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  




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          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,  





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               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  





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          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  





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          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.