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 AB 2135 (Ting) Page 1 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 AB 2135 (Ting) Page 2 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 AB 2135 (Ting) Page 3 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). AB 2135 (Ting) Page 4