BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair SB 1156 (Steinberg) - Community Development and Housing Joint Powers Authorities. Amended: April 30, 2012 Policy Vote: G&F 6-3, T&H 5-3 Urgency: No Mandate: No Hearing Date: May 14, 2012 Consultant: Mark McKenzie This bill meets the criteria for referral to the Suspense File. Bill Summary: SB 1156 would allow cities and counties to form Community Development and Housing joint powers authorities (JPAs) to administer economic development and housing programs. Fiscal Impact: Estimated loss of as much as $700 million in General Fund savings by preventing the general reallocation of approximately $1.36 billion in unreserved Low and Moderate Income (L&M) funds to local governments, including schools. To the extent this bill prevents these revenues from flowing to schools, there would be a corresponding loss of General Fund savings. Approximately 50 percent of unencumbered L&M funds would be distributed to schools in the near-term, absent this bill. In general, any property tax proceeds diverted from schools results in an equivalent General Fund cost, pursuant to Proposition 98's minimum funding guarantees. Unknown costs to the Department of Finance (DOF), likely exceeding $150,000 annually, to review school mitigation plans and determine impacts on the state budget and whether the impacts are "not unacceptable." Potential for future General Fund impacts to the extent that school districts or DOF approve a school mitigation plan that is deemed to have no impact or an acceptable impact on the state budget. An impact deemed acceptable now may grow to an unacceptable level in future years, as the redevelopment plan would be in effect for up to 30 years. In addition, the school mitigation plan may be deemed to have no impact on a school district or the state budget during a particular fiscal year, depending on whether we are SB 1156 (Steinberg) Page 1 in a Test 1, 2, or 3 year pursuant to Proposition 98, or if a school district is basic-aid. Significant diversion of future property tax increment to JPAs to cover staffing and administrative costs associated with new redevelopment activity authorized by the bill. This could be a particularly difficult and costly administrative task for a county that forms JPAs with numerous cities within its boundaries. Background: Historically, the Community Redevelopment Law has allowed a local government to establish redevelopment agencies (RDAs) and capture all of the increase in property taxes that is generated within the project area beyond the base year value (referred to as "tax increment") over a period of decades. RDAs used tax increment financing to address issues of blight, construct affordable housing, rehabilitate existing buildings, and finance development and infrastructure projects. Citing a significant State General Fund deficit, Governor Brown's 2011-12 budget proposed eliminating RDAs and returning billions of dollars of property tax revenues to schools, cities, and counties to fund core services. Among the statutory changes that the Legislature adopted to implement the 2011-12 budget, AB X1 26 (Blumenfield) Chap 5/2011 dissolved all RDAs and established procedures for winding down RDA activity. Existing law requires successor agencies to dispose of former RDAs' assets and properties, at an oversight board's direction, in an expeditious manner aimed at maximizing value. Successor agencies are required to make any payments related to enforceable obligations, as specified in an adopted recognized obligation payment schedule (ROPS) and remit unencumbered balances of RDA funds and proceeds from asset sales to the county auditor-controller for distribution to local taxing entities in the county. Successor agencies cannot enter into new enforceable obligations. SB 375 (Steinberg) Chap 728/2008, requires the Air Resources Board (ARB) to provide each region that has a metropolitan planning organization (MPO) with a greenhouse gas emission reduction target for the automobile and light truck sector for 2020 and 2035, respectively. Each MPO, in turn, is required to include within its regional transportation plan a sustainable communities strategy (SCS) designed to achieve the ARB targets SB 1156 (Steinberg) Page 2 for greenhouse gas emission reduction. Each MPO must submit its SCS to ARB for review. ARB must accept or reject the MPO's determination that the SCS submitted would, if implemented, achieve the greenhouse gas emission reduction targets. Proposed Law: SB 1156 would authorize a city and county that includes territory of a former RDA to form a Community Development and Housing Joint Powers Authority (JPA) to carry out the Community Redevelopment Law, as specified. Specifically, this bill would do the following: Require L&M funds of a former RDA to be retained in the Sustainable Economic Development and Housing Trust Fund (established by SB 1151, the companion measure to this bill). If the L&M funds are not contracted for use within 60 months from the effective date of this bill, the local agency would transfer the L&M funds to an agency designated by the Governor for use as grants to the JPA for the provision of affordable housing. Authorize the JPA to enter into financial and other agreements with community colleges, K-12 school districts, and private businesses to "facilitate the development and operation of articulated career technical education pathways." Authorize the JPA to adopt a redevelopment plan for a project area that would expire within 30 years of the first issuance of bonded indebtedness. Place the specified limits on project area designations: (1) for regions within an MPO with an adopted SCS that has been accepted by ARB, possible project areas may include transit priority areas identified in an SCS and for each jurisdiction, one small walkable community, as specified; or (2) sites that have land use approvals or other controls restricting the site to clean energy manufacturing and sites consistent with the SCS, if those sites are within the geographic boundaries of an MPO. Authorize a redevelopment plan to include a provision for the receipt of tax increment funds provided the local government adopts a school mitigation plan, an analysis of public service costs and revenue-generating impacts of development of the provision of basic services, restrictions on parking in transit areas, and other practices consistent with an SCS. Specify that an adopted school mitigation plan to offset losses of property tax revenue to schools must be approved by the fiscally affected schools or submitted to DOF, which must approve the plan if there is no impact on the state budget or SB 1156 (Steinberg) Page 3 if the impacts on the budget are not unacceptable. Authorize a state or local public pension fund to invest in public infrastructure projects and private commercial and residential development undertaken by a JPA. Authorize a JPA authority to implement a local transactions and use tax, above the state's base 7.25 percent sales and use tax, provided that the resolution authorizing the tax designates the use of the proceeds of the tax. Authorize a JPA to issue bonds paid for with authority proceeds in order to carry out the provisions of this bill. Authorize a JPA to exercise the powers of an infrastructure financing district to divert property tax increment revenues and issue bonds to pay for public works. Authorize a JPA to finance infrastructure by issuing bonds and lending the proceeds for public works, working capital, and insurance programs as provided in the Marks-Roos Local Bond Pooling Act. Related Legislation: The following bills all plan for the aftermath of redevelopment: SB 986 (Dutton), which authorizes successor agencies to use the proceeds of certain bonds issued by former redevelopment agencies to fulfill an enforceable obligation of the former agency or enter into new enforceable obligations funded by those bond proceeds until December 31, 2014. SB 1056 (Hancock), which expands the definition of "enforceable obligation" to include financial obligations related to a project funded with both tax increment and federal school construction bonds. SB 1151 (Steinberg), which creates an alternative process by which communities can use their former redevelopment agencies' assets for economic development and housing purposes. SB 1151 is a companion measure to this bill. SB 1335 (Pavley), which allows a successor agency to retain former RDA land that is a brownfield site for the purpose of hazardous substance remediation or removal. AB 1235 (Hernandez), which provides all the authority, rights, powers, duties, obligations and protections provided by the Polanco Redevelopment Act to successor agencies. AB 1585 (Perez), which makes numerous amendments to the statutes governing the redevelopment dissolution process. Recommended Amendments: This bill authorizes the formation of JPAs after July 1, 2012. This timing is necessary because SB 1156 (Steinberg) Page 4 successor agencies are working now to distribute those assets. Since the bill, as drafted would not take effect until January 1, 2013, Staff recommends an amendment to add an urgency clause.