BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair AB 2259 (Ammiano) - San Francisco special waterfront infrastructure financing districts. Amended: August 6, 2012 Policy Vote: G&F 8-0 Urgency: No Mandate: No Hearing Date: August 13, 2012 Consultant: Mark McKenzie This bill meets the criteria for referral to the Suspense File. Bill Summary: AB 2259 would make numerous changes to the special statutes governing infrastructure financing districts (IFDs) along the waterfront in San Francisco, including a provision that allows for an annual three percent increase in the amount of property tax increment revenues diverted to the America's Cup IFD from the Educational Revenue Augmentation Fund (ERAF). Fiscal Impact: The annual 3% increase in the amount of ERAF property tax increment diverted to the America's Cup IFD would result in General Fund revenue losses for up to 45 years. Compounded annually, this inflator would result in a General Fund loss of $30,000 in 2015, growing to $2.7 million in 2048. Any diversion of property tax revenues from the ERAF must be backfilled by the General Fund to maintain minimum funding guarantees to schools under Proposition 98. Background: Existing law authorizes cities and counties to form IFDs and divert property tax increment revenues from participating local agencies to finance public capital facilities of communitywide significance. The types of projects financed through an IFD include: transportation facilities; water, sewer, and flood control infrastructure; child care facilities; libraries; parks, recreational facilities, and open space; and solid waste transfer and disposal facilities. IFDs retain property tax increment revenues from participating local taxing agencies for up to 30 years to directly finance projects or to pay debt service on bonds issued to finance projects. School district property tax revenues may not be diverted for IFD purposes. There are numerous requirements for the formation and operation of IFDs, including extensive infrastructure planning and consultation with other local governments, public AB 2259 (Ammiano) Page 1 hearings, and voter approval. As a result of stringent requirements in the general IFD statutes, the Legislature has passed several bills tailored specifically for San Francisco. SB 1085 (Migden), Chap 213/2005, was enacted with special provisions related to development on San Francisco's waterfront. AB 1199 (Ammiano), Chap 664/2010, repealed and replaced those special statutes to allow local officials to form, finance, and operate an IFD along the San Francisco waterfront at Pier 70, on land that is under the jurisdiction of the Port of San Francisco. AB 1199 authorized the use of ERAF property tax increment to support the development of an area that has not attracted private investment for development in over 40 years. In February 2010, the BMW ORACLE Racing Team, sailing for the Golden Gate Yacht Club, won the 33rd America's Cup off the coast of Valencia, Spain. On December 31, 2010, the team designated the City and County of San Francisco to host the 34th America's Cup sailing regatta (AC34). The team anticipates holding the AC34 match in San Francisco Bay in 2013, with preliminary races beginning worldwide in 2011 and locally in 2012. Last year, AB 664 (Ammiano), Chap 314/2011, was enacted to provide authority similar to that enacted by AB 1199 for Pier 70 for the creation of an IFD to finance improvements to the San Francisco waterfront for the America's Cup. AB 664 authorized the creation of a Port America's Cup special waterfront IFD, and a corresponding enhanced financing plan that allows the district to retain the ERAF share of property tax increment, limited to $1 million per year for up to 45 years. The ERAF share in this district may only be used to finance the following: Construction of the Port's maritime facilities at Pier 27, including public access and open space improvements. 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, including the San Francisco Bay Trail. Future installations of shoreside power facilities on Port maritime facilities. 20% of the ERAF share must be set aside to finance improvements to publicly owned lands approved by federal or AB 2259 (Ammiano) Page 2 state trustee agencies, as applicable. AB 664 also requires San Francisco officials to submit a fiscal analysis to the California Infrastructure and Economic Development Bank (I-Bank) to ensure that the economic activity generated by hosting the America's Cup would result in state General Fund revenues with a net present value greater than the net present value of the property tax increment revenues diverted from the ERAF over the term of the IFD. The I-Bank is prohibited from considering General Fund revenues that would have occurred if the America's Cup event were not held in California. In the past year, America's Cup race organizers have narrowed plans for renovating the waterfront, and have adjusted projected economic benefits. For example, the original Beacon Economics report on the America's Cup projected that the state would receive $61 million in direct tax benefits from the race (in 2013 dollars), but these estimates were recently adjusted downward 20% by the Bay Area Council Economic Institute. The Port of San Francisco now estimates the state tax benefits would be $39.8 million. This bill is intended to adjust the America's Cup IFD statutes to reflect the Port's revised plans for the race. Proposed Law: AB 2259 would make numerous changes to the San Francisco special waterfront IFD statutes. Among other things, this bill would do the following: Revise the existing annual $1 million cap on diversions of ERAF for the America's Cup IFD to allow for an annual increase of three percent. Revise the definition of "Port America's Cup district" to Seawall Lot 330, Pier 19, Pier 23, and Pier 29, rather than areas designated as America's Cup venues. Deem all improvements in a Port America's Cup district to be "public capital facilities of communitywide significance" so these improvements qualify for financing under IFD law. Allow improvements financed by the Port America's Cup district to be located outside district boundaries. Expand the uses of improvements financed by the ERAF share to include improvements to publicly owned waterfront lands held by departments of San Francisco. Specify that the use of 20% set-aside funds by federal, state, and local trustee agencies need not be described in AB 2259 (Ammiano) Page 3 the district's financing plan. Modify the definition of "public facilities" that may be financed by any waterfront IFD to include facilities that may be publicly or privately owned utility infrastructure that is available to or serves the general public, including any capital facilities fees used to pay for public facilities. Expands the types of projects that may be financed by any waterfront IFD to include improvements to protect against potential sea level rise that may be publicly owned. Modify the requirements of the Pier 70 enhanced financing plan with respect to the issuance of ERAF-secured debt, if specified conditions are met. Specify that the base year value of land included in or annexed into a district will be the fiscal year in which the assessed value of the land was last equalized prior to the effective date of the annexation or the effective date of the ordinance for formation of the district, or a subsequent fiscal year identified in an ordinance forming the district or approving the annexation. Staff Comments: This bill makes numerous technical and substantive changes to the statutes governing San Francisco's special waterfront districts. From a state fiscal perspective, the primary change is the change that allows for an annual three percent adjustment to the existing $1 million annual diversion of ERAF property tax revenues to the America's Cup IFD. In the second year of the district, this adjustment would result in an increase in the ERAF diversion of $30,000, which must be backfilled by the state General Fund. Since the three percent inflator would apply annually, the impact is compounded and by the end of the authorized 45 year diversion of ERAF revenues in 2058, the General Fund loss as a result of this bill would rise to $2.7 million. The cumulative impact over 45 years would be $47.7 million. It is unclear that any additional benefits would accrue to the state as a result of this bill that would justify the additional General Fund expenditure.