BILL ANALYSIS Ó AB 2280 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 2280 (Alejo) As Amended August 18, 2014 Majority vote ----------------------------------------------------------------- |ASSEMBLY: |57-12|(May 8, 2014) |SENATE: |25-7 |(August 22, | | | | | | |2014) | ----------------------------------------------------------------- Original Committee Reference: H. & C.D. SUMMARY : Allows local governments to establish a Community Revitalization and Investment Authority (Authority) in a disadvantaged community to fund specified activities and allows the Authority to collect tax increment. The Senate amendments : 1)Provides that prior to an Authority becoming effective, the successor agency or designated local authority must adopt findings of fact reflecting the following: a) No former redevelopment agency assets which are the subject of litigation against the state, where the city or county or its successor agency or designated local authority are a named plaintiff, have been or will be used to benefit any efforts of an Authority unless the litigation, has been resolved by entry of a final judgment by any court of competent jurisdiction and any appeals have been exhausted. b) A successor agency has complied with an order from the State Controller (Controller) to transfer any assets transferred from the by the city, county, or city and county that created the redevelopment agency and another public agency to the successor agency. 1)Adds a requirement that an Authority hold a third public hearing when considering a proposed project area. 2)Requires an Authority to hold a protest proceeding at the third public hearing to consider whether the property owners and residents within the plan area wish to present oral or written protests against the creation of the authority. AB 2280 Page 2 3)Provides that if 50% of the combined number of residents and property owners in the proposed plan area oppose the creation of the plan then the Authority must hold an election of the residents and property owners on the plan. 4)Requires the election of the residents and property owners to be by mailed ballot and if a majority opposes the plan then the Authority must not take any action to impose the plan and must wait one year before proposing a revised plan. 5)Requires the Authority to conduct an audit beginning in the first calendar year that it has allocated accumulative total of more than $1 million in tax increment revenues including any proceeds of a debt service for affordable housing purposes. 6)Requires the Controller to develop audit guidelines for Authorities on or before December 31, 2020. 7)Provides that if an Authority is required to conduct an audit prior to the Controller adopting audit guidelines, then the Authority must prepare an audit meeting the Controller's guidelines on or before January 1, 2022 AS PASSED BY THE ASSEMBLY , this bill allows local governments to establish an Authority in a disadvantaged community to fund specified activities and allows the Authority to collect tax increment. Specifically, this bill : 1)Includes legislative findings regarding the intent of the Legislature to create a planning and financing tool to support the revitalization of disadvantaged communities. 2)Establishes an Authority as a public body to carry out a community revitalization plan (plan) within a community revitalization investment area (area). 3)Provides that for the purposes of receiving tax increment revenues, pursuant to California Constitution Article XVI, Section 16, an Authority is a redevelopment agency. 4)Allows an Authority to be created in either of the following ways: a) A city, county, or city and county may adopt a AB 2280 Page 3 resolution creating the Authority. The governing board must include three members of the governing board of the city, county, or city and county that created the Authority and two public members who live or work in the area; or b) A city, county, city and county, and special district may create an Authority by entering into a joint powers agreement that shall establish the composition of the governing board, which must include two public members who live or work in the area. 1)Prohibits a school entity from participating in an Authority. 2)Prohibits a city or county from forming an Authority until the successor agency or designated local authority of a former redevelopment agency has received a finding of completion from the Department of Finance that the former redevelopment agency is fully dissolved. 3)Prohibits a successor agency to a former redevelopment agency from participating in an Authority. 4)Allows an Authority to establish an area if at least 80% of the land, calculated by census tract, is characterized by both of the following conditions: a) An annual median income that is less than 80% of the statewide annual median income; and b) Three of the following four conditions exist: i) Unemployment that is at least 3% higher than the statewide median unemployment rate; ii) A crime rate that is 5% higher than the statewide median crime rate; iii) Deteriorated or inadequate infrastructure such as streets, sidewalks, water supply, sewer treatment or processing, and parks; and iv) Deteriorated commercial or residential structures. 1)Provides that the conditions in 8) b) above, constitute blight for the meaning of Community Redevelopment Law. AB 2280 Page 4 2)Provides that the Authority is not required to make a finding or conduct a survey of blight. 3)Allows an Authority to establish an area in a former military base that is principally characterized by deteriorated or inadequate infrastructure and structures. 4)Requires a governing board of an Authority established in a former military base to include, as one of its public members, a member of the military base closure commission. 5)Subjects an Authority to the Ralph M. Brown Act. 6)Allows an Authority to do any of the following: a) Provide funding to rehabilitate, repair, upgrade, or construct infrastructure; b) Provide funding for low- and moderate-income housing; c) Remedy or remove hazardous substances pursuant to the Polanco Redevelopment Act; d) Provide for seismic retrofits of existing buildings; e) Acquire and transfer property subject to eminent domain; f) Prepare and adopt a plan for an area subject to Community Redevelopment Law; g) Issue bonds; h) Borrow money, receive grants, or accept financial or other assistance or investment from the state and federal government or any private lending institution for any project within its area of operation; i) Receive funding from the California Environmental Protection Agency under the Water Security, Clean Drinking Water, Coastal and Beach Protection Act of 2002; j) Coordinate with a qualified community development entity to maximize the benefit of New Markets Tax Credits; AB 2280 Page 5 aa) Appropriate funding that the governing body deems appropriate for administrative expenses; bb) Make loans or grants for owners or tenants to improve, rehabilitate, or retrofit buildings or structures in the area; and cc) Provide direct assistance to businesses within the plan in connection with new or existing facilities for industrial or manufacturing uses. 1)Allows money appropriated to the Authority from the legislative body or bodies that created the Authority for administrative expenses to be paid as a loan or grant. 2)Provides that if the Authority is loaned funding for administrative expenses, the property owners within the plan area will be made third party beneficiaries of the repayment of the loan. 3)Provides that in addition to the common understanding and usual interpretation, the term "administrative expenses" includes, but is not limited to, expenses for planning and dissemination of information. 4)Allows an Authority to adopt a plan to receive tax increment generated in an area. The plan must include the following: a) A statement of the principal goals and objectives; b) A description of the deteriorated or inadequate infrastructure within the area and a program for construction, repair, or upgrade of existing infrastructure; c) A program to spend 25% of the tax increment collected to increase, improve, and preserve the community's supply of low- and moderate-income housing; d) A program to remedy and remove a release of hazardous substances; e) A program to fund or facilitate economic revitalization of the area; and AB 2280 Page 6 f) A fiscal analysis of the projected receipt of revenue and projected expenses over a five year planning period. 1)Requires the Authority to adopt a program that prohibits the number of housing units for extremely low-, very low- and low-income households in the sustainable communities investment area from being reduced during the effective period of the sustainable communities investment plan, and requires the replacement of these housing units within two years of their displacement. 2)Allows an Authority to transfer funding for affordable housing to a housing authority or the entity that received the housing assets of the former redevelopment agency within the project area, if it makes a finding that the transfer will reduce administrative costs or expedite the construction of affordable housing. 3)Requires an Authority to comply with all provisions of the Community Redevelopment Law in administering tax increment funding set-aside for affordable housing. 4)Requires an Authority to contract for an independent and financial audit every five years, conducted by guidelines established by the Controller, and submit it to the Controller, Director of the Department of Finance, and the Joint Legislative Budget Committee. 5)Requires the audit to determine compliance with the affordable housing maintenance and replacement requirement including provisions to ensure that the replacement requirements are met within the five year period covered by the audit. 6)Provides that if the Authority fails to meet the maintenance and replacement requirement for affordable housing it must adopt and submit to a plan with its yearly financial audit to show how it will comply with those provisions within two years. 7)Requires the controller to review and approve an Authority's plan to meet the replacement housing requirements and ensure that the plan includes one or more of the following means of achieving compliance: a) Expenditure of an additional 10% of gross tax increment AB 2280 Page 7 revenue on increasing, preserving, or improving the supply of low-income housing; b) An increase in the production by an additional 10% of housing for very low-income households as required under the CRL housing production requirements; and/or c) The targeting of expenditures from the Low- and Moderate-Income Housing Fund toward rental housing affordable to and occupied by a person of very low and extremely low income. 1)Establishes a public process for adopting a plan or amending a plan to receive tax increment generated in an area that must include the following: a) The Authority must hold two public hearings at least 30 days apart; b) The plan must be made available to the public and to each property owner within the area at a meeting held at least 30 days prior to notice of the first public hearing; c) Notice of the first public hearing must be given at least once a week for four weeks prior to the hearing in a newspaper of general circulation and mailed to each property owner in the proposed area of the plan; and d) Notice of the second public hearing must be given not less than 10 days prior to the date of the second hearing in a newspaper of general circulation and mailed to each property owner in the area of the plan. 1)Requires a notice informing the public and property owners in the area of a public hearing to discuss the plan to receive tax increment to include: a) The specific boundaries of the proposed area; b) The purpose of the plan; and c) The time and place of the public hearing. 20)Requires that notice of the second hearing must include a summary of the changes made to the plan from the first AB 2280 Page 8 hearing. 21)Allows the Authority to inform tenants of properties in the area of the plan to receive tax increment in a manner of its choosing. 22)Allows an Authority to adopt a plan by ordinance at the conclusion of the second public hearing. 23)Allows an Authority to begin receiving tax increment funds beginning on the first December 1 after the plan is adopted. 24)Allows any taxing entity other than a school entity that receives property taxes in an area to adopt a resolution, prior to the adoption of the plan, to direct the county auditor-controller to allocate its share of tax increment funds to the Authority. 25)Allows the resolution adopted by a taxing entity directing its share of tax increment to the Authority to allocate less than the full amount of tax increment, establish a maximum amount of time in years, or limit the use of funds to specific purposes or programs. 26)Allows a taxing entity to repeal a resolution directing a portion of its tax increment to the Authority by giving the county auditor-controller 60 days' notice, except that the auditor-controller will continue to allocate to the Authority the portion of tax increment necessary to repay any debt issued by the Authority that has not been fully repaid. 27)Requires that if an area overlaps with a former redevelopment agency the plan must specify that any tax increment collected is subject to and subordinate to any preexisting enforceable obligations of the former redevelopment agency. 28)Requires an Authority to complete an annual independent audit. 29)Requires an Authority to post a draft of the audit on their Web site and mail it to the each of the taxing entities that are contributing tax increment to the area. 30)Requires the annual audit to include: AB 2280 Page 9 a) A description of the projects undertaken in the fiscal year and a comparison of the progress expected on those projects compared to the actual progress; b) A chart comparing the actual revenues and expenses including administrative costs of the Authority to the budgeted revenues and expenses; c) Amount of tax increment revenues received; d) Amount of revenues received and expended for low- and moderate-income housing; e) Assessment of the level of completion of the projects in the plan; and f) Amount of revenues expended to assist private businesses. 1)Provides that if an Authority fails to provide a copy of a completed financial audit to the Controller within 20 days of receiving a written notice of failure to comply, the Authority shall forfeit the following to the state: a) $2,500 where the Authority has total revenue of less than $100,000; b) $5,000 where the Authority has total revenue of at least $100,000 but less than $200,000; and c) $10,000 where the Authority has total revenue of at least $250,000. 1)Provides that if an Authority fails to provide an audit for two years in a row, after receiving a notice of failure to comply, it must forfeit double the amount required above based on its revenue size. 2)Provides that if an Authority fails to provide an audit for three or more years in a row, after receiving a notice of failure to comply, it must forfeit triple the amount required above based on its revenue size. 3)Provides that if an Authority fails to provide an audit for three or more years in a row the Controller shall conduct or contract to conduct an independent financial audit report paid AB 2280 Page 10 for by the Authority. 4)Provides that the Controller may request the Attorney General (AG) bring an action for the forfeiture of penalties in the name of the people of the State of California. 5)Provides that the Controller may waive the forfeiture request upon a satisfactory showing of good cause of why the Authority did not provide the audit. 6)Provides that if an Authority does not complete an annual report then it cannot expend any tax increment funds it receives. 7)Requires an Authority, every 10 years, to hold a protest proceeding at the public hearing to review an annual report, to give property owners an opportunity to provide oral or written protests against an Authority. 8)Requires an Authority to hold an election of the property owners in the areas covered by the plan if a majority of the owners protest, and not initiate any new projects until the election is held. 9)Provides that a majority protest exists if protests have been filed representing 50% of the assessed value of the area. 10)Requires the election to be held 90 days after the public hearing and permits it to be held by mail-in ballot. 11)Prevents an Authority from taking any further action to implement a plan if a majority of the property owners, weighted proportional to the assessed value of their property, vote against the Authority. 12)Allows the Authority to continue to appropriate and expend funds for contractual indebtedness and complete projects for which expenditures of any kind have been made prior to the effective date of the election. FISCAL EFFECT : According to the Senate Appropriations Committee: 1)Potentially major redirection of local property tax revenues from participating local agencies, excluding schools, to a CRIA [Authority] over a period of decades. Since this bill AB 2280 Page 11 prohibits schools from participating, there is no state fiscal impact related to the redirection of local property tax revenues. 2)Estimated one-time costs to the State Controller's Office of up to $217,000 (General Fund) to establish guidelines for periodic financial and performance audits that include provisions for determining compliance with affordable housing requirements as well as secondary review and compliance measures for failure to achieve initial compliance on the regular audit schedule. (Senate Appropriations Committee assumes up to two personnel years of audit staff to establish guidelines) 3)Estimated periodic costs to the State Controller's Office in the range of $50,000 to $100,000 (General Fund) on a periodic basis for accepting audits and reviewing and approving secondary compliance plans submitted by agencies that fail to comply with initial audit requirements. (Senate Appropriations Committee assumes up to one personnel year of audit work on a periodic basis) COMMENTS : This bill is a reintroduction of AB 1080 (Alejo) of 2013, which was held on suspense in the Senate Appropriations Committee. The only difference between this bill and AB 1080 is that this bill establishes penalties that an Authority is subject to, if it fails to provide the State Controller with a financial audit each year. An Authority is subject to a financial penalty if it fails to submit a financial audit within 20 days of the Controller's request. The penalty is based on the total revenues of the Authority. If an Authority fails to provide an audit for three or more years in a row, than the Controller can conduct an audit and require the Authority to pay for it. The Controller also has discretion at any time after an Authority fails to provide the audit to request that the AG bring an action against the Authority for the forfeiture of the penalty. Background: In 2011, the Legislature approved and the Governor signed two measures, AB 26 X1 (Blumenfield), Chapter 5, Statutes of 2011-12 First Extraordinary Session, and AB 27 X1 (Blumenfield), Chapter 6, Statutes of 2011-12 First Extraordinary Session, that together dissolved redevelopment agencies as they existed at the time and created a voluntary redevelopment program on a smaller scale. In response, the AB 2280 Page 12 California Redevelopment Association (CRA), League of California Cities, along with other parties, filed suit challenging the two measures. The Supreme Court denied the petition for peremptory writ of mandate with respect to AB 26 X1. However, the Court did grant CRA's petition with respect to AB 27 X1. As a result, all redevelopment agencies were required to dissolve as of February 1, 2012. Over the last 60 years, redevelopment agencies used tax increment to finance affordable housing, community development, and economic development projects. The dissolution of redevelopment agencies has created a void and an effort to create new tools that would support community and economic development activities. This bill would allow local government entities, excluding schools, to form an Authority to collect tax increment and issue debt. The Authority could use its powers to invest in disadvantaged communities with a high crime rate, high unemployment, and deteriorated and inadequate infrastructure, commercial, and residential buildings. Three of these four conditions would constitute blight allowing Authorities to use the powers of former redevelopment agencies. The area where the Authority could invest would also have to have an annual median household income that is less than 80% of the statewide annual median income. This is different from redevelopment agencies that were required to conduct a study and make a finding that blight existed in a project area before they could use their extraordinary powers to eradicate blight. Like redevelopment, this bill would allow Authorities to freeze the property taxes at the time the plan for revitalizing the area is approved. The Authority will collect all the tax increment or the increase in property taxes that is generated after that point and use it on specified activities. Unlike redevelopment agencies, this bill would require the taxing entities in the area including the county, city, special districts, or a military base to agree to divert tax increment to the Authority. Local government entities that initially participate can opt out by giving the auditor-controller 60 days' notice; however, the auditor controller will continue to collect the local government entities' portions of tax increment until any debts issued up until then have been repaid. Purpose of this bill: According to the author, "Redevelopment was a multi-purpose tool that focused over $6 billion per year toward repairing and redeveloping urban cores, and building AB 2280 Page 13 affordable housing, especially in those areas most economically and physically disadvantaged. Since the dissolution of redevelopment agencies, communities across California are seeking an economic development tool to use. Multiple legislative measures were introduced in 2012 after the dissolution of redevelopment agencies in an effort to provide local governments options for sustainable community economic development. Four measures were approved by the Legislature. However, all four were vetoed by Governor Brown at the end of legislative session. While the dissolution of former redevelopment agencies continues, the pervasive question is, what economic development tool can local governments use? This proposal provides a viable option targeting the state's disadvantaged poorer areas and neighborhoods." Affordable housing provisions: Redevelopment agencies were required to set aside 25% of tax increment generated in a project area to increase, improve, or rehabilitate affordable housing for low, very-low, and moderate income families and individuals. In previous years, redevelopment generated up to $1 billion for affordable housing in the state. This bill would require an Authority to reserve 25% of the tax increment generated from a project area for affordable housing. Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085 FN: 0005364