BILL ANALYSIS                                                                                                                                                                                                    Ó



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          ASSEMBLY THIRD READING
          AB 664 (Ammiano)
          As Amended  April 25, 2011
          Majority vote 

           LOCAL GOVERNMENT    9-0         APPROPRIATIONS      17-0        
           
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          |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 








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               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 








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            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.









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          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 








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               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 








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                 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.









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           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.








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          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 








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          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 








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          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










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