BILL ANALYSIS                                                                                                                                                                                                    Ó




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  SB 673                      HEARING:  4/3/13
          AUTHOR:  DeSaulnier                   FISCAL:  Yes
          VERSION:  2/22/13                     TAX LEVY:  No
          CONSULTANT:  Lui                      

             COST-BENEFIT ANALYSIS OF PROPOSED DEVELOPMENT PROJECTS
          

          Requires a city or county to have a cost-benefit analysis  
          prepared for any proposed retail or commercial facility  
          that receives over $1 million in subsidies. 


                           Background and Existing Law 

          Cities and counties compete to attract land uses that  
          generate local revenues and shun land uses that need  
          expensive public services.  This fiscalization of land use  
          distorts local land use decisions by emphasizing sales tax  
          revenues but discounting traffic problems, air quality,  
          open space, and affordable housing.  

          Some retailers ask local officials for subsidies as  
          inducements to locate in their communities.  Placing fewer  
          demands on public services compared to the resulting sales  
          tax revenues, these companies ask local officials to spend  
          public dollars to gain more sales tax revenues.  Some  
          companies are aggressive, playing one community off of  
          another, hoping to attract higher subsidies.  State law  
          bans counties and cities from subsidizing big box retailers  
          or vehicle dealers to relocate within the same market area  
          (SB 114, Torlakson, 2003).

          Many local governments rely on analyses to allocate scarce  
          public resources to promote economic development.  A  
          cost-benefit analysis quantifies the cost effectiveness of  
          different alternatives to see whether the benefits outweigh  
          the costs.  A fiscal impact analysis compares a proposed  
          development's estimated and projected tax revenues with its  
          projected service demands.  Although some local governments  
          require fiscal studies from project applicants, state law  
          does not specify criteria to be included in a cost-benefit  
          analysis.
           




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                                  Proposed Law  

          Senate Bill 673 requires a city, county, and city and  
          county, including a charter city or charter city and  
          county, to cause a cost benefit analysis to be prepared,  
          before approving or disapproving a permit for construction  
          of a retail or other commercial facility project estimated  
          to receive over $1 million in subsidies.  The bill contains  
          provisions related to:
               I.  The Governor's Office of Planning and Research.
               II.  What a cost-benefit analysis must include.
               III.  Findings and declarations.

          I.   Office of Planning and Research (OPR)  .  Created in  
          1970, the Governor's Office of Planning and Research (OPR)  
          serves as the state's comprehensive planning agency.  OPR  
          researches growth and development, manages state planning  
          grants and coordinates federal grants, and publishes  
          advisory reports, like the "General Plan Guidelines," which  
          advise cities and counties on how to prepare local plans.   
          SB 673 authorizes OPR to prepare the cost-benefit analysis  
          or contract for its preparation with a private entity --  
          other than the permit applicant -- or another public  
          agency.   The bill provides that the private entity or  
          public agency must be qualified by education, training, and  
          experience.  

          II.   The cost-benefit analysis  .  Currently, state law does  
          not require a local government to cause a project applicant  
          to provide a cost-benefit analysis of the proposed  
          development.  SB 673 provides that the development project  
          applicant must pay OPR or the state agency, or the city,  
          county, or city and county, for the costs of preparing the  
          cost-benefit analysis. 

          Under SB 673, the cost-benefit analysis must include:
                 A projection of public services and public  
               facilities' cost, resulting from the proposed  
               development's construction and operation, and the  
               incidence of those revenues;
                 A projection of the public revenues from the  
               proposed development's construction and operation, and  
               the incidence of those revenues;
                 An assessment of a city, county, or city and  
               county's cost of incentives;





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                 An assessment of how the proposed development's  
               construction and operation will have on the city,  
               county, or city and county's ability to implement its  
               seven general plan goals, including local policies and  
               standards pertaining to land use patterns, traffic  
               circulation, affordable housing, natural resources,  
               open-space lands, noise problems, and safety risks.
                 An assessment of whether the development would  
               require housing demolition, or would decrease or  
               negatively impact extremely low, very low, low-, or  
               moderate-income housing creation.
                 An assessment of whether the development would  
               destroy or demolish parks, green space, playgrounds,  
               child care facilities, or community centers.
                 An assessment on whether the development would  
               create adverse or positive economic impact or blight.
                 An assessment of any available measures to mitigate  
               any material adverse economic impact, as identified by  
               the applicant. 

          III.   Findings and declarations  .  Legislators sometimes  
          insert formal findings and declarations in their bills as  
          signals to the public, other officials, and the courts  
          about the Legislature's intent.  Senate Bill 673 contains  
          three legislative findings and declarations to support its  
          purpose.   The bill also provides that the review and  
          regulation of retail and commercial facilities is a matter  
          of statewide concern, so charter cities must also comply  
          with requirements set forth in the bill. 
          

                               State Revenue Impact
           
          No estimate.


                                     Comments  

          1.   Purpose of the bill  .  State law does not require local  
          governments to ask a developer for a cost-benefit analysis  
          of a proposed project.  If they do, the analysis may  
          contain inflated financial projections, and some local  
          governments may make decisions based on unreliable promises  
          of increased tax revenue.  Traffic, open-space, and  
          environmental impacts may be given less consideration.  SB  
          673 helps communities and local decision-makers understand  





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          the costs and benefits of incoming businesses.  By  
          providing local officials with an independent cost-benefit  
          analysis for commercial and retail projects that will  
          receive $1 million or more in subsidies, the bill protects  
          taxpayer funds and ensures that cities and counties have  
          the appropriate information to make informed planning  
          decisions. 

          2.   Local discretion or state mandate  ?  Local officials can  
          already negotiate with a project applicant to pay for an  
          independent financial analysis.  Cities and counties also  
          can adopt ordinances requiring fiscal or cost benefit  
          analysis for specified types of projects.  Should the  
          Legislature impose uniform criteria on financial analyses  
          for all 482 cities and 58 counties, given that cities and  
          counties have existing authority to require preparation of  
          a financial analysis in a manner that reflects local needs?

          3.   Why OPR  ?  In authorizing OPR or a state agency to  
          conduct the analysis, the bill signals a departure from the  
          agency's traditional planning jurisdiction.  Although OPR  
          provides planning guidance through technical advisories, it  
          does not have a role in discretionary local planning  
          decisions.  The bill seems to grant OPR a voice in  
          assessing proposed local projects.  Absent state funding  
          for local projects, does it make sense for the state to  
          intervene in local retail or commercial development?  The  
          Committee may wish to consider amending SB 673 to remove  
          any state role in preparing cost-benefit analyses.  

          4.   Yes, but  .  Although OPR may not be the appropriate  
          agency to conduct a cost benefit analysis, it can provide  
          technical guidance to local agencies.  In 1984, OPR penned  
          the Economic Practices Manual, a handbook for local  
          governments preparing economic impact assessments.  The  
          manual details what must be included in an analysis and how  
          to calculate employment projections, income, housing needs,  
          land use/environmental costs and benefits, and population  
          impacts.  However, the document has not been updated in the  
          last 29 years.  Rather than codify existing local  
          government practice, the Committee may wish to have OPR  
          update its manual. 

          5.   The devil is in the details  .  What does a project that  
          receives a $1 million in subsidies look like?  Is it a big  
          box retailer, an automotive dealer, or an arena?  Under SB  





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          673, it's hard to tell.  In general, subsidies include land  
          acquisitions or donations, infrastructure improvements,  
          cleanup or remediation, or securitized parking revenues,  
          but the bill fails to define "subsidy."  Does "subsidy"  
          include funding or assistance from the state? What about  
          Federal funds?  The bill also uses the term "incentive."   
          Are the terms "subsidy" and "incentive" interchangeable?   
          The Committee may wish to clarify the meaning of "subsidy."

          6.   Uncertainty .  Almost no one disputes the wisdom of  
          knowing about a project's environmental effects before  
          local officials make a decision.  That's why CEQA requires  
          public officials to prepare EIRs on projects that may have  
          significant, adverse environmental effects.  But many  
          builders complain about CEQA and EIRs.  They say that  
          opponents who can't convince public officials to deny  
          projects turn around and file lawsuits over procedural  
          problems.  Could there be increased litigation targeting  
          the prepared cost-benefit analysis?  It remains unclear  
          whether SB 673 results in better information or more  
          lawsuits.

          7.   Proposed amendments  .  The Committee may wish to amend  
          the bill for clarity:
                 On page 2, line 13, after "agency," strike out "or  
               the"
                 On page 3, line 11, after "impact" insert ","

          8.   Related bills  .  SB 673 is not the first bill seeking to  
          require local governments to conduct analyses on specific  
          types of proposed developments. 
                 SB 469 (Vargas, 2011) would have required cities  
               and counties to have economic impact reports on  
               permits for superstores.  Governor Brown vetoed the  
               measure, citing local governments existing ability to  
               assess whether these projects are in a community's  
               best interests. 
                 Governor Schwarzenegger vetoed SB 1056 (Alarcón,  
               2004) and SB 1523 (Alarcón, 2006), which would have  
               required a city or county, including a charter city,  
               to have an economic impact report prepared, prior to  
               approving a superstore development. 
                 SB 1641 (Alarcón, 2004) would have required a city  
               or county to contract with a private entity or public  
               agency to prepare a business impact report on a  
               proposed big box retail development.  The bill died in  





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               the Senate Local Government Committee.





                         Support and Opposition  (3/28/13)

           Support  :  Unknown. 

           Opposition  :  League of California Cities.