BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 664 HEARING: 7/6/11
AUTHOR: Ammiano FISCAL: Yes
VERSION: 6/29/11 TAX LEVY: No
CONSULTANT: Detwiler
SAN FRANCISCO'S INFRASTRUCTURE FINANCING DISTRICTS
Allows San Francisco to form special waterfront
infrastructure financing districts for the Port America's
Cup and Treasure Island areas.
Background and Existing Law
Cities and counties can create Infrastructure Financing
Districts (IFDs) and issue bonds to pay for community scale
public works: highways, transit, water systems, sewer
projects, flood control, child care facilities, libraries,
parks, and solid waste facilities. To repay the bonds,
IFDs divert property tax increment revenues from other
local governments for 30 years. However, IFDs can't divert
property tax increment revenues from schools (SB 308,
Seymour, 1990).
Forming an IFD is cumbersome. The city or county must
develop an infrastructure plan, send copies to every
landowner, consult with other local governments, and hold a
public hearing. Every local agency that will contribute
its property tax increment revenue to the IFD must approve
the plan. Once the other local officials approve, the city
or county must still get the voters' approval to:
Form the IFD (requires 2/3 voter approval).
Issue bonds (requires 2/3 voter approval).
Set the IFD's appropriations limit (majority voter
approval).
San Francisco's Waterfront Development Plans
The 1968 Burton Act resulted in transferring the state
tidelands along San Francisco's waterfront to the City and
County of San Francisco which assumed $55 million in state
debt obligations. The Port of San Francisco wants to
promote development, but lacks the public capital to
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attract and retain private investors. The cost to
implement the Port's ten-year capital plan is $1.9 billion.
Naval Station Treasure Island is one of about 30 former
military bases in California closed by federal officials
during the 1990s. Besides the usual problems with
converting a former military base to civilian use, land use
decisions at "T.I." are complicated by the constitutional
public trust doctrine that applies to tide and submerged
lands. The 1968 Burton Act gave the San Francisco Port
Commission jurisdiction over San Francisco's tide and
submerged lands. When considering how to convert Treasure
Island to civilian uses, San Francisco officials worried
about jurisdictional conflicts between its Port and
redevelopment agency. Because a community can have only
one redevelopment agency, the Treasure Island Conversion
Act allowed San Francisco's supervisors to designate a
public benefit nonprofit corporation called the Treasure
Island Development Authority (TIDA) as the redevelopment
agency for the former navy base (AB 699, Migden, 1997).
In 2008, San Francisco voters approved a charter amendment
to divert most of the Pier 70 area's hotel tax and payroll
tax revenues to fund historic preservation and
infrastructure costs. To generate the rest of the needed
money, Port officials plan to use local general obligation
bonds, revenue bonds, and IFD bonds.
In 2010, the BMW ORACLE Racing Team won the America's Cup
in Valencia, Spain. San Francisco will host the 34th
America's Cup regatta along the waterfront. The Port of
San Francisco believes that the cost of rebuilding Piers
30-32, Seawall Lot 330, and Pier 50 will be $625 million.
To generate some of the needed money, Port officials want
to use IFD bonds.
San Francisco's Infrastructure Financing Districts
In 2005, legislators passed special provisions that apply
just to IFDs in San Francisco (SB 1085, Migden, 2005). In
2010, the Legislature repealed those special provisions and
instead enacted a new special statute governing the
formation of IFDs along San Francisco's waterfront,
including special provisions for a San Francisco waterfront
IFD in the Pier 70 area (AB 1199, Ammiano, 2010).
AB 664 -- 6/29/11 -- Page 3
In early 2011, San Francisco created Infrastructure
Financing District No. 1 (Rincon Hill), relying on the
standard IFD statutes. The Rincon Hill IFD is the second
IFD in California.
Proposed Law
Assembly Bill 664 amends the statute governing San
Francisco's waterfront infrastructure financing districts
and creates a new statute for San Francisco's special
waterfront infrastructure financing districts.
I. Waterfront infrastructure financing districts . Current
law requires that the public facilities financed by a
waterfront IFD must be public trust assets controlled by
the Port of San Francisco, except for utilities, public
transportation facilities, and facilities on land that's
free of the public trust. Assembly Bill 664 substitutes
the waterfront IFD for the Port's control and also excludes
any improvements financed by a Treasure Island special
waterfront IFD.
Current law prevents an IFD from overlapping a
redevelopment project area and from supplanting existing
facilities and services. Assembly Bill 664 lifts those
restrictions for a waterfront IFD.
Current law limits IFDs' bonds to 30 years and waterfront
IFDs' bonds to 45 years, measured from the date on which
the IFD issues the bonds. Assembly Bill 664 changes the
starting date for waterfront IFDs' bonds to the date on
which the waterfront IFD received an aggregate of $100,000
in property tax increment revenues.
Assembly Bill 664 contains procedures that allow San
Francisco to buy facilities that a waterfront IFD
constructs, either entirely or in phases, once a facility's
purchase value is more than $1 million.
Current law allows waterfront IFDs to divert property tax
increment revenues, but requires a waterfront IFD to
set-aside at least 20% of those revenues for shoreline
restoration, removal of bay fill, waterfront public access,
or environmental remediation of the San Francisco
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waterfront. Assembly Bill 664 acknowledges a new
requirement that a special waterfront IFD must set-aside
revenues to finance improvements to federally- or
state-owned waterfront lands used for America's Cup public
spectator viewing sites.
Current law allows the Pier 70 IFD to divert property tax
increment revenues, including revenues that would have gone
to the Educational Revenue Augmentation Fund (ERAF).
Assembly Bill 664 defines "affected taxing entity" for the
purpose of diverting these property tax increment revenues.
Assembly Bill 664 provides that these allocations apply to
revenues that are available for allocation under the
applicable laws.
Current law contains an extended statement of legislative
intent regarding the allocation of property tax increment
revenues to a waterfront IFD. Assembly Bill 664 repeals
that statement and enacts a new statement of legislative
intent which declares that these revenues are neither
"proceeds of taxes" or an appropriation subject to Article
XIII B of the California Constitution.
Current law provides procedures for issuing IFD bonds,
including: publishing notices before adopting a resolution
that starts the procedure for issuing IFD bonds, obtaining
2/3-voter approval, and publishing notices before selling
the bonds at a 5% discount. Assembly Bill 664 waives these
requirements for waterfront IFDs.
II. Special waterfront infrastructure financing districts .
Assembly Bill 664 creates procedures and powers for
special waterfront IFDs, specifically for a Treasure Island
special waterfront IFD and a Port America's Cup special
waterfront IFD.
Treasure Island . AB 664 allows the San Francisco
Board of Supervisors to create one or more Treasure Island
special waterfront IFDs. The bill defines the Treasure
Island property to include both Treasure Island (except for
the Coast Guard property) and Yerba Buena Island (except
for the Jobs Corps property). A Treasure Island special
waterfront IFD cannot include a redevelopment project area.
A Treasure Island special waterfront IFD can finance:
Any facilities and services that an IFD and a
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waterfront IFD can finance.
Affordable housing on Treasure Island.
Work to meet seismic safety standards on public or
private property on Treasure Island.
AB 664 prohibits a Treasure Island special waterfront IFD
from financing services or using harbor funds to pay for
its costs or to provide credit enhancement for its debts.
If the Port of San Francisco succeeds the Treasure Island
Development Authority as trustee of public trust lands, AB
664 requires the Port to hold the land in trust under the
TIDA act and not the Burton Act. The Port must deposit any
public trust land revenues into the Treasure Island trust
fund which is separate from the harbor fund created by San
Francisco's charter and the Burton Act.
Port America's Cup . AB 664 defines the Port America's
Cup district to include the San Francisco waterfront that
is or may be an America's Cup venue, including Treasure
Island, but excluding any part of Treasure Island that's in
a Treasure Island special waterfront IFD. A Port America's
Cup special waterfront IFD can finance facilities either in
a Port America's Cup district or on Treasure Island. On
Treasure Island, a Port America's Cup special waterfront
IFD can finance the same facilities and services as a
Treasure Island special waterfront IFD. In a Port
America's Cup district, a Port America's Cup special
waterfront IFD can only finance:
Construction of the Port's maritime facilities at
Pier 27.
Planning and design work for the Port's maritime
facilities at Pier 27.
Planning, design, and construction of improvements
to publicly owned waterfront lands used as public
spectator viewing sites for America's Cup events.
The bill requires a Port America's Cup special waterfront
IFD to spend the proceeds of debt secured by ERAF money for
the construction of the Port's Pier 27 maritime facilities,
including public access and open space improvements. The
bill requires a Treasure Island special waterfront IFD to
spend the proceeds of debt secured by ERAF money only to
finance improvements needed to develop Treasure Island
property.
Set-aside requirements . Current law for waterfront
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IFDs require San Francisco to set aside at least 20% of the
property tax increment revenues for shoreline restoration,
removal of bay fill, waterfront access, or environmental
remediation.
AB 664 waives those requirements for special waterfront
IFDs and imposes different requirements for the Port
America's Cup special waterfront IFD and the Treasure
Island special waterfront IFD.
AB 664 requires a Port America's Cup special waterfront IFD
(but not a Treasure Island special waterfront IFD) to set
aside at least 20% of its share of property tax increment
revenues from ERAF to pay for improvements to federally or
state-owned waterfront lands used a public spectator
viewing sites for America's Cup events.
The bill requires a Treasure Island special waterfront
district to spend at least 20% of its property tax
increment revenues on affordable housing on Treasure
Island. The affordable housing units can be anywhere on
Treasure Island. Assisted rental units must remain
affordable for at least 55 years; assisted ownership units
must remain affordable for at least 45 years. TIDA may
allow sales of assisted ownership units if they are subject
to an equity sharing program. San Francisco officials must
record covenants that implement these requirements.
State review and approval . Before authorizing debt by
either an America's Cup special waterfront IFD or a
Treasure Island special waterfront IFD, San Francisco
officials must submit a fiscal analysis to the California
Infrastructure and Economic Development Bank (I-Bank) for
review and approval. The I-Bank can ask other state
agencies to comment and offer recommendations. AB 664
requires the I-Bank to act within 30 days to either approve
the fiscal analysis or return it with specific
recommendations for changes.
To approve the fiscal analysis, the I-Bank must find that
there is a reasonable probability that the economic
activity proposed to occur from hosting the America's Cup
or the development of the Treasure Island property would
result in State General Fund revenue with a net present
value greater than the net present value of the property
tax increment revenues diverted from ERAF over the term of
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the special waterfront IFD. The I-Bank must consider only
those State General Fund revenues that would occur as a
result of hosting the America's Cup in California or the
development of the Treasure Island property. AB 664
prohibits the I-Bank from considering State General Fund
revenues that would have occurred otherwise.
Property tax increment allocations . If the financing
plan for a special waterfront IFD allocates less than 100%
of San Francisco's property tax increment revenues to the
special waterfront IFD, AB 664 requires the special
waterfront IFD to pay a proportionate share of property tax
increment revenues to ERAF. The special waterfront IFD
doesn't have to pay ERAF if the special waterfront IFD
receives 100% of San Francisco's property tax increment
revenues.
The bill includes a statement of legislative intent which
declares that the special waterfront IFD's property tax
increment revenues are neither "proceeds of taxes" or an
appropriation subject to Article XIII B of the California
Constitution.
III. Treasure Island Conversion Act . The 1997 Treasure
Island Conversion Act allowed San Francisco's county
supervisors to designate a public benefit nonprofit
corporation called the Treasure Island Development
Authority (TIDA) as the redevelopment agency for the former
navy base (AB 699, Migden, 1997). In 2008, the Legislature
modified TIDA's authority for affordable housing, requiring
consultation with a Treasure Island/Yerba Buena Citizens
Advisory Board (AB 1496, Leno, 2008). Because
redevelopment agencies face an uncertain fiscal future, San
Francisco officials now prefer to finance the conversion of
Treasure Island to civilian uses with IFDs instead of with
redevelopment project areas.
Assembly Bill 664 repeals the authority of the San
Francisco Board of Supervisors to designate TIDA as a
redevelopment agency. AB 664 repeals the provisions of the
Treasure Island Conversion Act that relate to TIDA's
redevelopment duties, including the provisions related to
affordable housing and the citizens advisory board. These
changes do not take effect until the San Francisco Board of
Supervisors authorizes the first debt for the Treasure
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Island special waterfront IFD. The bill gives TIDA the
power to administer the public trust responsibilities for
Treasure Island in place of the Port of San Francisco.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . With piers built on bay fill and
mud a century ago, the Port of San Francisco faces a big
price tag to restore its waterfront properties to economic
health. Public investment in these trust lands has lagged
for decades, requiring $1.9 billion to carry out the Port's
capital plan. Generating funds from a mix of local general
obligation bonds, revenue bonds, and IFD bonds can
stimulate private investors' interest in waterfront
development. The Legislature passed special IFD bills for
San Francisco in 2005 and 2010, but the opportunity to host
the next America's Cup regatta convinced Port officials
that they need more changes before they can harness
property tax increment revenues to their economic
development goals. AB 664 augments San Francisco's special
legislation by creating special waterfront IFDs for the
Port America's Cup venues and the conversion of Treasure
Island to civilian uses. Without the special waterfront
IFDs' investments, the trust land property would never
generate enough new property tax revenues to support the
needed improvements.
2. One thing is not like the other . The Port's argument
for tailoring the San Francisco's IFD law to meet the
special needs of the Pier 70 district with last year's
Ammiano bill isn't the same as this year's arguments for
the America's Cup and Treasure Island projects. The
development of Pier 70 can't start without deep public
subsidies, including IFD financing. The mixed-use
development that the Port has planned for Pier 70 is the
result of its long consultation with the maritime industry,
private investors, and the area's neighbors. In contrast,
the idea to use IFD financing to subsidize the America's
Cup regatta's facilities emerged last summer. The Port had
planned to use this section of its waterfront for other
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development, including a cruise ship terminal. Until the
Great Recession scared away real estate investors, private
capital was available for development projects closer to
the Bay Bridge. The Committee may wish to consider whether
the BMW ORACLE Racing Team should pay more for the public
improvements that it wants to host the America's Cup
events. Why should the State General Fund subsidize the
America's Cup IFD bonds?
3. Proving the net positive . San Francisco officials
argue that the state's subsidy for the Port America's Cup
special waterfront IFD and the Treasure Island special
waterfront IFD will result in a net positive revenue gain
for the State General Fund. They say that both the
America's Cup regatta and the Treasure Island development
will generate more economic activity, boosting the State
General Fund's revenues. Los Angeles officials made
similar arguments to justify a time extension for their
Hoover Redevelopment Project. They wanted the state
government to subsidize the public works needed to support
the retrofit of the Los Angeles Memorial Coliseum and
attract an NFL franchise. Legislators allowed that unusual
extension, on the condition that Los Angeles officials
could convince the I-Bank that there would be "a reasonable
probability" that the project would generate State General
Fund revenues greater than the schools' share of property
tax increment revenues. The I-Bank couldn't consider the
revenues that would have occurred without the time
extension (AB 2805, Ridley-Thomas, 2004). AB 664 requires
San Francisco officials to meet the same test. After all,
if San Francisco's waterfront projects really result in a
net positive for the State General Fund, why shouldn't the
state subsidize them?
4. The "but for" test . AB 664 gives the I-Bank just 30
days, but no funding, to review San Francisco's special
waterfront IFD proposals. Although Parkinson's Law holds
that Work expands so as to fill the time available for its
completion, four weeks isn't much time for the state's
financial analysts to dig into the intricate details that
local officials spent months preparing. In those 30 days,
the I-Bank can ask other state departments for comments.
The I-Bank's staff must examine the net present value of
the projects' revenues effects on the State General Fund.
The I-Bank must apply the "but for" test, ignoring revenues
that would have come to the state government anyway. The
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Committee may wish to consider amendments that give the
I-Bank 45 or even 60 days to review San Francisco's
proposals. Further, the Committee may wish to consider
requiring San Francisco to pay for the new duties that AB
664 assigns to the I-Bank.
5. Let my people know . San Francisco must move fast if it
wants to get the America's Cup venues ready in time for the
regatta. In a community known for spirited debate, it will
be a challenge for the Port's officials to get these
complex projects reviewed, approved, built, and operating.
AB 664 speeds up some of the IFD procedures by avoiding the
existing statutory requirements for publishing public
notices before starting the IFD bond hearings and
publishing notices before local officials sell bonds at
discounted rates. But those are exactly the kinds of
public decisions that deserve the public's attention. The
Committee may wish to consider deleting Section 4 from AB
664.
6. Clarifying amendment . Last year, the Legislature gave
San Francisco more time to pay for its waterfront IFD
bonds, increasing the bonds' terms from 30 years to 45
years (AB 1199, Ammiano, 2010). Local officials normally
start the term of a bond from the date on which they
authorize or issue the bond. AB 664 lets San Francisco
start the clock later, not until a waterfront IFD receives
$100,000 in property tax increment revenues. Because it
may take a few years before the property tax increment
revenues appear in strength, this extra time benefits the
repayment schedule. However, the bill uses two different
standards: the date when the waterfront IFD receives
$100,000, and the date when the waterfront IFD receives
$100,000 "in the aggregate." To avoid confusion, the
Committee should delete the "aggregate" standard for the
starting date (page 11, lines 19 & 20).
7. Related bills . AB 664 is not the only bill this year
to modify the IFD statute:
AB 485 (Ma) makes it easier for cities and
counties to use IFDs for transit oriented
development projects. For transit oriented
development projects, the bill also removes the vote
requirement to form a district, issue bonds, and set
the appropriations limits.
AB 910 (Torres) expands the list of projects
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that IFDs can finance to include affordable housing
facilities, economic development, and transit
village projects. For projects that finance
affordable housing, economic development, and
transit villages, the bill also removes the vote
requirement to form a district, issue bonds, and set
the appropriations limits.
SB 214 (Wolk) removes the vote requirement to
issue bonds, form an IFD, and to set the
appropriations limit. SB 214 requires annual
construction progress reports, prohibits big-box
subsidies, and promotes the use of IFDs for
environmental protection and disadvantaged
communities.
SB 310 (Hancock) removes the vote requirement
to form a district, issue bonds, and set the
appropriations limit. SB 310 seeks to use IFDs for
transit priority projects.
Assembly Actions
Assembly Local Government Committee: 9-0
Assembly Appropriations Committee:17-0
Assembly Floor: 79-0
Support and Opposition (6/30/11)
Support : Port of San Francisco; Bay Area Council; Bonnie
Witt Development Services; California Travel Association;
Catholic Charities CYO; City and County of San Francisco;
Community Housing Partnership; Council of Community Housing
Organizations; Haight Ashbury Free Clinics, Inc.; Laborers
International Union of North America, Local Union No. 261;
Northern California Carpenters Regional Council; Operating
Engineers Local Union No. 3; San Francisco Chamber of
Commerce; San Francisco County Supervisor Jane Kim; San
Francisco Building Trades Council; Treasure Island Homeless
Development Initiative.
Opposition : Unknown.