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). 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 AB 664 -- 6/29/11 -- Page 4 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 AB 664 -- 6/29/11 -- Page 5 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 AB 664 -- 6/29/11 -- Page 6 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 AB 664 -- 6/29/11 -- Page 7 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 AB 664 -- 6/29/11 -- Page 8 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 AB 664 -- 6/29/11 -- Page 9 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 AB 664 -- 6/29/11 -- Page 11 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.