BILL ANALYSIS �
AB 294
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Date of Hearing: May 15, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 294 (Holden) - As Amended: May 6, 2013
Policy Committee: Local
GovernmentVote:8-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill creates the Local-State Joint Investment Partnership
Pilot Program to allow local government entities, upon approval
by the Infrastructure and Economic Development Bank (I-Bank), to
reallocate specified Educational Revenue Augmentation Fund
(ERAF) payments in order to fund public works projects.
Specifically, this bill:
1)Allows only a local government entity, including but not
limited to, an infrastructure financing district (IFD) or any
special district, 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).
2)Requires an application for financing filed with the I-Bank to
include information prescribed by the I-Bank, in particular,
an economic analysis of the project that includes a
determination 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 a 35-year period.
3)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.
4)Allows, after January 1, 2015, the I-Bank to approve up to a
maximum of 15 applicants for financing pursuant to the Program
or a total of $50 million in allocations for all approved
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projects, whichever comes first.
FISCAL EFFECT
1)This bill would result in less property tax going to schools
as the applicant local government receives the growth in
property tax revenues. To the extent this bill prevents these
revenues from flowing to school districts, there would be a
corresponding cost to the General Fund as the diverted
property tax would otherwise offset General Fund obligations
to schools, pursuant to the Proposition 98 minimum funding
guarantee. The actual impact to the General Fund is unknown
because it will depend on the number of school districts that
are basic aid (solely funded through property tax).
2)This bill has a capped allocation of $50 million over the life
of the projects. Over time, this cost could be offset by the
increased revenues resulting from the development projects.
3)The I-Bank anticipates administrative costs in the hundreds of
thousands of dollars. The bill requires applicants to pay for
the reasonable costs of application review.
COMMENTS
1)Purpose . 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 GF 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 GF 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.
2)Support . According to the League of Cities and the California
Special Districts Association, this bill is an innovative
approach at a time when such innovation is needed to empower
local agencies with a tool that can be used to foster greater
local-state collaboration while enhancing public
infrastructure and creating jobs.
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3)Opposition . Cal-Tax notes a number of counties have found
ERAF funds are insufficient to finance 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. They argue rather than utilizing tax
increment or ERAF funds, local governments should utilize
existing tools to provide economic development.
4)I-Bank decision . A key decision to be made by the I-Bank is
to determine if these projects will result in new revenues for
California or if they merely change development patterns
within the state. If an applicant is approved and builds
infrastructure for new industrial development, there is not
likely to be any net growth in state tax revenues if the
development would have been located elsewhere within the
state. Conversely, if it attracts industry from another state
or county, that should lead to an increase in tax revenues.
The I-Bank will have to depend on economic studies and
forecasts that will ultimately be uncertain, leaving the state
to assume risk by essentially backing these development
projects.
5)Precedent . This bill is modeled after AB 664 (Ammiano),
Chapter 314, Statutes of 2011, which allows the ERAF share of
property tax within the City and County of San Francisco to be
used by the Port of San Francisco for development of projects
associated with America's Cup. When the bill was heard by
this committee, it would have diverted approximately $2
million beginning in 2014, rising to $3.6 million in 2042.
The net present value of the ERAF diversions over this time
period is estimated to be $26 million.
6)Amendment needed . The author states the intent of the bill is
a $50 million allocation lifetime limit for distributions from
ERAF although it is unclear. A clarifying amendment is
needed:
Page 4, beginning line 30:
(a) On and after January 1, 2015, the bank may approve up to a
maximum of 15 applications for financing pursuant to the
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program or a total of fifty million dollars ($50,000,000),
whichever comes first. The Educational Revenue Augmentation
Fund limitation of $50,000,000 is calculated using the sum of
redirected property tax over their entire life of the
projects.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081