BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 562 HEARING: 6/26/13
AUTHOR: Williams FISCAL: No
VERSION: 5/20/13 TAX LEVY: No
CONSULTANT: Lui
ECONOMIC DEVELOPMENT SUBSIDIES
Requires a local agency to provide specified information
about an economic development subsidy.
Background and Existing Law
Counties, cities, and their redevelopment agencies engage
in a wide variety of economic development activities to
build their tax bases. Local officials use their
regulatory powers, direct spending, and tax policies to
influence where, when, and how the private sector invests
capital and improves real property:
Regulatory tools include general plans, zoning, and
subdivision standards.
Direct spending includes building public works
projects like dams, water systems, sewers, levees, and
roads. Spending also includes grants and loans, and
site preparation.
Tax policies include lower tax rates for selected
taxpayers and tax abatements where officials return
the revenues to the taxpayers.
Local officials sometimes use their economic development
powers to induce businesses to relocate to their
communities. State law bans counties, cities, and
redevelopment agencies from subsidizing the relocation of
big box retailers and auto malls within the same market
area (SB 114, Torlakson, 2003).
How local officials use their regulatory powers is
relatively transparent because state law requires public
notice, public hearings, and environmental reviews. State
requirements for local budgets, annual financial reports,
and regular audits allow constituents to review most of the
direct fiscal decisions.
AB 562 -- 5/20/13 -- Page 2
Some groups worry that local economic development subsidies
don't get the same public scrutiny as budgets and
regulatory decisions. To promote these agreements, they
want local officials to report more information about local
economic development subsidies.
Proposed Law
Assembly Bill 562 requires a city, charter city, county,
city and county, and community redevelopment agency, before
approving any economic development subsidy, to provide:
The name and address of the beneficiary of the
economic development subsidy, if applicable. The
beneficiary's address does not need to be posted on
the local agency's website if the beneficiary is a
sole proprietor.
The start and end dates and schedule.
A description of the subsidy, including an estimate
of the total expenditure of public funds or revenue
lost to the local agency.
A statement of the public purposes for the subsidy.
Projected tax revenue to the local agency as a
result of the subsidy.
Estimated number of jobs created by the subsidy,
broken down by full-time, part-time, and temporary
positions.
AB 562 defines "economic development subsidy" as any
expenditure of public funds or loss of revenue to a local
agency of $100,000 or more, for the purpose of stimulating
local economic development, including bonds, grants, loans,
loan guarantees, enterprise zone or empowerment zone
incentives, tax-increment financing, fee waivers, land
price subsidies, matching funds, tax abatement, tax
exemptions, and tax credits.
AB 562 exempts from the definition of "economic development
subsidy" any public funds or loss of revenue to the local
agency for providing affordable housing to persons and
families of low- or moderate-income, as defined in state
law.
Starting October 1, 2015, local officials must provide a
biennial report for each subsidy approved after January 1,
AB 562 -- 5/20/13 -- Page 3
2014. For a subsidy that will last for 40 years or more,
there is a six-year reporting requirement from the initial
report date. Every two years, starting November 1, 2015,
local officials must hold a public hearing to consider
comments on these reports. When a subsidy ends, the local
officials must provide a final report.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Californians want their
governments to be both transparent and accountable. The
public should be informed of how their tax dollars are
being spent on subsidies. Because local governments
compete against each other for the same development,
subsidies become a zero-sum game. Current law does not
require local agencies to provide detailed information
about tax expenditures. AB 562 is intended to provide some
transparency to taxpayers concerning the use of public
funds for economic development activities. Knowing more
about local subsidies helps communities get ready for
important discussions about goals and results. According
to the author, "The first step towards accountability is to
require full disclosure of subsidies that are being
granted. It is impossible to determine if these incentives
work without adequate information on specific subsidy
deals. Taxpayers deserve to know the benefit to them of
awarding economic development incentives to businesses, or
if their tax dollars are better used elsewhere."
2. Local control . City councilmembers and county
supervisors are local elected officials, directly
responsible to their own constituents. How they promote
local economic development, like regulations, budgets, or
taxes, are questions that should be asked and answered
within each community. Unless there is a compelling
statewide interest in public health, safety, or welfare,
the Legislature should honor the concepts of home rule and
local control. Without any state fiscal involvement, why
should the state dictate what local officials should ask of
their project applicants?
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3. Timing . Napoleon Bonaparte once said, "Take time to
deliberate." AB 562 appears to require separate public
hearings to review subsidy proposals. Holding a
stand-alone hearing for each subsidy may increase a local
government's costs. The Committee may wish to consider
amending the bill to require that a local agency consider
the economic subsidy, the subsidy's report, and a hearing
on the report at a local agency's regularly scheduled
public hearing.
4. Defining terms . AB 562 defines "local agency" to
include a city, charter city, county, city and county, and
community redevelopment agency. 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. Because redevelopment agencies have
been dissolved, the Committee may wish to delete the
obsolete reference.
On page 4, line 10, after "county," strike out "and
community redevelopment agency"
5. Charter cities . The California Constitution lets
charter cities control their municipal affairs. The 121
charter cities must follow statewide laws for issues of
statewide concern. The courts, not the Legislature,
interpret the Constitution, and decide what constitutes a
municipal affair and what is considered a matter of
statewide concern. AB 562 makes a finding that the
public's right to be informed about subsidies is a matter
of statewide concern.
6. State-level attempts . For more than 20 years, state
law has required the State Department of Finance to give
legislators an annual report on state tax expenditures (SB
1379, Alquist, 1984). The 2011-2012 DOF report includes a
list of 85 major tax expenditures, totaling $43 billion in
State General Fund revenue losses and $9 billion in local
government revenue losses. The Legislative Analyst's
Office produces its own evaluation of tax expenditures,
which is more detailed than Finance's annual report (ACR
17, Bates, 1985). State officials and legislators have
started to ask questions about tax expenditures, including
AB 562 -- 5/20/13 -- Page 5
the following measures:
Last year, SB 508 (Wolk) would have required any
newly enacted tax credits to include specific goals,
data collection requirements, performance indicators,
and mandatory sunset dates. Governor Brown vetoed SB
508 stating, "While I agree that we should consider
sunset clauses for personal income and corporate tax
credits, one size does not fit all. SB 365 (Wolk,
2013) is nearly identical and is set to be heard in
Assembly Revenue and Taxation on June 24.
AB 2641 (Arambula, 2010) would have required the
Legislature to review, before January 1, 2014, and
every fifth year thereafter, each tax expenditure, as
specified, and provide that every new tax expenditure
that is enacted after the effective date of AB 2461
shall be repealed automatically on January 1, 2015,
and on January 1 of every fifth year thereafter,
unless otherwise provided. The bill was held in
Assembly Appropriations.
AB 2884 (Villaraigosa), introduced in the 1995-96
legislative session, would have required the LAO,
together with the DOF, FTB, and the Board of
Equalization, to conduct an evaluation of all tax
expenditures, as defined. AB 2884 failed in the
Assembly Revenue and Taxation Committee.
SB 1233 (Hayden, 1994) would have required the LAO
to review each tax expenditure program to determine if
its objectives are being realized, whether its
benefits exceeded its revenue costs, and whether there
is a less costly way of providing the same benefits.
Governor Wilson vetoed SB 1233.
7. Related legislation . AB 562 is not the bill that
specifies a process for local governments to review a
proposed economic development subsidy.
SB 1103 (Cedillo, 2008) contained nearly identical
provisions and passed the Assembly Local Government
Committee on a 3-2 vote. The bill was later amended
to another subject.
SB 103 (Cedillo, 2007) contained nearly identical
provisions but was vetoed by Governor Schwarzenegger,
citing concerns that the bill did not offer additional
information that wasn't already provided to the
public. He stated, "The approval processes envisioned
by this bill will likely result in major time delays
in getting the economic assistance to deserving
AB 562 -- 5/20/13 -- Page 6
communities and citizens."
SB 1268 (Cedillo, 2006) passed the former Senate
Local Government Committee on a 3-2 vote, but died in
the Senate Appropriations Committee.
AB 1139 (Dymally, 2005) would have required the
State Department of Finance to produce an annual
"unified economic development budget" that included
economic development spending. County officials would
have been responsible for reporting property tax
reductions and abatements to the state. AB 1139
failed in the Assembly Committee on Jobs, Economic
Development, and the Economy.
Assembly Actions
Assembly Local Government: 7-1
Assembly Floor: 49-19
Support and Opposition (6/20/13)
Support : American Federation of State, County, and
Municipal Employees, AFL-CIO; California Labor Federation;
Howard Jarvis Taxpayers, Service Employees International
Union; Teamsters; United Food and Commercial Workers
Western States Council.
Opposition : California Asian Pacific Chamber of Commerce;
California Building Industry Association; California
Chamber of Commerce; California Business Properties
Association; California Grocers Association; California
Manufacturers and Technology Association; California
Taxpayers Association; Cities of Cypress, Chula Vista,
Culver City, El Centro, Fairfield, Goleta, Moorpark,
Ontario, Pismo Beach, Rancho Cordova, Riverside, Rosemead,
Sacramento, San Luis Obispo, Santa Rosa, South San
Francisco; Sunnyvale, Tulare, and Ventura; League of
California Cities; National Federation of Independent
Business; TechAmerica.