BILL ANALYSIS Ó AB 1943 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 1943 (Chesbro) As Amended June 30, 2014 2/3 vote ----------------------------------------------------------------- |ASSEMBLY: |72-0 |(May 8, 2014) |SENATE: |32-2 |(August 19, | | | | | | |2014) | ----------------------------------------------------------------- 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 AB 1943 Page 2 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 AB 1943 Page 3 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 AB 1943 Page 4 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. AB 1943 Page 5 Analysis Prepared by : Debbie Michel / L. GOV. / (916) 319-3958 FN: 0004723