BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair SB 1424 (Wolk) - State property: tidelands transfer: City of Martinez. Amended: April 8, 2014 Policy Vote: NR&W 9-0 Urgency: No Mandate: Yes (see staff comment) Hearing Date: May 5, 2014 Consultant: Marie Liu This bill meets the criteria for referral to the Suspense File. Bill Summary: SB 1424 would grant state trust lands to the City of Martinez (city) in exchange for a revenue-sharing agreement with the state. Fiscal Impact: Annual costs of approximately $13,000 to the General Fund for lost lease revenues from the city. On-going annual costs, likely minor, to the General Fund to the State Lands Commission (SLC) for administrative and oversight duties. These costs are to be reimbursed by the city. Unknown costs to the General Fund and the Land Bank Fund (LBF) for forgone revenue-sharing until the city has paid off loans with the Division of Boating and Waterways within the Department of Parks (DPR). Unknown revenues to the General Fund and the LBF after 2038, but potentially later, as a result of a revenue-sharing agreement. Background: The state, through the SLC, currently grants certain tide and submerged lands to the City of Martinez. This land grant requires the city to return any net revenues generated on the granted trust lands. The city has also been leasing a piece of state land that contains the Martinez Marina. The current lease was renewed in 2010 for 46 years. For the first ten years of the lease, the city is required to pay an annual rent of $10,000 plus five percent of the rent collected for marina use. Both the rent and revenue share will be adjusted according to a specified schedule beginning of year 11 of the lease. SB 1424 (Wolk) Page 1 The SLC is the trustee of the LBF created pursuant to the Kapiloff Land Bank Act of 1982 (PRC §§8600). The LBF may be used for mitigation, title settlements, or the management and improvement of real property held by the SLC for the public trust. According to DPR, the city currently has five outstanding loans totaling $4.249 million ($2.975 million in principal plus interest) that it received for improvements made to the Martinez Marina. These loans were issued between FY1959-60 and FY 1984-85 by the Department of Boating and Waterways, which is now a division within DPR. The last loan will mature on August 1, 2038. The city is disputing its obligation to repay the largest of these loans, a $1.3 million loan made in FY 1959-60. Proposed Law: This bill would repeal the existing land grant and land lease with the city and would establish a new grant for these lands that would cover all involved parcels. This new grant would: Require the city to hold the lands in trust for the benefit of all Californians. Allow the city to lease the lands for terms not to exceed 49 years and only for purposes consistent with the public trust doctrine. Require the city to develop, and submit to the SLC for approval by January 1, 2020, a trust lands use plan describing any proposed development, preservation, or other use of the trust lands. Require the city to submit a report every five years, beginning in 2025, regarding the utilization of the trust land. Require the city to reimburse SLC for all expenses incurred in the administration of the act, including periodic audits. Require that the city annually transmit 20% of all gross revenues generated on the trust lands beginning in 2015. Of this amount, 80% would be deposited in the General Fund and 20% would be deposited into the LBF. The city would be exempted from sharing revenues with the state until the DPR determines that the city has repaid loans it owes to that department. Related Legislation: SB 551 (DeSaulnier) Chapter 422, Statutes of 2011 made a grant to the City of Pittsburg with substantially similar conditions, except the revenue sharing with the state SB 1424 (Wolk) Page 2 was not contingent on the repayment of loans. Staff Comments: For most past land grants, including the existing grant to Martinez, the SLC has only required that net trust revenues be returned to the state, which effectively has meant that the state never receives any revenues from granted trust lands. This grant however would allow the state to receive 20% of gross revenues. The SLC feels that these new revenue sharing provisions will encourage grantees to appropriately develop tidelands while assuring revenues for the General Fund. Currently the General Fund is only receiving approximately $13,000 a year from the city as a result of the Martinez Marina. While this bill would result in the loss of these lease revenues, once the city develops and implements a plan its granted lands as required by this bill, the General Fund may see higher revenues. However, staff notes that the state is highly unlikely to receive any revenues from this grant for at least 23 years because the city would be exempt from the revenue sharing until it has paid off its outstanding loans from the DPR. There are two substantial issues with this exemption. First, the exemption arguably serves as a disincentive for the city to fully repay the DPR loans, especially considering that the city is disputing its obligation to repay one of the loans. Staff notes that the exception applies even if the state's portion of revenues exceeds the city's yearly loan repayment obligation and. The exception is also irrespective of the amount of the residual loan. Second, this exception effectively is repaying the loans off with General Fund monies. That is, the city is repaying the loans with monies that would otherwise have been deposited in the General Fund. In essence, this agreement could be interpreted as forgiving the city of these loans. Staff recommends that the loan repayment obligation remain with the city instead of the General Fund. The LBF is continuously appropriated to the SLC. By requiring the deposit of revenues in the LBF, this bill makes an appropriation. This bill is tagged as a state-mandated local program because of the requirements on the city. However, as the city is able to recover the costs through fees or assessments, its costs would not be reimbursed. SB 1424 (Wolk) Page 3