BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          SB 63 (Hall) - Seaport infrastructure financing districts
          
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          |Version: April 7, 2015          |Policy Vote: GOV. & F. 6 - 1    |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: April 27, 2015    |Consultant: Mark McKenzie       |
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          This bill meets the criteria for referral to the Suspense File.







          Bill  
          Summary:  SB 63 would authorize cities and counties to establish  
          seaport infrastructure financing districts (SIFDs) and divert  
          property tax increment revenues from participating local  
          agencies to finance port or harbor infrastructure, as specified.


          Fiscal  
          Impact:  
           Unknown administrative costs to the State Lands Commission  
            (SLC).  Costs for review and approval of SIFD bond issuance  
            proposals could be absorbable but potentially up to $150,000  
            (General Fund) in a given year depending on the number and  
            complexity of the proposals submitted for consideration.








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           There would be no state costs related to the diversion of  
            property tax increment for SIFD purposes because the school  
            share of tax increment cannot be redirected to fund enhanced  
            infrastructure financing district projects.  As such, there  
            would be no backfill of property tax revenues from the General  
            Fund.


          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.  Prior to their  
          dissolution pursuant to ABx1 26 (Blumenfield) Chap 5/2011, RDAs  
          used tax increment financing (including the school share),  
          oftentimes issuing long-term debt in the form of tax allocation  
          bonds, to address issues of blight, construct affordable  
          housing, rehabilitate existing buildings, and finance  
          development and infrastructure projects.
          Existing law authorizes cities and counties to form  
          Infrastructure Financing Districts (IFDs) and divert property  
          tax increment revenues from participating local agencies to  
          finance public capital facilities of communitywide significance.  
           IFDs retain property tax increment revenues from participating  
          local taxing agencies to directly finance projects or to pay  
          debt service on bonds issued to finance projects.  School  
          district property tax revenues may not be diverted for IFD  
          purposes, and each local agency in the IFD must agree to divert  
          property tax increment to the IFD.  Formation of a district and  
          issuance of IFD bonds required approval by 2/3 of affected  
          voters in an election.


          In the wake of the dissolution of RDAs, SB 628 (Beall), Chap  
          785/2014, was enacted, allowing local officials to create  
          Enhanced Infrastructure Financing Districts (EIFDs).  SB 628  
          removed the voter-approval requirement that was required to form  
          an IFD, authorized an EIFD public finance authority to issue  
          bonds upon the approval of 55 percent of the voters, and  
          expanded the types of projects that could be financed.  EIFDs  
          can finance public capital facilities or other specified  
          projects of communitywide significance that provide significant  
          benefits to the district or the surrounding community.









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          Existing law also authorizes the formation of Port  
          Infrastructure and Financing Authorities, which allows two or  
          more local agencies that operate ports or harbors (harbor  
          agencies) to form a joint powers authority to finance specified  
          port and harbor infrastructure projects (SB 1988 (Marks), Chap  
          1235/1992).  These authorities are intended to improve access to  
          ports by allowing for the financing of roads and rail lines,  
          piers, docks, channel improvements, breakwaters, warehouses and  
          storage facilities, parks and recreation facilities,  
          remediation, drainage, wastewater and electric facilities, and  
          other projects.  Port or harbor infrastructure projects may be  
          privately operated, but all projects must have a primary or  
          predominant use that is of direct benefit to the port or harbor.


          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 (SLC) administers public trust lands  
          not granted to local agencies and oversees the activities of  
          local grantees, such as harbor agencies.


          California has 11 public ports and one private port, and the SLC  
          administers the activities of seven harbor district grantees.   
          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 a  
          possessory interest, so harbor and port tenants pay a possessory  
          interest tax in lieu of a property tax.




          Proposed Law:  
            SB 63 would authorize cities and counties to form Seaport  
          Infrastructure Financing Districts (SIFDs), using the structure  
          of EIFD law to finance port and harbor infrastructure projects.   








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          Specifically, this bill would:
           Define an SIFD as an EIFD that finances port or harbor  
            infrastructure created in accordance with the EIFD law.
           Add port or harbor infrastructure to the list of projects that  
            may be financed using EIFD law, and expand the definition of  
            port or harbor infrastructure to include any capital  
            improvement that improves environmental quality. 
           Require the city or county that initiates the formation of an  
            SIFD to designate and direct the harbor agency, rather than  
            the city engineer, to prepare an infrastructure financing  
            plan.
           Require and SIFD public finance authority to submit any  
            proposals for issuing bonds for port or harbor infrastructure  
            to the affected harbor agency and the SLC for review and  
            approval pursuant to a prescribed process that includes the  
            following:
               o      The harbor agency must consider the public finance  
                 authority's bond proposal within 60 days, during which  
                 the agency must act in a public meeting to either vote  
                 for preliminary approval of the proposal or disapprove  
                 the proposal and return it to the public finance  
                 authority.
               o      The harbor agency may only grant approval only if it  
                 makes four specified affirmative findings, and ensures  
                 that the SIFD will operate independently and that no  
                 transfers of funds or obligations are created between the  
                 harbor agency and the public finance authority or any of  
                 its constituent local agencies.  
               o      If the harbor agency grants preliminary approval,  
                 the proposal must be immediately forwarded to the SLC for  
                 consideration.  
               o      Upon receipt of the harbor agency's preliminary  
                 approval, the SLC must consider the bond issuance  
                 proposal and grant or deny final approval.
               o      Before granting final approval, the SLC must review  
                 the infrastructure financing plan prepared by the harbor  
                 agency, review the harbor agency's findings made in its  
                 preliminary approval of the bond issuance proposal, and  
                 make seven affirmative findings, as specified.
               o      If the SLC grants final approval of the bond  
                 issuance proposal, it must immediately forward its  
                 approval to the public finance authority.
           Require an SIFD public finance authority, upon receipt of  
            final approval from the SLC, to submit the proposal for  








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            issuing bonds to the voters.  The SIFD bonds may be issued if  
            two-thirds of the voters approve the proposition.
           Specify that an entity paying possessory interest taxes on  
            state-owned land is deemed a "landowner" for purposes of  
            voting on an SIFD bond proposal, if there are fewer than 12  
            registered voters within the SIFD, as specified.
           Add several statutes to ensure that an SIFD's financing  
            activities comply with the Public Trust Doctrine, as  
            specified.


          Related  
          Legislation:  SB 628 (Beall), Chap 785/2014, authorizes the  
          formation of EIFDs governed by a public finance authority to  
          finance public capital facilities or other specified projects of  
          communitywide significance using property tax increment revenues  
          from local agencies that volunteer to participate in the  
          district. (see above)


          Staff  
          Comments:  SB 63 would require the State Lands Commission to  
          review an SIFD infrastructure financing plan and any findings  
          made by the harbor agency regarding bond issuance proposals, and  
          to make seven specified findings when considering proposals by  
          SIFD public finance authorities for issuing bonds to pay for  
          port or harbor infrastructure.  Specifically, the SLC must make  
          all of the following findings in order to grant approval to a  
          bond issuance proposal:
             (1)  The funding of the SIFD furthers the state's interest in  
               its tidelands, ports, and harbors.


             (2)  The SIFD's principal purposes are to further port and  
               harbor infrastructure.


             (3)  The execution of the financing section of the  
               infrastructure finance plan is more likely than not to  
               result in the outcomes proposed.


             (4)  No revenues shall be made available to local governments  
               as a result of SIFD approval from state revenues, revenues  








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               derived from granted lands, or from ports or harbors,  
               except for specified written agreements between the harbor  
               agency and public finance authority.  


             (5)  The harbor agency and public finance authority  
               participating in the SIFD have each completed all  
               procedural requirements, financial due diligence, and made  
               all findings required by the bill and EIFD law.


             (6)  All projects and uses in the proposed SIFD are  
               consistent with the state tidelands trust and the  
               conditions of any grants, and the statewide interests in  
               the operations of ports and harbors.


             (7)  No agreements by the harbor agency that may control the  
               discretion of the agency to maintain its port or harbor  
               operations or to cede any such control to the discretion of  
               a third party were made as a condition of participation in  
               the SIFD.


          SLC costs related to these duties are unknown, and would likely  
          depend upon the number of proposals presented to the Commission  
          for review, and the scope and complexity of the proposals.   
          Submission of proposals for consideration is likely to be  
          intermittent, and many of the required activities noted above  
          are well within the SLC's purview of experience and could be  
          accomplished within existing resources.  Other duties, such as  
          those noted in points 4 and 5 above, would require outside  
          expertise or specialized training of SLC staff.  Staff estimates  
          that SLC costs could be in the range of $150,000 in a given  
          year. 




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