BILL ANALYSIS 1
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| SENATE COMMITTEE ON NATURAL RESOURCES AND WATER |
| Senator Fran Pavley, Chair |
| 2009-2010 Regular Session |
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BILL NO: SB 650 HEARING DATE: May 12, 2009
AUTHOR: Yee URGENCY: Yes
VERSION: May 6, 2009 CONSULTANT: Bill Craven
DUAL REFERRAL: No FISCAL: Yes
SUBJECT: Parks: City of Half Moon Bay.
BACKGROUND AND EXISTING LAW
Existing law establishes the Infrastructure and Economic
Development Bank (I-Bank) for the purpose of administering
various programs for economic development activities in the
state. The I-Bank is funded through the California
Infrastructure Bank Fund, which is continuously appropriated.
Acquisition of property is an eligible use of funds from the
I-Bank, provided its other lending criteria are met.
The legislative body of the applicant is required to find, by
resolution, all of the following:
a) The project facilitates effective and
efficient use of existing and future public resources so as to
promote economic development and conservation of natural
resources;
b) The project must develop and enhance public
infrastructure in a manner that will attract, create and sustain
long-term employment opportunities;
c) The project is consistent with the general
plan of both the city and county, or only the county for
projects in unincorporated areas in which the project is
located;
d) The proposed financing is appropriate for the
specific project; and,
e) The project is consistent with the criteria,
priorities, and guidelines for the selection of projects adopted
by the I-Bank.
PROPOSED LAW
This bill directs the Infrastructure and Economic Development
Bank (I-Bank) to loan $10 million to the City of Half Moon Bay
(City) to assist in the purchase of the Beachwood property.
The I-bank would use its existing criteria to qualify the loan.
The bill specifically references that the loan would assist the
City in a settlement in the case of Yamagiwa v. City of Half
Moon Bay (N.D. Cal. 2007) 523 F. Supp.2d 1036, involving the
Beachwood property in the City.
The bill, which is an urgency bill, also requires the City,
prior to the disbursement of any funds, to obtain an independent
appraisal of the Beachwood property that conforms to the Uniform
Standards of Professional Appraisal Practice.
ARGUMENTS IN SUPPORT
Correspondence from the supporters was received prior to the
recent amendments. However, the central theme, as phrased by the
mayor and several city council members, is that this bill is
essential to the continued "fiscal survival" of the City.
The City characterizes this bill as a new approach to the failed
legislation in 2008, AB 1991 (Mullin). Instead of containing a
series of statutory exemptions, this bill would instead loan
money to the City to provide partial financial relief to meet
the terms of the settlement agreement and to preserve the
property for purposes as a public park.
ARGUMENTS IN OPPOSITION
The letters of opposition were received prior to the recent
amendments. The main theme was that SB 650 would represent a
poor use of Prop 84 funds. The recent amendments deleted that
provision.
COMMENTS
1. Legal Actions-Brief Summary.
This controversy originated in 1990 when the City approved a
tentative map for a subdivision of 85 lots on the Beachwood
property. In 1991 the City adopted a moratorium on building
permits for structures that needed sewers. In 1998, Yamagiwa,
the property owner, applied for a coastal development permit in
anticipation of the end of the moratorium which was denied on
the basis that it would fill wetlands. Yamagiwa sued and the
California Coastal Commission (CCC) intervened.
The trial court ruled against the City and the parties
stipulated to an appeal to the CCC which approved a smaller
development footprint as well as other conditions for traffic,
endangered species habitat, and wetlands. Yamagiwa appealed the
CCC decision. Ultimately, in an unpublished opinion, the Court
of Appeal held for the City. Yamagiwa then launched a federal
court action alleging an uncompensated "taking" of property, and
a federal court issued a $41 million judgment against the City.
The California Attorney General's office, at the request of the
CCC, indicated that the City had a strong basis for an appeal,
but the City instead agreed to a settlement. The City considered
the appeal "high risk." At present, the parties have agreed to
an $18 million settlement provided that specified entitlements
to develop the Beachwood property are agreed to by the end of
June, 2009, or, pay the owner $18 million by the end of August,
2009. The City has determined that the property should become a
park.
The settlement clearly reduced the City's liability, but raises
the difficult issues of whether the City can afford the
settlement. As the author has pointed out, the City's FY 08-09
budget includes $9 million in general funds, and $6 million in
special funds for a total budget of $15 million. The city has
received approximately $4 million in an insurance settlement
related to the litigation.
2. Prior Legislation.
During the 2007-08 session, AB 1991 (Mullin) would have exempted
the proposed development on Beachwood from the Coastal Act, the
state endangered species act, and the California Environmental
Quality Act. That bill was held in Senate Rules.
3. I-Bank.
The sponsors acknowledge that the I-Bank loan is not likely the
final solution for the City. While it is possible for the I-Bank
to make a loan for the purposes of park acquisition, the I-Bank
has informed staff that it generally caps such loans at $2
million, although exceptions are possible when approved by its
board. Thus, while it may be possible that the I-Bank could
remain a possible lender for either all or part of the $10
million sought by the City, this legislation would require such
a loan. The Committee should be aware that a new source of
funding is likely to emerge should it decide to move this bill
forward.
4. Gift of public funds? The bill currently provides for an
appraisal, which is a positive development given the concern
that the Legislature has had in improving the appraisal process
in recent years. While an outright grant of funds to the City to
purchase the property could not exceed the appraised value
without raising a question about whether the constitutional
prohibition against gifts of public funds was violated, staff's
research to date has not conclusively determined that the same
result would apply to a loan. Additionally, this constitutional
provision is said by some authorities not to apply to
expenditures that promote a valid and substantial public purpose
within the authorized mission of the public agency (the City)
that is appropriating the funds, even when a private interest
would receive an incidental benefit.
5. Similar legislation : AB 650 ( Hill) is identical to this
measure and was approved by the Assembly Local Government
Committee.
6. Parallel Situations? The sponsors have compiled a list of
other local government "bailouts" approved by the Legislature.
These include multi-million dollar adjustments for fire service
contracts in Butte and Merced counties, forgiving nearly $1
million in interest for a water project in San Bernandino
County, and $5.5 million for the North Coast Railroad Authority.
Additionally, the sponsors have identified seven school district
bailouts totaling $222 million in the communities of Vallejo,
Oakland, West Fresno, Emery, Compton, Coachella, and West Contra
(Richmond), and a $30 million loan to restore solvency to the
Compton Community College District. These did not involve
payments for the purposes of partially settling litigation,
although the Committee may decide that a public purpose is
served by assisting a city that is in financial trouble that
would use the funds to build a park.
Recommended Amendments.
1. . Acquisition for what purpose? Recent amendments deleted not
only the Prop 84 funding provision, but also the provision that
the land would be acquired for a park. That technical oversight
should be corrected.
2. Release? As drafted, the bill requires the City to use the
$10 million to purchase the Beachwood property. If that
transaction is completed, it is reasonable to expect that the
parties in the litigation would negotiate a release of the City
from any further obligations with regard to that property. An
amendment to that affect should be considered by the Committee
and the author if the bill is passed out of Committee. Staff
should be directed to assist with that amendment.
3. Work in Progress? In addition to the two earlier amendments,
and the consideration about developing a combination of grants
or loans that does not violate the prohibition against gifts of
public funds, the author should be asked to keep the Committee
informed about other possible amendments to the bill, including
but not limited to the identification of new funding sources.
Also, the City has made it clear that it intends to avoid
bankruptcy. However, as the future funding sources are
identified, the author should be encouraged to consider an
appropriate amendment securing, to the extent possible, the
state's funding contribution in the event of a future
bankruptcy.
SUPPORT
City of Half Moon Bay
Half Moon Bay Recreation Division
Half Moon Bay Coastside Chamber of Commerce
San Mateo County Association of Realtors
Approximately 4 dozen individuals
OPPOSITION
3 individuals