BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, Chair


          AB 2135 (Ting) - Local agency surplus property sales: affordable  
          housing.
          
          Amended: August 4, 2014         Policy Vote: T&H 8-1
          Urgency: No                     Mandate: Yes
          Hearing Date: August 4, 2014                            
          Consultant: Mark McKenzie       
          
          This bill may meet the criteria for referral to the Suspense  
          File. 

          
          Bill Summary: AB 2135 would revise certain requirements that  
          local agencies must follow when disposing of surplus land.   
          Under the bill, surplus land offered for sale or lease for the  
          development of low- and moderate-income housing under a  
          preference program must provide at least 25 percent of the units  
          at an affordable housing cost, as specified, and land sold for  
          development of 10 or more residential units outside the  
          preference system must provide at least 15 percent of the units  
          at an affordable housing cost. 

          Fiscal Impact: Unknown, likely minor, reimbursable mandate  
          costs. Local agencies would likely incur minor one-time costs to  
          revise administrative procedures related to the disposal of  
          surplus property.  These costs could be subject to  
          state-reimbursement to the extent local agencies file a claim  
          for reimbursement and the Commission on State Mandates  
          determines specified activities are subject to reimbursement.  
          (General Fund)

          Background: Existing law requires local agencies (cities,  
          counties, special districts, and school districts) to compile an  
          inventory of all lands under the agency's control that are in  
          excess of its foreseeable needs at the end of each calendar  
          year.  Existing law prescribes a process for disposing of  
          surplus property to certain entities for preferred purposes  
          prior to offering the land on the open market.  Prior to  
          disposing of surplus property, the local agency must send a  
          written offer to sell or lease the property to specified  
          entities, such as housing authorities, affordable housing  
          developers, specified parks and recreation entities, school  








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          districts, and transportation entities, depending on the  
          proposed use of the land.  An interested agency must notify the  
          disposing agency in writing of its intent to purchase the land  
          within 60 days.  

          Existing law requires the disposing agency, upon receipt of a  
          notice of intent to purchase from one of the preferred entities,  
          to enter into good faith negotiations to determine a mutually  
          satisfactory sales price or lease terms.  If an agreement is not  
          reached within 60 days, the surplus land may be sold on the open  
          market.  If there are multiple offers, the disposing agency must  
          give first priority to the entity that agrees to use the site  
          for low- or moderate-income housing, unless the property is park  
          land and the buyer agrees to use the site for parks and  
          recreation purposes.  Existing law authorizes a sales contract  
          with a payment period of up to 20 years if the property is sold  
          to one of the preferred entities for park or recreation,  
          open-space, school, or low- and moderate-income housing  
          purposes.  Existing law explicitly states that nothing in the  
          disposal procedure limits the power of any local agency to sell  
          or lease surplus land at fair market value or at less than fair  
          market value, nor does it empower any local agency to sell or  
          lease surplus land at less than fair market value.

          Proposed Law: AB 2135 would revise certain requirements that  
          local agencies must follow when disposing of surplus property.   
          Specifically, this bill would:
           Extend the good faith negotiation period between a disposing  
            agency and a preferred purchasing entity from 60 days to 90  
            days.
           Specify that if a local agency receives a response from more  
            than one interested entity that plans to use the property for  
            affordable housing purposes, the disposing agency must give  
            priority to the entity that proposes to provide the greatest  
            number of affordable units at the deepest level of  
            affordability.
           Place the following requirements on an entity proposing to  
            purchase surplus local agency property for affordable housing  
            purposes under the preference program:
               o      The entity must agree to make at least 25 percent of  
                 the total number of units developed available for  
                 purchase or rent at an affordable housing cost to lower  
                 income households.  
               o      Rental units must be affordable and occupied by  








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                 eligible households for 55 years.  
               o      The initial occupants of all ownership units must be  
                 lower income households, and the units shall be subject  
                 to a specified equity sharing agreement.
               o      The requirements must be recorded against the  
                 property and are enforceable by the local agency  
                 disposing of the property and specified eligible  
                 residents.
           Authorize the payment period for surplus property sold for  
            affordable housing purposes to exceed 20 years, but not be  
            longer than the required term for maintaining affordability.
            Delete the provision that explicitly specifies that the  
            disposal procedures do not empower any local agency to sell or  
            lease surplus land at less than fair market value, and instead  
            specify that any sale or lease at less than fair market value  
            shall not be construed as inconsistent with an agency's  
            purpose.
           Place the following requirements on local agency surplus  
            property sales on the open market (after following procedures  
            for preferred sales) to an entity that uses the property for  
            the development of 10 or more residential units:
               o      The entity must agree to make at least 15 percent of  
                 the total number of units developed available for  
                 purchase or rent at an affordable housing cost to lower  
                 income households.  
               o      Rental units must be affordable and occupied by  
                 eligible households for 55 years.  
               o      The initial occupants of all ownership units must be  
                 lower income households, and the units shall be subject  
                 to a specified equity sharing agreement.
               o      The requirements must be recorded against the  
                 property and are enforceable by the local agency  
                 disposing of the property and specified eligible  
                 residents.

          Staff Comments: Apart from the provision that extends the good  
          faith negotiation period between a disposing agency and a  
          preferred purchasing entity by 30 days, the requirements of this  
          bill would only apply when surplus property is sold for  
          residential development.  Local agencies could incur some  
          administrative costs to revise procedures to account for the  
          minimum thresholds of affordable units for sales of property for  
          affordable housing purposes under the current preference  
          program, and for sales of property for any residential  








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          development of ten or more units on that property.  These  
          administrative costs could be subject to a claim for  
          reimbursement from the Commission on State Mandates, but staff  
          estimates these costs to be minor.  It is unlikely that agencies  
          selling surplus property for residential development would  
          expend the time and resources necessary to file a claim with the  
          Commission for reimbursement of these minor one-time costs.

          AB 2135 requires that a certain percentage of units in a  
          proposed affordable housing project, or in a project that  
          includes ten or more residential units, must meet specified  
          affordability standards.  If a property deemed surplus by a  
          local agency is specifically suited for residential development,  
          these new restrictions could potentially reduce the price that a  
          buyer is willing to pay for a property, and result in a lower  
          sales price when compared to market rate residential  
          development.  As such, the bill could result in a reduction in  
          local revenues.  Staff notes that a loss of revenue in itself  
          does not constitute a state mandate necessitating reimbursement.  
           The Commission has found in previous cases that there must be  
          an expenditure of local government proceeds of taxes and not  
          just a reduction of that revenue in order to qualify for  
          reimbursement.  County of Sonoma v. Commission on State Mandates  
          (2000) 84 Cal.App.4th 1264 involved statutes that reduced the  
          local agency's receipt of tax revenues and transferred the  
          reduced portion to the Educational Revenue Augmentation Fund for  
          distribution to schools.  In that case, the court held that the  
          amount reduced was not reimbursable since there was no  
          expenditure of tax proceeds, and that that the statutes did not  
          result in "increased actual expenditures." 

          Furthermore, it could be argued that since local agencies are  
          under no obligation to offer surplus land for sale, any required  
          activities triggered by that local discretionary decision do not  
          result in a mandated program because there is no legal  
          compulsion.  With respect to this bill, there is no legal  
          compulsion to sell surplus property for residential development,  
          so any costs that a local agency incurs as a result of the  
          requirements related to minimum percentages of affordable  
          housing units would not be subject to reimbursement (See City of  
          Merced v. State of California (1984) 153 Cal.App.3d 777).











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