BILL ANALYSIS �
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.
SB 673 -- 2/22/13 -- Page 2
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;
SB 673 -- 2/22/13 -- Page 3
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
SB 673 -- 2/22/13 -- Page 4
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
SB 673 -- 2/22/13 -- Page 5
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 (Alarc�n,
2004) and SB 1523 (Alarc�n, 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 (Alarc�n, 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
SB 673 -- 2/22/13 -- Page 6
the Senate Local Government Committee.
Support and Opposition (3/28/13)
Support : Unknown.
Opposition : League of California Cities.