BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 33 HEARING: 3/13/13
AUTHOR: Wolk FISCAL: Yes
VERSION: 3/6/13 TAX LEVY: No
CONSULTANT: Lui
INFRASTRUCTURE FINANCING DISTRICTS
Makes it easier for local governments to use Infrastructure
Financing Districts.
Background and Existing Law
Cities and counties can create Infrastructure Financing
Districts (IFDs) and issue bonds to pay for community scale
public works: highways, transit, water systems, sewer
projects, flood control, child care facilities, libraries,
parks, and solid waste facilities. To repay the bonds,
IFDs divert property tax increment revenues from other
local governments -- but not schools -- for 30 years (SB
308, Seymour, 1990).
Unlike the property in former redevelopment project areas,
the property in an IFD doesn't have to be blighted, but an
IFD can't overlap a redevelopment project area. The
Legislature has declared, but not required, that IFDs
should include substantially undeveloped areas.
To form an IFD, the city or county must develop an
infrastructure plan, send copies to every landowner,
consult with other local governments, and hold a public
hearing. Every local agency that will contribute its
property tax increment revenue to the IFD must approve the
plan. Once the other local officials approve, the city or
county must then get the voters' approval.
The deadline for filing lawsuits to challenge an IFD's
creation, financing plan, allocation of property tax
increment revenues, and tax allocation bonds is 30 days
after local officials obtain voter approval.
Public officials continue to search for ways to raise the
capital they need to invest in public works projects, like
SB 33 -- 3/6/13 -- Page 2
public transit facilities, infill development, or clean
water. One concept recognizes that expanded public
structures can boost the value of nearby property. Higher
property values produce higher property tax revenues.
Property tax increment financing captures those property
tax increment revenues. Without redevelopment, local
officials want to make it easier to use IFDs to finance
public works projects.
Proposed Law
I. Voter approval . After preparing an infrastructure
financing plan, local officials must get voter approval to:
Form the IFD, which requires 2/3-voter approval.
Issue bonds, which requires 2/3-voter approval.
Set the appropriations limit, which requires
majority-voter approval.
Senate Bill 33 repeals the voter approval requirements to
form an IFD, issue IFD bonds, and set the IFD's
appropriations limit.
II. Formation . Under current law, local officials must
get 2/3-voter approval to form an IFD. Senate Bill 33
specifies how local officials must form an IFD. The clerk
of a local government interested in proposing to form an
IFD must post a copy of the resolution of intention on the
local government's Internet website. At the end of a
public hearing, the local government's legislative body may
adopt a resolution, based upon a finding that the goals of
the IFD are consistent with the general plan, and the
financing programs are an efficient way to implement the
IFD's goals. The resolution establishing an IFD also
creates an IFD's governing board, a public financing
authority. The public financing authority must designate
and direct an engineer or appropriate official to prepare
an infrastructure financing plan.
III. Public financing authority . Senate Bill 33 adds and
defines the public financing authority as the legislative
body of the infrastructure financing district. The
authority must be comprised of five people: three must be
members of the city council or board of supervisors that
established the IFD and two must be public members
appointed by the three members of the city council or board
of supervisors.
SB 33 -- 3/6/13 -- Page 3
IV. Infrastructure financing plan . Current law requires
an IFD's financing plan to be consistent with the local
government's general plan and include all of the following:
A map and description of the proposed district;
A description of the public facilities;
A finding that public facilities provide
significant benefits to a larger area than the
district; and ,
A financing section.
Senate Bill 33 requires the financing plan to include three
additional elements:
The district's proposed goals of financing public
facilities;
The district's proposed goals to assist transit
priority project development; and ,
The creation of the public accountability
committee.
SB 33 prohibits an infrastructure financing plan from being
implemented until the public accountability committee, as
defined, is created. The public financing authority must
forward a copy of the plan to the local government's
legislative body to review and approve the financing
section of the plan. The plan cannot take effect until
approved by the legislative body.
V. Types of projects . IFDs are authorized to finance
different types of projects, including:
The purchase, construction, expansion, improvement,
seismic retrofit, or rehabilitation of any real or
tangible property, and associated planning and design
work of that property.
The purchase of a property, as long as construction
has been completed.
Highways, sewage treatment, water treatment, flood
control, libraries, child care facilities, parks, and
open-space.
Senate Bill 33 expands the list of authorized projects to
include levees, watershed lands, and habitat restoration.
Currently, an IFD cannot finance routine maintenance,
repair work, or costs of ongoing operation or services.
Senate Bill 33 repeals this prohibition. Senate Bill 33
prohibits an IFD from compensating members of the local
government's legislative body or members of the public
financing authority.
SB 33 -- 3/6/13 -- Page 4
VI. Fire district approval . Before an IFD can divert
property tax increment from another taxing entity, every
local agency that will contribute its property tax
increment revenue to the IFD must approve the
infrastructure financing plan. Some special districts are
governed ex officio by county boards of supervisors or city
councils. In the case of a special district that provides
fire protection services where the county board of
supervisors is the governing authority, Senate Bill 33
requires the special district to act on an IFD's plan by
adopting a separate resolution.
VII. Bond terms . The terms of IFDs' bonds can't be more
than 30 years. Senate Bill 33 extends the maximum term of
IFDs' bonds from 30 years to 40 years.
VIII. Accountability . Current IFD law is silent on fiscal
protections, project management, or reporting measures.
Senate Bill 33 requires that local officials' resolution of
intention to form an IFD must state the goal and need of
the district and that the resolution be posted on the
legislative body's Internet web site. SB 33 clarifies
that IFDs can't be used to compensate the members of the
legislative body. SB 33 requires the public financing
authority to mail an annual report to landowners in the
district and each affected taxing entity. The report must
also be posted on the legislative body's website. The
report must include:
A summary of the IFD's expenditures.
A progress report of the IFD's adopted goals.
An assessment of the status of the IFD's public
works projects.
If an IFD fails to submit the annual report to its
landowners or taxing entities, or the report is not put on
the legislative body's Internet, it can't spend any funds
to construct public works projects until the report is
submitted. If an IFD fails to produce evidence of progress
made towards an IFD's adopted goals for five consecutive
years, the IFD is prohibited from spending any funds to
construct any new public works projects. Any excess
property tax increment revenues that had been allocated for
new public works must be re-allocated to the affected axing
entities. However, the IFD may complete any public works
projects that it has started.
SB 33 creates a public accountability committee to conduct
SB 33 -- 3/6/13 -- Page 5
an annual independent financial review and audit. Revenues
of the public financing authority will pay for audit costs.
The committee membership must be comprised of a
representative from each of the affected taxing entities,
from the public financing authority, and one or more public
members. The legislative body of the affected taxing
entity and public financing authority shall appoint members
to the committee.
IX. Redevelopment project areas . Currently, an IFD can't
overlap with a redevelopment project area. Senate Bill 33
repeals that statutory prohibition.
X. Big box retailers and vehicle dealers . State law
prohibits a community from giving financial
assistance-direct below-market property deals or cuts in
fees-to a big box retailer or vehicle dealer that relocates
in the same market area (SB 114, Torlakson, 2003).
That law applies to counties, cities, and redevelopment
agencies. Senate Bill 33 prohibits IFDs from providing
financial assistance to big box retailers or vehicle
dealers to relocate from one local agency to another in the
same market area.
XI. Disadvantaged communities . State law defines
disadvantaged communities as those with median household
incomes less than 80% of the statewide average. Severely
disadvantaged communities have median household incomes
less than 60% of the statewide average. Many disadvantaged
communities lack adequate public services and facilities
like clean water, sewers, paved streets, storm drains, and
street lights. Advocates want legislators to require local
officials to include disadvantaged communities in their
long-range planning for land use and public facilities.
Senate Bill 33 declares that it is in the public interest
for IFDs to finance public works for disadvantaged
communities.
XII. Polanco Act . The Polanco Redevelopment Act encourages
cleanup and development of brownfields-properties
contaminated by hazardous waste. The Act authorizes
redevelopment agencies to conduct a cleanup and to recover
the costs of that cleanup from responsible parties.
Redevelopment agencies that conduct these cleanups, and
individuals that enter into redevelopment agreements with
the agency, immune from future cleanup liability. Senate
SB 33 -- 3/6/13 -- Page 6
Bill 33 allows IFDs to finance necessary actions to
clean-up brownfield sites under the Polanco Act.
XIII. Sustainable Communities Strategy . The Sustainable
Communities and Climate Protect Act requires the Air
Resources Board to set regional targets for automobiles and
light trucks' greenhouse gas emission reductions, requires
a regional transportation plan to include a Sustainable
Communities Strategy to meet targets for greenhouse gas
emission reduction, requires the California Transportation
Commission to maintain guidelines for travel demand models,
requires cities and counties to revise their housing
elements every eight years in conjunction with the regional
transportation plan, and relaxes CEQA requirements for
housing developments that are consistent with a Sustainable
Communities Strategy (SB 375, Steinberg, 2008). Senate
Bill 33 authorizes IFDs to finance any project, like a
transit priority project or regional transportation plan,
that implements or is consistent with a sustainable
communities strategy or alternative planning strategy.
XIV. Joint-powers authority . Senate Bill 33 authorizes a
public financing authority to enter into a joint powers
agreement, only to exercise power other than taxing
authority.
XV. Definitions . Senate Bill 33 defines "infrastructure
financing district" as a legally constituted public and
corporate government entity separate and distinct from the
city that established it. The bill provides that an IFD is
a local agency subject to California's open and public
meeting law, the Ralph M. Brown Act.
The bill defines "public capital facilities of
communitywide significance" as facilities that benefit all
areas within the district or serve or are made available to
those areas.
State Revenue Impact
No estimate.
Comments
SB 33 -- 3/6/13 -- Page 7
1. Purpose of the bill . Senate Bill 33 updates an
existing financing mechanism for public works projects,
while incorporating rigorous accountability measures to
ensure local government diligence, positive project
results, and healthier community development. SB 33
recognizes the potential for infrastructure financing
districts to implement SB 375's (Steinberg, 2008)
sustainable communities strategy and the benefits of
rehabilitating brownfields from hazardous waste. Local
officials use tax increment financing to divert part of the
property tax revenue stream to a separate IFD. A local
government must consent and opt-in to the IFD's formation;
if an agency doesn't want to participate, its tax increment
revenue shares aren't touched. Although IFDs don't raise
taxes or generate new revenue, the Legislature required
voter approval of IFDs' plans, bonds, and appropriations
limits. SB 33 removes the voter-approval requirement, but
still requires annual, independent audits and empowers
local decision making. Legislators and voters who have
elected their local representatives should let local
officials do their job-setting local priorities for
spending local revenues.
2. Timing is of the essence . Albert Einstein once said
that the only reason for time is so that everything doesn't
happen at once. In 2011, when Governor Brown proposed to
eliminate redevelopment, the world of IFDs and
redevelopment intertwined. In response, legislators turned
to IFDs as a possible alternative financing mechanism for
local governments. However, the Governor vetoed SB 33's
predecessor, SB 214, and related IFD measures, saying that
expanding the scope of infrastructure financing districts
is premature. This measure would likely cause cities to
focus their efforts on using the new tools provided by the
measure instead of winding down redevelopment. It is
unclear how the landscape has changed since the Governor's
veto seven months ago.
3. Voter review . The California Constitution requires
2/3-voter approval before cities or counties can issue
long-term debt backed by local general purpose revenues;
school districts need 55%-voter approval. That's why local
general obligation bonds need 2/3-voter approval. The
courts have explained that cities need 2/3-voter approval
before they dedicate portions of their general funds to pay
for bonds. That's why local limited obligation bonds need
SB 33 -- 3/6/13 -- Page 8
2/3-voter approval. However, because that constitutional
limit doesn't mention infrastructure financing districts,
local officials don't need voter approval before they issue
tax allocation bonds. When Governor Deukmejian signed the
1990 Seymour bill that created IFDs, there was a political
agreement that local officials should get 2/3-voter
approval before they could issue IFD bonds. That
requirement is statutory and not based on a constitutional
limitation. There is no constitutional requirement for
IFDs to seek 2/3-voter approval (or any voter-approval)
before they issue bonds backed by property tax increment
revenues. SB 33 repeals the statutory requirement for
2/3-voter approval on IFDs' bonds.
4. IFDs vs. Redevelopment . Absent redevelopment, many
local officials are searching for tools to finance and
attract development, but IFDs are very different than
former redevelopment agencies. When former redevelopment
agencies diverted property tax increment revenues from
schools, the State General Fund backfilled schools,
indirectly creating a state subsidy for redevelopment
projects. Unlike redevelopment agencies, infrastructure
financing districts don't touch schools' share of tax
increment and require opt-in of participating local
agencies. By diverting property tax increment revenues
only from those other local governments that willingly
allocate a share of their revenues to a project, IFDs rely
on locally generated revenues and not a State General Fund
subsidy. While former redevelopment was created to
eradicate "blight," IFDs were created to finance
infrastructure and public projects. IFDs also don't have
eminent domain powers. IFDs aren't like former
redevelopment agencies because they were created for a
different purpose and granted different powers.
5. Building blocks . For many years, local officials were
reluctant to form IFDs because they worried about the
constitutionality of using tax increment revenue from
property not within a redevelopment project area. In 1998,
an Attorney General's opinion allayed those concerns, and
the City of Carlsbad formed an IFD to fund the public works
for a new hotel and any future public works needed to
develop Legoland theme park, up to $1.5 million. To date,
it is the only example of a finished IFD project (San
Francisco's Rincon Hill developments are currently
underway). Intrigued by the concept, other local officials
SB 33 -- 3/6/13 -- Page 9
have persuaded legislators to pass special bills that adapt
the IFD statute to their local circumstances:
SB 207 (Peace, 1999): border development zone IFD.
SB 223 (Kelley, 1999): Salton Sea Authority IFD.
SB 1085 (Migden, 2005): San Francisco waterfront
IFD.
AB 2882 (De La Torre, 2006): Orangeline mag-lev
train IFD.
The existence of one complete IFD project underscores the
lack of evidence on IFD's viability as a local financing
tool. Rather, the list of incomplete projects attests to
the practical barriers that exist when implementing an IFD.
6. Related bills . SB 33 is not the only bill seeking to
update the IFD financing mechanism.
AB 229 (J. P�rez) creates Infrastructure and
Revitalization Financing Districts and authorizes its
use -- following a 2/3-vote to form the district, a
2/3-vote to issue the bonds, and a majority-vote for
the appropriations limit -- for projects like flood
management, environmental mitigation, and hazardous
cleanup.
AB 243 (Dickinson) creates Infrastructure and
Revitalization Financing Districts (IRFD) and reduces
the 2/3-voter thresholds to form an IRFD and issue
bonds to 55%.
AB 294 (Holden) authorizes IFDs to use the county's
Educational Revenue Augmentation Fund portion of tax
increment, after the legislative body submits an
economic analysis to the California Infrastructure and
Economic Development Bank for review and approval.
AB 662 (Atkins) repeals the prohibition of an IFD
on a former redevelopment area.
AB 690 (Campos) renames IFDs as Jobs and
Infrastructure Financing Districts (JIDs), after a 55%
voter-approval to create a JID. The bill requires a
job creation plan that ensures that for every $1
million invested, 10 prevailing wage jobs are created.
AB 709 (Nestande) requires the Salton Sea Authority
to develop a restoration plan for the Salton Sea
ecosystem and submit it to the Legislative Analyst for
review. If the Legislative Analyst determines the
plan is financially feasible, the bill appropriates
funds from the Salton Sea Restoration Fund and
Proposition 84 to implement the plan.
SB 33 -- 3/6/13 -- Page 10
SB 628 (Beall) removes the voter-approval
requirements to create an IFD and issue bonds for a
transit priority project.
Support and Opposition (3/7/13)
Support : California Building Industry Association;
California Professional Firefighters; California State
Association of Counties; California Special Districts
Association; Cities of Benicia, Emeryville, West
Sacramento, and Whittier; County of Yolo; East Bay Economic
Development Agency; Economic Vitality Corporation of San
Luis Obispo County; Emeryville Chamber of Commerce; Inland
Empire Economic Partnership; League of California Cities;
Los Angeles Area Chamber of Commerce; Los Angeles County
Division, League of California Cities; Los Angeles County
Economic Development Corporation; Long Beach Area Chamber
of Commerce; Marin county Council of Mayors and
Councilmembers; North Bay Leadership Council; Orange County
Business Council; Palm Desert Area Chamber of Commerce ;
Sacramento Metro Chamber of Commerce; San Francisco Chamber
of Commerce; San Diego Regional Economic Development
Corporation; San Gabriel Valley Economic Partnership;
Tuolumne County Business Council
Opposition : California Taxpayers Association.