BILL ANALYSIS Ó AB 2 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 2 (Alejo and Eduardo Garcia) As Amended September 4, 2015 Majority vote -------------------------------------------------------------------- |ASSEMBLY: | | (May 11,2015) |SENATE: |29-10 | (September 9, | | |63-13 | | | |2015) | | | | | | | | | | | | | | | -------------------------------------------------------------------- Original Committee Reference: H. & C.D. SUMMARY: Authorizes local governments to create Community Revitalization and Investment Authorities (authorities) to use tax increment revenue to improve the infrastructure, assist businesses, and support affordable housing in disadvantaged communities. 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)Allows local governments to form an authority in two ways: a) A city, county, or city and county can adopt a resolution creating an authority governed by a five-member board that is appointed by the city, county, or city and county's legislative body. Three-board members must be members of the city, county, or city and county's AB 2 Page 2 legislative body and two must be public members who live or work within the community revitalization and investment area. b) A city, county, city and county, and special district, in any combination, may create an authority by entering into a joint powers agreement. The authority's governing body must be comprised of a majority of members from the legislative bodies of the public agencies that created the authority. The governing body must include at least two public members who are appointed by a majority of the authority's board and must live or work within the community revitalization and investment area. 3) Prohibits: a) School entities from participating in an authority. b) Redevelopment successor agencies from participating in an authority. c) A city or county that created a former redevelopment agency from forming an authority, unless the former redevelopment agency's successor agency has received a finding of completion from the Department of Finance, and complies with other specified conditions. 4) Allows an authority to carry out a community revitalization and investment plan (plan) within a community revitalization and investment area. This bill requires that at least 80% of the land calculated by census tracts or census block groups within the area must be characterized by both of the following conditions: a) An annual median household income that is less than 80% of the statewide annual median income. b) Three of the following four conditions: i) Nonseasonal unemployment that is at least 3% higher than the statewide median, as defined by a specified labor market report. ii) Crime rates that are 5% higher than the statewide AB 2 Page 3 median crime rate, as defined by a specified Department of Justice report. iii) Deteriorated or inadequate infrastructure such as streets, sidewalks, water supply, sewer treatment or processing, and parks. iv) Deteriorated commercial or residential structures. 5) Allows an authority to carry out a plan within a community revitalization and investment area established within a former military base that is principally characterized by deteriorated or inadequate infrastructure and structures. 6) Allows the legislative body or bodies of the local government or governments that created the authority to appropriate any amount the legislative body or bodies deem necessary for the administrative expenses and overhead of the authority. The money appropriated may be paid to the authority as a grant to defray the expenses and overhead, or as a loan to be repaid upon the terms and conditions as the legislative body may provide. If appropriated as a loan, the property owners and residents within the plan area must be made third-party beneficiaries of the repayment of the loan. This bill specifies that the term "administrative expense" includes expenses of planning and dissemination of information. 7) Enumerates an authority's powers and allows an authority 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. 8) Deems an authority to be a local public agency subject to the Ralph M. Brown Act, the Public Records Act, and the Political Reform Act. AB 2 Page 4 9) Requires an authority to adopt a plan that may include a provision for the receipt of tax increment funds generated within the area, provided the plan includes eight specified elements. 10)Specifies the manner in which an authority must consider adoption of the plan, including requiring public hearing, a protest process and, in some cases, voter approval of the plan through a specified election process. 11)Directs an authority to consider and adopt a plan amendment in accordance with the procedures that applied to the consideration and adoption of the original plan. 12)Deems an authority to be the "agency" described in California Constitution Article XVI, Section 16, for purposes of receiving tax increment revenues. 13)Allows a plan to include a provision for the receipt of tax increment funds. 14)Allows any city, county, or special district that receives ad valorem property taxes from property located within an area to adopt a resolution directing the county auditor-controller to allocate some or all of its share of tax increment funds within the area covered by the plan to the authority. A resolution may be repealed by giving the county auditor-controller 60 days' notice. However, the county auditor-controller must continue to allocate the taxing entity's taxes that have been pledged to repay debt issued by the authority until the debt has been fully repaid. 15)Requires that, before adopting a resolution allocating a share of its tax increment funds to an authority, a city, AB 2 Page 5 county, or special district must approve a memorandum of understanding with the authority governing the authority's use of tax increment funds for administrative and overhead expenses. 16)Requires that a provision for the receipt of tax increment funds must become effective in the tax year that begins after the December 1 following the adoption of the plan. 17)Specifies the manner in which a county auditor-controller must allocate tax revenue to an authority upon adoption of a plan that includes a provision for the receipt of tax increment funds. 18)Requires that an authority's plan for an area that includes land formerly or currently designated as part of a redevelopment area must subordinate tax increment amounts received by the authority to any preexisting enforceable obligation, as defined in statute. 19)Prohibits the number of housing units occupied by extremely low, very low-, and low-income households, including the number of bedrooms in those units, at the time the plan is adopted, from being reduced in the plan area during the effective period of the plan. 20)Requires that at least 25% of all tax increment revenues that are allocated to the authority from any participating entity must be deposited into a separate Low- and Moderate-Income Housing Fund and used by the authority for the purposes of increasing, improving, and preserving the community's supply of low- and moderate-income housing available at affordable housing cost, as defined in state law. 21)Allows an authority to exercise any or all of its powers for the construction, rehabilitation, or preservation of affordable housing for extremely low, very low, low- and moderate-income persons or families. 22)Enumerates detailed requirements governing the manner in which an authority may manage and expend tax increment revenues deposited into a Low- and Moderate-Income Housing AB 2 Page 6 Fund. 23)Requires every plan to contain a provision that whenever dwelling units housing persons and families of low- or moderate-income are destroyed or removed from the low- and moderate-income housing market as part of a revitalization project the authority must, within two years of such destruction or removal, rehabilitate, develop, or construct, or cause to be rehabilitated, developed, or constructed, for rental or sale to persons and families of low- or moderate-income an equal number of replacement dwelling units at affordable housing costs, as defined by state law, within the territorial jurisdiction of the authority. 24)Requires an authority to prepare a feasible method or plan for relocating: a) Families and persons to be temporarily or permanently displaced from housing facilities in the plan area; and b) Nonprofit local community institutions to be temporarily or permanently displaced from facilities used for institutional purposes in the project area. 25)Requires the relocation plan to comply with the relocation plan and assistance requirements of state law. 26)Requires an authority to annually review the plan, prepare an independent financial audit, and adopt an annual report in a public hearing. 27)Provides that if an authority fails to provide the annual report, the authority shall not spend any funds received pursuant to a resolution, as specified, until the authority has provided the report, except for funds necessary to carry out its specified obligations regarding housing for persons of low- and moderate-income. AB 2 Page 7 28)Requires an authority to conduct a protest proceeding every 10 years. If between 25% and 50% of residents and property owners file protest, the authority 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 authority, it must not take any further action to implement the plan. 29)Requires an authority to contract every five years for an independent audit to determine compliance with affordable housing maintenance and replacement requirements, which must be conducted according to guidelines established by the Controller. An authority must provide a copy of the completed audit to the Controller. 30)Requires, if an audit demonstrates a failure to comply with the statutory requirements, that an authority must adopt and submit to the Controller, as part of the audit, a plan to achieve compliance with those provisions. The plan must contain specified means of achieving compliance. 31)Requires the Controller to review and approve the compliance plan, and require the plan to stay in effect until compliance is achieved. 32)Enumerates penalties, including specified fines, which apply to an authority that fails to provide a copy of a completed audit to the Controller after receiving a written notice from the Controller. The Attorney General may, at the Controller's request, take action to collect the fines. 33)Provides that if the Attorney General fails to respond to the Controller's request within 90 days of its receipt, then any other available remedies may be exercised. 34)Provides that an action filed pursuant to this section to AB 2 Page 8 compel an authority to comply with this section is in addition to any other remedy and is not an exclusive means to compel compliance. The Senate amendments: 1)Correct numerous cross-references, address renumbering issues and make technical, clarifying changes. 2)Expand on the notice requirements for required meetings and public hearings, and delete the provision permitting an authority to provide notice of the public hearings to tenants of properties within the proposed area of the plan in a manner of its choosing. 3)Clarify that if less than 25% of the combined number of property owners and residents in the area who are at least 18 years of age file a protest, the authority may adopt the plan at the conclusion of the third public hearing by ordinance. 4)Provide that if the authority is loaned funding for administrative expenses, both the property owners and residents within the plan area will be made third party beneficiaries of the repayment of the loan. 5)Prohibit the number of housing units occupied by extremely low-, very low-, and low-income households, including the number of bedrooms in those units, at the time the plan is adopted, from being reduced in the plan area during the effective period of the plan. 6)Clarify that an authority is prohibited from spending revenue AB 2 Page 9 for any purpose that is not identified as part of the plan. 7)Require the relocation plan to comply with the relocation plan and assistance requirements of state law. 8)Expand on the required elements of an authority's housing program. 9)Delete the provision that nothing in existing state law defining income shall prevent the authority from adopting separate family size adjustment factors or programmatic definitions of income to qualify households, persons, and families for the programs of the authority. 10)Provide that the authority shall require the lower- and very low-income dwelling units developed pursuant to the plan to remain available at an affordable housing cost to lower- and very low-income households for at least 45 years, as specified. 11)Expand on the required elements of the replacement housing plan. 12)Limit replacement housing to within the plan area. 13)Require the authority, not less than 30 days prior to adopting a replacement housing plan by resolution, to make available a draft of the proposed replacement housing plan for review and comment. 14)Delete the provision allowing an authority, for specified purposes, to aggregate new or substantially rehabilitated dwelling units in one or more project areas, if the authority finds, based on substantial evidence, after a public hearing, AB 2 Page 10 that the aggregation will not cause or exacerbate racial, ethnic, or economic segregation. 15)Specify that if an authority fails to provide the annual report, the authority shall not spend any funds received pursuant to a resolution, as specified, until the authority has provided the report, except for funds necessary to carry out its specified obligations regarding housing for persons of low- and moderate-income. 16)Provide that, if the Attorney General fails to respond to the Controller's request to collect fines from a noncompliant authority within 90 days of its receipt, then any other available remedies may be exercised. 17)Provide that an action filed pursuant to this section to compel an authority to comply with this section is in addition to any other remedy and is not an exclusive means to compel compliance. FISCAL EFFECT: According to the Senate Appropriations Committee: 1)Potentially major redirection of local property tax revenues from participating local agencies, excluding schools, to an authority 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. 2)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 Personnel Year of audit staff time) AB 2 Page 11 3)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. 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 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 AB 27 X1. 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 AB 2 Page 12 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 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. 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 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, AB 2 Page 13 what economic development tool can local governments use? This proposal provides a viable option targeting the state's disadvantaged poorer areas and neighborhoods." Arguments in support: Supporters argue that eliminating redevelopment agencies did not eliminate the need for California communities to build more affordable housing, eliminate blight, foster business activity, clean up contaminated brownfields, and create jobs. This bill is a tool that can be used in the state's disadvantaged communities, which was the original focus of redevelopment. Supporters contend that the bill will ensure public accountability by requiring an authority to conduct an annual review and reporting process, and periodically allows local residents to prohibit an authority from taking further actions. While it is unrealistic to expect that a single economic development tool will work in all California communities, in supporters' view this bill is a viable option for bringing investments to communities that are in need of vital services. Arguments in opposition: Opponents are concerned that this bill would set up new government entities with the power of eminent domain, and contend that the beneficiaries of these property takings are often developers and large business interests. They oppose provisions in this bill which allow authorities to use land acquisition and management powers that largely replicate powers exercised by former redevelopment agencies. Opponents also question the need for the bill, as last year the Legislature passed SB 628 (Beall), Chapter 785, Statutes of 2014, which provided local governments with new tax increment financing tools to pay for local economic development by forming an enhanced infrastructure financing district (EIFD). EIFDs do not give local governments the power of eminent domain. Related legislation: AB 2 Page 14 AB 2280 (Alejo) of 2014: Would have established an authority and given it the same rights, responsibilities and powers as redevelopment agencies. 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: Rebecca Rabovsky / H. & C.D. / (916) 319-2085 FN: 0002352