BILL ANALYSIS                                                                                                                                                                                                    �



                                                                  AB 294
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          Date of Hearing:  April 17, 2013

                       ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
                           K.H. "Katcho" Achadjian, Chair
                     AB 294 (Holden) - As Amended: April 8, 2013
           
          SUBJECT  :  Local-State Joint Investment Partnership Pilot  
          Program.

           SUMMARY  :  Creates the Local-State Joint Investment Partnership  
          Pilot Program to allow local governmental entities, upon  
          approval by the Infrastructure and Economic Development Bank, to  
          reallocate specified Educational Revenue Augmentation Fund  
          (ERAF) payments in order to fund public works projects.   
          Specifically,  this bill  :  

          1)Creates, in state government, the Local-State Joint Investment  
            Partnership Pilot Program (Program).

          2)Allows only a local governmental entity, including but not  
            limited to, an infrastructure financing district (IFD), but  
            excluding a city or county, to file an application for  
            financing a public works project with, and for approval by,  
            the Infrastructure and Economic Development Bank (I-Bank)  
            pursuant to the Program.

          3)Authorizes the following public works to be financed by the  
            I-Bank, for the Program:

             a)   City streets, county highways, and state highways;

             b)   Sewage collection and treatment;

             c)   Water treatment and distribution;

             d)   Facilities for the collection and treatment of water for  
               urban uses;

             e)   Drainage, water supply and flood control;

             f)   Educational facilities;

             g)   Park and recreational facilities;

             h)   Solid waste collection and disposal;








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             i)   Public transit;

             j)   Power and communications; and,

             aa)  Brownfield cleanup that promotes infill housing  
               development and other related infill development consistent  
               with regional and local plans.

          4)Requires an application for financing filed with the I-Bank  
            pursuant to the Program to include all of the following  
            information in a manner prescribed by the I-Bank:

             a)   An economic analysis of the project;

             b)   A description of how the project will further local and  
               statewide policy objectives;

             c)   A description of all local resources available to invest  
               in the project and an analysis of the reduced scope or  
               feasibility of the project based on the investment of only  
               those local resources;

             d)   The annual amount of property taxes otherwise allocated  
               to ERAF, from the tax rate areas within the territorial  
               jurisdiction of the applicant, that the applicant proposes  
               to reallocate to finance the project, and whether the  
               applicant proposes to issue debt to fund the project; and,

             e)   A demonstration, to a reasonable probability, that the  
               project would result in an amount of tax revenue to the  
               state General Fund with a net present value that is greater  
               than the net present value of the amount of property tax  
               increment revenues that would be reallocated from ERAF over  
               the term of the project, taking into consideration all  
               pertinent data.

          5)Allows the I-Bank to circulate an application for financing to  
            other state agencies, including, but not limited to, the  
            Department of Finance, the Department of Housing and Community  
            Development, and the Office of Planning and Research.

          6)Allows the I-Bank to establish a process for the public to  
            comment on an application for financing.









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          7)Requires the legislative body of the applicant to reimburse  
            the I-Bank for the reasonable cost of the I-Bank's review of  
            its application for financing.

          8)Provides, for purposes of the bill, that "public works  
            project" means the entire plan for developing the public works  
            as specified in the bill, within a specified geographical  
            area, as set forth by the applicant.

          9)Allows, after January 1, 2014, the I-Bank to approve up to a  
            maximum of 25 applicants for financing.

          10)Prohibits the I-Bank from approving an application for  
            financing unless it determines that approving a public works  
            project proposed in an application is necessary either to make  
            the project financially feasible or to significantly enhance  
            the scope and potential benefits of the project.

          11)Requires the I-Bank, in reviewing the economic analysis  
            including in the application for financing, to consider the  
            increase in state General Fund tax revenues that would occur  
            because of the proposed economic activity.

          12)Allows the I-Bank, in making its decision to approve an  
            application for financing, to give weight to any established  
            state policy objective or benefit identified by a state agency  
            reviewing the application.

          13)States that the I-Bank shall only approve financing that  
            reallocates tax revenue that would otherwise be allocated to  
            ERAF from each affecting taxing entity making the application,  
            and the reallocation shall be made in proportion to the  
            percentage share of property taxes that each affected taxing  
            entity would otherwise contribute to ERAF.

          14)Requires the I-Bank, in order to approve an application for  
            financing under the Program, to issue a written statement that  
            establishes, but is not limited to, the total amount of tax  
            revenue that would have been directed to ERAF that is  
            reallocated to finance specific public works projects proposed  
            in the application, the amount of each affected taxing  
            agency's payment to ERAF that is paying reallocated, and the  
            duration of those reallocations.  Requires the I-Bank to  
            transmit the statement to the county tax collector or the  
            official responsible for the allocation of property tax  








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            revenues within the county.

          15)Requires the county tax collector or the official responsible  
            for the allocation of tax revenues within the county, upon  
            receiving the I-Bank's written statement, to direct the tax  
            revenues as prescribed in the I-Bank's statement.

          16)Requires each applicant, on or before December 31, 2016, and  
            annual thereafter, that has received financing pursuant to the  
            Program, to provide a report to the I-Bank that includes all  
            of the following information for that fiscal year:

             a)   The amount of money that the county auditor reallocated  
               from ERAF for financing under the Program;

             b)   The purposes for which the allocated money was used;  
               and,

             c)   The actions taken during the fiscal year to implement  
               the applicant's project.

          17)Requires the I-Bank, on or before March 1, 2017, and annually  
            thereafter, to provide a report to the Joint Budget Committee  
            that includes all of the following information for the  
            preceding fiscal year:

             a)   The name, location, and general description of each  
               application for financing approved under the Program;

             b)   The total amount of money that county auditors  
               reallocated from ERAF under the Program; and,

             c)   An evaluation to the extent to which the implementation  
               of the approved financing has achieved the purposes and  
               intent of the Program, and allows the I-Bank to solicit  
               advice and assistance from other state entities in  
               preparing this evaluation.

          18)Sunsets the bill's provisions on January 1, 2025.

          19)Makes findings and declarations that the purpose of this act  
            is to create a pilot program whereby certain local  
            governmental entities, upon approval and oversight of the  
            I-Bank, are authorized to reallocate their payments directed  
            to ERAF to instead finance certain kinds of public works.








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           EXISTING LAW  :

          1)Establishes the I-Bank for the purposes of financing public  
            infrastructure and private development.

          2)Authorizes the I-Bank to issue tax-exempt and taxable revenue  
            bonds, provide financing to public agencies, provide credit  
            enhancements, acquire or lease facilities, and leverage state  
            and federal funds.

          3)Authorizes cities and counties to create 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.

          4)Allows an IFD to divert property tax increment revenues from  
            other local governments, excluding school districts, for up to  
            30 years, in order to pay back bonds issued by the IFD.

          5)Requires that in order to form an IFD a city or county must  
            develop an infrastructure plan, send copies to every  
            landowner, consult with other local governments, and hold a  
            public hearing.

          6)Requires that when forming an IFD, local officials must find  
            that its public facilities are of communitywide significance  
            and provide significant benefits to an area larger than the  
            IFD.

          7)Requires that every local agency who will contribute its  
            property tax increment revenue to the IFD approve the plan.

          8)Requires a two-thirds voter approval of the formation of the  
            IFD and the issuance of bonds.

          9)Requires majority voter approval for setting the IFD's  
            appropriations limits.

           FISCAL EFFECT  :  Unknown

           COMMENTS  :   

          1)This bill creates the Local-State Joint Investment Partnership  
            Pilot Program and allows IFDs, to apply for financing under  








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            the Program and once approved by the I-Bank, to reallocate  
            their ERAF payments to fund public works projects.  The  
            Program would be limited to a maximum of 25 applicants and  
            requires the approved applicants to report back to the I-Bank  
            on the project.  AB 294 also requires the I-Bank to report to  
            the Joint Legislative Budget Committee on the approved  
            applicants, the total amount of ERAF reallocated, and an  
            evaluation of the extent to which the implementation of the  
            approved financing has achieved the purposes and intent of the  
            program.  This bill is author-sponsored.

          2)According to the author, with the elimination of redevelopment  
            agencies, local governments have a deficiency of tools to  
            promote economic development and revitalize communities.  The  
            author notes that the bill would allow the state to make  
            targeted infrastructure investments that will result in a net  
            gain of general fund revenue over the life of the investment.   
            The bill requires the I-Bank to make a finding that the  
            development to be financed would result in an amount of  
            revenue to the General Fund with a net present value that is  
            greater than the net present value of the amount of property  
            tax increment revenues that would be diverted from ERAF over  
            the term of the IFD, which, over time, the author notes "would  
            replace the state's share of Proposition 98 funding."

          3)The I-Bank was created in 1994 to finance public  
            infrastructure and private development that promote a healthy  
            climate for jobs, contributed to a strong economy and improved  
            the quality of life in California communities.  The I-Bank has  
            broad authority to issue tax-exempt and taxable revenue bonds,  
            provide financing to public agencies, provide credit  
            enhancements, acquire or lease facilities, and leverage state  
            and federal funds. 

            One of the I-Bank's programs, the Infrastructure State  
            Revolving Fund Program, provides low-cost loans up to $10  
            million per project to local municipal governments for a wide  
            variety of public infrastructure including city streets,  
            county highways, drainage, water supply and flood control,  
            educational facilities, environmental mitigation measures,  
            parks and recreational facilities, port facilities, power and  
            communications, public transit, sewage collection and  
            treatment, solid waste collection and disposal, water  
            treatment and distribution, defense conversion, public safety  
            facilities, state highways, and military infrastructure.   








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            Eligible applicants for this program include cities, counties,  
            special districts, assessment districts, joint powers  
            authorities and non-profit corporations formed on behalf of  
            local government.  

          4)According to the League of Cities and the California Special  
            Districts Association, in support, this bill is an innovative  
            approach at a time when such innovation is needed in order to  
            empower local agencies with a tool that can be used to foster  
            greater local-state collaboration while enhancing public  
            infrastructure and creating jobs.

          5)Cal-Tax, in opposition, notes that "already a number of  
            counties have found that ERAF funds are insufficient in  
            financing schools.  In 2012-13, the Legislature had to address  
            the insufficient ERAF by providing local governments with  
            one-time allocations from the state's General Fund?.rather  
            than utilizing tax increment or ERAF funds, local governments  
            should utilize existing tools to provide economic development  
            in our communities."

          6)The Committee may wish to ask the author to discuss the  
            following questions about how the bill would be implemented:

             a)   This bill explicitly allows IFDs to file an application,  
               but excludes cities and counties.  Does the author intend  
               to include special districts? If this is the case, the  
               language should be revised to explicitly authorize special  
               districts to apply.

             b)   This bill makes the I-Bank responsible for the ultimate  
               decision of the reallocation of ERAF payments.  However,  
               the language is not clear about how far this reallocation  
               extends - is it just the jurisdiction's share, or more?

             c)   Although the bill does not specify this, if ERAF  
               payments are used for a different purpose instead of going  
               to schools, the assumption is that the state's General Fund  
               will be on the hook to backfill such a loss to schools.   
               The Committee may wish to discuss whether there should be a  
               cap placed on the total amount that the I-Bank could  
               approve for the pilot projects, in order to give certainty  
               about the fiscal hit the state will endure.
             d)   The Committee may wish to discuss whether the local  
               governmental entity applying for the Program should be  








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               required to split the funding for the project - a local  
               match - in order for the local governmental entity to have  
               some skin in the game as to the overall success of the  
               public works project.
                
            7)Support arguments  :  The League of California Cities writes  
            that "recent legislation authorized the I-Bank to make an  
            investment in local infrastructure in the City and County 
          of San Francisco, related to the America's cup?[this bill] would  
            authorize up to 25 similar investments to occur in other areas  
            around the state."

             Opposition arguments  :  CalTax argues that "before moving  
            forward with [this bill's] approach, the Legislature should  
            continue winding down redevelopment agencies?in the interim,  
            local governments should utilize voter-approved bond financing  
            to invest in infrastructure and economic development."

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          California Special Districts Association
          League of California Cities
          Western Center on Law & Poverty (in concept)

           Opposition 
           
          CalTax
           
          Analysis Prepared by  :    Debbie Michel / L. GOV. / (916)  
          319-3958