BILL ANALYSIS                                                                                                                                                                                                    




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  SB 214                      HEARING:  4/27/11
          AUTHOR:  Wolk                         FISCAL:  No
          VERSION:  4/25/11                     TAX LEVY:  No
          CONSULTANT:  Lui                      

                       INFRASTRUCTURE FINANCING DISTRICTS
          

          Makes it easier for local governments to use infrastructure 
                              Financing Districts.


                           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).

          Unlike redevelopment, the property in an IFD doesn't have 
          to be blighted, but an IFD can't overlap a redevelopment 
          project area.  The Legislature has declared, but not 
          required, that IFDs should include substantially 
          undeveloped areas.

          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.

          The deadline for filing lawsuits to challenge an IFD's 
          creation, financing plan, allocation of property tax 
          increment revenues, and tax allocation bonds is 30 days 
          after the local officials get voter approval.

          Public officials continue to search for ways to raise the 




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          capital they need to invest in public works projects, like 
          public transit facilities, infill development, or clean 
          water.  One concept recognizes that expanded public 
          structures can boost the value of nearby property.  Higher 
          property values produce higher property tax revenues.  
          Property tax increment financing captures those property 
          tax increment revenues.  When redevelopment officials use 
          property tax increment financing to eradicate blight, state 
          law doesn't require voter approval.  When local

          officials use IFDs to capture property tax increment 
          revenues, state law requires 2/3-voter approval.  


                                   Proposed Law
                                         
          I.   Voter approval  .  After preparing an infrastructure 
          financing plan, local officials must get voter approval to:
                 Form the IFD, which requires 2/3-voter approval.
                 Issue bonds, which requires 2/3-voter approval.
                 Set the appropriations limit, which requires 
               majority-voter approval.

          Senate Bill 214 repeals the voter approval requirements to 
          form an IFD, issue IFD bonds, and set the IFD's 
          appropriations limit.

          II.   Fire district approval  .  Before an IFD can divert 
          property tax increment from another taxing entity, every 
          local agency that will contribute its property tax 
          increment revenue to the IFD must approve the 
          infrastructure financing plan.  Some special districts are 
          governed ex officio by county boards of supervisors or city 
          councils.  In the case of a special district that provides 
          fire protection services where the county board of 
          supervisors is the governing authority, Senate Bill 214 
          requires the special district to act on an IFD's plan by 
          adopting a separate resolution.

          III.   Bond terms  .  The terms of IFDs' bonds can't be more 
          than 30 years.  Senate Bill 214 extends the maximum term of 
          IFDs' bonds from 30 years to 40 years.

          IV.   Accountability  .  The current IFD law is silent on 
          fiscal protections, project management, or reporting 
          measures.  Senate Bill 214 requires that local officials' 





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          resolution of intention to form an IFD must state the goal 
          and need of the district and that the resolution be posted 
          on the legislative body's Internet web site.  SB 214 
          clarifies that IFDs can't be used for maintenance, 
          services, or to compensate the members of the legislative 
          body.  SB 214 requires the legislative body to mail an 
          annual report to landowners in the district and each 
          affected taxing entity.  The report must also be posted on 
          the legislative body's website.  The report must include: 
                 A summary of the IFD's expenditures.
                 A progress report of the IFD's adopted goals.
                 An assessment of the status of the IFD's public 
               works projects.
          If the IFD fails to submit the annual report to its 
          landowners or taxing entities, or the report is not put on 
          the legislative body's Internet, it can't spend any funds 
          to construct public works projects until the report is 
          submitted.  If the IFD fails to show progress for five 
          consecutive years, it can't spend any funds to construct 
          any new public works projects. Any excess property tax 
          increment revenues that may have been allocated to the new 
          public works projects would be re-allocated according to 
          the adopted formula. 
          V.   Redevelopment project areas  .  An IFD can't overlap a 
          redevelopment project area.  Senate Bill 214 repeals that 
          statutory prohibition.

          VI.   Big box retailers and vehicle dealers  .  State law 
          prohibits a community from giving financial 
          assistance-direct below-market property deals or cuts in 
          fees-to a big box retailer or vehicle dealer that relocates 
          in the same market area (SB 114, Torlakson, 2003).  That 
          law applies to counties, cities, and redevelopment 
          agencies.  Senate Bill 214 prohibits IFDs from providing 
          financial assistance to big box retailers or vehicle 
          dealers to relocate from one local agency to another in the 
          same market area. 

          VII.   Disadvantaged communities  .  State law defines 
          disadvantaged communities as those with median household 
          incomes less than 80% of the statewide average.  Severely 
          disadvantaged communities have median household incomes 
          less than 60% of the statewide average.  Many disadvantaged 
          communities lack adequate public services and facilities 
          like clean water, sewers, paved streets, storm drains, and 
          street lights.  Advocates want legislators to require local 





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          officials to include disadvantaged communities in their 
          long-range planning for land use and public facilities.  
          Senate Bill 214 declares that it is in the public interest 
          for IFDs to finance public works for disadvantaged 
          communities. 

          VIII.   Polanco Act  . The Polanco Redevelopment Act 
          encourages cleanup and development of 
          brownfields-properties contaminated by hazardous waste.  
          The Act authorizes redevelopment agencies to conduct a 
          cleanup and to recover the costs of that cleanup from 
          responsible parties.  Redevelopment agencies that conduct 
          these cleanups, and individuals that enter into 
          redevelopment agreements with the agency, immune from 
          future cleanup liability.  Senate Bill 214 allows IFDs to 
          finance necessary actions to clean-up brownfield sites 
          under the Polanco Act. 
          
          IX.   Sustainable Communities Strategy  .  The Sustainable 
          Communities and Climate Protect Act requires the Air 
          Resources Board to set regional targets for automobiles' 
          and light trucks' greenhouse gas emission reduction, 
          requires a regional transportation plan to include a 
          Sustainable Communities Strategy to meet targets for 
          greenhouse gas emission reduction, requires the California 
          Transportation Commission to maintain guidelines for travel 
          demand models, requires cities and counties to revise their 
          housing elements every eight years in conjunction with the 
          regional transportation plan, and relaxes CEQA requirements 
          for housing developments that are consistent with a 
          Sustainable Communities Strategy (SB 375, Steinberg, 2008). 
           Senate Bill 214 allows IFDs to finance any projects to 
          implement a sustainable communities strategy. 


                               State Revenue Impact
           
          No estimate. 
                                     Comments  

          1.   Purpose of the bill  .  Senate Bill 214 creates a more 
          flexible development tool to finance needed public works 
          projects, while incorporating rigorous accountability 
          measures to ensure local government diligence, positive 
          project results, and healthier community development.  SB 
          214 recognizes the potential for infrastructure financing 





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          districts to implement SB 375's (Steinberg, 2008) 
          sustainable communities strategy and the benefits of 
          protecting and rehabilitating brownfields from hazardous 
          waste.  Local officials use tax increment financing to 
          divert part of the property tax revenue stream to a 
          separate IFD.  If a local government decides not to 
          participate in the IFD formation, its tax increment revenue 
          shares aren't touched.  Before taxes are raised, 
          assessments are levied, or bonds are issued, the California 
          Constitution requires local officials to get voters' 
          approval: special taxes require 2/3-voter approval; general 
          taxes require majority-voter approval; benefit assessments 
          require a weighted ballot approval by property owners; 
          local general obligation bonds that require new property 
          tax revenues need 2/3-voter approval; local revenue bonds 
          that rely on new fee revenues require majority-voter 
          approval.  However, in contrast to taxes, assessments, or 
          bonds, IFDs neither raise taxes nor generate new revenue.  
          SB 214 removes the requirement for voter approval of IFDs' 
          plans, bonds, and appropriations limits.  Legislators and 
          voters who have elected their local representatives should 
          let local officials do their job-setting local priorities 
          for spending local revenues.

          2.   Voter review  .  The California Constitution requires 
          2/3-voter approval before cities or counties can issue 
          long-term debt backed by local general purpose revenues; 
          school districts need 55%-voter approval.  That's why local 
          general obligation bonds need 2/3-voter approval.  The 
          courts have explained that cities need 2/3-voter approval 
          before they dedicate portions of their general funds to pay 
          for bonds.  That's why local limited obligation bonds need 
          2/3-voter approval.  However, because that constitutional 
          limit doesn't mention redevelopment agencies, local 
          officials don't need voter approval before they issue tax 
          allocation bonds.  Redevelopment agencies are not diverting 
          local general funds, they pay for their bonds with property 
          tax increment revenues.  When Governor Deukmejian signed 
          the 1990 Seymour bill that created IFDs, there was a 
          political agreement that local officials should get 
          2/3-voter approval before they could issue IFD bonds.  That 
          requirement is statutory and not based on a constitutional 
          limitation.  There is no constitutional requirement for 
          IFDs to seek 2/3-voter approval (or any voter-approval) 
          before they issue bonds backed by property tax increment 
          revenues.  SB 214 repeals the statutory requirement for 





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          2/3-voter approval on IFDs' bonds.  The Committee may wish 
          to consider what voter approval (if any) local officials 
          should seek before issuing IFD bonds.

          3.   IFDs vs. redevelopment  .  Albert Einstein once said that 
          the only reason for time is so that everything doesn't 
          happen at once.  When Governor Brown proposed the 
          elimination of redevelopment, the world of IFDs and 
          redevelopment intertwined.  In the 1990 political 
          compromise that resulted in IFDs, legislators drew clear 
          distinctions with redevelopment projects.  The land use key 
          to redevelopment was blight, but IFDs don't have to 
          demonstrate blight.  The fiscal key to redevelopment was 
          access to the schools' share of property tax increment 
          revenues, but IFDs can't touch any school funds.  The 
          housing key to redevelopment was that 20% of their property 
          tax increment revenues must be set aside to support 
          affordable housing, but IFDs have no state funds, so IFDs 
          need only to replace destroyed housing and provide 
          relocation assistance.  If redevelopment activities stop or 
          decline, IFDs may become more important.

          4.   No state subsidy  .  When redevelopment agencies divert 
          property tax increment revenues from schools, the State 
          General Fund backfills the schools.  That diversion 
          indirectly creates state subsidy for redevelopment 
          projects.  Unlike redevelopment agencies that can capture 
          the schools' share of property tax increment revenues, 
          infrastructure financing districts don't benefit from state 
          subsidies.  By diverting property tax increment revenues 
          only from those other local governments that are willing to 
          give up a share of their revenues, IFDs rely on locally 
          generated revenues and not a State General Fund subsidy.  
          Is the Legislature ready and willing to grant local 
          officials the authority to create public financing tools 
          that locals have joined to form? 

          5.   One building block at a time  .  For many years, local 
          officials were reluctant to form IFDs because they worried 
          about the constitutionality of using tax increment revenue 
          from property not within a redevelopment project area.  In 
          1998, an Attorney General's opinion allayed those concerns, 
          and the City of Carlsbad formed an IFD to fund the public 
          works for a new hotel and any future public works needed to 
          develop Legoland theme park up to $1.5 million.  To date, 
          it is the only example of a finished IFD project.   





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          Intrigued by the concept, other local officials have 
          persuaded legislators to pass special bills that adapt the 
          IFD statute to their local circumstances:
                 SB 207 (Peace, 1999): border development zone IFD.
                 SB 223 (Kelley, 1999: Salton Sea Authority IFD.
                 SB 1085 (Migden, 2005): San Francisco waterfront 
               IFD.
                 AB 2882 (De La Torre, 2006): Orangeline mag-lev 
               train IFD.
          The existence of one complete IFD project underscores the 
          lack of evidence on IFD's viability as a local financing 
          tool.  Rather, the list of incomplete projects attests to 
          the practical barriers that exist when implementing an IFD. 
           The Committee may wish to consider if SB 214 adequately 
          addresses external barriers when implementing an IFD.

          6.   Similar bill  .  SB 214 is similar to AB 1836 (Fueur, 
          2008) which would have repealed the 2/3-voter approval for 
          local officials to form an IFD, repealed the 2/3-voter 
          approval to issue tax bonds, and extended the time an IFD 
          could receive property tax increment revenues from 30 years 
          to 40 years.  AB 1836's intent was to adapt IFDs to public 
          transit projects.  The bill failed passage in the Senate 
          Local Government Committee.

          7.   Related bills  .  SB 214 is not the only bill seeking to 
          update the IFD financing mechanism.  AB 485 (Ma, 2011) 
          utilizes IFDs to create more transit-oriented development 
          and related low-income housing.  AB 664 (Ammiano, 2011) 
          authorizes, under existing authorization for the City of 
          County of San Francisco to create IFDs, the adoption of a 
          financing plan and use of IFD revenues for the portion of 
          the San Francisco waterfront district designated as the 
          America's Cup venue.  AB 664 (Ammiano, 2011) also requires 
          the County Board of Supervisors to submit a fiscal analysis 
          to the California Infrastructure and Economic Development 
          Bank for review and approval before adopting the resolution 
          authorizing issuance of debt.  AB 910 (Torres, 2011) 
          expands the list of project IFDs can finance to include 
          affordable housing facilities and economic development.  On 
          April 27, the Committee will hear SB 310 (Hancock, 2011) 
          which seeks to use IFDs for transit priority projects. 


                         Support and Opposition  (4/21/11)






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           Support  :  California State Association of Counties; 
          California Professional Firefighters; California Rural 
          Legal Assistance Foundation; California Special Districts 
          Association; Non-Profit Housing Association of Northern 
          California; County of Yolo; Davis Board of Education 
          Trustee Susan Lovenburg; Imperial County Supervisor Gary 
          Wyatt.

           Opposition  :  California Taxpayers Association.