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.