BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 2259 HEARING: 7/3/12
AUTHOR: Ammiano FISCAL: Yes
VERSION: 6/18/12 TAX LEVY: No
CONSULTANT: Lui
SAN FRANCISCO'S INFRASTRUCTURE FINANCING DISTRICTS
Makes changes to provisions pertaining to San Francisco's
America's Cup IFD.
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
attract and retain private investors. The cost to
AB 2259 -- 6/18/12 -- Page 2
implement the Port's ten-year capital plan is $1.9 billion.
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. Last year, The
Port of San Francisco believed 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 asked the Legislature to use IFD bonds (AB 664,
Ammiano).
Since last year, sponsors of the America's Cup race have
scaled back race plans. Port officials want to revise San
Francisco's IFD law related to the America's Cup to reflect
those changes.
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).
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.
Last year, Legislators passed AB 664 (Ammiano), which
created a new statute for San Francisco's special
waterfront financing districts.
Proposed Law
AB 2259 -- 6/18/12 -- Page 3
Assembly Bill 2259 amends the statute governing San
Francisco's waterfront infrastructure financing districts
and makes legislative declarations.
I. Waterfront infrastructure financing districts . 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. AB 664 changed 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. AB 2259 clarifies that the district's
term assumes that the district receives incremental tax
revenues for a period no longer than 45 years after San
Francisco projects that the district will have received one
hundred thousand dollars ($100,000) in increment.
AB 2259 authorizes the legislative body to undertake
proceedings for the district as a whole, or as one or more
project areas. The bill provides that if the legislative
body undertakes bond proceedings for the district, it may,
by resolution, allocate the principal amount of the
authorized bond issuance to one or more project areas
within the district. AB 2259 authorizes the legislative
body to increase the principal amount of bonds that may be
issued for a district or a project area within a district.
Assembly Bill 2259 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 any public or private owner of land that
is not within an existing district, but has a boundary line
contiguous to a waterfront district's boundary may petition
the Board of Supervisors to be included in the waterfront
district without an election. AB 2259 provides that the
annexation must take effect on the ordinance's effective
date.
Current law requires that an ordinance to create a district
and adopt or amend an infrastructure plan must establish
the base year for the district. AB 2259 requires the base
year of land annexed into a district to be the fiscal year
in which the assessed value of the annexed land was last
equalized prior to the effective date of the annexation, or
a subsequent fiscal year specified in the ordinance of the
AB 2259 -- 6/18/12 -- Page 4
board approving the annexation.
Current law authorizes the San Francisco City and County
Board of Supervisors to amend an infrastructure plan by
ordinance. AB 2259 provides that the Board may amend the
plan by ordinance for any purpose, including but not
limited to dividing an established district into one or
more project areas, reducing the district area, or
expanding a waterfront district to include the petitioning
landowner's land in the district.
Set-aside requirements . 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 waterfront. Current law
acknowledges a new requirement that a special waterfront
IFD must set-aside revenues to finance improvements to
federal- 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 2259 defines "affected taxing entity" for the
purpose of diverting these property tax increment revenues.
Assembly Bill 2259 provides that these allocations apply
to revenues that are available for allocation under the
applicable laws.
Resolution of intention . Current law requires that
when San Francisco's City and County Board of Supervisors
adopts a resolution of intention to form the district, it
must include information about how incremental property tax
revenue from San Francisco and some or all affected taxing
entities in the district, but none of the local educational
agencies, may be used to finance public facilities. The
resolution must also include a description of the public
improvements and facilities, which includes information
about the proposed location, timing, and projected costs of
the public improvements and facilities. AB 2259 clarifies
that incremental property tax from local educational
agencies may be used, as provided in the statute, or as a
result of the allocation of the ERAF share. AB 2259
provides that the public facility description may consist
AB 2259 -- 6/18/12 -- Page 5
of a reference to the capital plan for the territory in the
district that is approved by the board, as amended.
Current law requires the resolution of intention to include
a financing section that lists:
Projected sources of financing for the public
facilities. AB 2259 provides that the projection may
refer to the capital plan for the territory in the
district that is approved by the board.
A limitation on the number of dollars of levied
taxes that may be divided and allocated to the
district. AB 2259 declares that if San Francisco
divides a district into project areas, the project
areas may share the limit and the limit may be divided
among the project areas or a separate limit may be
established for a project area.
Authorized projects . Current law authorizes a
waterfront district to finance remediation of hazardous
materials; seismic and life-safety improvements;
rehabilitation, restoration, and preservation of Historic
Places; structural repairs and improvements to piers and
seawalls; removal of bay infill; stormwater management
facilities; shoreline restoration; planning and design work
related to the waterfront district; and reimbursement made
to California' Infrastructure and Economic Development Bank
(I-Bank). AB 2259 eliminates the authorization for I-Bank
payments. AB 2259 adds improvements to protect against sea
level rise to the list of authorized uses.
Pier-70 district . Under current law, a Pier 70
district is subject to specified time limitations. AB 2259
requires all of the following conditions to be met before a
Pier 70 district may refinance, refund, or restructure
ERAF-secured debt:
The debt repayment is not extended beyond the limit
established in the statute.
In the case of a refinancing or refunding to
achieve savings, the total interest cost to maturity
on the new debt plus the principal amount of the new
debt does not exceed the total interest cost to
maturity on the debt to be refunded plus the principal
of the debt to be refunded.
The principal amount of the new debt does not
exceed the amount required to defease the debt to be
refunded, refinanced, or restructured, to establish
AB 2259 -- 6/18/12 -- Page 6
customary debt service reserves and to pay related
costs of issuance.
AB 2259 provides that if these conditions are satisfied,
the initial principal amount of the new debt may be greater
than the outstanding principal amount of the debt to be
refunded, refinanced, or restructured.
Definitions . Current law authorizes a district to be
divided into project areas, each of which may be subject to
time limitations, pursuant to the statute. AB 2259
eliminates the time limitation and clarifies that within a
district, one or more project areas may be a special
waterfront district, as defined pursuant to state law.
Current law defines "public facilities" as facilities and
related services authorized to be financed by an IFD. AB
2259 authorizes public facilities to be public owned or
privately owned utility infrastructure if they are
available to or serve the general public. The bill adds
that public facilities include any capital facility fees
used to pay for public facilities.
AB 2259 defines "county tax collector" as the
county-auditor-controller, tax collector, or other officer
responsible for the property tax payment into the funds of
taxing entities.
Current law defines "base year" as means the fiscal year
during which any infrastructure financing plan adopted
becomes effective. AB 2259 defines "base year" as the
fiscal year in which the assessed value of taxable property
in the district was last equalized prior to an ordinance
adopted to create the district's effective date, or a
subsequent fiscal year specified in the infrastructure
financing plan for the district.
II. Special waterfront infrastructure financing districts .
Assembly Bill 2259 creates procedures and powers for
special waterfront IFDs, specifically for a Port America's
Cup special waterfront IFD.
Port America's Cup . Current law defines the Port
America's Cup district to include the San Francisco
waterfront that is or may be an America's Cup venue. In a
Port America's Cup district, a Port America's Cup special
waterfront IFD can only finance:
AB 2259 -- 6/18/12 -- Page 7
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.
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.
Current law defines a "Port America's Cup district" as a
special waterfront district in the City and County of San
Francisco designated as America's Cup venues, excluding
venues within the Rincon Point-South Beach Redevelopment
Project Area. AB 2259 defines a "Port America's Cup
district" as a special waterfront district that includes
one or more of Seawall Lot 330, Pier 19, Pier 23, and Pier
29.
AB 2259 expands the list of authorized uses to include the
acquisition of improvements at Pier 27. The bill provides
that any improvements authorized under the special
waterfront IFD is not required to be in the district.
AB 2259 declares that all improvements in a Port America's
Cup district must deemed to be public facilities of
communitywide significance, which provide significant
benefits to an area larger than the area of the district.
Set-aside requirements . Current law 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.
AB 2259 clarifies that if any portion of the 20-percent
set-aside funds is allocated to a federal or state trustee
agency:
The special waterfront district enhanced financing
plan for the Port America's Cup district must specify
the portion of the 20-percent set-aside funds that is
allocated to any federal or state trustee agency. The
AB 2259 -- 6/18/12 -- Page 8
trustee agency's proposed use of set-aside funds does
not need to be described in the special waterfront
district enhanced financing plan.
San Francisco must direct the county tax collector
to pay the 20-percent set-aside funds allocated to the
federal or state trustee agency directly to such
trustee agency.
State review and approval . Before authorizing debt by
either an America's Cup 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. The
I-Bank must 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
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 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. Current law prohibits the I-Bank from
considering State General Fund revenues that would have
occurred otherwise. The bank has 90 days upon the receipt
of the fiscal analysis to act. If the I-Bank does not act
within 90 days, the fiscal analysis is approved.
AB 2259 eliminates the I-Bank review and approval, and the
requirement for San Francisco to reimburse the bank for
cost of review and approval of the fiscal analysis.
AB 2259 provides that if any proceeds of the special
waterfront district ERAF-secured debt is allocated to a
federal or state trustee agency, the district must, within
90 days after issuance of the special waterfront district
ERAF-secured debt, report to the California Infrastructure
and Economic Development Bank about the use of the proceeds
of the special waterfront district ERAF-secured debt. The
improvements financed by the state or federal trustee
agency must be described in the special waterfront district
AB 2259 -- 6/18/12 -- Page 9
enhanced financing plan. The district and the federal or
state trustee agency must enter into a contract governing
the use of the proceeds of the special waterfront district
ERAF-secured debt, as required by bond counsel.
ERAF limits . Current law caps the amount of county
ERAF portion of incremental tax revenue committed to a
special waterfront district at $1,000,000. AB 2259 allows
the cap to be subject to a 3% adjustment each fiscal year,
after the 2011-12 fiscal years.
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, 2010, and 2011, 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. Without the special waterfront IFDs'
investments, the trust land property would likely never
generate enough new property tax revenues to support the
needed improvements. In response to scaled back America's
Cup plans, AB 2259 serves as a clean-up measure to last
year's AB 664.
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
AB 2259 -- 6/18/12 -- Page 10
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
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. I-Bank test . 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 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 required
America's Cup to meet the same I-Bank test, which would
examine the net present value of the projects' revenues
effects on the State General Fund. This bill removes the
I-Bank test. San Francisco officials argue that after last
year's negotiations, the $1 million increment cap serves
enough of an economic test, and an I-Bank test would raise
uncertainty. However, officials also suggest that revenues
will surely be above $1 million. As long as the state
continues to subsidize specified development, the I-Bank
test should stay. Language pertaining to the I-Bank was
written in this committee last year. The Committee may
wish to consider amending the bill to insert the language
AB 2259 -- 6/18/12 -- Page 11
requiring I-Bank review and approval and the legislative
body's reimbursement to the I-Bank for the reasonable cost
of review and approval of the fiscal analysis.
4. Technical . AB 2259 inadvertently repeats a clause.
The Committee may wish to amend the bill for further
clarity.
On page 13, line 3, after "." strike out "The base
year of land annexed into a"
On page 13, strike out lines 4 through 6 inclusive,
and line 7 from "of" to "."
Assembly Actions
Assembly Local Government Committee: 9-0
Assembly Appropriations Committee:17-0
Assembly Floor: 78-0
Support and Opposition (6/28/12)
Support : City and County of San Francisco.
Opposition : Unknown.