BILL ANALYSIS Ó
SB 1
Page 1
Date of Hearing: August 21, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
SB 1 (Steinberg) - As Amended: August 5, 2013
Policy Committee: Local
GovernmentVote:6-3
Housing and Community Development 5-2
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill 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 cities and counties to form a Sustainable Communities
Investment Authority and specifies that it is subject to the
provisions of the Community Redevelopment Law (CRL). Makes a
legislative finding that inefficient transportation
infrastructure and high costs of housing and transportation
are a form of blight, which is a necessary condition under
CRL.
2)Provides the governing board shall consist of five members
appointed for four-year terms. Provides the authority is
subject to existing state laws, including the Political Reform
Act, the California Public Records Act and the Ralph M. Brown
Act (open meetings).
3)States an authority shall only include transit priority areas,
including a high speed rail station and adjacent areas,
walkable communities and sites for clean energy manufacturing.
4)Allows a plan for an authority to include a provision for the
receipt of tax increment funds, as specified, and provides
other specific requirements for the plan, in addition to what
is contained in CRL. Allows an authority to implement local
transaction and use tax.
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5)Requires an authority to contract for an independent financial
and performance audit every five years, consistent with the
guidelines established by the State Controller.
6)Specifies, in the event tax increment financing provisions are
included as part of an authority, for the purposes of
collecting tax increment under Section 16 of Article XVI of
the California Constitution the terms "district" and "affected
taxing entity" shall exclude a school district and special
districts.
FISCAL EFFECT
1)Estimated one-time GF costs to the State Controller's Office
(SCO) in the range of $100,000 to $200,000 GF to establish
guidelines for periodic financial and performance audits that
include provisions for determining compliance with affordable
housing requirements as well as secondary review and
compliance measures for failure to achieve initial compliance
on the regular audit schedule.
2)Estimated ongoing SCO GF costs in the range of $150,000 on a
periodic basis for accepting audits and reviewing and
approving secondary compliance plans submitted by authorities
who fail to comply with initial audit requirements.
3)Estimated ongoing GF costs in the range of $150,000 to
$200,000 to the Department of Finance (DOF) to review and
approve completed audits on a periodic basis. The bill
requires audits to be submitted to the SCO, DOF, and Joint
Legislative Budget Committee, and specifies the SCO is not
required to review and approve completed audits.
4)If an authority was to adopt a local transactions and use tax,
the Board of Equalization (BOE) would administer the tax and
incur one-time costs of approximately $275,000. For each
taxing area there would be additional administrative costs
varying with the size of the district, but could reach several
hundred thousand dollars for a very large district. The costs
the BOE incurred would be fully reimbursed by the authority.
COMMENTS
1)Purpose. According to the author, eliminating redevelopment
agencies did not eliminate the need for California communities
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to build more affordable housing, eliminate blight, foster
business activity, clean up contaminated brownfields and
create jobs. The author states 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 author notes. The author argues the bill
offers local governments flexibility by allowing an authority
to use a variety of tools, including tax increment financing,
CRL powers, local sales taxes, infrastructure financing
districts and the ability to leverage public pension fund
investments.
The author notes SB 1 is a modified version of SB 1156
(Steinberg), which was vetoed last year. The Governor's veto
message indicated he was unwilling to sign a bill creating a
new financing tool for community redevelopment until the
winding down of redevelopment is complete and GF savings are
achieved. According to the author, the concerns that led to
the veto are being resolved and most of the successor agencies
will be deemed compliant with the asset dissolution
requirements of AB 26 1X and AB 1484. The author notes that
SB 1 requires that cities and counties receive a finding of
completion from DOF certifying they have met the legal
requirements of redevelopment dissolution before they can
establish an authority.
2)Support . The California State Association of Counties (CSAC),
in support, states this bill allows counties a clear option
whether to financially participate in tax increment financing
for economic development purposes. CSAC believes an approach
that encourages collaboration between counties and cities will
best serve Californians and not only allow counties
appropriate control over their own general funds, but
necessitate discussions about what kinds of development
benefits the community as a whole.
Also in support, the California Special Districts Association
argues SB 1 protects core services, such as those provided by
special districts. Requiring the governing board of each
participating agency to adopt a resolution, or opt-in before
any diversion of property taxes from local agencies ensures
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accountability and local control over local revenue; it also
prevents exchanging one problem for a new, potentially worse
local infrastructure problem. They also note SB 1 promotes
collaboration by empowering local agencies, including special
districts, with the ability to create an investment authority
by entering into a Joint Powers Authority (JPA), as a JPA
would enable an authority to best utilize the community's
assets and meet its needs.
3)Opposition . The California Farm Bureau Federation states SB 1
would replace the specific statutory definition of blight and
the results of 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. They argue inefficient land use patterns and
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.
4)Background. Post-World War II, redevelopment was created as a
tool to combat urban decay and eradicate blight.
Redevelopment agencies were given 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 of tax increment.
In 2011, the Legislature approved and the governor signed two
measures, ABX1 26 and ABX1 27 that together dissolved
redevelopment agencies as they existed, and created a
voluntary redevelopment program on a smaller scale. In
response, the California Redevelopment Association and the
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 and granted the petition with respect to ABX1 27. As
a result, all redevelopment agencies were required to dissolve
as of February 1, 2012, with no authority for any new
redevelopment program.
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5)Tax Increment Financing Issue . SB 1 uses tax increment
financing, in addition to several other potential funding
sources. One of the challenges of using tax increment is
carving out the schools' portion of the tax increment.
Section 16 of Article XVI of the California Constitution
provides authority to reapportion property taxes among a city,
a county, a city and county and district or other public
corporation (otherwise known as taxing agencies) for the
purpose of redevelopment. This bill excludes school districts
and special districts from "district" and "affected taxing
entity" for purposes of tax increment financing. This
exclusion is intended to protect the general fund by excluding
schools, but it may be unconstitutional to statutorily exclude
schools and special districts since the Constitution includes
them in the authorizing language for tax increment financing.
6)Transactions and Use Tax Issue. 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.
BOE states that a tax within a sustainable communities
investment authority would create significant administrative
problems. BOE states that without a defined city or county
limit to impose the tax, BOE would face significantly higher
costs to identify account and addresses falling within the
boundaries of the authority. Similarly, both retailers and
tax payers would face difficulty in collecting and reporting
the tax, as only goods sold and delivered within the area
would be subject to a use tax, a tax paid directly by the
taxpayer and not collected by the retailer. If a taxpayer
outside of the area ordered a taxable good, the retailer would
not collect sales tax, but the taxpayer would be required the
use tax to BOE.
7)Vote requirements . Article XIIIA of the California
Constitution is clear that any change in a state statute that
results in taxpayers paying a higher tax must be approved by a
two-thirds vote of the Legislature. The bill only authorizes
the authority to levy a tax. Because subsequent approval is
required, legislative counsel has keyed this bill a majority
vote.
A tax is a general tax only when its revenues are placed into
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the General Fund and are available for expenditure for any and
all governmental purposes. A general tax must be approved by
a majority vote of the electorate, whereas a special tax may
be imposed only with the approval of two-thirds vote of the
local voters. The taxes authorized in SB 1 will probably have
to be placed before the voters and be subject to a two-thirds
vote requirement for approval.
8)Related legislation: AB 1080 (Alejo) allows local
governments to establish a Community Revitalization and
Investment Authority in a disadvantaged community to fund
specified activities and allows the authority to collect tax
increment. AB 1080 is in the Senate Appropriations Committee.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081