BILL ANALYSIS                                                                                                                                                                                                    



                                                                      SB 63


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          SENATE THIRD READING


          SB  
          63 (Hall)


          As Amended  June 1, 2015


          Majority vote


          SENATE VOTE:  36-2


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Local           |9-0  |Maienschein,          |                    |
          |Government      |     |Gonzalez, Alejo,      |                    |
          |                |     |Chiu, Cooley, Linder, |                    |
          |                |     |Low, Mullin, Waldron  |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Appropriations  |17-0 |Gomez, Bigelow,       |                    |
          |                |     |Bloom, Bonta,         |                    |
          |                |     |Calderon, Chang,      |                    |
          |                |     |Daly, Eggman,         |                    |
          |                |     |Gallagher,            |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |Eduardo Garcia,       |                    |
          |                |     |Holden, Jones, Quirk, |                    |
          |                |     |Rendon, Wagner,       |                    |
          |                |     |Weber, Wood           |                    |








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          |                |     |                      |                    |
          |                |     |                      |                    |
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          SUMMARY:  Allows cities and counties to create Seaport  
          Infrastructure Financing Districts (SIFDs), and allows SIFDs to  
          finance port or harbor infrastructure, under specified  
          conditions.  Specifically, this bill:  


          1)Defines an SIFD to mean an Enhanced Infrastructure Financing  
            District (EIFD) that finances port or harbor infrastructure.


          2)Amends EIFD law, as follows: 


             a)   Allows an EIFD to finance port or harbor infrastructure  
               (SIFD);


             b)   Specifies that in the case of an SIFD, the legislative  
               body shall designate and direct the harbor agency, except  
               as provided, to prepare the infrastructure financing plan  
               required in EIFD law;


             c)   Specifies that State Lands Commission (SLC) approval is  
               needed to issue bonds to finance the infrastructure  
               financing plan for an SIFD;


             d)   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;


             e)   Requires, if the public financing authority (PFA) adopts  








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               a resolution proposing initiation of proceedings to issue  
               bonds for port or harbor infrastructure, the PFA, before  
               submitting the proposal to the voters, to submit the  
               proposal, with specified information, to the affected  
               harbor agency;


             f)   Requires the proposal to be considered by the SLC, if  
               the harbor agency grants preliminary approval;


             g)   Requires, if the SLC votes in favor of the issuance of  
               the bonds, the PFA to proceed with the submission of the  
               proposal to the voters; and,


             h)   Requires a two-thirds vote of the voters voting on the  
               proposition in favor of issuing the bonds, for an SIFD.


          3)Expands the definition of "port or harbor infrastructure" in  
            existing law contained in the Harbors and Navigation Code to  
            include any capital improvement that improves environmental  
            quality. 


          4)Adds, to the Harbors and Navigation Code, the following  
            requirements for an SIFD:


             a)   Specifies, upon receipt of a resolution from the PFA,  
               that the harbor agency shall have 60 days to consider the  
               proposal.  Requires, during this time, that the harbor  
               agency's governing body to act at a duly noticed meeting to  
               either vote to give preliminary approval of the proposal,  
               or disapprove the proposal and return it to the PFA;


             b)   Allows a harbor agency to give preliminary approval only  








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               if it makes all of the following affirmative findings:


               i)     The harbor agency has prepared an infrastructure  
                 financing plan;


               ii)    The improvements to the harbor agency's property to  
                 be financed through the proceeds of an SIFD are solely  
                 for the support of port or harbor infrastructure;


               iii)   All publicly owned property that is leased to  
                 private parties within the boundaries of the SIFD has  
                 been reported by the harbor agency to the local county  
                 assessor to facilitate possessory interest taxation;


               iv)    If the harbor agency is acting on granted lands, all  
                 of the projects and uses proposed in the SIFD are  
                 consistent with the state tidelands trust and the  
                 conditions of the harbor agency grant; and,


               v)     If the harbor agency was formed pursuant to this  
                 bill's provisions, all of the projects and uses proposed  
                 in the SIFD are consistent with its charter and the  
                 statewide interests in the operation of harbors and  
                 ports.


             c)   Prohibits the harbor agency from granting preliminary  
               approval, unless both of the following apply:


               i)     The SIFD will operate independently of any other  
                 prior or concurrent agreements between the harbor agency  
                 and the PFA, or the local governments that make up the  
                 PFA; and,








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               ii)    No transfers of funds or obligations, or future  
                 transfers of funds or obligations contingent on the  
                 approval of the SIFD, its financing, or projects within  
                 the SIFD, are created between the harbor agency and the  
                 PFA, or the local governments that make up the PFA.


             d)   Defines "transfers of funds or obligations" to include  
               any direct or indirect transfer of harbor agency resources  
               to the PFA, or the local governments that make up the PFA,  
               except for any of the following, if agreed to between the  
               harbor agency and the PFA in writing:


               i)     Harbor agency reimbursements of a PFA for its direct  
                 administrative costs of establishing an SIFD;


               ii)    PFA expenses for underwriting the bond issuance for  
                 the identified projects in the SIFD; and,


               iii)   Any other administrative expenses or direct  
                 operating expenses that are incurred as the direct result  
                 of creating the SIFD that are identified by both parties  
                 at the time of preliminary approval and in advance of the  
                 expense being incurred by the PFA.


             e)   Requires, if the harbor agency votes to give preliminary  
               approval to the proposal, the harbor agency to immediately  
               forward its preliminary approval to the SLC for its  
               consideration.  Requires the SLC to consider the proposal  
               and either grant or deny final approval.


             f)   Requires the SLC, prior to granting final approval, to  








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               do both of the following:


               i)     Review the infrastructure financing plan prepared by  
                 the harbor agency; and,


               ii)    Review the findings of the harbor agency made in its  
                 preliminary approval.


             g)   Requires the SLC to make all of the following findings  
               prior to granting final approval:


               i)     The state's interests in its tidelands and its ports  
                 and harbors are furthered by the funding of the SIFD;


               ii)    The principal purposes of the SIFD are to further  
                 port and harbor infrastructure;


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


               iv)    No revenues shall be made available to local  
                 governments as a result of the approval of the SIFD from  
                 state revenues, revenues derived from granted lands, or  
                 from ports or harbors created, as specified;


               v)     The harbor agency and the PFA participating in the  
                 SIFD have each completed all procedural requirements,  
                 financial due diligence, and made all findings required,  
                 as specified;









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               vi)    All of the projects and uses proposed in the SIFD  
                 are consistent with the state tidelands trusts and the  
                 conditions of any grants, if applicable, and the  
                 statewide interests in the operation of harbors and  
                 ports; and,


               vii)   No agreements by the harbor agency that may control  
                 the discretion of the harbor 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.


             h)   Requires the SLC to be reimbursed by the harbor agency  
               for its direct administrative costs of considering an SIFD  
               proposal from the proceeds of the bonds issued, if any, for  
               the identified projects in the SIFD.


             i)   Provides that all permanent fixtures and capital  
               improvements to the real property of a harbor agency that  
               administers public trust tidelands made pursuant to an  
               SIFD's approved infrastructure financing plan shall be a  
               trust asset once completed, and specifies that this  
               provision does not apply to fixtures and improvements  
               otherwise agreed as nonpermanent in a lease between the  
               harbor agency and a private tenant.


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








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             aa)  States that the SLC shall 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 an  
               SIFD is consistent with the state's interests in its  
               tidelands and submerged lands.


             bb)  States that a harbor agency that manages granted state  
               tidelands retains its status as a trustee whether or not it  
               is located within an SIFD.


             cc)  States that nothing grants any authority to any PFA, or  
               the local governments that compose the PFA, in any manner  
               whatsoever to manage, direct, control, or exercise  
               jurisdiction over a harbor agency and its management of  
               port or harbor infrastructure.


             dd)  Specifies that the provisions of the bill do not apply  
               to the Stockton Port District or to a river port district.


          5)Makes a number of findings and declarations, including the  
            intent of the Legislature to assert the state's plenary power  
            over the financing of port or harbor infrastructure by harbor  
            agencies as matters of statewide concern and to authorize the  
            use of tax increment financing, to support investment of tax  
            revenues in port and harbor infrastructure.


          EXISTING LAW:   


          1)Defines "port or harbor infrastructure" to mean any of the  
            following, if its primary or predominant use is of direct  








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            benefit to the port or harbor:


             a)   Streets, roads, highways, bridges, sidewalks, curbs,  
               gutters, tunnels, subways, alleyways, viaducts, pipelines,  
               rail lines, or other facilities for the transportation or  
               movement of people, vehicles, equipment, or goods;


             b)   Piers, docks, wharves, slips, quays, platforms, decks,  
               cranes, or other facilities for the mooring, docking,  
               loading, or unloading of vessels;


             c)   Lands, tidelands, submerged lands, easements, port  
               access routes, channel improvements, rights-of-way, dredge  
               disposal sites, safety zones, breakwaters, levees,  
               bulkheads, or walls of rock or other material to protect  
               property or traffic;


             d)   Parking, warehouse, or storage facilities;


             e)   Parks, recreation, or open space facilities;


             f)   Remediation;


             g)   Water, wastewater, drainage, electric, or  
               telecommunication systems or facilities;


             h)   Buildings, structures, facilities, improvements, or  
               equipment necessary or convenient to any of paragraphs (a)  
               to (g), inclusive, or to the operation of a port or harbor;  
               and,









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             i)   Public improvements authorized, pursuant to the  
               Improvement Act of 1911, the Improvement Bond Act of 1915,  
               and the Mello-Roos Community Facilities Act of 1982.


          2)Allows cities and counties to create 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 are not authorized to divert  
            property tax increment revenues from schools. 


          3)Allows local officials to create EIFDs, which augment the 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.


          FISCAL EFFECT:  According to the Assembly Appropriations  
          Committee:


          1)Ongoing intermittent costs, unknown, but potentially in the  
            range of $100,000 to $150,000 in any given year, to the SLC.  
            These costs would be fully reimbursed by harbor agencies from  
            the proceeds of bonds issued for SIFD proposals.  Staff notes  
            that costs for review and approval of SIFD bond issuance  
            proposals would likely depend on the number of proposals  
            presented to SLC for review, and the scope and complexity of  
            the proposals.  Submission of proposals is likely to be  








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            intermittent, and many of activities required by this bill are  
            within SLC's purview and could be absorbable within existing  
            resources. Other activities would require outside expertise or  
            specialized training of SLC staff.
          2)Negligible 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 EIFD projects.  As  
            such, there would be no backfill of property tax revenues from  
            the General Fund.


          COMMENTS:  


          1)Background on IFDs and EIFDs.  Existing law allows cities and  
            counties to create 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 are not authorized to divert property  
            tax increment revenues from schools (SB 308 (Seymour), Chapter  
            1575, Statutes of 1990).


            Local officials can also create EIFDs, which augment the 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 (SB 628 (Beall), Chapter 785, Statutes of 2014).


          2)Bill Summary.  This bill allows cities and counties to create  
            SIFDs in order to finance port or harbor infrastructure.  The  








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            bill requires the PFA to submit the proposal to the affected  
            harbor agency for its preliminary approval and requires the  
            harbor agency to make a number of findings, and once approved  
            by the harbor agency, requires the proposal to be considered  
            by the SLC.  The SLC is required to review the infrastructure  
            financing plan prepared by the harbor agency, and review the  
            findings of the harbor agency made in its preliminary  
            approval, and prior to the SLC granting final approval, the  
            bill requires the SLC to make various findings, including that  
            the state's interests in its tidelands and its ports and  
            harbors are furthered by the funding of the SIFD, and that all  
            of the projects and uses proposed in the SIFD are consistent  
            with the state tidelands trust and conditions of any grants.   
            Once the SLC gives its final approval, SLC will forward the  
            approval to the PFA for further action.  


            The bill specifies that, for purposes of the vote necessary  
            within the territory of the SIFD to approve the issuance of  
            bonds, that an entity paying possessory interest tax on  
            state-owned land, that the term "landowner" means that entity  
            that is paying the possessory interest tax.  SB 63 specifies  
            that a two-thirds vote is necessary for an SIFD to issue  
            bonds, and then makes a number of findings and declarations.


            This bill is sponsored by the Pacific Merchant Shipping  
            Association.


          3)Possessory Interest.  According to the "Assessment of Taxable  
            Possessory Interests" manual contained in the Assessors'  
            Handbook, published by the Board of Equalization in December  
            2002 (and reprinted in January 2015), "The most common example  
            of a possessory interest is the interest created by a lease.   
            The tenant's (or lessee's) right to possession of the property  
            is called the leasehold interest.  The landlord's (or  
            lessor's) right to receive rents during the term of the lease  
            and to regain possession of the property when the lease  








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            terminates is called the leased fee interest.  In the case of  
            privately owned real property, both the tenant's and the  
            landlord's interest are taxable, and typically both interests  
            are valued and assessed in the aggregate to the landlord or  
            the fee owner.  It is not necessary, or administratively  
            feasible, for the assessor to separately assess the value of  
            the leasehold (i.e. possessory) interest and the value of the  
            leased fee (i.e. nonpossessory interest); instead, the  
            assessor typically makes a single assessment of the entire  
            taxable interest in the real property."


            "A 'taxable possessory interest' is a possessory interest that  
            is separately taxable to the possessor.  For introductory  
            purposes, a taxable possessory interest can be defined as the  
            taxable interest held by a private possessor in publicly owner  
            real property.  The public owner may be the United States of  
            America and its administrative instrumentalities; the state of  
            California; or one of California's local jurisdictions, which  
            include counties, cities, and special districts.  With a  
            taxable possessory interest, since the underlying fee simple  
            interest held by the public owner is almost always tax exempt,  
            it is necessary to separately value the possessory interest  
            held by the private possessor.


            "The legal basis for the taxation of taxable possessory  
            interests is found in the general mandate of the California  
            Constitution, Article XIII, Section 1, that all property is  
            taxable unless otherwise proved by the California Constitution  
            or federal law.  'Property' as defined in sections 103 and 104  
            of the Revenue and Taxation Code, includes 'all matters and  
            things, real, personal and mixed, capable of private  
            ownership,' and 'real estate,' or 'real property,' includes  
            'the possession of, claim to, ownership of, or right to  
            possession of land and improvements.'  There is also  
            statutory, regulatory, and judicial authority for the  
            assessment, under specified conditions, of the private,  
            beneficial right to the possession of publicly owned real  








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            property."


            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.  This  
            bill allows 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.


          4)Author's Statement.  According to the author, "California's  
            ports and harbors are major contributors to the state's  
            economy, employing tens of thousands of workers, investing  
            billions in local and state businesses and creating hundreds  
            of millions in state and local tax revenues.  Currently, our  
            ports are losing market share to competitors outside of the  
            state partially because other jurisdictions are subsidizing  
            their infrastructure improvements.


            "Most of California's ports operate under a landlord-tenant  
            model where the public agency leases a marine terminal to a  
            private company to conduct business.  As a result, port  
            infrastructure is generally financed entirely through revenue  
            bonds backed by private user fees and other lease revenues and  
            there is local taxpayer participation.  Port tenants do  
            however pay possessory interest taxes on the value of their  
            leases on public property.


            "Last year the state of California revamped its public  
            financing tools to provide for EIFDs, in the wake of the  
            elimination of redevelopment agencies.  EIFDs can provide  
            reinvestment financing to projects which span a wide range of  
            public infrastructure and private development projects,  








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            including highways and transit infrastructure.  EIFDs are  
            formed by local governments and their bond underwriting  
            approvals are subject to local voter approvals.   
            Unfortunately, seaports are not included in the listed  
            categories of approved infrastructure for EIFD financing.  SB  
            63 adds seaports to the list of EIFD-approved projects and  
            allows for access to new and vital seaport infrastructure  
            financing.  This will enable California seaports to compete  
            with competitors outside of the state, allowing them to  
            continue to provide to California's economy."


          5)Arguments in Support.  Supporters argue that this bill will  
            allow an important change to EIFDs that will allow ports to  
            have access to new forms of financing to support critical  
            infrastructure improvements.  


          6)Arguments in Opposition.  None on file.


          7)Conflicting Legislation.  This bill conflicts with provisions  
            in AB 313 (Atkins) of the current legislative session.   
            Amendments may be needed to resolve the conflict.




          Analysis Prepared by:                                             
                          Debbie Michel / L. GOV. / (916) 319-3958  FN:  
          0001397
















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