BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON GOVERNANCE AND FINANCE
                         Senator Robert M. Hertzberg, Chair
                                2015 - 2016  Regular 

                              
          
           ------------------------------------------------------------------ 
          |Bill No:  |SB 63                            |Hearing    |4/15/15  |
          |          |                                 |Date:      |         |
          |----------+---------------------------------+-----------+---------|
          |Author:   |Hall                             |Tax Levy:  |No       |
          |----------+---------------------------------+-----------+---------|
          |Version:  |4/7/15                           |Fiscal:    |Yes      |
           ------------------------------------------------------------------ 
           ----------------------------------------------------------------- 
          |Consultant|Weinberger                                            |
          |:         |                                                      |
           ----------------------------------------------------------------- 

                      SEAPORT INFRASTRUCTURE FINANCING DISTRICTS



          Authorizes cities and counties to establish Seaport  
          Infrastructure Financing Districts.


           Background

           Cities and counties can create infrastructure financing  
          districts (IFDs) and issue bonds to pay for community scale  
          public works: highways, transit, water systems, sewer projects,  
          flood control, child care facilities, libraries, parks, and  
          solid waste facilities.  To repay the bonds, IFDs can divert  
          property tax increment revenues, which are revenues generated  
          from increases in property values within the IFD above property  
          values in the base-year when the IFD was formed. However, IFDs  
          can't divert property tax increment revenues from schools (SB  
          308, Seymour, 1990).

          Until 2011, the Community Redevelopment Law allowed local  
          officials to set up redevelopment agencies (RDAs), prepare and  
          adopt redevelopment plans, and use property tax increment  
          revenues to finance redevelopment activities.  After state law  
          dissolved RDAs in 2011, local officials sought other ways to use  
          tax increment financing to raise the capital they need to invest  
          in public works projects.  Last year, legislators enacted SB 628  
          (Beall, 2014) to allow local officials to create Enhanced  
          Infrastructure Financing Districts (EIFDs), which augment the  







          SB  63 (Hall) 4/7/15                                    Page 2  
          of ?
          
          
          tax increment financing powers that are available to local  
          government under the IFD statutes.  City or county officials can  
          create an EIFD, which is governed by a public finance authority,  
          to finance public capital facilities or other specified projects  
          of communitywide significance that provide significant benefits  
          to the district or the surrounding community.

          Some local officials want legislators to modify the EIFD  
          statutes and enact additional statutory provisions to allow  
          EIFDs to finance port and harbor infrastructure projects.


           Proposed Law

           Senate Bill 63 allows city and county officials to establish  
          Seaport Infrastructure Financing District (SIFDs).  The bill:
                 Defines a SIFD as an enhanced infrastructure financing  
               district  (EIFD) that finances port or harbor  
               infrastructure pursuant to specified statutes; and,

                 Declares that the statutes governing EIFDs also apply to  
               SIFDs, except that statutes enacted by the bill with  
               respect to SIFDs prevail if they conflict with any  
               provision of the EIFD statutes.

          State law enumerates 15 categories of public capital projects  
          that fall within the definition of the types of projects that an  
          EIFD can finance.  Senate Bill 63:
                 Adds "port or harbor infrastructure" to the list of  
               public capital facilities that an EIFD can finance.  

                 Expands the statutory definition of "port or harbor  
               infrastructure" to include any capital improvement that  
               improves environmental quality, if the improvement's  
               primary or predominant use directly benefits a port or  
               harbor.

          State law requires a city or county to begin the process of  
          forming an EIFD by adopting a resolution of intention to  
          establish an EIFD.  After adopting the resolution of intention,  
          the city or county must provide public notice, as specified, and  
          direct an official to prepare an infrastructure financing plan.   
          Senate Bill 63 directs that a city or county must direct a  
          harbor agency to prepare an infrastructure financing plan for a  








          SB  63 (Hall) 4/7/15                                    Page 3  
          of ?
          
          
          SIFD.

          State law allows an EIFD's public finance authority to initiate  
          proceedings to issue bonds by adopting a resolution of intention  
          that contains specified information about the proposed bond  
          issuance.  The public finance authority must seek voter approval  
          of a proposal to issue bonds.  Senate Bill 63 requires that if  
          the public finance authority governing an SIFD proposes to  
          initiate proceedings to issue bonds for port or harbor  
          infrastructure, it must submit the proposal for review and  
          approval by the affected harbor agency and the State Lands  
          Commission, pursuant to the following process:
                 A harbor agency, after receiving a public financing  
               authority's resolution proposing to issue bonds for a SIFD,  
               must consider the proposal within 60 days.  During that  
               time, the harbor agency's governing body must act at public  
               meeting to either vote to give preliminary approval of the  
               proposal, or disapprove the proposal and return it to the  
               public financing authority.  A harbor agency may give  
               preliminary approval only if it makes four specified  
               findings.  The agency is prohibited from granting  
               preliminary approval unless: 

                  o         The seaport infrastructure financing district  
                    will operate independently of any other prior or  
                    concurrent agreements between the harbor agency and  
                    the public financing authority, or the local  
                    governments that make up the public financing  
                    authority.

                  o         No transfers of funds or obligations, as  
                    defined, or future transfers of funds or obligations  
                    contingent on the approval of the SIFD, its financing,  
                    or projects within the district, are created between  
                    the harbor agency and the public financing authority,  
                    or the local governments that make up the public  
                    financing authority.

                 If a harbor agency votes to give preliminary approval to  
               a proposal to issue bonds, it must immediately forward its  
               preliminary approval to the State Lands Commission for its  
               consideration

                 The State Lands Commission, after receiving a harbor  








          SB  63 (Hall) 4/7/15                                    Page 4  
          of ?
          
          
               agency's preliminary approval of a proposal to issue bonds  
               for a SIFD, must consider the proposal and either grant or  
               deny final approval.  Before granting final approval, the  
               Commission must review the infrastructure financing plan  
               prepared by the harbor agency and the findings that the  
               harbor agency made in its preliminary approval.  The  
               Commission cannot grant final approval unless it makes  
               seven specified findings.  

                 If the Commission grants final approval, it must  
               immediately forward its approval to the public financing  
               authority for further action.  

          Senate Bill 63 prohibits a SIFD's public finance authority from  
          proceeding with a bond issuance unless the State Lands  
          Commission votes in favor of the authority's proposal to issue  
          bonds.

          State law requires a public finance authority to seek voter  
          approval of a proposal to issue bonds.  If there are fewer than  
          12 registered voters within the EIFD, the vote on the proposed  
          bond issuance must be by the landowners in the EIFD.  Senate  
          Bill 63 expands the definition of "landowner," for the purpose  
          of a vote to approve bonds for an SIFD, to include an entity  
          that is paying possessory interest tax on state-owned land.

          State law allows an EIFD's public finance authority to issue  
          bonds if more than 55% of the voters voting on the proposition  
          vote in favor of issuing the bonds.  Senate Bill 63 allows a  
          SIFD's public finance authority to issue bonds only if  
          two-thirds of the voters voting on the proposition vote in favor  
          of issuing the bonds.

          The Public Trust Doctrine is common law doctrine that protects  
          the public's right to use California's waterways and waterfronts  
          for commerce, navigation, fishing, boating, natural habitat  
          protection, and other water-oriented activities.  In general,  
          the public trust doctrine provides that filled and unfilled tide  
          and submerged lands and the beds of lakes, streams, and other  
          navigable waterways (i.e. public trust lands) are to be held in  
          trust by the state for the benefit of the people of California.   
          The State Lands Commission administers public trust lands not  
          granted to local agencies and oversees the activities of local  
          grantees, such as harbor agencies.  Senate Bill 63 contains  








          SB  63 (Hall) 4/7/15                                    Page 5  
          of ?
          
          
          several provisions to ensure that SIFDs' financing activities  
          comply with the Public Trust Doctrine.  Specifically, the bill:
                 Declares that all permanent fixtures and capital  
               improvements to the real property of a harbor agency that  
               administers public trust tidelands made pursuant to a  
               SIFD's approved infrastructure financing plan must be a  
               trust asset once completed, with specified exceptions.

                 Requires that, if a harbor agency administering granted  
               public trust property is a department of a local  
               governmental body, any negotiations between the harbor  
               agency and the local government body with respect to any  
               infrastructure financing, operations, or any other activity  
               requiring action by the harbor agency must be undertaken at  
               arm's length in recognition of the duties of the harbor  
               agency to effectuate statewide interests.

                 Requires that the State Lands Commission must retain  
               absolute discretion over the determination of whether or  
               not investment of local resources in port or harbor  
               infrastructure, the actions of a harbor agency, or any  
               other action taken by a SIFD is consistent with the state's  
               interests in its tidelands and submerged lands. 

                 Declares that its provisions do not preclude the State  
               Lands Commission from enforcing the state's interests in  
               its tidelands.

                 Directs that a harbor agency that manages granted state  
               tidelands retains its status as a trustee whether or not it  
               is located within a SIFD and clarifies that its provisions  
               do not preclude the harbor agency from conducting its  
               duties as a trustee of state tidelands.

                 States that its provisions do not grant any authority to  
               any public financing authority, or the local governments  
               that compose the public finance authority, to manage,  
               direct, control, or exercise jurisdiction over a harbor  
               agency and its management of port or harbor infrastructure.

          Senate Bill 63 contains extensive findings and declarations  
          relating to the necessity and benefits of increased public  
          investment in port and harbor infrastructure projects.









          SB  63 (Hall) 4/7/15                                    Page 6  
          of ?
          
          

           State Revenue Impact

           No estimate.


           Comments

           1.  Purpose of the bill  .  California's ports and harbors make  
          major contributions to the state's economy, creating jobs,  
          investing in businesses, and generating tax revenues.  However,  
          California ports are losing market share to competitors outside  
          of the state partially because of subsidies that other  
          jurisdictions provide for port infrastructure improvements.  SB  
          63 will provide ports with access to vital public financing  
          tools, through the formation of Seaport Infrastructure Financing  
          Districts SIFDs, which will augment their current reliance on  
          revenue bonds backed by fees or lease revenues.  Using the  
          financing tools enacted by last year's Enhanced Infrastructure  
          Financing District (EIFD) legislation, SB 63 will facilitate  
          investments in California seaports that will save money, improve  
          economic competitiveness, and create jobs while also protecting  
          the environment.

          2.   Possessory interest tax increment  .  Port and harbor  
          facilities operate pursuant to long-term leases on state lands  
          that are exempt from property taxes.  Private use of public  
          property may be taxed if those uses constitute possessory  
          interest, so harbor and port tenants pay a possessory interest  
          tax in lieu of a property tax.  One of SB 63's purposes is to  
          allow local agencies to finance port and harbor improvements by  
          capturing possessory interest tax increment revenues that are  
          generated as a result of the financed improvements.  However,  
          the bill relies on EIFDs' existing statutory language in  
          Government Code 53398.75 to define what tax increment revenues  
          can be captured.  It is unclear whether this language is broad  
          enough to include possessory interest tax revenues.  The  
          Committee may wish to consider amending SB 63 to clarify SIFDs'  
          statutory authority to divert possessory interest tax revenues.

          3.   What about special districts  ?  State law allows EIFDs to be  
          formed only by a city or a county.  Special districts may  
          participate in EIFD financing as members of a joint powers  
          authority.  Some smaller ports fall under the jurisdiction of  








          SB  63 (Hall) 4/7/15                                    Page 7  
          of ?
          
          
          special districts.  If these districts want to capture increment  
          revenues from port improvements, SB 63 appears to require that  
          they must partner with a city or county.  The Committee may wish  
          to consider amending SB 63 to allow a special district to form  
          an SIFD independently to finance improvement using possessory  
          interest tax revenues that would be allocated to that special  
          district.


           Support and  
          Opposition   (4/9/15)


           Support  :  Pacific Merchant Shipping Association.


           Opposition  :  Unknown.



                                          



                                      -- END --