BILL ANALYSIS                                                                                                                                                                                                    



                                                                       AB 2


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          CONCURRENCE IN SENATE AMENDMENTS


          AB  
          2 (Alejo and Eduardo Garcia)


          As Amended  September 4, 2015


          Majority vote


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          |ASSEMBLY:  |      | (May 11,2015) |SENATE: |29-10 | (September 9,   |
          |           |63-13 |               |        |      |2015)            |
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          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  








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                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  








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                 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.








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           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,  








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             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  








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             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.










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           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  








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             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  








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            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,  








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            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)









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          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  








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          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,  








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          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:  










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          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