BILL ANALYSIS                                                                                                                                                                                                    Ó






           SENATE TRANSPORTATION & HOUSING COMMITTEE       BILL NO: sb 1
          SENATOR MARK DESAULNIER, CHAIRMAN              AUTHOR:  steinberg
                                                         VERSION: 4/15/13
          Analysis by:  Carrie Cornwell                  FISCAL:  yes
          Hearing date:  April 23, 2013




          SUBJECT:

          Sustainable Communities Investment Authority

          DESCRIPTION:

          This bill allows a local government to establish a Sustainable  
          Communities Investment Authority and direct tax increment  
          revenues to that authority in order to address blight by  
          supporting development in transit priority project areas, small  
          walkable communities, and clean energy manufacturing sites.

          ANALYSIS:

          Historically, the Community Redevelopment Law allowed a local  
          government to establish a redevelopment area and capture all of  
          the increase in property taxes generated within the area  
          (referred to as "tax increment") over a period of decades.  The  
          law requires redevelopment agencies to deposit 20 percent of tax  
          increment into a Low and Moderate Income Housing Fund (L&M fund)  
          to be used to increase, improve, and preserve the community's  
          supply of low- and moderate-income housing available at an  
          affordable housing cost.  

          In 2011, the Legislature enacted two bills, AB 26X (Blumenfield)  
          and AB 27X (Blumenfield), Chapters 5 and 6, respectively, of the  
          First Extraordinary Session.  AB 26X eliminated redevelopment  
          agencies and established procedures for winding down the  
          agencies, paying off enforceable obligations, and disposing of  
          agency assets.  AB 26X established successor agencies, typically  
          the city that established the agency, to take control of all  
          redevelopment agency assets, properties, and other items of  
          value.  Successor agencies are to dispose of an agency's assets  
          as directed by an oversight board, made up of representatives of  
          local taxing entities, with the proceeds transferred to the  
          county auditor-controller for distribution to taxing agencies  
          within each county.




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          AB 26X also included provisions allowing the host city or county  
          of a dissolving redevelopment agency to retain the housing  
          assets and functions previously performed by the agency, except  
          for funds on deposit in the agency's L&M fund, and thus become a  
          successor housing agency.  If the host city or county chooses  
          not to become the housing successor agency, a local housing  
          authority or the state's Department of Housing and Community  
          Development (HCD) takes on that responsibility. 

          AB 27X allowed redevelopment agencies to avoid elimination if  
          they made payments to schools in the current budget year and in  
          future years.  In December 2011, the California Supreme Court in  
          California Redevelopment Association v. Matosantos upheld AB 26X  
          and overturned 
          AB 27X.  As a result, all of the state's roughly 400  
          redevelopment agencies dissolved on February 1, 2012, and local  
          jurisdictions are in the process of implementing AB 26X's  
          provisions to distribute former redevelopment assets and pay its  
          remaining obligations.

          SB 375 (Steinberg), Chapter 728, Statutes of 2008, required the  
          Air Resources Board (ARB), by September 30, 2010, to provide  
          each region that has a metropolitan planning organization (MPO)  
          with a greenhouse gas emission reduction target for the  
          automobile and light truck sector for 2020 and 2035,  
          respectively.  Each MPO, in turn, is required to include within  
          its regional transportation plan (RTP) a sustainable communities  
          strategy (SCS) designed to achieve the ARB targets for  
          greenhouse gas emission reduction.  Each MPO must submit its SCS  
          to ARB for review.  ARB must accept or reject the MPO's  
          determination that the SCS submitted would, if implemented,  
          achieve the greenhouse gas emission reduction targets.

          SB 375 also created and defines a "transit priority project" as  
          one that:

           Is located within one-half mile of an existing or planned  
            major transit stop or high-quality transit corridor included  
            in the RTP.
           Is consistent with the general plan use designation, density,  
            building intensity, and applicable policies specified for the  
            project area in its SCS, for which ARB has accepted an MPO's  
            determination that the SCS would, if implemented, achieve the  
            greenhouse gas emission reduction targets;
           Contains at least 50% residential use, based on total building  




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            square footage and, if the project contains between 26% and  
            50% nonresidential uses, a floor area ratio of not less than  
            0.75;
           Provides a minimum net density of at least 20 dwelling units  
            per acre; and

          Existing law also defines a "small walkable community project"  
          as a project in an incorporated city, which is not within the  
          boundary of an MPO, and that:

           Is approximately one-quarter mile diameter of contiguous land  
            completely within the existing incorporated boundaries of the  
            city;
           Is a project area that includes a residential area adjacent to  
            a retail downtown area; and
           Has a density of at least eight dwelling units per acre or a  
            floor area ratio for retail or commercial use of not less than  
            0.50.

           This bill  authorizes local governments to create Sustainable  
          Communities Investment Authorities to function in a manner  
          similar to former redevelopment agencies and under the Community  
          Redevelopment Law with certain modifications.  Specifically,  
          this bill:
          
            1.  Permits any combination of a city, county, city and  
              county, or special district, but not a school district, to  
              create a Sustainable Communities Investment Authority  
              (authority) in one of several ways as follows:

                       A city, county, or special district may create an  
                authority through a joint powers agreement that  
                establishes a governing board and designates a Sustainable  
                Communities Investment Area (area).
                       A city alone may create an authority, appoint the  
                authority's governing board, designate an area within the  
                city, and establish the parameters of the proposed  
                economic development within a proposed area with county  
                approval of the economic development parameters and the  
                Sustainable Communities Investment Plan (plan).
                       Alternatively, a city alone may create an  
                authority, which constitutes a legally distinct entity  
                from that city, and appoint the authority's governing  
                board, which may designate an area only within the  
                incorporated limits of that city.
                       A city and a county together may create an  




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                authority and appoint the governing board with the city  
                council appointing two members and the county appointing  
                two members, and those four members appointing the fifth.   
                The governing board then designates the area in an  
                incorporated area or in both an incorporated area and an  
                unincorporated area.  The city and county must both  
                approve the plan.  
                       A county board of supervisors alone can create an  
                authority for an area within an unincorporated area.

            1.  Prescribes that an authority shall have five members of  
              four-year terms and shall be subject to the Brown Act for  
              open meetings, the Public Records Act, the  
              Meyers-Milias-Brown Act governing employer-employee  
              relations, and the Political Reform Act. 

            2.  Prohibits a city or county that created a redevelopment  
              agency dissolved pursuant to 
              AB 26X of 2011 from forming an authority unless Department  
              of Finance has issued its successor agency a finding of  
              completion indicating that the local government has complied  
              with AB 26X's requirements to distribute the former agency's  
              assets to the taxing entities.

            3.  Deems an authority to be an "agency," as defined in the  
              Community Redevelopment Law; assigns an authority all of the  
              rights, responsibilities, and obligations of a redevelopment  
              agency; and requires an authority to comply with most  
              provisions of the Community Redevelopment Law, excluding  
              specified statutes that suspend redevelopment agencies'  
              activities, prohibit redevelopment agencies' issuance of  
              debt, and govern redevelopment agencies' dissolution.  

            4.  Limits the areas that local governments can include in a  
              plan area to:

                   Transit priority project areas, including high-speed  
                rail stations.  The transit stop or corridor must be  
                scheduled to be completed within the planning horizon  
                established by specified federal regulations governing the  
                metropolitan transportation planning process.  The bill  
                specifies that if the transit priority project area  
                includes a high-speed rail station, then the radius of the  
                area may be up to one mile from the station.  If such a  
                project area consists of a radius greater than half a  
                mile, then at least 50 percent of the tax increment  




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                revenue from that area shall be used to support  
                construction of the high-speed rail station and related  
                infrastructure.  
                   Small walkable communities, as defined, which the bill  
                also permits to be in a city that is within the  
                jurisdiction of an MPO.  An authority may designate only  
                one small walkable community area per city. 
                   Clean energy manufacturing sites.  The bill defines  
                clean energy manufacturing sites to be those that have  
                land use approvals or other effective controls restricting  
                the sites to clean energy manufacturing and that are  
                consistent with the SCS, if within the jurisdiction of an  
                MPO.  The bill defines clean energy manufacturing as:

                 o        Components, parts, or materials for the  
                   generation of renewable energy; 
                 o        Equipment designed to make buildings more energy  
                   efficient;
                 o        Public transit vehicles or their components; or 
                 o        Alternative fuel vehicles or their component  
                   parts.

            1.  Authorizes only local agencies participating in, approving  
              the formation of, or appointing board members to an  
              authority to allocate all or part of their tax increment  
              revenues, plus specified additional revenues, to the  
              authority.  Before any assignment of tax increment revenues,  
              the local government with land use jurisdiction over the  
              area must have adopted a sustainable parking standards  
              ordinance to encourage transit use to the greatest extent  
              feasible and a jobs plan ordinance to ensure projects  
              further construction careers that pay prevailing wage.

            2.  Adds to the numerous elements that must be included in a  
              redevelopment plan for a project area so that a Sustainable  
              Communities Investment plan will also include:

                   A fiscal analysis of projected tax increment revenue  
                and other revenue and projected expenses over 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 it will achieve.
                   A statement of how the plan will relieve blight,  
                including how it will implement the goals of the SCS,  
                reduce energy consumption, ensure compliance with the  




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                bill's affordable housing provisions, and contribute to  
                more efficient transportation infrastructure, to reducing  
                the combined costs of housing and transportation for  
                residents, to improving public heath, to promoting  
                efficient water consumption, to preserving prime farm  
                land, and to reducing vehicle miles traveled.
                   Statements of how the plan will implement the local  
                government's sustainable parking standards and its jobs  
                plan. 

            1.  Permits a plan additionally 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.

            1.  Increases from 20 percent to 25 percent the amount of  
              money an authority must dedicate from tax increment revenues  
              it receives to the provision of low- and moderate-income  
              housing (i.e., the authority's L&M fund).

            2.  Provides that a local government with land use authority  
              that participates in or approves an authority must enact an  
              ordinance that: 

                   Prohibits the number of housing units occupied by  
                extremely low-, very low-, and low-income households,  
                including the number of bedrooms in those units, from  
                being reduced within the area during the effective period  
                of the plan; and 
                   Requires the replacement of dwelling units that house  
                extremely low-, very low-, or low-income households when  
                removed from an area within two years, rather than the  
                four years under existing provisions of the Community  
                Redevelopment Law.

            1.  Requires an authority to contract every five years for an  
              independent financial and   performance audit pursuant to  




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              guidelines that the State Controller shall establish.  These  
              must include guidelines for ensuring that an authority is  
              meeting the housing requirements of the bill (#10  
              immediately above).  If an authority is failing to comply  
              with these housing requirements, then it shall submit to the  
              controller with its audit a plan to achieve compliance in  
              not less than two years.  The plan must include one of the  
              following means of achieving compliance:

                   Expenditure of an additional 10 percent of the  
                authority's tax increment revenues on providing low-income  
                housing;
                   A 10 percent increase in the production of housing for  
                very low-income households, as required under the  
                Community Redevelopment Law's housing production  
                requirements; or 
                   The targeting of expenditures from its L&M fund  
                exclusively to rental housing affordable to, and occupied  
                by, persons of very low and extremely low income.

            1.  Permits a state or local public pension fund to invest in  
              public infrastructure projects and private commercial and  
              residential development that an authority undertakes.

            2.  Authorizes an authority to implement a local transactions  
              and use tax, above the state's base 7.25 percent sales and  
              use tax, and the resolution authorizing the tax may  
              designate the use of the proceeds of the tax.

            3.  Authorizes an authority to issue bonds paid for with  
              authority proceeds in order to carry out the provisions of  
              this bill.

            4.  Authorizes an authority to exercise the powers of an  
              infrastructure financing district to divert property tax  
              increment revenues and issue bonds to pay for public works.

            5.  Allows an authority to finance infrastructure by issuing  
              bonds and lending the proceeds for public works, working  
              capital, and insurance programs as provided in the  
              Marks-Roos Local Bond Pooling Act.

            6.  Requires that all entities that will receive more than  
              $1,000,000 from an authority, including private developers,  
              must comply with specified prequalification requirements for  
              all construction contracts or subcontracts and allows an  




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              authority to establish additional prequalification  
              requirements.

          COMMENTS:

             1.  Purpose  .  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.  This bill 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.  This bill 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.  How much area does the bill cover  ?  This bill provides for  
              the creation of new Sustainable Communities Investment  
              Authorities to set up a new system of tax increment  
              financing that excludes the schools and relies on consensus  
              among the local agencies, to confer new revenue authority,  
              and to retain all the other powers that redevelopment  
              agencies possessed under state law, except it limits the  
              areas that would qualify as project areas.  This bill  
              permits project areas only on clean energy manufacturing  
              sites, to a single small walkable community in each  
              jurisdiction, and to transit priority areas.  It is unclear  
              how much area within the state would actually meet these  
              qualifications, because:

                       The bill defines a clean energy manufacturing site  
                as one with existing land use controls to restrict the  
                site to clean energy manufacturing, as defined, but does  
                not limit the area of these sites. 
                       SB 375 provided for the creation of transit  
                priority areas, which would occur most likely only in  
                heavily urbanized areas with substantial transit service.   
                Still, the incentives in this bill could lead over time to  
                a proliferation of such half-mile areas around transit  
                stops in some cities in order to access the many powers  




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                conferred to an authority created under this bill.  

            1.  Housing provisions  .  The bill adds to the affordable  
              housing provisions of existing Community Redevelopment Law  
              in three ways.  First, it increases from 20 to 25 percent  
              the amount of tax increment revenue that an authority must  
              deposit into its L&M fund.  Because tax increment accruing  
              to an authority under this bill would be less (e.g., it  
              would not include the schools' share), this would be 25  
              percent of a smaller number.  Second, the bill requires that  
              a host city or county pass an ordinance ensuring that  
              housing affordable to and occupied by extremely low-, very  
              low-, and low-income households within an area does not  
              decrease during the life of the plan.  Third, the bill  
              requires that ordinance to ensure an authority provide  
              replacement housing in two rather than four years.  These  
              provisions represent an agreement between the author and the  
              advocates of affordable housing. 

             2.  Where are the SB 450 fixes  ?  In response to thousands of  
              reported abuses of L& M funds, the Legislature in 2011  
              passed SB 450 (Lowenthal), which substantively reformed how  
              redevelopment agencies spend their L&M funds.  That bill  
              passed this committee on April 5, 2011 by a 9-0 vote, but  
              the governor vetoed SB 450, deeming it premature in light of  
              the then pending Supreme Court decision on AB 26X and AB 27X  
              in California Redevelopment Association v. Matosantos.  This  
              bill, however, proposes restoring the use of the  
              redevelopment law, including its housing provisions, but  
              without the changes that SB 450 would have made.  Last year  
              when the Legislature passed  SB 1156 (see Comment #5 below),  
              it also passed AB 345 (Atkins), which contained all of SB  
              450's reforms delayed to coincide with the likely  
              establishment of the new Sustainable Communities Investment  
              Authorities.  Governor Brown vetoed AB 345, as he did SB  
              1156.  The committee or the author may therefore wish to  
              amend this bill to include the reforms SB 450 proposed to  
              how redevelopment agencies spend their housing dollars.

             3.  Previous legislation  .  This bill is very similar to the  
              final version of last year's SB 1156 (Steinberg), which  
              Governor Brown vetoed.  The governor's veto message read in  
              part: 

                I prefer to take a constructive look at implementing this  
                type of program once the winding down of redevelopment is  




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                complete and General Fund savings are achieved.  At that  
                time, we will be in a much better position to consider new  
                investment authority.  I am committed to working with the  
                Legislature and interested parties on the important task  
                of revitalizing our communities.

              The author notes that many of the uncertainties pertaining  
              to the winding down of redevelopment are in the process of  
              being resolved and should be completed while this bill is  
              moving through the Legislature.

             4.  Opposition  .  Opponents object to the taxation, bonding,  
              and eminent domain powers that the bill confers to the  
                                    Sustainable Communities Investment Authorities.  They are  
              concerned about how high sales tax rates could go up in the  
              project areas and about how authorities would structure the  
              public votes for such sales tax increases as well as for  
              bonds.  The opponents are also concerned that the imposition  
              of sales taxes of varying levels in many small areas  
              throughout the state could result in significant  
              administrative challenges and compliance problems for small  
              businesses.  Finally, they are opposed to assigning eminent  
              domain power to the authorities.

              Three contractor organizations oppose the bill unless it is  
              amended to delete an exemption from monitoring of prevailing  
              wage compliance by the Department of Industrial Relations  
              for projects where the developer has entered into a  
              collective bargaining agreement that binds all the  
              contractors.

             5.  Technical amendments  .

                   On page 9, line 6, delete "(b)" and insert "(3)"
                 On page 9, line 27, delete "both" and insert "all"
                   On page 13, lines 14-15, delete "a more efficient  
                transportation infrastructure" and insert "more efficient  
                transportation"
                   On page 13, line 22, delete "correction"
                   On page 15, line 24, delete "3334.2" and insert  
                "33334.2"
           
            1.  Committee of second referral  .  The Rules Committee  
              referred this bill to the Governance and Finance Committee  
              and to the Transportation and Housing Committee.  This bill  
              passed that committee on March 13 by a 4 to 2 vote.  The  




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              Governance and Finance Committee's analysis and hearing of  
              the bill dealt primarily with the provisions of the bill  
              related to the local government finance provisions, leaving  
              the housing provisions for review in this committee.
          
          POSITIONS:  (Communicated to the committee before noon on  
          Wednesday,                                             April 17,  
          2013.)

               SUPPORT:  Alameda-Contra Costa Transit District
                         California Association of Realtors
                         California Federation of Labor
                         California State Association of Counties
                         California Special Districts Association
                         California Transit Association
                         DMB Pacific Ventures
                         Emeryville Chamber of Commerce
                         Housing California 
                         Los Angeles County Federation of Labor
                         Los Angeles/Orange Counties Building and  
          Construction Trades Council
                         Metropolitan Transportation Commission
                         Sacramento Area Council of Governments
                         Western Center on Law and Poverty

               OPPOSED:  Air Conditioning Trade Association
                         California Federation of Republican Women
                         California Taxpayers Association
                         Howard Jarvis Taxpayers Association
                         Plumbing-Heating-Cooling Contractors Association  
          of California
                         Western Electrical Contractors Association