BILL ANALYSIS Ó SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: sb 628 SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: beall VERSION: 4/10/13 Analysis by: Carrie Cornwell FISCAL: no Hearing date: May 7, 2013 SUBJECT: Infrastructure financing districts: transit priority projects DESCRIPTION: This bill allows a city or county to create an infrastructure financing district to implement a transit priority project without having to hold an election and requires the local entity to use 20 percent of the resulting revenues for affordable housing. ANALYSIS: Existing law authorizes a city or county to create an Infrastructure Financing District (IFD) and through the IFD issue bonds to pay for community-scale public works, including transit facilities, highways, water systems, sewer projects, flood control, child care facilities, libraries, parks, and solid waste facilities. The city or county repays the bonds by capturing a portion of the increase in property taxes that is generated within the IFD. This is referred to as the "tax increment" revenue. Under an IFD, tax increment is diverted for 30 years from the host city or county and other local governments, excluding schools, but only if the other local governments agree to the diversion. Each IFD must have a detailed infrastructure financing plan, and the voters of the jurisdiction must approve with a two-thirds vote the formation of the district and the issuance of bonds and with a majority vote set a limit as to the funds it will appropriate. Existing law requires that: If the IFD removes or destroys any housing units occupied by low- or moderate-income persons, then the IFD must within four years ensure the construction or rehabilitation of an equal SB 628 (BEALL) Page 2 number of replacement units in the district's territory for persons of low- or moderate-income. If an IFD removes or destroys any affordable housing units that are not occupied by persons of low or moderate incomes, then the IFD must within four years ensure the construction or rehabilitation of replacement units equal to 20 percent of the number it destroyed. The IFD must also provide relocation assistance and ensure that there are suitable housing units at comparable costs for persons or families of low or moderate income before removing or destroying those units. 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, must include within its regional transportation plan 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 land 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 percent residential use, based on total building square footage and, if the project contains between 26 percent and 50 percent nonresidential uses, a floor area ratio of not less than 0.75; and Provides a minimum net density of at least 20 dwelling units per acre. This bill : SB 628 (BEALL) Page 3 1.Allows an IFD formed to finance any project that implements a transit priority project, a regional transportation plan, or any other project consistent with an ARB-approved SCS to form, issue bonds, and set an appropriation limit without holding any public votes. 2.Requires that any IFD formed pursuant to the bill use 20 percent of its tax increment revenues to increase, improve, and preserve the supply of low- and moderate-income housing available in the district and occupied by income qualified persons. COMMENTS: 1.Purpose . The author introduced this bill at the request of the Bay Area Rapid Transit District to eliminate the requirements for voter approval for the creation of an infrastructure financing district, the issuance of bonds, and the approval of an appropriations limit for transit priority projects. Transit priority projects are generally mixed-use projects that include multifamily residential, retail, and service facilities located around transit centers in order to make it easier for local residents to live near and use mass transit. Many of these developments also include public and green spaces, cultural centers, and entertainment venues, all of which work to enhance the livability of local communities and improve local economies. According to the author, increasingly transit-oriented projects are helping communities deal with the negative impacts of growth and sprawl, such as growing traffic gridlock, increased commute times and pollution. These projects have been shown to be one of the most cost-effective ways to reduce the emission of greenhouse gases. The author notes that in essentially every transit-oriented project there are critical components that have very little or no source of funds, such as place making features (pedestrian plazas, pocket parks, community facilities, etc.), access improvements (additional bus access services, bicycle facilities, parking, etc.) and affordable housing. The sponsor, BART, has completed a number of transit-oriented projects around its stations in the San Francisco Bay Area. Proponents assert that this bill could be an important tool for local jurisdictions as they develop sustainable SB 628 (BEALL) Page 4 communities strategies pursuant to SB 375, and related transit priority projects. The bill will assist in critical place-making development around fixed rail stations, bus centers, and high-speed rail stations, improving the livability of local communities. 2.Affordable housing set aside . The bill adds to the affordable housing provisions of existing IFD law by requiring that an IFD formed under its provisions use 20 percent of the district's tax increment revenue for housing affordable to low- and moderate-income persons. The bill makes no further requirements on these funds, which conceivably could be set aside and never used or set aside and spent solely on moderate-income housing with none provided to lower-income individuals and families. Over many years, the housing provisions of the Community Redevelopment Law evolved to address the timely and appropriate expenditure of redevelopment tax-increment housing funds. The committee may wish to consider amendments to subject the 20 percent set aside for affordable housing in this bill to the existing requirement on housing funds in the Community Redevelopment Law. 3.Additional housing provisions . The committee recently heard and passed a similar bill, SB 1 (Steinberg), which also sets up a new system of tax increment financing that excludes the school share of property taxes and relies on consensus among the local agencies. SB 1 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 set aside for low- and moderate-income housing. Because tax increment accruing to an authority under either SB 1 or to an IFD 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, SB 1 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, SB 1 requires that ordinance to ensure an authority provide replacement housing in two rather than four years. The committee may wish to consider amendments to mirror these three housing provisions of SB 1, so that this bill includes a 25 percent set aside for affordable housing, a no-net loss of affordable housing provision, and a two-year period to provide replacement housing. SB 628 (BEALL) Page 5 4.Consistency with SB 375 . Under this bill, a local government can create an IFD, issue bonds, and set a spending limit without a vote of the people, but only to finance a project that is consistent with that region's sustainable communities strategy adopted pursuant to SB 375. The bill does not, however, require anyone to certify that the project is consistent with the SCS. The committee may wish to amend the bill to require that the MPO certify that the project the IFD will implement is consistent with that region's SCS. 5.Opposition . The California Taxpayers Association opposes this bill because it would repeal the vote of the people to establish an IFD and for that IFD to issue bonds. CalTax points out that the California Constitution requires two-thirds voter approval before a city or county can issue long-term debt backed by general purpose revenues. Proposition 13 added this requirement to the constitution to protect property owners and to ensure that local spending is carefully prioritized. CalTax further asserts that this bill creates a funding gap for critical government services and drives the demand for increasing local taxes. Rather than utilizing tax increment financing, local government should use existing tools to provide economic development in our communities. 6.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 April 17 by a 5 to 2 vote. The 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. RELATED LEGISLATION: SB 1 (Steinberg) Provides for the creation of new Sustainable Communities Investment Authorities to set up a new system of tax increment financing that excludes the school share of property taxes 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. Pending in the Senate Appropriations Committee. SB 628 (BEALL) Page 6 POSITIONS: (Communicated to the committee before noon on Wednesday, May 1, 2013.) SUPPORT: Bay Area Rapid Transit District (sponsor) California Transit Association OPPOSED: California Taxpayers Association