BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Patricia Wiggins, Chair
BILL NO: AB 338 HEARING: 7/1/09
AUTHOR: Ma FISCAL: No
VERSION: 6/25/09 CONSULTANT: Ho
TRANSIT VILLAGE DEVELOPMENT
Background
Federal, state, and local agencies have invested billions
of dollars in mass transit projects and programs. But the
public investment in public transit does not pay off if
local officials fail to promote private development around
transit stations.
Some communities have created "transit villages" by
planning for denser residential and commercial development
within walking distance of transit stations. However,
local agencies are often hard-pressed to subsidize public
works, such as parks, lighting, and landscaping, which are
necessary to attract private investors and new businesses
and residents. The San Francisco Bay Area Rapid Transit
District (BART) wants to encourage more intense development
around its stations by linking transit village development
with property tax increment financing.
Proposed Law
Assembly Bill 338 allows local officials to divert property
tax increment revenues to pay for public facilities and
amenities within transit village development districts.
I. Infrastructure Financing Districts and Transit
Facilities . A city or county can create an Infrastructure
Financing District (IFD) and issue bonds to pay for
community scale public works: highways, transit facilities,
water systems, sewer projects, flood control, child care
facilities, libraries, parks, and solid waste facilities.
To repay the bonds, the IFD can divert property tax
increment revenues from other local governments (but not
schools, community colleges, or county offices of
education) for 30 years, but only if the other local
governments agree to the diversion. Each IFD must have a
detailed infrastructure financing plan. State law requires
AB 338 -- 6/25/09 -- Page 2
2/3-voter approval before local officials can form an IFD
and 2/3-voter approval before local officials can issue IFD
bonds (SB 308, Seymour, 1990).
With respect to an IFD proposed to finance a transit
facility, Assembly Bill 338 permits a city or county to
adopt the infrastructure financing plan, form the IFD, and
issue IFD bonds without elections. AB 338 defines "transit
facility" as a publicly owned facility and amenity needed
to implement a transit village plan adopted under the
Transit Village Development Planning Act.
II. Transit Village Plans. The Transit Village
Development Planning Act allows cities and counties to plan
for more intense development around transit stations: rail
or light-rail stations, ferry terminals, bus hubs, or bus
transfer stations. Specifically, cities and counties can
adopt transit village plans that identify areas where local
officials want to encourage transit-oriented development
and grant density bonuses, among other characteristics (AB
3152, Bates, 1994). To qualify, a transit village plan
must demonstrate five public benefits, selected from a
statutory list of 13 public benefits, including an
increased stock of affordable housing and live-travel
options for transit-needy groups (AB 1320, Dutra, 2004).
If a city or county finances a transit facility with an
IFD, Assembly Bill 338 requires the transit village plan to
include, as one of its five demonstrable public benefits,
either an increased stock of affordable housing or
live-travel options for transit-needy groups. AB 338 also
requires the city or county to dedicate at least 20% of its
property tax increment revenue to increase, improve, and
preserve housing that is affordable to persons and families
of low and moderate incomes. Additionally, the bill
requires the city or county, within four years, to replace
any dwelling unit, on a one-to-one bedroom basis, that has
been removed or destroyed for the purpose of developing the
transit village district.
AB 338 also adds three new declarations to the Transit
Village Development Planning Act.
III. Transit Village Development Districts . The maximum
size of a transit village development district is the total
AB 338 -- 6/25/09 -- Page 3
area within -mile from the exterior boundary of the parcel
on which the transit station is located (AB 3152, Bates,
1994). A 2007 survey of rail transit riders at transit
stations in the San Francisco Bay Area and Portland, Oregon
reported that people are willing to walk a -mile to a rail
transit station.
Assembly Bill 338 expands the maximum size of a transit
village development district from the total area within
-mile of the exterior boundary of the parcel on which a
transit station is located to the total area within -mile
of the main entrance of a transit station.
Comments
1. Multiplying success . The public sector's investment in
commuter rail, light-rail, ferries, and bus lines is part
of a wider strategy to improve air quality, save energy,
cut congestion, and promote compact development. When
communities encourage transit agencies to build expensive
systems but then fail to promote higher density development
around transit stations, the loss is social as well as
physical. Similarly, the loss is regional not just local.
One reason that communities don't encourage more density
around transit stations is the lack of fiscal incentives to
pay for the public works needed to support the new
residents and businesses. AB 338 lets cities and counties
reap the fiscal benefits of new construction inside transit
villages by harnessing property tax increment financing to
transit village development. By giving public officials a
new fiscal tool, the bill gives private investors an
economic reason to pay attention.
2. Popular democracy . The 1990 IFD statute requires
2/3-voter approval before local officials can create IFDs
and issue IFD bonds. That's the same voter threshold that
cities and counties must reach before they create
multi-year general obligation debts. It's the same voter
approval that local officials must get before they can
issue general obligation bonds that are backed by property
tax revenues from extraordinary property tax rates.
Limited obligation bonds that are backed by pledging some
of an agency's own revenues also need 2/3-voter approval.
AB 338 exempts the formation of transit facility IFDs and
AB 338 -- 6/25/09 -- Page 4
the issuance of their bonds from the 2/3-voter approval
requirements established by the 1990 IFD statute. The
Committee may wish to consider whether these are the kinds
of fiscal decisions that local officials should share with
super-majorities of their voters.
3. No vote required . Redevelopment agencies and IFDs are
legally separate entities from the cities or counties that
create them. Redevelopment agencies can borrow money
without voter approval by issuing tax allocation bonds that
are backed by diverting other local governments' property
tax increment revenues. IFDs' tax increment bonds are
backed by diverting property tax increment revenues from
other local governments (but not schools) that are willing
to let IFDs divert their revenues. IFDs' tax increment
bonds are not like local agencies' limited obligation bonds
or local general obligation bonds for which the California
Constitution requires 2/3-voter approval. IFDs' bonds are
more like redevelopment agencies' tax allocation bonds.
The statutory requirements for 2/3-voter approval of IFDs
and their tax increment bonds are the result of legislative
politics and compromises, not constitutional limitations.
What the 1990 Legislature required, the 2009 Legislature
can waive.
4. No state subsidy . When redevelopment agencies divert
property tax increment revenues away from schools, the
State General Fund automatically backfills those foregone
revenues. Because about half of property tax revenues go
to schools, it's likely that about half of redevelopment
agencies' property tax increment revenues comes from
schools. Redevelopment agencies received almost $4.6
billion in property tax increment revenues in 2006-07,
meaning that the State General Fund's annual subsidy for
redevelopment may be as much as $2.3 billion. Unlike
redevelopment, IFDs can't divert property tax increment
revenues away from school districts and community college
districts. Therefore, AB 338 does not trigger a State
General Fund subsidy.
5. An unnecessary requirement ? Because the State General
Fund subsidizes redevelopment, the Legislature requires
redevelopment agencies to spend 20% of their property tax
increment revenues on affordable housing. AB 338 imposes a
similar requirement for transit facility IFDs even though
AB 338 -- 6/25/09 -- Page 5
IFDs do not divert property tax increment revenues away
from schools. The Committee may wish to consider whether
it is necessary to require transit facility IFDs to set
aside 20% of their revenues for affordable housing. Where
is the policy link?
6. Who's interested ? There are over 300 rail transit
stations in California operated by Amtrak, BART, Metrorail,
and several transit districts with light-rail systems. AB
338 probably won't apply to downtown transit stations
because most of those neighborhoods are already within
redevelopment project areas and local officials can't form
an IFD inside a redevelopment project area. AB 338 most
likely benefits suburban communities that have commuter
rail, light-rail, and intermodal transit stations.
7. Overlap . Both AB 338 and AB 1158 (Hayashi) amend
Government Code 65460.2, but in different ways. Because
both authors do not expect further amendments to the
overlapping sections of their bills, they have
double-jointed their bills.
8. Related bills . AB 338 is nearly identical to AB 1221
(Ma, 2008), which passed the Assembly and the Senate, but
was vetoed by the Governor because it was not a high
priority. AB 338 and last year's AB 1221 are not the first
bills that propose to harness property tax increment
financing to encourage transit village development. SB 465
(Soto, 2003) would have expanded the definition of "blight"
so that redevelopment agencies could spend property tax
increment revenues on transit villages. The 2003 Soto bill
passed the Senate Local Government Committee, but failed in
the Senate Appropriations Committee. SB 521 (Torlakson,
2005) would have linked redevelopment agencies and transit
village developments. The 2005 Torlakson bill passed the
Senate, but the author used it for another topic in the
Assembly. Last year, AB 1836 (Feuer, 2008) would have
eliminated the statutory requirement for voter approval for
creating an IFD, adopting an infrastructure financing plan,
and issuing IFD bonds. The 2008 Feuer bill would have
applied to all future IFDs, while the Ma bills apply only
to future IFDs that finance transit facilities. The Feuer
bill failed in the Senate Local Government Committee.
AB 338 -- 6/25/09 -- Page 6
Assembly Actions
Assembly Local Government Committee: 4-2
Assembly Appropriations Committee:11-5
Assembly Floor: 48-31
Support and Opposition (6/25/09)
Support : San Francisco Bay Area Rapid Transit District
(BART), American Federation of State, County and Municipal
Employees, AFL-CIO, California Rural Legal Assistance
Foundation, California Transit Association, Greenbelt
Alliance, Housing California, Peninsula Corridor Joint
Powers Board (Caltrain), Non-Profit Housing Association of
Northern California, San Mateo County Transit District
(SamTrans), Santa Clara Valley Transportation Authority,
Western Center on Law & Poverty.
Opposition : Governor's Office of Planning and Research,
Howard Jarvis Taxpayers Association.