under the jurisdiction of the Port of San Francisco. Support Arguments: Supporters state that because of the competitive nature of the process to land the America's Cup, it is unlikely this development will occur but for the investment of the state's ERAF funds. Renovation of these facilities for America's Cup 34 is unlikely to pencil as a private investment development opportunity, due to extraordinary costs associated with environmental remediation, historic preservation, repair and seismic retrofit of pier structures in the Bay and new infrastructure. Bonding capacity from these proposed IFDs will enable development to move forward enabling America's Cup 34 to generate up to $60.9 million in tax revenue to the state in 2013. Opposition Arguments: Opposition could argue that providing state funding to pay for America's Cup is a large long-term commitment of state funds when the state will only receive the short-term benefits of the additional sales and use tax dollars. Under this measure, the state would lose an estimated $25,578,190 in ERAF funds over a 30-year period. Moreover, as the bill is currently drafted ERAF funds could be used to pay for costs related to the construction of the cruise terminal and not just the underline pier rehabilitation. Analysis Prepared by : Katie Kolitsos / L. GOV. / (916) 319-3958 FN: 0000998 AB 664 Page 11