BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 229 HEARING: 6/5/13
AUTHOR: J. Pérez FISCAL: Yes
VERSION: 4/8/13 TAX LEVY: No
CONSULTANT: Lui
INFRASTRUCTURE AND REVITALIZATION FINANCING DISTRICTS
Authorizes a military base reuse authority to form an
infrastructure and revitalization financing district to
finance specified projects.
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).
To form an IFD, 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 approval of voters in the
proposed district, specifically: 2/3-vote to create the
district, 2/3-vote to issue bonds, and a majority-vote to
set the district's appropriations limit. 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 local officials
obtain voter approval.
As a result of five Base Realignment and Closure (BRAC)
processes that followed the end of the Cold War, military
bases were closed and realigned. To help local officials
convert former military installations into productive
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civilian uses, the Legislature set up the Military Base
Reuse Authority Act, which authorized specific powers for
the military base reuse and development to enhance the
economy and quality of life surrounding the base while
protecting the state's environmental resources (AB 3759,
Gotch, 1994). The Legislature also created a generic
statute to expedite the redevelopment of military bases (AB
2736, Weggeland, 1996).
Until 2011, the Community Redevelopment Law allowed local
officials to set up redevelopment agencies (RDAs), prepare
and adopt redevelopment plans, and finance redevelopment
activities. Citing a significant State General Fund
deficit, Governor Brown's 2011-12 budget proposed
eliminating redevelopment agencies (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, 2011) dissolved
all RDAs.
Public officials continue to search for ways to raise the
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. With the dissolution of RDAs,
local governments and lawmakers seek to adapt IFD's tax
increment financing mechanism to reuse and develop former
military bases.
Proposed Law
Assembly Bill 229 creates infrastructure and revitalization
financing districts (IRFD), modeled after sections of
existing infrastructure financing district law, and
authorizes its use for a military base reuse authority. AB
229 makes the following changes to the statutes governing
the districts:
I. Types of projects . Current law allows IFDs to finance:
The purchase, construction, expansion, improvement,
seismic retrofit rehabilitation of any real property,
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The planning and design work directly related to
the purchase, construction, expansion, or
rehabilitation, and
Other authorized costs pertaining to replacement
dwelling units or action seeking to void the creation
of a district.
An IFD must finance only public capital facilities of
communitywide significance, like highways, transit, water
systems, sewer projects, flood control, child care
facilities, libraries, parks, and solid waste facilities.
An IFD is prohibited from financing routine maintenance,
repair work, or the costs of ongoing operation or providing
services.
AB 229 adds to the list of authorized improvements that an
IRFD may finance to include:
Brownfields restoration and other environmental
mitigation.
Purchase of land and property for development
purposes and related site improvements.
Acquisition, construction, or repair of housing for
rental or purchase, including multipurpose facilities.
Acquisition, construction, or repair of commercial
or industrial structures for private use.
The repayment of the transfer of funds to a
military base reuse authority pursuant to state law.
Existing law requires that any IFD that constructs dwelling
units must set aside at least 20% of those units to
increase and improve the community's supply of low- and
moderate-income housing at an affordable housing cost. AB
229 requires that any IRFD that constructs dwelling units
must set aside at least 20% of those units to increase and
improve the community's supply of low- and moderate-income
housing at an affordable housing cost, as defined in state
law, or at an affordable rent, as defined in state law.
AB 229 provides that an IRFD may only finance facilities or
services authorized in this bill. The additional
facilities or services may not supplant existing facilities
or services in the territory when the district was created,
except if those facilities or services are nonfunctional,
obsolete, hazardous, or in need of upgrading or
rehabilitation. AB 229 authorizes the additional
facilities or services to supplement those facilities and
services as needed to serve new developments.
AB 229 -- 4/8/13 -- Page 4
Existing law allows an IFD to include areas that are not
contiguous. AB 229 authorizes an IRFD to be divided into
project areas. The city council, board of supervisors, or
joint powers authority that acts as the military base reuse
authority may, at any time, add territory to a district or
amend the infrastructure financing plan for the district by
conducting the same procedures for a district's formation
or bond approval.
II. Polanco Act . The Polanco Redevelopment Act encourages
cleanup and development of brownfields-properties
contaminated by hazardous waste. The Act authorized former
redevelopment agencies to conduct a cleanup and to recover
the costs of that cleanup from responsible parties. AB 229
authorizes an IRFD to utilize any powers under the Polanco
Act and finance any action necessary to implement the Act.
AB 229 adds "infrastructure and revitalization financing
district" into the Polanco's Act definition of a local
agency.
III. 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).
AB 229 allows IRFDs to finance any project that implements
a sustainable communities strategy prepared pursuant to
state law.
IV. Military bases . AB 229 authorizes cities and counties
to finance a project on a former military base, only if the
project is consistent with the authority reuse plan and is
approved by the military base reuse authority, if
applicable.
V. Redevelopment . Existing law prohibits an IFD from
including any portion of a redevelopment project area. AB
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229 repeals that statutory prohibition and authorizes an
IRFD to finance any project or portion of a project that is
located in, or overlaps with, any redevelopment project
area, former redevelopment project area, or former military
base. AB 229 requires that any debt or obligation of an
IRFD must be subordinate to an enforceable obligation of a
former redevelopment agency, pursuant to state law.
VI. Housing . Current IFD law provides that if any
dwelling units are proposed to be removed or destroyed, the
legislative body must:
Within four years of the removal or destruction,
require the construction or rehabilitation, for rental
or sale to persons or families of low or moderate
income, of an equal number of replacement dwelling
units at affordable housing cost.
Within four years of the removal or destruction,
require the construction or rehabilitation, for rental
or sale to persons of low or moderate income, a number
of dwelling units which is at least one unit but not
less than 20 percent of the total dwelling units
removed at affordable housing cost.
Provide relocation assistance and make all the
payments required to displaced persons.
Ensure that removal or destruction of any dwelling
units occupied by persons or families of low or
moderate income not take place unless and until there
are suitable housing units, at comparable cost to the
units.
AB 229 adds that an equal number of replacement dwelling
units may also be rented at affordable rent, as defined in
state law.
Current law states the Legislature's intent that an IFD's
territory should be substantially undeveloped. AB 229 is
silent on this intent and adds that an IRFD's establishment
should not ordinarily lead to the removal of existing
functional, habitable, and safe dwelling units.
AB 229 requires that if dwelling units located on a former
military base are destroyed or removed in connection with a
base reuse plan, replacement dwelling units, as required in
current law, may be located anywhere within the territory
of the former military base consistent with the base reuse
plan, local general plan, and infrastructure financing
AB 229 -- 4/8/13 -- Page 6
plan, as applicable.
VII. Net available revenue . Current law creates the
Redevelopment Property Tax Fund, which receives property
taxes that formerly would have been allocated to a
redevelopment agency. Money deposited in the fund is used
to help a successor agency wind down its affairs. Any
excess funds are allocated to local governments as property
taxes.
AB 229 defines "net available revenue" (NAR) as periodic
distributions to the city from the Redevelopment Property
Tax Trust Fund, pursuant to state law, available to the
city after all preexisting legal commitments and
obligations from that revenue are made, pursuant to state
law. It must only include revenue remaining after all
current distributions, including payment of enforceable
obligations, all distributions to other taxing entities, an
applicable administrate fees, have been made.
The bill authorizes the city's legislative body to dedicate
any NAR through the financing plan. AB 229 requires the
plan to include a specification of the maximum portion of
the NAR proposed to be committed to the district for each
year the district will receive revenues, if applicable.
The NAR portion may vary over time.
VIII. Resolution of intention . To begin the process for
establishing an IFD, current law requires the legislative
body of a city to adopt a resolution of intention, which
must include: a) a statement that the IFD is proposed to be
established, with a description of the boundaries; b) a
statement of the type of public facilities proposed to be
financed; c) a statement that the tax increment revenue
from affected taxing entities may be used; and d) a time
and place for a public hearing on the proposal.
AB 229 adds, to the resolution of intention, a required
statement that the city's NAR may be used to finance
facilities and the maximum portion of NAR to be committed
to the district each year during which the district will
receive revenues.
IX. Term life . Current law limits the terms of IFDs'
bonds to no more than 30 years. AB 229 sets the maximum
term of an IRFD's bond to 40 years from the date on which
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the ordinance forming the district is adopted, or a later
date, if specified by the ordinance, on which the
allocation of tax increment will begin. AB 229 provides
that the IRFD may issue debt with a final maturity date of
up to 30 years from the date of issuance of each debt
issue, subject to the time limit on tax allocation to the
district.
X. Fire district approval . Before an IFD can divert
property tax increment from another taxing entity, current
law requires 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 and where the county board of
supervisors is the governing authority, AB 229 requires the
special district to act on an IRFD's plan by adopting a
separate resolution.
XI. Reporting . Current IFD law is silent on reporting
measures. AB 229 requires that no later than June 30 each
year after the adoption of an IRFD's financing plan, the
legislative body must post on its website an annual report,
which must contain all of the following:
A summary of the district's expenditures.
A description of the progress made toward the
district's adopted goals.
A status assessment regarding the completion of the
IRFD's projects.
XII. Bond sale . Current law allows IFD bonds to be sold
at discount not to exceed 5% of par at public sale. Bonds
may be sold at no less than par to the federal government
at private sale without any public advertisement. At least
five days prior to the sale, a notice must be published in
a general circulation newspaper and financial newspaper
published in the Cities of San Francisco and Los Angeles.
AB 229 authorizes bonds to be sold at discount not to
exceed five percent of par at negotiated sale. AB 229
limits any negotiated bond sale for an IRFD's bond
issuances from exceeding $5 million.
XIII. Definitions . AB 229 defines the following terms:
"City" means a city, county, city and county, or
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joint powers authority, where that entity acts as the
military base reuse authority established pursuant to
state law.
"District" means an IRFD. The bill provides than
an IRFD is a "district" within the meaning of the
California Constitution Article XIIA, Section 1.
"Infrastructure and revitalization financing
district" means a legally constituted governmental
entity established for the sole purpose of financing
facilities authorized by the bill.
The "legislative body" is the city council, board
of supervisors, or joint powers authority that is
acting as the military base reuse authority.
"Project area" means a defined area in a district
in which the district's activities share a common
purpose or goal and an overall financing plan.
"Public works" means public facilities, as
described in the bill, which are to be financed in
whole or in part by the district.
XIV. Findings and declarations . AB 229 makes finding to
support the bill's purpose.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Developing real property on a
decommissioned military base poses substantial challenges.
Revitalizing former base property that may contain outdated
structures, inadequate infrastructure, and toxic
contamination requires a sophisticated developer with
sufficient resources to make substantial capital
investments. According to the author, "Base closure can
also present opportunities for business relocation,
economic development, and land reuse that cannot be
addressed by either the state's government taxing agencies
or private investment alone. Unlike cities and counties,
military base reuse authorities don't have the financing
tools to respond to infrastructure and economic development
requirements." In response, AB 229 authorizes a military
base reuse authority to form an IRFD, similar to the
authorization for cities and counties to create an IFD.
The bill also broadens the types of project a military base
AB 229 -- 4/8/13 -- Page 9
reuse IRFD may finance, including the purchase of property
for economic development and the repayment of start-up
financing provided by local governments.
2. Bond sales . "Competitive sale" and "negotiated sale"
are two principal methods by which a bond issuer selects an
underwriter to purchase its bonds and resell them to
investors. In a competitive sale, underwriters deliver
sealed bids to the bond issuer. The underwriter with the
lowest bid is awarded the sale of the bonds. The
appropriate method for selling bonds depends on specific
details of each individual debt issuance, but competitive
sales of GO bonds usually cost less than negotiated sales.
AB 229 allows negotiated sales, a significant change from
how IFDs may currently sell bonds. While negotiated bond
sales provide an opportunity to pre-market bonds that
potential investors may not be familiar with, competitive
sales provide the certainty of lower interest rates.
Because a reuse authority needs more certainty, the
Committee may wish to consider amending AB 229 to delete
the authorization for negotiated sales.
3. Timing . Albert Einstein once said, "The only reason
for time is so that everything doesn't happen at once." In
2011, when Governor Brown proposed to eliminate
redevelopment, the world of IFDs and redevelopment
intertwined. In response, Legislators turned to IFDs as a
possible alternative financing mechanism last session. The
Governor vetoed most of the measures, noting that
"expanding the scope of infrastructure financing districts
is premature and [could] cause cities to focus their
efforts on using the new tools provided by the measure
instead of winding down redevelopment." Those timing
concerns may still remain, as successor agencies continue
to wind down redevelopment.
4. Technical amendments . AB 229 amends the same provision
in the Polanco Act as AB 243 (Dickinson), which adds "IRFD"
to the definition of a "local agency." To clarify that an
IRFD formed under either AB 229 or AB 243 is authorized to
carry out powers under the Polanco Act, the Committee may
wish to consider amending the bill to include the following
language:
On page 21, line 33, after "district" insert:
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created pursuant to Chapter 2.6 (commencing with
Section 53369) to Part 1 of Division 2 of Title 5 of the
Government Code or Chapter 2.10 (commencing with Section
53399) to Part 1 of Division 2 of Title 5 of the Government
Code.
5. Related bills . AB 229 is not the only bill seeking to
update the IFD financing mechanism or that addresses
military base reuse.
SB 33 (Wolk) waives the voter-approval requirements
to create an IFD, extends an IFD's life term, requires
annual, independent audits, and authorizes an IFD's
use for projects in disadvantaged communities,
hazardous cleanup, environmental mitigation, and flood
protection. It is set to be heard on June 12 in the
Assembly Local Government Committee.
SB 339 (Cannella) authorizes a county, by a
4/5-vote of the board of supervisors, to sell, or
enter into a lease, concession, or managerial contract
involving county property acquired from the closure of
a military base. It is at the Assembly Desk.
SB 628 (Beall) removes the 2/3-vote requirement to
form an IFD, the 2/3-vote requirement to issue bonds,
and the majority vote to set the appropriations limit,
if an IFD proposes to implement a transit priority
project (TPP), regional transportation plan, or any
other project consistent with a sustainable
communities strategy or alternative planning strategy.
It is at the Assembly Desk.
AB 121 (Dickinson) authorizes Sacramento County
Board of Supervisors, by 4/5-vote of the board, to
sell, or to enter into a lease, concession, or
managerial contract for property from the closure of
Mather and McClellan Air Force Bases. It is on the
Senate Floor.
AB 243 (Dickinson) creates Infrastructure and
Revitalization Financing Districts (IRFD) and reduces
the 2/3-voter thresholds to 55% to form an IRFD and
issue bonds. It is set to be heard on June 12 in the
Senate Governance and Finance Committee.
AB 662 (Atkins) allows infrastructure financing
districts to include portions of former redevelopment
project areas and modifies the statutes governing
redevelopment agencies' dissolution. It will be heard
on June 5 in the Senate Governance and Finance
Committee.
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AB 690 (Campos) establishes a Jobs and
Infrastructure Financing Districts (JIDs) in every
city and authorizes the issuance of revenue bonds to
finance specified projects. The bill eliminates
existing IFD law's replacement housing provisions. It
also requires a job creation plan that ensures that
for every $1 million invested, 10 prevailing wage jobs
are created. It is in the Assembly Local Government
Committee.
Assembly Actions
Assembly Local Government:8-1
Assembly Appropriations: 16-1
Assembly Floor: 71-3
Support and Opposition (5/30/13)
Support : California Special Districts Association; Cities
of Alameda, Concord, Coronado, Oakland, Salinas, West
Sacramento; City and County of San Francisco; Construction
Employers' Association; League of California Cities; East
Bay Housing Organizations; Fort Ord Reuse Authority;
Non-Profit Housing Association of Northern California.
Opposition : California Alliance to Protect Private
Property Rights; California Taxpayers Association.