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. SB 1 (STEINBERG) Page 2 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 SB 1 (STEINBERG) Page 3 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 SB 1 (STEINBERG) Page 4 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 SB 1 (STEINBERG) Page 5 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 SB 1 (STEINBERG) Page 6 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 SB 1 (STEINBERG) Page 7 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 SB 1 (STEINBERG) Page 8 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 SB 1 (STEINBERG) Page 9 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 SB 1 (STEINBERG) Page 10 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 SB 1 (STEINBERG) Page 11 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