BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1 HEARING: 3/13/13
AUTHOR: Steinberg FISCAL: Yes
VERSION: 12/3/12 TAX LEVY: No
CONSULTANT: Weinberger
SUSTAINABLE COMMUNITIES INVESTMENT AUTHORITIES
Allows local governments to form Sustainable Communities
Investment Authorities to administer economic development
and affordable housing programs.
Background and Existing Law
Until 2011, the Community Redevelopment Law allowed local
officials to set up redevelopment agencies (RDAs), prepare
and adopt redevelopment plans, and finance redevelopment
activities.
A redevelopment agency kept the property tax increment
revenues generated from increases in property values within
a redevelopment project area. As a redevelopment project
area's assessed valuation grew above its base-year value,
the resulting property tax revenues - the property tax
increment - went to the RDA instead of going to the
underlying local governments. When a redevelopment agency
diverted property tax revenues from a school district, the
State General Fund paid the difference.
Citing a significant State General Fund deficit, Governor
Brown's 2011-12 budget proposed eliminating RDAs and
returning billions of dollars of property tax revenues to
schools, cities, and counties to fund core services. Among
the statutory changes that the Legislature adopted to
implement the 2011-12 budget, AB X1 26 (Blumenfield, 2011)
dissolved all RDAs. The California Supreme Court's 2011
ruling in California Redevelopment Association v.
Matosantos upheld AB X1 26, but invalidated AB X1 27
(Blumenfield, 2011), which would have allowed most RDAs to
avoid dissolution.
RDAs' dissolution deprived many local governments of the
primary tool they used to eliminate physical and economic
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blight, finance new construction, improve public
infrastructure, rehabilitate existing buildings, and
increase the sup-ply of affordable housing. Legislators,
local government officials, affordable housing advocates,
and others want to develop alternative tools to promote
local economic development.
Proposed Law
Senate Bill 1 allows local government officials to
establish a Sustainable Communities Investment Authority
(Authority) and use property tax increment revenues to
finance the implementation of a Sustainable Communities
Investment Plan within a Sustainable Communities Investment
Area. SB 1 specifies:
I. The process to form an Authority.
II. How the Community Redevelopment Law governs an
Authority.
III. Requirements for forming a Sustainable Communities
Investment Area.
IV. Elements to be included in a Sustainable Communities
Investment Plan.
V. How tax increment revenues are allocated to, and
used by, an Authority.
VI. Other provisions governing Authorities' activities.
I. Formation process . Senate Bill 1 allows local
governments to form a Sustainable Communities Investment
Authority in one of five ways:
A city, county, or special district can create an
Authority by entering into a joint powers agreement
that establishes a governing board and designates a
Sustainable Communities Investment Area.
A city can create an Authority, appoint the
Authority's governing board, designate a Sustainable
Communities Investment Area within the city, and
establish the parameters of the proposed economic
development within a proposed Sustainable Communities
Investment Area with county approval of the economic
development parameters and the Sustainable Communities
Investment Plan, including any plan amendments.
A city and a county can create an Authority and
appoint the Authority's governing board, which is
comprised of two members appointed by the city and two
members appointed by the county. The two city and the
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two county members must appoint a fifth member. The
governing board must designate the Sustainable
Communities Investment Area in an incorporated area or
in both an incorporated area and an unincorporated
area. The city and county must approve the
Sustainable Communities Investment Plan, including any
plan amendments.
A county board of supervisors can create an
Authority and appoint the Authority's governing board
if the Sustainable Communities Investment Area is
within an unincorporated area.
A city can create an Authority, which constitutes a
legally distinct entity from that city, and appoint
the Authority's governing board, which may designate a
Sustainable Communities Investment Area only within
the incorporated limits of that city.
Senate Bill 1 requires an Authority's governing board to
consist of five members appointed for four-year terms. The
governing body of an Authority created by a city and county
must be composed of five members appointed by the mayor of
that city, if the appointment is subject to confirmation by
the county board of supervisors.
Senate Bill 1 excludes school districts from participating
in an Authority.
II. Community Redevelopment Law . The Community
Redevelopment Law governs the manner in which local
officials create redevelopment agencies, adopt
redevelopment plans, and finance redevelopment activities.
Senate Bill 1:
Deems an Authority to be an "agency," as defined in
the Community Redevelopment Law.
Specifies that an Authority has all of the rights,
responsibilities, and obligations of a redevelopment
agency.
States that the terms "Sustainable Communities
Investment Area" and "Sustainable Communities
Investment Plan," as used in the bill, are equivalent
to a redevelopment project area and a redevelopment
plan.
Requires an Authority to comply with most
provisions of the Community Redevelopment Law,
excluding specified statutes authorizing pass-through
payments to local taxing entities.
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Exempts an Authority from specified statutes that
suspend redevelopment agencies' activities, prohibit
redevelopment agencies' issuance of debt, and govern
redevelopment agencies' dissolution.
III. Sustainable Communities Investment Areas . Before
redevelopment officials could wield their extraordinary
powers of property tax increment funding and property
management (including eminent domain), the Community
Redevelopment Law required them determine if an area was
blighted. Senate Bill 1 allows an Authority to designate
one or more Sustainable Communities Investment Areas
(Areas). The bill allows an Authority to rely on a
legislative determination of blight and frees an Authority
from having to make a separate finding of blight or conduct
a survey of blight within a project area.
Senate Bill 1 requires that an Area can include only three
types of territory:
Transit priority areas where a transit priority
project, as defined in statute, may be constructed.
If the project area is based on proximity to a planned
major transit stop or a high-quality transit corridor,
the stop or the corridor must be scheduled to be
completed within a specified planning horizon. A
transit priority area can include a military base
reuse plan that meets the definition of a transit
priority area and a contaminated site within a transit
priority area. If the Area includes a high-speed rail
station, the radius of the Area may be up to one mile
from a high-speed rail station. If the Area consists
of a radius greater than a half-mile, at least 50% of
the tax increment revenue derived from the area must
be used to support construction of the high-speed rail
station and related infrastructure. Transit priority
project areas must be within the boundaries of a
metropolitan planning organization that has adopted a
sustainable communities strategy that specified state
and local officials determine would achieve the
region's greenhouse gas reduction targets.
Areas that are small walkable communities, as
defined in state law, except that small walkable
communities may also be designated in a city that is
within the area of a metropolitan planning
organization. An Authority may not designate more
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than one small walkable community project area within
a city. A "small walkable community project" is a
project that is located in a small walkable community
project area, which is an area within an incorporated
city that is not within the boundary of a metropolitan
planning organization and meets all the following
requirements:
o Has a project area of approximately
one-quarter-mile diameter of contiguous land
completely within the existing incorporated
boundaries of the city.
o Has a project area that includes a
residential area adjacent to a retail downtown
area.
o The project area has an average net
density of at least eight dwelling units per acre
or a floor area ratio, as defined, for retail or
commercial use of not less than 0.50.
Sites that have land use approvals, covenants,
conditions and restrictions, or other effective
controls restricting the sites to clean energy
manufacturing, and that are consistent with the use,
designation, density, building intensity, and
applicable policies specified for the Area in the
applicable sustainable communities strategy, if those
sites are within the geographic boundaries of a
metropolitan planning organization. The bill defines
"clean energy manufacturing" as the manufacturing of:
o Components, parts, or materials for the
generation of renewable energy resources.
o Equipment designed to make buildings more
energy efficient, or component parts of such
equipment.
o Public transit vehicles, or component
parts.
o Alternative fuel vehicles, or component
parts.
IV. Sustainable Communities Investment Plans . The
Community Redevelopment Law specifies numerous elements
that must be included in a redevelopment plan for a project
area. In addition, Senate Bill 1 requires a Sustainable
Communities Investment Plan to include:
A fiscal analysis of projected tax increment
revenue and other revenue and projected expenses over
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five-year planning horizons for the life of the
Authority.
A statement of the principal goals and objectives
of the plan together with findings of the public
purposes and uses that will be achieved.
A statement of how the plan will relieve blight as
follows:
o How it will implement the goals of a
sustainable communities strategy, if the
Sustainable Communities Investment Area is within
a metropolitan planning organization.
o How it will contribute to more efficient
transportation infrastructure.
o How it will contribute to a reduced cost
for the combined costs of housing and
transportation for California residents.
o How it will contribute to improved public
health.
o How it will promote more efficient water
consumption.
o How it will avoid loss of prime farmland.
o How it will reduce air pollution, energy
consumption and greenhouse gas emissions by
reducing vehicle miles traveled.
A statement of how the plan will implement the
Authority's sustainable parking standards.
A statement of how the plan will implement the
Authority's jobs plan.
Senate Bill 1 allows a Sustainable Communities Investment
Plan to include:
Farmworker housing.
Transitional and supportive housing including
former foster youth, persons with mental health
treatment needs, persons with substance use disorder
treatment needs, and various offender populations.
Health and safety related infrastructure
investments for disadvantaged and rural communities.
Infrastructure investments to support countywide
services including health clinics, hospitals, medical
provider offices, child care facilities, day reporting
centers, and grocery stores in food desert areas.
V. Tax increment financing . The California Constitution
and the Community Redevelopment Law allow local officials
to use property tax increment revenues to repay bonds,
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debts, and loans needed to finance a redevelopment project.
Senate Bill 1 allows an Authority to use tax increment
revenues, provided that the local government with land use
jurisdiction has adopted:
A sustainable parking standards ordinance that
restricts parking in transit priority project areas to
encourage transit use to the greatest extent feasible.
An ordinance creating a jobs plan that requires all
entities receiving financial support from the
Authority to enter into an agreement with the
Authority describing how the project will:
o Further construction careers that pay
prevailing wages and create living wage permanent
jobs.
o Implement a program for community
outreach, local hire, and job training that
includes disadvantaged California residents,
including veterans of the Iraq and Afghanistan
wars, people with a history in the criminal
justice system, and single-parent families.
For transit priority project areas and small
walkable communities within a metropolitan planning
organization, a plan consistent with the use
designation, density, building intensity, and
applicable policies specified for the Sustainable
Communities Investment Area in the sustainable
communities strategy.
Within small walkable communities outside a
metropolitan planning organization, a plan for new
residential construction that provides a density of at
least 20 dwelling units per net acre and, for
nonresidential uses, provides a minimum floor area
ratio of 0.75. The bill requires the Authority to
consult with the metropolitan planning organization to
obtain its opinion whether the plan is consistent with
the use designation, density, building intensity, and
applicable policies for the project area in the
sustainable communities strategy.
Senate Bill 1 specifies the manner in which a county
auditor-controller must allocate tax increment revenue to
an Authority. Specifically, the bill:
Prohibits a school district's property tax
increment revenues from being pledged or allocated to
an Authority.
Allows a taxing entity to authorize an allocation
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to an Authority of all or part of the tax increment
revenue that otherwise would be paid to the taxing
entity.
Requires a county auditor-controller to allocate to
an Authority a portion of a taxing entity's portion of
tax increment revenues only if a resolution adopted by
the taxing entity's governing body authorizes the
allocation.
Prohibits a taxing entity that adopts a resolution
from revoking the auditor-controller's authority if
revocation would impair the Authority's ability to
honor existing obligations secured by tax increment
revenues.
Senate Bill 1 requires that a Plan that an Authority adopts
for an Area that includes land formerly or currently
designated as part of a redevelopment area must subordinate
tax increment amounts received by the Authority to any
preexisting enforceable obligation, as defined in statute.
Senate Bill 1 allows a city council or county board of
supervisors to dedicate any portion of its "net available
revenue" to an Authority. The bill defines "net available
revenue" as periodic distributions to the city or county
from the Redevelopment Property Tax Trust Fund that are
available to the city or county after all preexisting legal
commitments and statutory obligations funded from that
revenue are made pursuant to state law. Net available
revenue includes only revenue remaining after all current
distributions, including payment of enforceable
obligations, all distributions to other taxing entities,
and applicable administrative fees, have been made. A Plan
must authorize an Authority to use net available revenue in
accordance with state law and state the maximum portion of
the net available revenue to be committed to the Authority
for each year during which the Authority will receive these
revenues. The portion may vary over time. A Plan must
state the date upon which the Authority will cease to
receive net available revenue. The bill allows a city or
county to direct the county auditor-controller to transfer
any portion of the net available revenue to the Authority
and allows the county auditor-controller to collect
administrative costs from the Authority.
Senate Bill 1 requires an Authority that receives tax
increment revenues to dedicate at least 20% of allocated
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tax increment revenues for affordable housing purposes, in
accordance with specified provisions of the Community
Redevelopment Law.
VI. Other provisions . Senate Bill 1 requires that all
entities that will receive more than $1,000,000 from an
Authority, including projects undertaken by private
developers, must comply with specified prequalification
requirements for all construction contracts or subcontracts
and allows an Authority to establish additional
prequalification requirements.
The Marks-Roos Local Bond Pooling Act allows public
agencies to use JPAs to finance infrastructure. These JPAs
issue Marks-Roos Act bonds and loan the capital to local
agencies for public works, working capital, and insurance
programs (SB 17, Marks, 1985). Senate Bill 1 allows an
authority to exercise the full powers granted under the
Marks-Roos Local Bond Pooling Act.
Senate Bill 1 allows a state or local public pension fund
system authorized by state law or local charter to invest
capital in an Authority's public infrastructure projects
and private commercial and residential developments. The
bill specifies that eligible pension systems include the
Public Employees' Retirement System, the State Teachers'
Retirement System, a system established under the County
Employees Retirement Law of 1937, or an independent system.
State law allows counties, cities, and some other local
agencies to levy "transactions and use" taxes on top of the
7.25% statewide base sales and use tax rate.
Senate Bill 1 allows an authority to implement a local
transactions and use tax under specified statutes, except
that the resolution authorizing the tax may designate the
use of tax proceeds.
Senate Bill 1 allows an authority to issue bonds paid for
with authority proceeds, which are deemed to be special
funds to be expended by the authority for the purposes of
carrying out the bill's provisions. The bill prohibits
school district property tax revenues from being pledged
for the repayment of bonds issued by an Authority.
Senate Bill 1 deems an Authority to be a local public
agency subject to the Ralph M. Brown Act, the Public
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Records Act, and the Political Reform Act.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Eliminating redevelopment
agencies did not eliminate the need for California
communities to build more affordable housing, eliminate
blight, foster business activity, clean up contaminated
brownfields, and create jobs. SB 1 establishes a new
approach to local economic development and housing policy
that is focused on building sustainable communities and
creating high skill, high wage jobs. SB 1 fosters
collaboration between cities and counties on local economic
development efforts and mitigates the zero-sum competition
for scarce property tax revenues among cities, counties,
and school districts. The bill offers local governments
flexibility by allowing an Authority to use a variety of
tools, including tax increment financing, Community
Redevelopment Law powers, local sales taxes, infrastructure
financing districts, and the ability to leverage public
pension fund investments.
2. Implementation . The extensive list of requirements
that local governments must meet to use SB 1's economic
development and housing powers may limit the number of
communities in which it is eventually implemented. Not all
cities and counties have territory within their
jurisdictions that meets SB 1's relatively narrow
requirements for the formation of project areas. Many
local governments may be unable to fulfill all of the
bill's requirements for using tax increment financing.
Because fewer taxing entities will contribute to an
Authority's tax increment revenues, and because it will
take time for property values to grow, SB 1 will generate
less tax increment revenue for local governments than was
generated by redevelopment. The Committee may wish to
consider amending SB 1 to broaden its potential
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implementation. For example, the bill could be amended to
expand the definition of the types of areas in which a
Community Development and Housing JPA can establish a
redevelopment project area.
3. Blight . SB 1 contains findings and declarations
regarding the need to improve economic development
patterns, create good jobs, eliminate inefficient land use
patterns, reduce commuter times, make public infrastructure
more affordable, and reduce energy consumption. The bill
declares these problems to be a form of blight. Former RDA
officials were required to determine an area to be blighted
before they could exercise the Community Redevelopment
Law's eminent domain powers. By contrast, SB 1 allows
local officials to create a Sustainable Communities
Investment Authority based on the bill's legislative blight
finding. SB 1 does not establish a clear connection
between financing the construction of clean energy
manufacturing facilities and addressing blight, as the bill
broadly defines it. What aspects of blight are mitigated
by clean energy manufacturing? Could other types of
manufacturing also be effective in addressing blight? The
Committee may wish to consider amending SB 1 to more
clearly link clean energy manufacturing and blight
reduction.
4. Compliance . SB 1 allows Sustainable Communities
Investment Areas to be formed around sites that have land
use approvals, covenants, conditions and restrictions, or
other effective controls restricting the sites to clean
energy manufacturing. The bill does not specify whether
those sites must remain dedicated to clean energy
manufacturing after a project area is formed or whether tax
increment revenues from the Area can be used for subsequent
development that is unrelated to clean energy
manufacturing. The Committee may wish to consider amending
SB 1 to ensure that an Authority develops clean energy
manufacturing in a project area formed around a site
dedicated for that purpose and does not use tax increment
revenues generated in that project area to finance
unrelated activities.
5. Taxation complication . SB 1 allows an Authority to
impose a transactions and use tax rate within its
boundaries and to adopt a resolution designating the use of
the tax proceeds. Unlike transactions and use tax rates
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currently being levied, an Authority's tax rate would be
imposed within a territory that would not be contiguous
with a city or county's boundaries. By departing from
current practice and allowing transactions and use taxes to
be imposed within small parts of cities and counties, SB 1
may complicate the Board of Equalization's administration
and collection of these taxes.
6. Clarification . As a condition of allocating tax
increment revenues to an Authority, SB 1 requires a local
government to adopt a plan for new residential and
non-residential construction within small walkable
communities outside of a metropolitan planning organization
(MPO). The bill requires an Authority to consult with the
MPO to obtain its opinion whether that plan is consistent
with the use designation, density, building intensity, and
applicable policies for the project area in the sustainable
communities strategy. Because the small walkable community
is located outside of an MPO's boundaries, it is unclear
what MPO should be consulted and what applicable policies
from a sustainable communities strategy would apply to the
project area. The Committee may wish to clarify this
provision by amending SB 1 to delete the requirement that
an MPO must be consulted on a plan for residential
construction in a small walkable community that is outside
of an MPO.
7. Legislative history . SB 1 is identical to SB 1156
(Steinberg, 2011), which the Governor vetoed. The
Governor's veto message stated that new investment
programs, like the one proposed by SB 1156, should be
considered after the winding down of redevelopment is
complete and General Fund savings are achieved. The Senate
Governance & Finance Committee passed an early version of
SB 1156 on a 6-3 vote.
8. Double referral . The Senate Rules Committee has
ordered a double-referral of SB 1, first to the Senate
Governance & Finance Committee which has policy
jurisdiction over the statutes governing local governments'
finances, and then to the Senate Transportation & Housing
Committee, which has jurisdiction over the bill's
housing-related provisions.
9. Related bills . At its March 13 hearing, the Committee
also will hear SB 33 (Wolk), which makes it easier for
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local governments to form Infrastructure Financing
Districts (IFDs) to finance local development projects with
tax increment revenues.
Other bills that seek to provide local governments with
alternative financing mechanisms to replace redevelopment
include:
SB 628 (Beall) removes the voter-approval
requirements to create an IFD and issue bonds for a
transit priority project.
AB 229 (J. Pérez) allows local government to create
Infrastructure and Revitalization Financing Districts.
AB 243 (Dickinson) allows local governments to
create Infrastructure and Revitalization Financing
Districts.
AB 294 (Holden) authorizes IFDs to use the county's
Educational Revenue Augmentation Fund portion of tax
increment revenues.
AB 662 (Atkins) repeals the prohibition against
forming an IFD within a former redevelopment area.
AB 690 (Campos) lowers the voter approval threshold
to create an IFD and requires a job creation plan that
ensures that for every $1 million invested, 10
prevailing wage jobs are created.
Support and Opposition (3/7/13)
Support : Alameda-Contra Costa Transit District; California
Association of Realtors; California Labor Federation;
California Special Districts Association; California State
Association of Counties; California Transit Association;
City of West Sacramento.
Opposition : Western Electrical Contractors Association.