BILL ANALYSIS SENATE LOCAL GOVERNMENT COMMITTEE VERSION: 08/16/93 A šSenator Marian Bergeson, Chairman SET: First B HEARING: 08/18/93 FISCAL: Approp. 1 Assembly Bill 1290 - Isenberg CONSULTANT: Detwiler 2 9 0 REDEVELOPMENT REFORMS Background: Because of its two extraordinary powers --- property tax šincrement financing and real property management --- šredevelopment remains a "hot button" political issue. šBesides being controversial, redevelopment is very lucrative šfor communities that use its powers to attract and retain šprivate investment. Stung by repeated criticisms and trying što stave off more radical changes, some redevelopment šofficials seek statutory reforms. Proposed Law: Assembly Bill 1290 changes the Community Redevelopment Law in šeight major ways: I. Blight. The fundamental purpose of redevelopment šagencies is to eradicate blight in areas where private šenterprise is unable. Assembly Bill 1290 describes blight as šfour physical conditions and five economic conditions and šrequires a blighted area to be predominantly urbanized and to šinclude these characteristics. AB 1290 requires o-fficials to šshow how their proposed actions (e.g., plan amendments, sale šor lease of property, small housing projects) will eliminate šblight. II. Limits. Over 375 communities have over 650 šredevelopment project areas; local officials have completed šfew redevelopment projects. Assembly Bill 1290 requires redevelopment projects created šon or after January 1, 1994 to contain these limits: o Dollars. Limit the number of dollars that the šredevelopment agency can receive. o Debts. Set a deadline of 20 years or less for šincurring debt that the agency will pay with property tax šincrement revenues. If blight remains, redevelopment šofficials can extend the deadline for a total of 30 years. AB 1290 - 08/16/93 Page 2 o Effectiveness. Set a deadline of 30 years or less šfor the effectiveness of the redevelopment plan. After that štime, the agency can only pay for debt and enforce contracts. o Repay debt. Set a deadline of 45 years or less for šrepaying debts with property tax increment revenues. An šagency cannot receive revenues after that date. o Eminent domain. Set a deadline of 12 years or less što acquire property by eminent domain. Assembly Bill 1290 requires redevelopment projects adopted šon or before December 31, 1993 to contain these limits: o Debts. Set a deadline of 20 years or less or January š1, 2004 (whichever is later) to incur debt that the agency šwill pay with property tax increment revenues. If blight šremains, officials can extend the deadline for 10 more years šor the deadline of the plan's effectiveness (whichever is šearlier). o Effectiveness. Set a deadline of 40 years or less or šJanuary 1, 2009 (whichever is later) for the effectiveness of šthe plan. After that redevelopment officials can only pay šfor debt and enforce contracts. o Repay debt. Set a deadline of 10 years after the šdeadline for the plan's effectiveness for repaying debts with šproperty tax increment revenues. An agency cannot receive šrevenues after that date. There are special provisions for merged and amended šredevelopment plans. AB 1290 requires redevelopment šofficials to amend their older plans by December 31, 1994 to šinclude these statutory limits. Redevelopment officials may šamend older plans that already contain shorter limits than šthose in the bill to meet the new statutory limits. III. Statement of Indebtedness. To receive property tax šincrement revenues, redevelopment officials must file an šannual statement of indebtedness with the county auditor. šAssembly Bill 1290 requires redevelopment officials to file šmore detailed statements of indebtedness, including a šreconciliation statement listing new debts, total debts, šmoney available, and total payments. IV. Other Local Agencies. If other local agencies can show š"financial burden or detriment" as part of a fiscal review šcommittee process, a redevelopment agency can share its šproperty tax increment revenues with the other agencies as š AB 1290 - 08/16/93 Page 3 "pass-through agreements." Critics contend that these šnegotiated settlements protect local agencies but allow šquestionable projects to proceed. Assembly Bill 1290 repeals šthe authority for pass-through agreements, and repeals the šdefinition of financial burden or detriment. Instead, for šprojects adopted on or after January 1, 1994, AB 1290 šrequires a redevelopment agency to pass-through 35% of its šproperty tax increment revenues to other local agencies, šstarting in a project's 21st fiscal year of operation. The šbill further requires schools and community colleges to šreceive their shares of the 2% increase in assessed value. šThese requirements apply to older (pre-1994) projects if šredevelopment officials add territory. V. Affordable Housing. Redevelopment officials must set šaside 20% of the property tax increment revenues to support šlow and moderate income housing. If they fail to spend their šsurplus housing funds within five years, officials lose šcontrol of the money to the county housing authority. šAssembly Bill 1290 shortens the time for calculating surplus šhousing funds from five years to one year. Then, if šofficials do not spend the surplus funds within another two šyears, they cannot issue bonds, loans, and contracts. AB š1290 caps their spending on administrative costs at 75%. šThese sanctions apply until the agency spends the surplus šfunds (plus another 50%) on affordable housing. AB 1290 also špermits redevelopment agencies to recapture their equity šinvestments when the owners of affordable housing sell their šunits. VI. Sales Taxes. Redevelopment officials use their powers što attract retail operations that boost sales tax revenues šfor their communities. If the city or county cuts its sales štax rate in a redevelopment project area, the agency can levy ša complementary rate. Assembly Bill 1290 repeals šredevelopment agencies' power to levy sales tax rates and šissue sales tax bonds. AB 1290 bans redevelopment help to šauto dealerships on nonurbanized land, and to develop retail šproperty on undeveloped land of five or more acres. VII. Implementation Plans. Redevelopment critics say that šprojects go on without any tangible commitment to finishing štheir work. Assembly Bill 1290 requires redevelopment šofficials to adopt and regularly revise five-year š"implementation plans" for projects adopted before December š31, 1993. These plans must explain how the projects will šeliminate blight. New projects adopted after January 1, 1994 šmust also include these periodic implementation plans. šRedevelopment officials must hold a public hearing at least š AB 1290 - 08/16/93 Page 4 once during each five-year period to review their progress. VIII. Redevelopment Spending. Redevelopment critics say šthat the agencies have strayed from their original purpose of šeradicating blight. Assembly Bill 1290 allows redevelopment šagencies to help finance the rehabilitation of private šcommercial buildings. AB 1290 allows redevelopment agencies što help finance industrial and manufacturing facilities and šequipment, including pollution control devices. AB 1290 šprohibits redevelopment agencies from directly or indirectly špaying for city halls and county administration buildings šwith their property tax increment funds. Comments: 1. The balancing act. Redevelopment agencies have literally šchanged the way that California looks. Their extraordinary špowers can revitalize decaying neighborhoods and stimulate šprivate investment. But without effective oversight, šredevelopment funds can wander off into urban sprawl, auto šmalls, and new city halls. Feeling the pressure from their šcritics, redevelopment officials want to reform their o-wn šindustry before the Legislature or a ballot initiative takes šmore radical action. AB 1290 imposes limits where none šexist, prohibits egregious spending, and refocuses šredevelopment agencies on their original purpose of šeradicating blight. 2. It's about time. A critic once said that redevelopment šwas the closest thing to perpetual motion ever enacted by the šLegislature. AB 1290 sets time limits on new and existing šredevelopment projects' debts, revenues, and other powers. šBut some of these limits reach far into the next century. šBattling blight takes time, but the Committee may wish to šconsider whether 40 years is an effective limit. As an šalternative, the Committee may wish to set shorter initial šlimits of 15 to 20 years in each category but then allow šcarefully justified extensions. 3. Yesterday's reforms. State government has a strong šinterest in redevelopment; afterall, the State General Fund šsubsidizes about 40% of the property tax increment revenues. šBut instead of direct oversight, legislators rely on local šofficials to police each other. Fiscal review committees šare supposed to enforce the law by allowing counties and šschools to challenge harmful redevelopment projects. All too šoften, however, local officials drop their policy objections šonce redevelopment officials give them enough pass-through špayments. AB 1290 sweeps away those negotiations and instead šrelies on a fixed pass-through formula of 35% after 20 years šof redevelopment. The Committee may wish to consider whether š AB 1290 - 08/16/93 Page 5 the fiscal review process protects the State General Fund's šinterests. Will the formula be any better? 4. Beauty or beast? Just as beauty is in the eye of the šbeholder, blight lacks a precise definition. The result is a šproliferation of redevelopment projects for golf courses, šauto malls, breweries, and suburban sprawl. Redevelopment šofficials resisted earlier reforms to tighten the blight šstatutes. AB 1290 imposes new limits on the description of šblight and requires redevelopment officials to justify their šactions. The Committee may wish to consider whether these šreforms go far enough to avoid embarrassing redevelopment šprojects. 5. Details, details, details. Over 60 pages and with more šthan 40 specific sections, AB 1290 is a complex web of šinterlocking details. No summary can properly capture all of šthe subtle nuances of a lengthy bill. As the Committee again šreviews AB 1290 on August 18, different witnesses will šemphasize different portions of the bill. The central policy šquestion remains: how should the Legislature guide and šoversee local officials who use the powerful tools of šredevelopment. 6. August 16 amendments. The Committee heard two dozen šwitnesses comment on AB 1290 when it first heard the bill on šJuly 14. Following the hearing, the author prepared the šAugust 16 amendments which clarify several provisions of the šbill. The main features of the bill remain intact. The šAugust 16 amendments also make it clear that the bill does šnot impair certain existing redevelopment ordinances, revenue špledges, and tax agreements. Further, at the request of šSenator Russell, the amendments make it clear that t-he šlanguage in AB 1290 regarding the relationship between high šcrime rates and blight does not expand the activities that šredevelopment agencies can finance. Assembly Actions: Housing and Community Development: 7-3 Ways and Means Committee: 14-3 Floor: 47-22 Support and Opposition: (08/12/93) Support: California Redevelopment Association, League of šCalifornia Cities, Western Center on Law and Poverty, šCalifornia Rural Legal Assistance Foundation, California šTeamsters Public Affairs Council, Redding Redevelopment šAgency, Sacramento Housing and Redevelopment Agency, Cities š AB 1290 - 08/16/93 Page 6 of Arcadia, Bellflower, Brea, Culver City, Glendale, šHuntington Beach, Livermore, Los Angeles, Oakland, Riveride, šSan Jose, San Juan Capistrano, Santa Ana, Santa Barbara, šSanta Cruz, Seal Beach, Stockton, Victorville, West Covina, šWest Sacramento, Whittier, City and County of San Francisco. Opposition: California State Association of Counties, šCounties of Alameda, Los Angeles, Orange, Riverside, San šDiego, Santa Clara, and Ventura, Santa Clara County Central šFire Protection District, Paul Gann Citizens Committee, šOrange County Fire Department, California Motor Car Dealers šAssociation, Santa Clara Valley Water District, California šState Firefighters' Association, County of Los Angeles Fire šDepartment, Coalition for Adequate School Housing, Riverside šCounty Advocacy Association, California Firefighters, Florin šFire Protection District, California Department of Education, šAssociation of California School Administrators, City of šFontana, Chino Valley Independent Fire District, Association šof California Water Agencies, Department of Housing and šCommunity Development, Urban Counties Caucus, Chino Valley šIndependent Fire District, Los Angeles Unified School šDistrict.