BILL ANALYSIS Ó SB 1 Page 1 Date of Hearing: August 14, 2013 ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT K.H. "Katcho" Achadjian, Chair SB 1 (Steinberg) - As Amended: August 5, 2013 SENATE VOTE : 27-11 SUBJECT : Sustainable Communities Investment Authority. SUMMARY : Allows local governments to establish a Sustainable Communities Investment Authority to finance specified activities within a Sustainable Communities Investment Area. Specifically, this bill : 1)Allows a Sustainable Communities Investment Authority (Authority) to be formed and specifies that it must comply with the provisions of the Community Redevelopment Law (CRL), with certain exceptions, and the provisions contained in the bill. 2)Requires an Authority to adopt a plan for a sustainable communities investment area. 3)Requires a sustainable communities investment plan to terminate on a specified date not to exceed 30 years from the date of the first issuance of bond indebtedness by the Authority. 4)Provides that the Authority shall be deemed to be an "agency" as defined in the CRL and shall have all the rights, responsibilities, and obligations of an agency. 5)Provides that an Authority is not required to make a finding of blight or conduct a survey of blight in a project area, but can rely upon the legislative findings in the bill to establish blight. 6)Prohibits an Authority from being formed under the bill's provisions by either of the following: a) A city or county that created a redevelopment agency (RDA) that was dissolved, as specified, unless the successor agency or designated local authority for the former RDA has received a finding of completion from the SB 1 Page 2 Department of Finance; or, b) A city, county, city and county, or special district that has declared a fiscal emergency, unless the city, county, city and county, or special district subsequently declares that the fiscal emergency has been resolved. 7)Allows an Authority to be created in the following ways: a) A city, county, city and county, or special district may create an Authority by entering into a joint powers agreement, as specified. A joint powers agreement shall establish a governing board and designate the Sustainable Communities Investment Area; b) A city may create an Authority, appoint the Authority governing board, designate a Sustainable Communities Investment Area within the city's incorporated area, 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 amendments to the plan; c) A city and county may create an Authority and appoint the authority governing board, which shall be comprised of two members appointed by the city and two members by the county. A fifth member shall be appointed by the two city and the two county members. The governing board shall designate the Sustainable Communities Investment Area. A Sustainable Communities Investment Plan, including any amendments to it, shall be approved by both the city and the county. The Sustainable Communities Investment Area may include an incorporated area or both an incorporated area and an unincorporated area; d) If the Sustainable Communities Investment Area is within an unincorporated area, the board of supervisors of a county may create an Authority and appoint the authority governing board; and, e) A city may create an Authority, which shall constitute a legally distinct entity from that city, and appoint the authority governing board, which may designate a Sustainable Communities Investment Area only within the SB 1 Page 3 incorporated limits of that city. 8)Provides that the governing board of the Authority shall consist of five members, and that members shall be appointed for four-year terms and shall only be removed by the appointing authority for cause, and provides that the initial appointees to the governing board shall serve either two-year or four-year terms and shall draw their terms by lot. 9)Deems an Authority a public body subject to the Ralph A. Brown Act, California Public Records Act, Meyers-Milias-Brown Act, and the Political Reform Act. 10)Requires a city or county approving participation in an Authority, the governing board, or a sustainable communities investment area to do so through a resolution. 11)Excludes a school district from participating in an Authority. 12)States that a sustainable communities investment area shall include only the following: a) Transit priority areas that meet the following parameters: i) A transit priority project including a high-speed rail station. The transit stop or corridor must be completed within the planning horizon established by specified federal regulations. The transit priority area may include a military base reuse plan that meets the definition of a transit priority area and it may include a contaminated site within a transit priority area; ii) It is within the geographic boundaries of a metropolitan planning organization (MPO) with an approved sustainable communities strategy (SCS). a) Areas that are small walkable communities, as defined, except that small walkable communities may also be designated in a city that is within the area of an MPO. Specifies that no more than one small walkable community project area shall be designated within a city; and, b) Sites that have land use approvals, covenants, SB 1 Page 4 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 sustainable communities investment area in the SCS, if those sites are within the geographic boundaries of an MPO. Specifies that clean energy manufacturing shall consist of the manufacturing of any of the following: i) Components, parts, or materials for the generation of renewable energy resources; ii) Equipment designed to make buildings more energy efficient or the component parts thereof; iii) Public transit vehicles or the component parts thereof; or, iv) Alternative fuel vehicles or the component parts thereof. 12)Allows a sustainable communities investment plan for an sustainable communities investment area to include a provision for the receipt of tax increment funds providing that the local government with land use jurisdiction has adopted all of the following: a) A sustainable parking standards ordinance that restricts parking in transit priority project areas to encourage transit use to the greatest extent feasible; b) An ordinance creating a jobs plan. Specifies that all entities receiving financial support from the Authority shall, at a minimum, require that any and all agreements approved by the Authority include a jobs plan, which shall describe how the project will further create construction careers that pay prevailing wages, living wage permanent jobs, and create a program for community outreach, local hire, and job training. Specifies that the plan shall also describe the project developer's commitment to offer jobs to disadvantaged California residents, including veterans of the Iraq and Afghanistan wars, people with a history in the criminal justice system, and single-parent families; c) For transit priority areas and small walkable SB 1 Page 5 communities within an MPO, a plan consistent with the use designation, density, building intensity, and applicable policies specified for the sustainable communities investment area density of at least 20 dwelling units per net acre and for nonresidential uses, provides a minimum floor area ratio of 0.75; d) Within small walkable communities outside of an MPO, 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; and e) An ordinance that prohibits the number of housing units for extremely low-, very low- and low-income households in the sustainable communities investment area from being reduced during the effective period of the sustainable communities investment plan. And requires the replacement of these housing units within two years of their displacement. 13)Requires the county auditor controller to allocate to an Authority the tax increment as specified in a an sustainable communities investment plan in proportion to the levied taxes for the city and or county in excess of the amount specified in Health and Safety Code Section 33670 (a). 14)Provides that the auditor-controller may only allocate tax increment revenues to an Authority if the taxing agency whose tax increment would be allocated adopts a resolution authorizing the allocation. 15)Provides that the adoption of a resolution to allow tax increment to go to the Authority does not prohibit an auditor-controller's authority to revoke the allocation if it conflicts with requirements to pay existing obligations secured by tax increment revenues. 16)Provides that if an sustainable communities investment area includes in whole or in part a former redevelopment area and the sustainable communities investment plan includes a provision for receipt of tax increment revenues then it shall include a provision that tax increment amounts collected and received by the Authority are subordinate to existing enforceable obligations. SB 1 Page 6 17)Defines "net available revenue" as periodic distributions to the city or county from the Redevelopment Property Tax Trust Fund once all enforceable obligations are paid. 18)Allows a city or county forming the Authority to dedicate any portion of its net available revenue to the Authority through the sustainable communities investment plan which shall include the date upon which the Authority will cease to receive the net available revenue. 19)Provides that an Authority that collects tax increment revenues must dedicate no less than 25% of the allocated tax increment for affordable housing purposes. 20)Requires a sustainable communities investment plan to include the following, in addition to what is required for a redevelopment plan in the CRL: a) A fiscal analysis of the projected receipt of tax increment and other revenue and the projected expenses over five-year planning horizons for the life of the Authority; b) A statement of the principal goals and objectives of the plan with findings of the public purposes and uses that will be achieved; c) A statement of how the sustainable communities investment plan will relieve blight as follows: i) How it will implement the goals of a SCS if the re sustainable communities investment area is within an MPO; ii) How it will contribute to a more efficient transportation; iii) How it will contribute to and reduce cost for the combined costs of housing and transportation; iv) How it will contribute to improved public health; v) How it will promote more efficient water consumption; vi) How it will avoid loss of prime farmland; SB 1 Page 7 vii) How it will reduce air pollution, energy consumption and greenhouse gas emissions by reducing vehicle miles traveled; and, viii) How it will ensure compliance with the affordable housing maintenance and preservation requirements. d) A statement of how the plan will implement the sustainable parking standards; and, e) A statement of how the plan will implement the jobs plan. 21)Provides a sustainable communities investment plan, in addition to meeting the housing provisions of the CRL, may include, to the extent applicable to the sustainable communities investment area, the following: a) Affordable and farmworker housing; b) Transitional and supportive housing for, including but not limited to, former foster youth, persons with mental health treatment needs, persons with substance use disorder treatment needs, offender populations. c) Health and safety related infrastructure investments in disadvantaged rural communities; and, d) Infrastructure to support country wide services. 22)Requires, if a city, county, city and county, or special district that has entered into an agreement to allocate a portion of its tax increment to an Authority and subsequently declares a fiscal emergency, that city, county, or city and county, or special district to develop a plan for how the county auditor-controller shall reduce the amount of the tax increment revenue allocated to the authority during the period of time of the fiscal emergency. 23)Requires an Authority to contract for an independent and financial audit every five years, conducted by guidelines established by the Controller, and submit it to the Controller, Director of Department of Finance, and the Joint Legislative Budget Committee. SB 1 Page 8 24)Requires the audit to determine compliance with the affordable housing maintenance and replacement requirement including provisions to ensure that the replacement requirements are met within the five year period covered by the audit. 25)Provides that if the Authority fails to meet the maintenance and replacement requirement for affordable housing it must adopt and submit to a plan with the audit to show how it will comply with those provisions within two years. 26)Require the controller to review and approve an Authority's plan to meet the replacement housing requirements and ensure that the plan includes one or more of the following means of achieving compliance: a) Expenditure of an additional 10% of gross tax increment revenue on increasing, preserving, or improving the supply of low-income housing; b) An increase in the production by an additional 10% of housing for very low-income households as required under the CRL housing production requirements; and/or c) The targeting of expenditures from the Low- and Moderate -Income Housing Fund toward rental housing affordable to and occupied by person of very low and extremely low income. 27)Requires the Authority to approve any bond financing. 28)Specifies that school district property taxes cannot be pledged for the repayment of bonds issued by an Authority. 29)Specifies, in the event a tax increment financing provision is included as part of an sustainable communities investment area, and for the purposes of collecting tax increment under Section 16 of Article XVI of the California Constitution, that the terms "district" and "affected taxing entity" shall exclude a school district and special districts. 30)Permits a state or local pension fund system to invest capital in the public infrastructure projects and private commercial residential developments undertaken by an SB 1 Page 9 Authority. 31)Allows an Authority to exercise the powers granted under the Mello-Roos Act. 32)Allows an Authority to implement local transaction and use tax, except that the resolution authorizing the tax may designate the use of the tax. 33)Establishes a process to prequalify developers for construction contracts in excess of $1,000,000. 34)Requires the Department of Industrial Relations to monitor and enforce compliance with prevailing wage requirements for projects that include funds from an Authority and shall charge each awarding body or developer for the reasonable and directly related costs of monitoring and enforcing compliance with the prevailing wage requirements of each project. 35)Defines, for the purpose of exempting small walkable communities from the California Environmental Quality Act (CEQA), the following terms: a) "Floor area ratio" as the ratio of gross building area of development, exclusive of structured parking areas, proposed for the project divided by the total net lot area; b) "Gross building area" as the sum of all finished areas of all floors of a building included within the outside faces of its exterior walls; and, c) "Net lot area" means the area of a lot excluding publicly dedicated land, private streets that meet local standards, and other public use areas as determined by the local land use authority. 36)Makes legislative findings and declarations. EXISTING LAW : 1)Dissolves redevelopment agencies as of February 1, 2012. 2)Establishes the Community Redevelopment Law, which governs the authority to establish a redevelopment agency and the authority for a redevelopment agency to function as an agency SB 1 Page 10 and to adopt and implement a redevelopment plan. 3)Defines a "small walkable community project" as a project that is in an incorporated city that is not within the boundaries of an MPO and that satisfies the following requirements: a) Has a project area of approximately one-quarter mile diameter of contiguous land completely within the existing incorporated boundaries of the city; b) Has a project area that includes a residential area adjacent to a downtown retail area; and, c) The project has a density of at least eight dwelling units per acre or a floor area ratio for retail or commercial uses of not less than 0.50. 4)Specifies that a "transit priority project" shall a) contain at least 50% residential use, based on total building square footage and, if the project contains between 26% and 50% nonresidential uses, a floor area ratio of not less than 0.75; b) provide a minimum net density of at least 20 dwelling units per acre; and, c) be within one-half mile of a major transit stop or high-quality transit corridor included in a regional transportation plan. A major transit stop is as defined in Section 21064.3, except that, for purposes of this section, it also includes major transit stops that are included in the applicable regional transportation plan. For purposes of this section, a high-quality transit corridor means a corridor with fixed-route bus service with service intervals no longer than 15 minutes during peak commute hours. A project shall be considered to be within one-half mile of a major transit stop or high-quality transit corridor if all parcels within the project have no more than 25% of their area farther than one-half mile from the stop or corridor and if not more than 10% of the residential units or 100 units, whichever is less, in the project are farther than one-half mile from the stop or corridor. 5)Requires, under the provisions of SB 375 (Steinberg), Chapter 728, Statutes of 2008, a regional transportation plan to include a sustainable communities strategy designed to achieve the targets for greenhouse gas emission reductions. SB 1 Page 11 FISCAL EFFECT : This bill is keyed fiscal. COMMENTS : 1)This bill authorizes cities and counties to establish Sustainable Communities Investment Authorities to help develop transit priority areas, clean manufacturing districts and small walkable communities. This bill is author-sponsored. According to the author, this bill has been developed "to give local governments economic development tools following the elimination of redevelopment. The key policy advanced by SB 1 is that it would replace the historical standard of blight remediation with the new objective of encouraging transit-oriented, infill development, and compliance with SB 375." 2)In 2011, the Legislature approved and the Governor signed two measures, ABX1 26 and ABX1 27 that together dissolved redevelopment agencies as they existed at the time and created a voluntary redevelopment program on a smaller scale. In response, the California Redevelopment Association, League of California Cities, along with other parties, filed suit challenging the two measures. The Supreme Court denied the petition for peremptory writ of mandate with respect to ABX1 26. However, the Court did grant CRA's petition with respect to ABX1 27. As a result, all redevelopment agencies were required to dissolve as of February 1, 2012. Over the last sixty years, redevelopment agencies used tax increment to finance affordable housing, community development, and economic development projects. The dissolution of redevelopment agencies has created a void and an effort to create new tools that would support community and economic development activities. SB 1 would allow a city or county to establish a Sustainable Communities Investment Authority to use tax increment financing, on a limited scale, along with other financing tools to support the goals of SB 375. 3)SB 375 created a new procedure for land use planning that would require local governments to plan in a way that would accomplish the greenhouse gas reduction goals of AB 32 (the SB 1 Page 12 California Global Greenhouse Gas Reduction Act of 2006). SB 375 required MPOs to adopt an SCS in their regional transportation plans for the purpose of reducing greenhouse gas emissions, required the alignment of planning for transportation and housing, and created specified incentives for the implementation of those strategies. This bill would authorize the use of tax increment as well as other funding sources to finance some of the projects - small walkable communities, transit priority areas and clean energy manufacturing - that would be part of the SCS. 4)This bill relies upon tax increment financing, in addition to several other potential funding sources, including Mello Roos, capital investment from public pensions, and local transaction and use taxes, to support the development of transit priority areas, small walkable communities, and clean energy manufacturing. One of the challenges of using tax increment as a financing tool for community and economic development in the post-redevelopment world is carving out the schools portion of the tax increment. Section 16 of Article XVI of the California Constitution gives authority to reapportion property taxes among a city, city and county, and district or other public corporation (otherwise known as taxing agencies) for the purpose of redevelopment. SB 1 excludes school district and special district from "district" and "affected taxing entity" for purposes of tax increment financing. 5)Post-World War II, redevelopment was created as a tool to combat urban decay and eradicate blight. Redevelopment agencies were given fundamental tools including the ability to acquire property through the power of eminent domain, the authority to finance their activities by issuing bonds and taking on debt, and the authority and obligation to relocate people who have interests in the property acquired by an agency. To establish redevelopment project areas, a redevelopment agency was required to identify both physical and economic blight in the project area that could not be mitigated without the use tax increment. SB 1 would allow sustainable communities investment authority to establish a sustainable communities investment area without making a finding of blight. In order to eradicate blight, redevelopment agencies had authority to use eminent domain. SB 1 would permit a sustainable communities investment authority to use eminent domain without a finding of blight. SB 1 Page 13 The California Farm Bureau Federation, in their opposition letter, write that SB 1 "would replace this specific statutory definition [of blight] and many years of well-defined case law created by hundreds of court challenges over many decades, with a definition of blight that is so vague that it is essentially meaningless. 'Inefficient land use patterns' and 'inefficient transportation infrastructure' are the essential triggers for a determination of blight that could result in the taking of someone's home, business, or family farm for the lease or sale to another private party for a private use." 6)Redevelopment agencies were required to set aside 20% of tax increment generated in redevelopment project areas for the creation, improvement, and preservation of affordable housing. This bill increases the set aside to 25%. In addition, 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 do not decrease during the life of the plan. The bill also 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. 7)Last year this Committee heard SB 1156 (Steinberg) which is substantially similar to this bill. Governor Brown vetoed SB 1156 with the following message: This bill would allow local governments to establish a Sustainable Communities Investment Authority to finance activities within a specified area. The planning and investment that is envisioned by this bill would help to develop and redevelop a California that is sustainable and thriving. I prefer to take a constructive look at implementing this type of program once the winding down of redevelopment is 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. SB 1 Page 14 The author notes that SB 1 contains provisions that require a city or county to receive a finding of completion from the Department of Finance certifying that they have met the legal requirement of the RDA dissolution process before they can participate in the creation of an Authority using the provisions of SB 1, thereby addressing concerns raised in the veto message. 8)The California State Association of Counties (CSAC), in support, writes that "the foundation of our support is allowing counties a clear option whether or not to financially participate in tax increment financing for economic development purposes. We believe an approach that encourages collaboration between counties and cities will best serve Californians. This approach would not only allow counties appropriate control over their own general funds, but necessitates discussions about what kinds of development benefits the community as a whole." Also in support, the California Special Districts Association writes that "SB 1 protects core services, such as those provided by special districts?any division of property taxes away from local agencies would require the governing board of each participating agency to adopt a resolution, or 'opt-in'. This provision ensures accountability and local control over local revenue; it also prevents the exchanging of one problem for a new, worse local infrastructure problem. Secondly, SB 1 promotes collaboration by empowering local agencies, including special districts, with the ability to create an investment authority by entering into a JPA?such a JPA would enable an authority to best utilize the community's assets and meet its needs." 9)Support arguments : Supporters argue that 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, and that the 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. Opposition arguments : Opponents object to the taxation, bonding, and eminent domain powers that this bill confers to the Authorities. They are concerned about how high sales tax rates could go up in the project areas and about how SB 1 Page 15 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. 10)This bill was heard by the Assembly Housing and Community Development Committee on July 3, 2013 and passed on a 5 - 2 vote. REGISTERED SUPPORT / OPPOSITION : Support Alameda-Contra Costa Transit District Alliance for Community Transit-Los Angeles California Association of REALTORS California Labor Federation California Transit Association California Special Districts Association California State Association of Counties California State Council on Developmental Disabilities Capacity Builders, Inc City of West Sacramento Counties of Alameda, Lassen East LA Community Corporation Emeryville Chamber of Commerce Green Technical Education and Employment Housing California SB 1 Page 16 Los Angeles County Federation of Labor Los Angeles / Orange Counties Building and Construction Trades Council Metropolitan Transportation Commission Mission Bay Development Group Natural Resources Defense Council Sacramento Area Council of Governments Sacramento Housing Alliance Southeast Asian Community Alliance State Building and Construction Trades Council Western Center on Law & Poverty Opposition Air Conditioning Trade Association California Farm Bureau Federation California Right to Life Committee, Inc. CalTax Contra Costa Taxpayers Association Michelle Steel, Vice-Chair, Third District, State Board of Equalization Plumbing-Heating-Cooling Contractors Association of California Western Electrical Contractors Association 6 individuals Analysis Prepared by : Debbie Michel / L. GOV. / (916) 319-3958