BILL ANALYSIS                                                                                                                                                                                                    



                                                                         AB 2


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          ASSEMBLY THIRD READING


          AB  
          2 (Alejo and Eduardo Garcia)


          As Amended  March 26, 2015


          Majority vote


           ------------------------------------------------------------------- 
          |Committee       |Votes |Ayes                 |Noes                 |
          |                |      |                     |                     |
          |                |      |                     |                     |
          |----------------+------+---------------------+---------------------|
          |Housing         |6-1   |Chau, Steinorth,     |Beth Gaines          |
          |                |      |Burke, Chiu, Lopez,  |                     |
          |                |      |Mullin               |                     |
          |                |      |                     |                     |
          |----------------+------+---------------------+---------------------|
          |Local           |7-2   |Maienschein,         |Linder, Waldron      |
          |Government      |      |Gonzalez, Alejo,     |                     |
          |                |      |Chiu, Cooley,        |                     |
          |                |      |Gordon, Holden       |                     |
          |                |      |                     |                     |
          |----------------+------+---------------------+---------------------|
          |Appropriations  |13-3  |Gomez, Bloom, Bonta, |Bigelow, Jones,      |
          |                |      |Calderon, Chang,     |Wagner               |
          |                |      |Daly, Eggman,        |                     |
          |                |      |Eduardo Garcia,      |                     |
          |                |      |Holden, Quirk,       |                     |
          |                |      |Rendon, Weber, Wood  |                     |
          |                |      |                     |                     |
          |                |      |                     |                     |
           ------------------------------------------------------------------- 









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          SUMMARY:  Allows local governments to establish a Community  
          Revitalization and Investment Authority (Authority) in a  
          disadvantaged community to fund specified activities and allows  
          the Authority to collect tax increment.  Specifically, this bill:   

          1)Includes legislative findings regarding the intent of the  
            Legislature to create a planning and financing tool to support  
            the revitalization of disadvantaged communities. 
          2)Establishes an Authority as a public body to carry out a  
            community revitalization plan (plan) within a community  
            revitalization investment area (area).


          3)Provides that a plan has the same meaning as a redevelopment  
            plan described in California Constitution Article XVI, Section  
            16.


          4)Provides that for the purposes of receiving tax increment  
            revenues, pursuant to California Constitution Article XVI,  
            Section 16(b), an Authority is a redevelopment agency.


          5)Allows an Authority to be created in either of the following  
            ways:


             a)   A city, county, or city and county may adopt a resolution  
               creating the Authority.  The governing board must include  
               three members of the governing board of the city, county, or  
               city and county that created the Authority and two public  
               members who live or work in the area; or 
             b)   A city, county, city and county, and special district may  
               create an Authority by entering into a joint powers agreement  
               that establishes the composition of the governing board,  
               which must include two public members who live or work in the  
               area.









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          1)Prohibits a school entity from participating in an Authority. 
          2)Prohibits a city or county from forming an Authority until the  
            successor agency or designated local authority of a former  
            redevelopment agency has received a finding of completion from  
            the Department of Finance that the former redevelopment agency  
            is fully dissolved. 


          3)Prohibits a successor agency to a former redevelopment agency  
            from participating in an Authority.  
          4)Allows an Authority to establish an area if at least 80% of the  
            land, calculated by census tract, is characterized by both of  
            the following conditions:
             a)   An annual median income that is less than 80% of the  
               statewide annual median income; and 
             b)   Three of the following four conditions exist:


               i)     Unemployment that is at least 3% higher than the  
                 statewide median unemployment rate;
               ii)    A crime rate that is 5% higher than the statewide  
                 median crime rate;


               iii)   Deteriorated or inadequate infrastructure such as  
                 streets, sidewalks, water supply, sewer treatment or  
                 processing, and parks; and 


               iv)    Deteriorated commercial or residential structures.  


          1)Allows an Authority to establish an area in a former military  
            base that is principally characterized by deteriorated or  
            inadequate infrastructure and structures. 
          2)Requires a governing board of an Authority established in a  
            former military base to include, as one of its public members, a  
            member of the military base closure commission. 








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          3)Subjects an Authority to the Ralph M. Brown Act. 


          4)Allows an Authority to do any of the following:


             a)   Provide funding to rehabilitate, repair, upgrade, or  
               construct infrastructure;
             b)   Provide funding for low- and moderate-income housing;


             c)   Remedy or remove hazardous substances pursuant to the  
               Polanco Redevelopment Act;


             d)   Provide for seismic retrofits of existing buildings; 


             e)   Acquire and transfer property subject to eminent domain;


             f)   Prepare and adopt a plan for an area subject to Community  
               Redevelopment Law;  


             g)   Issue bonds; 


             h)   Borrow money, receive grants, or accept financial or other  
               assistance or investment from the state and federal  
               government or any private lending institution for any project  
               within its area of operation;


             i)   Receive funding from the California Environmental  
               Protection Agency under the Water Security, Clean Drinking  
               Water, Coastal and Beach Protection Act of 2002;








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             j)   Coordinate with a qualified community development entity  
               to maximize the benefit of New Markets Tax Credits;


             aa)  Appropriate funding that the governing body deems  
               appropriate for administrative expenses;


             bb)  Make loans or grants for owners or tenants to improve,  
               rehabilitate, or retrofit buildings or structures in the  
               area; 


             cc)  Construct foundations, platforms, and other like  
               structural forms necessary for the provision or utilization  
               of air rights sites for buildings to be used for residential  
               and commercial industrial; and 


             dd)  Provide direct assistance to businesses within the plan in  
               connection with new or existing facilities for industrial or  
               manufacturing uses.  


          1)Allows money appropriated to the Authority, from the legislative  
            body or bodies that created the Authority, for administrative  
            expenses to be paid as a loan or grant. 
          2)Provides that if the Authority is loaned funding for  
            administrative expenses, the property owners within the plan  
            area will be made third party beneficiaries of the repayment of  
            the loan. 


          3)Provides that in addition to the common understanding and usual  
            interpretation, the term "administrative expenses" includes, but  
            is not limited to, expenses for planning and dissemination of  
            information.  








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          4)Allows an Authority to adopt a plan to receive tax increment  
            generated in an area.  The plan must include the following:


             a)   A statement of the principal goals and objectives;
             b)   A description of the deteriorated or inadequate  
               infrastructure within the area and a program for  
               construction, repair, or upgrade of existing infrastructure;


             c)   A program to spend 25% of the tax increment collected to  
               increase, improve, and preserve the community's supply of  
               low- and moderate-income housing;


             d)   A program to remedy and remove a release of hazardous  
               substances;


             e)   A program to fund or facilitate economic revitalization of  
               the area; and 


             f)   A fiscal analysis of the projected receipt of revenue and  
               projected expenses over a five-year planning period. 


          1)Requires the Authority to adopt a program that prohibits the  
            number of housing units for extremely low-, very low- and  
            low-income households in the sustainable communities investment  
            area from being reduced during the effective period of the  
            sustainable communities investment plan, and requires the  
            replacement of these housing units within two years of their  
            displacement. 
          2)Allows an Authority to transfer funding for affordable housing  
            to a housing authority or the entity that received the housing  
            assets of the former redevelopment agency within the project  








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            area, if it makes a finding that the transfer will reduce  
            administrative costs or expedite the construction of affordable  
            housing. 


          3)Incorporates into the Act the provisions of Community  
            Redevelopment Law (CRL) that required a redevelopment agency to  
            set set-aside funds for affordable housing and the provisions  
            for administering those funds. 


          4)Requires an Authority to contract for an independent and  
            financial audit every five years, conducted by guidelines  
            established by the Controller, and submit it to the Controller,  
            the Director of Department of Finance, and the Joint Legislative  
            Budget Committee. 


          5)Requires the audit to determine compliance with the affordable  
            housing maintenance and replacement requirement including  
            provisions to ensure that the replacement requirements are met  
            within the five year period covered by the audit. 


          6)Provides that if the Authority fails to meet the maintenance and  
            replacement requirement for affordable housing it must adopt and  
            submit to a plan with its yearly financial audit to show how it  
            will comply with those provisions within two years. 


          7)Requires the controller to review and approve an Authority's  
            plan to meet the replacement housing requirements and ensure  
            that the plan includes one or more of the following means of  
            achieving compliance:


             a)   Expenditure of an additional 10% of gross tax increment  
               revenue on increasing, preserving, or improving the supply of  
               low-income housing;








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             b)   An increase in the production by an additional 10% of  
               housing for very low-income households as required under the  
               CRL housing production requirements; and/or 


             c)   The targeting of expenditures from the Low- and  
               Moderate-Income Housing Fund toward rental housing affordable  
               to and occupied by person of very low and extremely low  
               income. 


          1)Establishes a public process for adopting a plan or amending a  
            plan to receive tax increment generated in an area that must  
            include the following:
             a)   The Authority must hold two public hearings at least 30  
               days apart;
             b)   The plan must be made available to the public and to each  
               property owner within the area at a meeting held at least 30  
               days prior to notice of the first public hearing;


             c)   Notice of the first public hearing must be given at least  
               once a week for four weeks prior to the hearing in a  
               newspaper of general circulation and mailed to each property  
               owner in the proposed area of the plan; and 


             d)   Notice of the second public hearing must be given not less  
               than 10 days prior to the date of the second hearing in a  
               newspaper of general circulation and mailed to each property  
               owner in the area of the plan.


          1)Requires a notice informing the public and property owners in  
            the area of a public hearing to discuss the plan to receive tax  
            increment to include:
             a)   The specific boundaries of the proposed area;
             b)   The purpose of the plan; and









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             c)   The time and place of the public hearing.


          27) Requires that notice of the second hearing must include a  
            summary of the changes made to the plan from the first hearing.


          28) Allows the Authority to inform tenants of properties in the  
            area of the plan to receive tax increment in a manner of its  
            choosing.


          29) Allows an Authority to adopt a plan by ordinance at the  
            conclusion of the second public    hearing. 


          29)Allows an Authority to begin receiving tax increment funds  
            beginning on the December 1 after the plan is adopted.
          30)Allows any taxing entity other than a school entity that  
            receives property taxes in an area to adopt a resolution, prior  
            to the adoption of the plan, to direct the county  
            auditor-controller to allocate its share of tax increment funds  
            to the Authority. 


          31)Allows the resolution adopted by a taxing entity directing its  
            share of tax increment to the Authority to allocate less than  
            the full amount of tax increment, establish a maximum amount of  
            time in years, or limit the use of funds to specific purposes or  
            programs.  


          32)Allows a taxing entity to repeal a resolution directing a  
            portion of its tax increment to the Authority by giving the  
            county auditor-controller 60 days' notice, except that the  
            auditor-controller will continue to allocate to the Authority  
            the portion of tax increment necessary to repay any debt issued  
            by the Authority that has not been fully repaid. 








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          33)Requires that if an area overlaps with a former redevelopment  
            agency the plan must specify that any tax increment collected is  
            subject to and subordinate to any preexisting enforceable  
            obligations of the former redevelopment agency.


          34)Requires an Authority to complete an annual independent audit.


          35)Requires an Authority to post a draft of the audit on their Web  
            site and mail it to the each of the taxing entities that are  
            contributing tax increment to the area. 


          36)Requires the annual audit to include:


             a)   A description of the projects undertaken in the fiscal  
               year and a comparison of the progress expected on those  
               projects compared to the actual progress;
             b)   A chart comparing the actual revenues and expenses  
               including administrative costs of the Authority to the  
               budgeted revenues and expenses;


             c)   Amount of tax increment revenues received;


             d)   Amount of revenues received and expended for low-and  
               moderate-income housing;


             e)   Assessment of the level of completion of the projects in  
               the plan; and


             f)   Amount of revenues expended to assist private businesses. 








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          1)Provides that if an Authority fails to provide a copy of a  
            completed financial audit to the Controller within 20 days of  
            receiving a written notice of failure to comply, the Authority  
            shall forfeit the following to the state: 
             a)   Two thousand five hundred dollars where the Authority has  
               total revenue of less than $100,000;
             b)   Five thousand dollars where the Authority has total  
               revenue of at least $100,000 but less than $200,000; and 


             c)   Ten thousand dollars where the Authority has total revenue  
               of at least $250,000. 


          1)Provides that if an Authority fails to provide an audit for two  
            years in a row, after receiving a notice of failure to comply,  
            it must forfeit double the amount required above based on its  
            revenue size. 
          2)Provides that if an Authority fails to provide an audit for  
            three or more years in a row, after receiving a notice of  
            failure to comply, it must forfeit triple the amount required  
            above based on its revenue size. 


          3)Provides that if an Authority fails to provide an audit for  
            three or more years in a row the Controller shall conduct or  
            contract to conduct an independent financial audit report paid  
            for by the Authority.


          4)Provides that the Controller may request the Attorney General  
            (AG) bring an action for the forfeiture of penalties in the name  
            of the people of the State of California. 


          5)Provides that the Controller may waive the forfeiture request  
            upon a satisfactory showing of good cause of why the Authority  








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            did not provide the audit. 


          6)Provides that if an Authority does not complete an annual report  
            then it cannot expend any tax increment funds it receives. 


          7)Requires an Authority, every 10 years, to hold a protest  
            proceeding at the public hearing to review an annual report, to  
            give property owners an opportunity to provide oral or written  
            protests against an Authority.


          8)Requires an Authority to hold an election of the property owners  
            in the areas covered by the plan if between 25% and 50% of the  
            owners protest, and not initiate any new projects until the  
            election is held. 


          9)Provides that a majority protest exists if protests have been  
            filed representing 50% of the assessed value of the area. 


          10)Requires the election to be held 90 days after the public  
            hearing and permits it to be held by mail-in ballot.


          11)Prevents an Authority from taking any further action to  
            implement a plan if a majority of the property owners, weighted  
            proportional to the assessed value of their property, vote  
            against the Authority. 


          12)Allows the Authority to continue to appropriate and expend  
            funds for contractual indebtedness and complete projects for  
            which expenditures of any kind have been made prior to the  
            effective date of the election. 










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          FISCAL EFFECT:  According to the Assembly Appropriations  
          Committee:


          1)Negligible state General Fund impact from property tax revenue  
            redirection because schools are prohibited from participating.


          2)Estimated one-time costs to the State Controller's Office (SCO)  
            in the range of $50,000 to $100,000 (General Fund) in 2016-17 to  
            establish guidelines for periodic audits.  (Staff assumes 0.5 to  
            1.0 PY [personal year] of regulatory staff to establish  
            guidelines)


          3)Estimated ongoing SCO costs of up to $100,000 (General Fund) on  
            a periodic basis, beginning in 2020-21 for accepting audits and  
            reviewing and approving secondary compliance plans submitted by  
            Authorities who fail to comply with initial audit requirements.   
            (Staff assumes approximately 1 PY [personal year] of audit work  
            on a periodic basis.)


          4)Potentially substantial fiscal impacts to participating local  
            governments, but all affected local governments volunteer to  
            participate.


          COMMENTS:  


          Background:  In 2011, the Legislature approved and the Governor  
          signed two measures, AB 26 X1 (Blumenfield), Chapter 5, Statutes  
          of 2011 and AB 27 X1 (Blumenfield), Chapter 6, Statutes of 2011  
          that together dissolved redevelopment agencies as they existed at  
          the time and created a voluntary redevelopment program on a  
          smaller scale.  In response, the California Redevelopment  
          Association (CRA), League of California Cities, along with other  
          parties, filed suit challenging the two measures.  The Supreme  








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          Court denied the petition for peremptory writ of mandate with  
          respect to AB 26 X1 .  However, the Court did grant CRA's petition  
          with respect to ABX1 27.  As a result, all redevelopment agencies  
          were required to dissolve as of February 1, 2012.    


          Over the last 60 years, redevelopment agencies used tax increment  
          to finance affordable housing, community development, and economic  
          development projects.  The dissolution of redevelopment agencies  
          has created a void and an effort to create new tools that would  
          support community and economic development activities.  This bill  
          would allow local government entities, excluding schools, to form  
          an Authority to collect tax increment and issue debt.  The  
          Authority could use its powers to invest in disadvantaged  
          communities with a high crime rate, high unemployment, and  
          deteriorated and inadequate infrastructure, commercial, and  
          residential buildings. Three of these four conditions would  
          constitute blight.  The area where the Authority could invest  
          would also be required to have an annual median household income  
          that is less than 80% of the statewide annual median income.  This  
          is different from redevelopment agencies that were required to  
          conduct a study and make a finding that blight existed in a  
          project area before they could use their extraordinary powers,  
          like eminent domain, to eradicate blight.  


          Like redevelopment agencies, this bill would allow Authorities to  
          freeze the property taxes at the time the plan for revitalizing  
          the area is approved.  The Authority will collect all the tax  
          increment or the increase in property taxes that is generated  
          after that point and use it on specified activities.  Unlike  
                                                                                       redevelopment agencies, this bill would require the taxing  
          entities in the area including the county, city, special  
          districts, or a military base to agree to divert tax increment to  
          the Authority.  Local government entities that initially  
          participate can opt out by giving the auditor-controller sixty  
          days' notice; however, the auditor controller will continue to  
          collect the local government entities' portions of tax increment  
          until any debts issued up until then have been repaid.  No portion  








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          of the local schools' share of tax increment may go to the  
          Authority.     


          Addressing Governor's Veto of Previous Bill:  This bill is largely  
          similar to AB 2280 (Alejo) of 2014 which was vetoed by the  
          Governor.  The Governor's veto message stated the following:


            I am returning Assembly Bill 2280 without my signature.


            This bill allows local governments to establish a Community  
            Revitalization and Investment Authority to use tax increment  
            revenues to invest in disadvantaged communities. 


            I applaud the author's efforts to create an economic  
            development program, with voter approval, that focuses on  
            disadvantaged communities and communities with high  
            unemployment. The bill, however, unnecessarily vests this  
            new program in redevelopment law. I look forward to working  
            with the author to craft an appropriate legislative  
            solution.  


           To address the Governor's concerns, this bill takes portions of  
          the Community Redevelopment Law (CRL) and incorporates it into  
          this bill rather than cross referencing the CRL.  


           Purpose of this bill:  According to the author, "redevelopment was  
          a multi-purpose tool that focused over $6 billion per year toward  
          repairing and redeveloping urban cores, and building affordable  
          housing, especially in those areas most economically and  
          physically disadvantaged.  Since the dissolution of redevelopment  
          agencies, communities across California are seeking an economic  
          development tool to use.  Multiple legislative measures were  
          introduced after the dissolution of redevelopment agencies in an  








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          effort to provide local governments options for sustainable  
          community economic development.  Several measures were approved by  
          the Legislature, however, all were vetoed by Governor Brown. While  
          the dissolution of former redevelopment agencies continues, the  
          pervasive question is, what economic development tool can local  
          governments use?  This proposal provides a viable option targeting  
          the state's disadvantaged poorer areas and neighborhoods." 


          Affordable housing provisions:  Prior to their dissolution,  
          redevelopment generated up to $1 billion a year for affordable  
          housing in the state.  Redevelopment agencies were required to  
          set- a-side 20% of tax increment generated in a project area to  
          increase, improve, or rehabilitate affordable housing for low,  
          very-low, and moderate income families and individuals.  AB 2  
          changes the requirements of RDAs in three ways. It increases the  
          amount an Authority must set aside for affordable housing from 20%  
          to 25%.  Second, the bill requires a community revitalization and  
          investment plan to ensure that housing affordable to and occupied  
          by extremely low-, very low-, and low-income households within an  
          area does not decrease during the life of the area plan.  Third,  
          the bill requires the authority to provide replacement housing in  
          two rather than four years.  


          The Authority would be allowed to transfer the funds collected for  
          affordable housing to a housing authority within the project area  
          or to the successor agency to a former redevelopment agency.  An  
          Authority would have to make a finding that transferring the funds  
          and combining them with other funding for housing would reduce  
          administrative costs or expedite the construction of affordable  
          housing.  


           Related legislation:  


          AB 2280 would have established an Authority and gave it the same  
          rights, responsibilities and powers as redevelopment agencies.   








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          This bill was vetoed by the Governor. 


          AB 1080 (Alejo) of 2013 would have established an Authority and  
          given it the same rights, responsibilities and powers as  
          redevelopment agencies.  This bill was held on suspense in the  
          Senate Appropriations Committee.  


          SB 1 (Steinberg) of 2013 would have allowed local governments to  
          establish a Sustainable Communities Investment Authority to  
          finance specified activities within a sustainable communities  
          investment area using tax increment financing.  This bill died on  
          the Inactive File on the Senate Floor. 


          SB 1156 (Steinberg) of 2012 would have allowed local governments  
          to establish a Sustainable Communities Investment Authority after  
          July 1, 2012, to finance specified activities within a sustainable  
          communities investment area using tax increment financing.  This  
          bill was vetoed by the Governor.




          Analysis Prepared by:                                               
                          Lisa Engel / H. & C.D. / (916) 319-2085  FN:  
          0000334



















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