BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session AB 2 (Alejo) - Community revitalization authority ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: July 7, 2015 |Policy Vote: GOV. & F. 5 - 1, | | | T. & H. 9 - 2 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: August 17, 2015 |Consultant: Mark McKenzie | | | | ----------------------------------------------------------------- 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 AB 2 (Alejo) Page 1 of ? 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 AB 2 (Alejo) Page 2 of ? 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 AB 2 (Alejo) Page 3 of ? 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 AB 2 (Alejo) Page 4 of ? 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, AB 2 (Alejo) Page 5 of ? 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 AB 2 (Alejo) Page 6 of ? 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. -- END --