BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 2 (Alejo) - Community revitalization authority
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|Version: July 7, 2015 |Policy Vote: GOV. & F. 5 - 1, |
| | T. & H. 9 - 2 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 17, 2015 |Consultant: Mark McKenzie |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 2 would authorize local entities, either individually or
collaboratively and excluding schools and successor agencies, to
form a Community Revitalization and Investment Authority (CRIA).
Participating entities agree to direct property tax increment
revenues to the CRIA to invest in improvements in specified
project areas that are characterized by low household income,
high unemployment and crime, and deteriorated public
infrastructure and structures.
Fiscal
Impact:
Potentially major redirection of local property tax revenues
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from participating local agencies, excluding schools, to a
CRIA over a period of decades. Since the bill prohibits
schools from participating, there is no state fiscal impact
related to the redirection of local property tax revenues.
Estimated one-time costs to the State Controller's Office
(SCO) of up to $100,000 before the end of 2021 (General Fund)
to establish guidelines for periodic financial and performance
audits that include provisions for determining compliance with
affordable housing requirements as well as secondary review
and compliance measures for failure to achieve initial
compliance on the regular audit schedule. (Staff assumes up to
1 PY of audit staff time)
Estimated periodic SCO costs in the range of $50,000 to
$100,000 (General Fund) on a periodic basis for accepting
audits and reviewing and approving secondary compliance plans
submitted by agencies that fail to comply with initial audit
requirements. (Staff assumes up to 1PY of audit work on a
periodic basis). These costs would only be incurred to the
extent an agency is out of compliance.
Background: Historically, the Community Redevelopment Law has allowed a
local government to establish redevelopment agencies (RDAs) and
capture all of the increase in property taxes that is generated
within the project area beyond the base year value (referred to
as "tax increment") over a period of decades. RDAs used tax
increment financing to address issues of blight, construct
affordable housing, rehabilitate existing buildings, and finance
development and infrastructure projects.
Citing a significant State General Fund deficit, Governor
Brown's 2011-12 budget proposed eliminating RDAs and returning
billions of dollars of property tax revenues to schools, cities,
and counties to fund core services. Among the statutory changes
that the Legislature adopted to implement the 2011-12 budget, AB
X1 26 (Blumenfield) Chap 5/2011 dissolved all RDAs and
established procedures for winding down RDA activity. Existing
law requires successor agencies to dispose of former RDAs'
assets and properties, at an oversight board's direction, in an
expeditious manner aimed at maximizing value. Successor
agencies are required to make any payments related to
enforceable obligations, as specified in an adopted recognized
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obligation payment schedule and remit unencumbered balances of
RDA funds and proceeds from asset sales to the county
auditor-controller for distribution to local taxing entities in
the county. Successor agencies cannot enter into new
enforceable obligations.
Proposed Law:
AB 2 would authorize local agencies, excluding schools and
successor agencies, to establish a CRIA to finance specified
activities within a revitalization and investment area according
to a specified community revitalization and investment plan.
Among other things, this bill would:
Provide for the formation of a CRIA by local agencies,
excluding school entities and successor agencies, individually
by adopting a resolution, or collaboratively by forming a
joint powers authority.
Prohibit a CRIA in a city or county that created an RDA that
was dissolved from becoming effective until the successor
agency has adopted findings that the agency has received a
finding of completion from the Department of Finance (DOF),
there is no outstanding litigation related to dissolution, and
there are no outstanding issues related to asset transfers, as
specified.
Require at least 80 percent of the land in an investment area,
as specified, to be characterized by an annual median
household income of less than 80 percent of the statewide
median household income and three of the following four
conditions:
o Nonseasonable unemployment at least 3 percent higher
than the statewide median unemployment rate, as
specified.
o Crime rates that are at least 5 percent higher than
the statewide rate.
o Deteriorated or inadequate infrastructure, such as
streets, sidewalks, water supply, sewer treatment or
processing, and parks.
o Deteriorated commercial or residential structures.
Authorize a CRIA, as an alternative to the above criteria, to
establish an investment area within a former military base
principally characterized by deteriorated or inadequate
infrastructure and structures.
Allow a plan for a CRIA to include a provision for the receipt
of tax increment funds, as specified, and require the plan to
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include specified mandatory elements, including a housing
program that dedicates 25% of tax increment proceeds to be
spent on affordable housing, rather than the 20% required
under redevelopment law.
Enact extensive affordable housing set-aside requirements.
Apart from the increased allocation for affordable housing
purposes, these provisions are generally consistent with
requirements that applied under Redevelopment Law.
Authorize a CRIA to dedicate funding to specified
infrastructure, low and moderate income housing, brownfield
cleanup, seismic retrofits, property acquisition, construction
of specified structures for provision of air rights, and
direct assistance to businesses for industrial and
manufacturing uses.
Specify the procedures a CRIA must follow for adopting a plan,
including notice and public hearing requirements, a protest
process, and potentially voter approval.
Require a CRIA to annually review the plan, prepare an
independent financial audit, and adopt an annual report in a
public hearing.
Require a CRIA to conduct a protest proceeding every 10 years.
If between 25% and 50% of residents and property owners file
protest, the CRIA must not initiate any new projects until an
election of property owners and residents is held. If a
majority of the electorate votes against the CRIA, it must not
take any further action to implement the plan.
Authorize a CRIA to acquire property through eminent domain,
provided that authority is exercised within 12 from the
initial adoption of the plan.
Require the SCO to establish audit guidelines by December 31,
2021 to determine compliance with specified affordable housing
maintenance and replacement requirements.
Require a CRIA to contract for an independent performance
audit every five years that is consistent with the guidelines
established by the SCO, beginning in a calendar year in which
a CRIA has accumulated more than $1 million in tax increment
revenues in the aggregate, including debt issuance proceeds.
Require a CRIA to submit a plan for compliance to the SCO, if
the initial audit contains findings of failure to comply with
the specified housing requirements identified in the audit
guidelines.
Require the SCO to review and approve the compliance plan to
ensure that it includes specified means of achieving
compliance, including expenditure of an additional 10 percent
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of tax increment on low-income housing, increasing production
of units for very low income households by 10 percent, or
targeting expenditures to rental housing affordable to very
low and extremely low income persons.
Establish specified monetary penalties if a CRIA fails to
provide a copy of the completed audit to the SCO within 20
days of receiving a written notice of failure. If a CRIA
fails to provide a copy of the audit for two or three
consecutive years, the amount of the original penalties will
be doubled or tripled, respectively, and the SCO will conduct
an independent audit and charge the CRIA for the audit costs.
Related
Legislation: AB 2 is similar to 1080 (Alejo), which was held on this
Committee's Suspense File in 2013. AB 2 is also similar to AB
2280 (Alejo), which was vetoed by Governor Brown last year. The
Governor's veto message included the following:
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, AB 2 takes duplicates
portions of the Community Redevelopment Law in new code sections
within the bill, rather than cross-referencing Health and Safety
Code sections of redevelopment law.
SB 628 (Beall), Ch. 785/2014, authorized local agencies to
establish Enhanced Infrastructure Financing Districts (EIFDs)
and authorized them to use tax increment financing (excluding
the school share) to pay for local economic development. EIFD
tax increment bonds require 55% voter approval.
Staff
Comments: Prior to 2011, local communities used redevelopment as a tool
to alleviate blight by diverting over $6 billion annually in
property tax increment to pay for development projects,
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repairing infrastructure, and building affordable housing.
Since approximately half of property tax revenues statewide are
a dedicated source of funding for K-14 schools, redevelopment
diverted significant revenues away from schools. Generally, the
loss in school funding related to the tax increment dedicated
for redevelopment purposes has been backfilled by the General
Fund pursuant to the minimum funding guarantees specified in
Proposition 98. Although AB 2 uses tax increment financing for
CRIA activities, the bill avoids the impact to the state General
Fund by explicitly prohibiting school entity participation.
This bill requires that a disadvantaged community have at least
80 percent of the land (calculated by census tracts) within an
investment area be characterized by an annual household income
that is less than 80 percent of the statewide median household
income, and three out of the following four characteristics:
unemployment that is at least 3 percent above the statewide
average, crime rates that are at least 5 percent above the
statewide average, deteriorated or inadequate infrastructure,
and deteriorated commercial or residential structures.
According to U.S. Census Bureau data, the estimated California
statewide median household income was $57,528 in 2013. The most
recent labor market information on the Employment Development
Department's website indicates a statewide unemployment rate of
6.2 percent in June of 2015. Earning $45,000 or less annually
per household is the U.S. Census Bureau's current threshold for
"low-income," and the poverty line is approximately half of that
amount at a household income of $22,350. This bill requires
that an investment area be characterized by an average household
income of about $46,022 in 80 percent of the census tracts, in
addition to meeting three of the four characteristics enumerated
above. Staff notes that the income requirements are roughly
what the Census Bureau classifies as low-income, but is nearly
twice the amount considered to be the poverty line. The extent
to which the criteria specified in the bill would constrain the
use of this new economic development tool is unclear.
AB 2 requires periodic audits to determine compliance with
affordable housing maintenance and replacement requirements of
the bill. These audits are to be submitted to the SCO, but the
bill explicitly states that the SCO is not required to review
and approve completed audits. However, if a CRIA audit is
deemed out of compliance, the SCO is required to review and
approve plans submitted by a CRIA to achieve compliance. As
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part of this secondary review, the SCO must ensure that the plan
meets specified compliance measures. It is unclear why the SCO
is relieved from the first-level review and certification of
CRIA audits, but is required to ensure compliance with the
secondary review of compliance plans. The Community
Redevelopment Law required RDAs to submit financial information
to the SCO annually. Although AB 2 requires CRIA's to annually
conduct financial audits, there is no requirement that the SCO
receive, review, or approve those audits.
Staff notes that property owned by a public agency is not
subject to property taxation. This bill could result in an
unknown, short-term loss of property tax revenue, to the extent
properties acquired by a public agency are removed from the tax
rolls for a period of time. It is unclear whether a CRIA would
qualify as a public entity for these purposes.
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