BILL ANALYSIS Ó SENATE GOVERNANCE & FINANCE COMMITTEE Senator Lois Wolk, Chair BILL NO: SB 673 HEARING: 4/24/13 AUTHOR: DeSaulnier FISCAL: Yes VERSION: 4/15/13 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 $1 million or more in subsidies. Background and Existing Law To attract vital sales tax dollars, cities and counties compete to attract land uses that generate local revenues, like retail centers, and resist land uses that need expensive public services and do not raise revenues. This fiscalization of land use distorts local land use decisions by emphasizing sales tax revenues but discounts 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). In efforts to promote dense, walkable communities, mass transit, and greenhouse gas emission reductions, the Legislature enacted the Sustainable Communities and Climate Protection Act (SB 375, Steinberg, 2008) and the Global Warming Solutions Act (AB 32, Nuñez, 2006). Many local governments rely on analyses to allocate scarce public resources to promote economic development. A cost-benefit analysis quantifies the cost effectiveness of SB 673 -- 4/15/13 -- Page 2 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 require a local government to cause a project applicant to provide a cost-benefit analysis of the proposed development and does not specify criteria to be included in a cost-benefit analysis. Proposed Law Senate Bill 673 requires a city, county, or city and county, including a charter city, to have a cost benefit analysis 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 defines "subsidy" as any contribution made by the state or local government to a project considered to be in the interest of the public, including tax credits, low-interest loans, state or federal grants, land donations or acquisitions, or remediation or environmental cleanup activity. I. The cost-benefit analysis . SB 673 authorizes a city, county, or city and county to prepare the cost-benefit analysis or contract for its preparation with a private entity, other than the permit applicant, or a public entity. The private entity or public agency must be qualified by education, training, and experience to conduct cost-benefit analyses. SB 673 requires the development project applicant to pay the city, county, or city and county, for the costs of preparing or contracting for the cost-benefit analysis. SB 673 requires the cost-benefit analysis to include: A projection of public costs, resulting from the proposed development's construction and operation, and the incidence of those costs; A projection of the public revenues from the proposed development's construction and operation, and the incidence of those revenues; The cost of subsidies provided by a city, county, or city and county; An assessment of the proposed development's construction and operation impact on the city, county, SB 673 -- 4/15/13 -- Page 3 or city and county's ability to implement its general plan goals; An assessment of whether the proposed development's construction and operation will be consistent with policies specified for the project area's sustainable communities strategy or alternative planning strategy. 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 whether the proposed development would adversely impact a state transportation facility, and the extent it would degrade the facility's service; and , An assessment of any available measures to mitigate any material adverse economic impact, as identified by the applicant. 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 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. Often times, traffic, open-space, and environmental impacts are given less SB 673 -- 4/15/13 -- Page 4 consideration than potential tax proceeds. SB 673 helps communities and local decision-makers understand the costs and benefits of future development. In specifying that a cost-benefit analysis should also consider impacts on sustainable communities strategy or alternative planning strategy policies, the bill creates a mechanism to encourage local governments' compliance with the state's goal to reduce greenhouse gas emissions. By providing local officials with an independent cost-benefit analysis for commercial and retail projects that will receive $1 million or more in subsidies, SB 673 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 the preparation of a financial analysis in a manner that reflects local needs? 3. 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 SB 673 increase litigation targeting the prepared cost-benefit analysis? 4. About charter cities . The California Constitution lets charter cities control their municipal affairs. The 120 charter cities must follow statewide laws only for issues of statewide concern when the Legislature has fully occupied the field. Although SB 673 inserts specific declarations that the Legislature considers the review and regulation of retail and commercial facilities a matter of statewide concern, the courts -- not the Legislature -- ultimately determine what constitutes a municipal affair SB 673 -- 4/15/13 -- Page 5 and what's an issue of statewide concern. For projects that receive no state subsidies, what's the statewide concern to regulate local retail and commercial facilities? 5. 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 the Senate Local Government Committee. Support and Opposition (4/18/13) Support : Unknown. Opposition : American Council of Engineering Companies - California; Building Owners and Managers Association of California; California Association for Local Economic Development; California Building Industry Association; California Business Properties Association; California Chamber of Commerce; City of Vista; Construction Employers Association; International Council of Shopping Centers; League of California Cities; National Association of Industrial Office Parks of California -- the Commercial Real Estate Development Association.