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 




          AB 664 -- 6/29/11 -- Page 2



          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).





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          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 





          AB 664 -- 6/29/11 -- Page 10



          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.