BILL ANALYSIS Ó SENATE GOVERNANCE & FINANCE COMMITTEE Senator Lois Wolk, Chair BILL NO: SB 470 HEARING: 4/3/13 AUTHOR: Wright FISCAL: Yes VERSION: 4/1/13 TAX LEVY: No CONSULTANT: Weinberger LOCAL ECONOMIC DEVELOPMENT Allows cities and counties to use some of the Community Redevelopment Law's financing, property sale, and brownfield cleanup powers to promote economic development. Background Until 2011, the Community Redevelopment Law (CRL) allowed local officials to set up redevelopment agencies (RDAs), prepare and adopt redevelopment plans, and finance redevelopment activities. As part of the CRL, the Polanco Redevelopment Act allowed redevelopment officials and property owners to clean up contaminated properties - sometimes called "brownfields" - within redevelopment project areas and to receive limited immunity from future liability (AB 3193, Polanco, 1990). Citing a significant State General Fund deficit, Governor Brown's 2011-12 budget proposed eliminating RDAs and returning billions of dollars of property tax revenues to schools, cities, and counties to fund core services. Among the statutory changes that the Legislature adopted to implement the 2011-12 budget, AB X1 26 (Blumenfield, 2011) dissolved all RDAs. The California Supreme Court's 2011 ruling in California Redevelopment Association v. Matosantos upheld AB X1 26, but invalidated AB X1 27 (Blumenfield, 2011), which would have allowed most RDAs to avoid dissolution. RDAs' dissolution deprived local government officials of the Polanco Act's powers to abate toxic hazards and obtain immunity from liability. It also eliminated other RDA powers that local officials used to sell public property and finance development projects. Local officials want the Legislature to allow cities and counties to use these SB 470 -- 4/1/13 -- Page 2 powers to promote local economic development projects. Proposed Law Senate Bill 470 lets cities and counties exercise powers that are similar to statutory powers that former redevelopment agencies used to: I. Sell property. II. Provide financial assistance to development projects. III. Clean up contaminated property. I. Property sales. State law generally requires a county to sell or lease real property using a competitive sealed-bid process. By contrast, state law generally provides cities with broader discretion over the manner in which they dispose of real property. The California Constitution lets charter cities control their municipal affairs. Charter cities must follow statewide laws only for issues of statewide concern. Before a former redevelopment agency could dispose of property which it acquired with tax increment money, the Community Redevelopment Law required the city council or county board of supervisors which set up the agency to approve the sale. The council or board had to hold a noticed public hearing and the agency had to provide detailed information about the sale or lease. If it approved, the council or board had to adopt a resolution finding that the price was at least fair market value or that land use considerations justified a lower price (AB 1290, Isenberg, 1993). Senate Bill 470 replicates this process to allow a city or county to sell real property for economic development purposes. Senate Bill 470 defines economic opportunity as any of the following: Development agreements or other agreements that create, retain, or expand new jobs. A city or county must make a finding that the agreement will create or retain at least one full-time equivalent, permanent job per $35,000 of city, county or city and county investment in the project after full capacity and SB 470 -- 4/1/13 -- Page 3 implementation of the agreement. Development agreements that increase property tax revenues to all property tax-collecting entities. A city or county must make a finding that the agreement will result in an increase of at least 15% of total property tax resulting from the project at full implementation when compared to the year prior to the property being acquired by the government entity. Creation of affordable housing, if a demonstrated affordable housing need exists in the community, as defined in the approved housing element or regional housing needs assessment. Projects that meet specified climate, air quality, and energy conservation goals and have been included in an adopted Sustainable Communities Strategy or Alternative Planning Strategy, or a project that specifically implements the goals of those adopted plans. Transit priority project areas, as defined in state law. Development of properties that are returned to the city, county, or city and county pursuant to a long range property management plan. Senate Bill 470 requires a city council or board of supervisors to approve the sale or lease of property for economic opportunity purposes by resolution after a public hearing. Notice of the time and place of the hearing must be published in a newspaper of general circulation in the community at least once per week for at least two successive weeks before the hearing. No later than the date on which the city or county provides the first notice of a hearing, it must make a report available for public inspection and copying at a cost not to exceed the cost of duplication. The report must contain a copy of the proposed sale or lease and a summary that describes and specifies: The cost of the agreement including land acquisition costs, clearance costs, relocation costs, the costs of any improvements to be provided by the city, county, or city and county, plus the expected interest on any loans or bonds to finance the agreements. The estimated value of the interest to be conveyed or leased, determined at the highest and best uses SB 470 -- 4/1/13 -- Page 4 permitted under the general plan or zoning. The estimated value of the interest to be conveyed or leased, determined at the use and with the conditions, covenants, and development costs required by the sale or lease. The purchase price or present value of the lease payments which the lessor will be required to make during the term of the lease. If the sale price or total rental amount is less than the fair market value of the interest to be conveyed or leased, determined at the highest and best use, then the report's summary must provide an explanation of the reasons for the difference. An explanation of why the sale or lease of the property will assist in the creation of economic opportunity, with reference to all supporting facts and materials relied upon in making this explanation. Senate Bill 470 requires that the resolution approving the lease or sale must be adopted by a majority vote unless the legislative body has provided by ordinance for a two-thirds vote for that purpose. The resolution must contain a finding that the sale or lease of the property will assist in the creation of economic opportunity and must contain one of the following findings: The consideration is not less than the fair market value at its highest and best use. The consideration is not less than the fair reuse value at the use and with the covenants and conditions and development costs authorized by the sale or lease. II. Financial Assistance. The Community Redevelopment Law allowed an RDA to establish a program under which it loaned funds to owners or tenants for the purpose of rehabilitating commercial buildings or structures within a project area (AB 1290, Isenberg, 1993). Senate Bill 470 allows a city or county to establish a program under which it loans funds to owners or tenants for the purpose of rehabilitating commercial buildings or structures. The Community Redevelopment Law allowed an RDA to assist with the financing of facilities or capital equipment, including pollution control devices, as part of an agreement for developing or rehabilitating property that will be used for industrial or manufacturing purposes. Before entering into such an agreement, the RDA has to SB 470 -- 4/1/13 -- Page 5 find, after a public hearing, that the assistance was necessary for the economic feasibility of the development and that the assistance could not be obtained on economically feasible terms in the private market. Senate Bill 470 allows a city or county to assist with the financing for facilities or capital equipment on the same terms. Senate Bill 470 allows a city or county to enter into a voluntary agreement with another city, county, local taxing entity, or joint powers authority to jointly finance a project for creating economic opportunity. The bill states that it does not authorize a city, county, or city and county to collect and spend tax dollars from another jurisdiction without written consent. Senate Bill 470 states that its provisions must not be interpreted to authorize the use of eminent domain for economic development purposes. III. Contaminated property. The Polanco Redevelopment Act gave RDAs the authority to clean up brownfields and provided immunity from liability to public agencies and property purchasers under an approved cleanup plan. Senate Bill 470 allows cities and counties to use nearly identical statutory authority. Specifically, Senate Bill 470 allows a city, county, or city and county to take any actions that it determines are necessary and that are consistent with other state and federal laws to remedy or remove a release of hazardous substances on, under, or from property within its jurisdiction, whether it owns that property or not, subject to specified conditions. Unless an administering agency has been designated under state law, Senate Bill 470 requires the city, county, or city and county to request cleanup guidelines from the Department of Toxic Substance Control (DTSC) or the California regional water quality control board (RWQCB) before taking action to remedy or remove a release. The city, county, or city and county must submit for approval a cleanup or remedial action plan to the DTSC or RWQCB before taking action to remedy or remove a release. The DTSC or RWQCB must respond to the requests for guidelines and approvals within a reasonable period of time. SB 470 -- 4/1/13 -- Page 6 Senate Bill 470 identifies the conditions under which a city, county, or city and county can designate a local agency, in lieu of the DTSC or RWQCB, to review and approve a cleanup or remedial action plan and to oversee the remediation or removal of hazardous substances from a specific hazardous substance release site. The bill allows a local agency to withdraw from its designation and allows the DTSC or RWQCB to require, under specified conditions, a local agency to withdraw from the designation. Senate Bill 470 requires a city, county, or city and county to notify the DTSC, RWQCB, and local health and building departments of cleanup activity at least 30 days before the activity begins. With specified exceptions, the bill allows the DTSC or RWQCB to require a city, county, or city and county to remedy or remove a release of a hazardous substance pursuant to state law if the city, county, city and county, or a responsible party's action to remedy or remove a release of a hazardous substance is inconsistent with an approved plan. Senate Bill 470 imposes specified conditions on a city, county, or city and county's authority to remedy or remove a release of hazardous substances Senate Bill 470 allows a city, county, or city and county to require the owner or operator of any site within a project area to provide the city, county, or city and county with all existing environmental information pertaining to the site, except for information which is determined to be privileged. A person can only be requested to furnish information that is within their possession or control, including actual knowledge of information within the possession or control of any other party. If environmental assessment information is not available, the city, county, or city and county can require the owner of the property to conduct an assessment in accordance with standard real estate practices for conducting phase I or phase II environmental assessments. Senate Bill 470 provides that a city, county, or city and county is not liable under specified state and local liability laws if it undertakes and completes an action, or causes another person to undertake and complete an action, to remedy or remove a hazardous substance release in SB 470 -- 4/1/13 -- Page 7 accordance with a cleanup or remedial action plan that meets specified criteria. Senate Bill 470 requires that a city, county, or city and county must receive written acknowledgement from the DTSC, RWQCB, or local agency that it will receive specified immunity from liability upon proper completion of a remedial or removal action in accordance with an approved plan. Senate Bill 470 specifies the manner in which the DTSC, RWQCB, or local agency must make a determination that a remedial or removal action has been properly completed and notify the city, county, or city and county in writing that the immunity provided by the bill is in effect. A city, county, or city and county must reimburse the DTSC, RWQCB, and local agency for costs incurred in reviewing or approving cleanup or remedial action plans. Senate Bill 470 requires that a local agency's approval of a cleanup or remedial action also must be subject to the concurrent approval of the DTSC or RWQCB, under specified conditions. Senate Bill 470 identifies the people and entities to which it extends immunity from specified liability upon proper completion of a remedial or removal action. The bill also identifies people and entities to which it does not extend immunity. Senate Bill 470 states that it: Provides immunity that is in addition to any other immunity of a city, county, or city and county provided by law. Does not impair specified causes of action against the person, firm, or entity responsible for the hazardous substance release that is the subject of a removal or remedial action. Does not apply to, or limit, alter, or restrict, any action for personal injury, property damage, or wrongful death. Does not limit liability under a specified provision of federal law. Does not establish, limit, or affect the liability of a city, county, or city and county for any release of a hazardous substance that is not investigated or SB 470 -- 4/1/13 -- Page 8 remediated pursuant to state laws. Senate Bill 470 requires any responsible parties to be liable to a city, county, or city and county that remedies or removes, or requires others to remedy or remove, a release of a hazardous substance. The bill prohibits a city, county, or city and county from recovering the costs of goods and services that were not procured in accordance with applicable procurement procedures. The amount of the costs must include the interest, calculated according to a specific formula, on the costs accrued from the date of expenditure and reasonable attorney's fees. The costs are recoverable in a civil action. Senate Bill 470 identifies the defenses that are available to a responsible party under state law. Senate Bill 470 allows a city, county, or city and county to recover costs for developing and implementing an approved cleanup or remedial action plan to the same extent the DTSC is authorized to recover those costs. The bill defines the scope and standard of liability for recovering a city, county, or city and county's costs. Senate Bill 470 requires a city, county, or city and county to begin an action to recover costs of a remedy or removal within three years after completion of the remedy or removal. The bill states that the cost recovery authority it grants is in addition to, and is not to be construed as restricting, any other cause of action available to a city, county, or city and county. With specified exceptions, Senate Bill 470 requires that a city, county, or city and county that undertakes and completes a remedial action, or otherwise causes a remedial action to be undertaken and completed, shall not be liable, based on its ownership of property after a release occurred, for any costs that any responsible party incurs to investigate or remediate the release or to compensate others for the effects of that release. With specified exceptions, Senate Bill 470 states that its provisions do not limit the powers of the State Water Resources Control Board or a California regional water quality control board to enforce specified provision of state law. SB 470 -- 4/1/13 -- Page 9 Senate Bill 470 replicates the Polanco Act's definitions for numerous terms. Comments 1. Purpose of the bill . In recent years, local governments have lost nearly all the tools they commonly used to promote economic development. SB 470 restores some significant powers that cities and counties previously exercised under provisions of the Community Redevelopment Law. The bill gives local officials vitally needed flexibility to sell land at "fair reuse value" rather than "fair market value" and reestablishes the powers and protections that allowed them to clean up brownfields. After the recent turmoil surrounding RDAs' dissolution, SB 470 will benefit communities throughout California by helping local officials get their economic development efforts back on track. 2. Which properties ? SB 470 copies the procedures under which RDAs sold land they had acquired with tax increment revenues and applies those procedures to all city or county real property owned that is to be sold for "economic opportunity" purposes. Within the context of the Community Redevelopment Law, the procedures for selling land at less than fair market value were inherently limited to properties that were owned by RDAs and were subject to the many limitations that applied to RDA's activities. By removing that land sale process from the CRL and applying it more broadly, SB 470 gives local officials greater authority to sell land at less than fair market value than they had before RDAs' dissolution. The rules that made sense in the context of RDA law may not be appropriate for all city or county property sales. The Committee may wish to consider amending SB 470 to apply its land sale provisions only to those properties that were acquired with tax increment funds from a former RDA. 3. New financing authority for school districts ? SB 470 authorizes voluntary agreements between a city or county and a local taxing entity to jointly finance a project for creating economic opportunity, but does not define the term "local taxing entity." Other provisions of state law define the term "local taxing entity" to include school districts. SB 470 -- 4/1/13 -- Page 10 SB 470 could be interpreted as granting new authority to school districts to participate in financing local economic development projects. Giving schools new authority to provide financing for economic development could have fiscal implications for the state if the General Fund backfills school districts' investments. The Joint Exercise of Powers Act already allows government officials to enter into voluntary agreements to jointly exercise any financing powers that they hold in common. To avoid unintended consequences, the Committee may wish to consider amending SB 470 to delete the provision authorizing voluntary joint financing agreements. 4. Unintended consequences . Some cities already have broader legal authority than SB 470 provides to sell public property for economic development purposes. Charter cities can control their municipal affairs under the State Constitution's home rule provisions. State law broadly authorizes all cities to "purchase, lease, receive, hold, and enjoy real and personal property, and control and dispose of it for the common benefit" (SB 750, Cunningham, 1949). The Committee may wish to consider amending SB 470 to clarify that its provisions do not limit, but are an alternative to, existing state laws governing the sale of city property. 5. Related legislation . AB 440 (Gatto) allows local agencies to clean up hazardous substance releases and receive liability immunity under provision that are similar to those in the Polanco Redevelopment Act. The bill is awaiting a hearing in the Assembly Committee on Environmental Safety and Toxic Materials. 6. Double-referral . The Senate Rules Committee has ordered a double-referral of SB 470. It referred the bill first to the Senate Governance & Finance Committee, which has policy jurisdiction over the statutes governing local governments' land sales and economic development assistance, and then to Senate Environmental Quality Committee, which has jurisdiction over the bill's brownfield cleanup provisions. Support and Opposition (3/28/13) Support : City of Long Beach; Long Beach Mayor Bob Foster; SB 470 -- 4/1/13 -- Page 11 Los Angeles Mayor Antonio Villaraigosa; San Francisco Mayor Ed Lee; San Jose Mayor Chuck Reed; Santa Ana Mayor Miguel Pulido; California Contract Cities Association; Gateway Cities Council of Governments; League of California Cities. Opposition : Unknown.