BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1943
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          CONCURRENCE IN SENATE AMENDMENTS
          AB 1943 (Chesbro)
          As Amended  June 30, 2014
          2/3 vote
           
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          |ASSEMBLY:  |72-0 |(May 8, 2014)   |SENATE: |32-2 |(August 19,    |
          |           |     |                |        |     |2014)          |
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           Original Committee Reference:    L. GOV.  

           SUMMARY  :  Revises the statutory obligation for the City of  
          Eureka (City) to remit certain funds to the state related to  
          tidelands and submerged lands located in Humboldt Bay that were  
          granted to the City in the 1970s.  

           The Senate amendments  revise the date, from September 30 to  
          December 31, for the annual statement of financial condition and  
          operation to be submitted to the State Lands Commission by the  
          City.

           EXISTING LAW  :

          1)Grants to the City all the right, title, and interest of the  
            State of California in and to certain tidelands and submerged  
            lands located in Humboldt Bay in trust for specified purposes.

          2)Requires the City to establish the Humboldt Bay Fund and to  
            deposit all moneys received directly from, or indirectly  
            attributable to, the tide and submerged lands into the  
            Humboldt Bay Fund.

          3)Requires the City, prior to June 30 of each year, to pay to  
            the State Controller at least 15% of the money deposited by  
            the city in the Humboldt Bay Fund during the preceding fiscal  
            year as a condition of a $750,000 loan made to the City by the  
            state in 1970.

          4)Establishes the Kapiloff Land Bank Act (Act) of 1982, for the  
            purpose of facilitating public trust settlements and  
            mitigation projects.

          5)Creates the Land Bank Fund and continuously appropriates  
            moneys in the fund subject to a statutory trust to the State  








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            Lands Commission, acting as the Land Bank Trustee, to acquire  
            real property or any interest in real property for the  
            purposes of public trust title settlements and for mitigation  
            of adverse environmental impacts.

           AS PASSED BY THE ASSEMBLY , this bill:  

          1)Deleted the statutory obligation that requires the City to  
            remit to the Controller, annually, a sum not less than 15% of  
            the amount of money deposited by the city into the Humboldt  
            Bay Fund during the preceding fiscal year as a condition of a  
            $750,000 loan made to the City by the state in 1970.

          2)Required, on June 30, 2015, and at the end of every fiscal  
            year thereafter, 4% of all gross revenue generated from the  
            trust lands, to be transmitted to the State Lands Commission  
            (Commission) and deposited in the Kapiloff Land Bank Fund for  
            expenditure by the Commission for management of the  
            Commission's granted lands program.
           FISCAL EFFECT  :  According to the Senate Appropriations  
          Committee, this bill contains:

          1)Revenue losses of $30,000 to $60,000 to the General Fund from  
            eliminated payments from the City.

          2)Increased revenues of $8,000 to $16,000 to the Kapiloff land  
            Bank Fund (special) from the City.
           
          COMMENTS  :   

          1)Purpose of this bill.  This bill revises the statutory  
            obligation for the City to remit certain funds to the state  
            related to tidelands and submerged lands located in Humboldt  
            Bay that were granted to the City in the 1970.  The bill  
            deletes the annual requirement for the City to remit a sum not  
            less than 15% of the amount of money deposited by the City  
            into the Humboldt Bay Fund, during the preceding fiscal year,  
            and instead, requires annual remittance by the City of 4% of  
            all gross revenue generated from the trust lands to the State  
            Lands Commission, to be deposited in the Kapiloff Land Bank  
            Fund.  This bill is sponsored by the City.

          2)Background on lawsuit and loan to the City.  In 1970, the City  
            initiated a lawsuit to protect a state grant of sovereign tide  
            and submerged lands at the edge of the City and Humboldt Bay  








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            from private encroachment.  The grant was intended to assist  
            the City in its redevelopment efforts and conferred management  
            and control responsibilities to the City.  In subsequent  
            years, the City found that it could no longer financially  
            support the lawsuit.  Because the State Lands Commission found  
            that defense of the litigation was essential to statewide  
            public trust interests, and because it would be more expensive  
            for the state to enter into its own litigation to protect  
            those interests, the state entered into a unique agreement to  
            loan the city up to $750,000 to continue the litigation.
             
             In making the loan, the Legislature found that it would  
            provide significant fiscal and time savings to the state,  
            since the City would continue to pursue litigation that the  
            state would otherwise be forced to take on.  In return for the  
            loan, the City agreed to undergo very strenuous grant  
            oversight in a number of ways, including audits of its books  
            and oversight of leases of the granted lands.
             
           3)Statutory repayment provisions of the loan.  The statutes  
            dealing with repayment of the $750,000 loan do not include  
            provisions for ending the City's payment obligations.   
            Instead, they require the City to pay to the State Controller,  
            in perpetuity, at least 15% funds deposited in the Humboldt  
            Bay Fund on an annual basis. 

          4)Kapiloff Land Bank Act.  The Act was introduced by Assembly  
            Member Lawrence Kapiloff and enacted by the Legislature in  
            1982.  The Act is an extension of State Lands Commission  
            authority as set forth in Public Resources Code Section 6307,  
            which was enacted to facilitate settlements of title to real  
            property with cash payments where exchange parcels are not  
            readily available or are not of equal value and to facilitate  
            mitigation through the pooling of such payments.  The  
            Commission holds and administers the acquired lands as  
            sovereign lands of the legal character of tidelands and  
            submerged lands.

          5)Author's statement.  According to the author, "the City of  
            Eureka has paid back the initial loan to the state and then  
            some.  To date the city has repaid $1,167,000 on an $800,000  
            loan.  The loan has greatly helped the City but the Harbor  
            [Humboldt Bay Harbor] continues to operate at a deficit, with  
            a projected operating deficit of $122,748 for fiscal year  
            2013-14, further lowering the unrestricted fund balance  








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            deficit to over $800,000.  Additionally, the dissolution of  
            the Eureka Redevelopment Agency has saddled the successor  
            agency's continued repayment of Harbor bonds which amount to  
            about $100,000 per year, further impacting the Harbor Fund's  
            deficit, and reducing its ability to become an economically  
            viable proprietary fund.

            "Removing the requirement for payment to the state will allow  
            the City of Eureka to place all of its tideland resources into  
            operating and maintaining its tideland facilities, which will  
            in turn help the City achieve the state's goals for Public  
            Trust Tidelands, as well as helping spur local economic  
            development."

          6)Previous legislation.  There have been several previous  
            attempts to modify the loan repayment provisions, including  
            the following bills:
             
             SB 1126 (Chesbro) of 2006. This bill would have allowed the  
            Humboldt Bay Harbor District to transfer the loan obligations  
            from a 1970 loan (that was refinanced in 1982) to a special  
            sub-account in house.  The bill was vetoed by Governor  
            Schwarzenegger who noted in his veto message that "this bill  
            is contrary to the original agreement memorialized in Chapter  
            1095, Statutes of 1978, which specified that the grant was  
            contingent upon Eureka's agreement to make an annual  
            remittance to the State in perpetuity."  Governor  
            Schwarzenegger also wrote in his veto message that revenue  
            reduction was not prudent at that time, given the state's  
            fiscal condition.

            SB 742 (Chesbro) of 2005.  This bill would have ended the 1970  
            loan agreement to the City of Eureka that was renegotiated in  
            1982.  The veto message was substantially similar to the veto  
            message for SB 1126.

          7)Continuous appropriation.  The bill requires a two-thirds vote  
            of each house because of the continuous appropriation.

          8)Arguments in support.  The City argues that this bill will  
            acknowledge Eureka's repayment to the state but still require  
            a reduced payment of 4% of the Harbor Fund revenues with no  
            end date.

          9)Arguments in opposition.  None on file.








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


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