BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Dave Cox, Chair
BILL NO: SB 1112 HEARING: 4/19/10
AUTHOR: Oropeza FISCAL: No
VERSION: 4/12/10 CONSULTANT: Detwiler
REDEVELOPMENT TIME LIMITS
Existing Law
Impatient with redevelopment projects that seemed to never
end, the Legislature imposed statutory time limits. The
"effectiveness" of an older redevelopment project (one with
a plan adopted before January 1, 1994) must terminate
either 40 years after the plan's original adoption or
January 1, 2009, whichever is later. These older
redevelopment projects can't receive property tax increment
revenues after 10 years from the end of the redevelopment
plan's effectiveness (AB 1290, Isenberg, 1993). In other
words, the 1993 reforms gave redevelopment officials 15
years to wind down redevelopment activities in their oldest
project areas and 25 more years of property tax increment
revenues.
Time extensions for ERAF shifts
Faced with State Budget problems, the Legislature shifted
property tax revenues away from redevelopment agencies and
sent the money to the Educational Revenue Augmentation Fund
(ERAF) to benefit schools and, therefore, the State General
Fund. Recognizing that these ERAF shifts could interfere
with a redevelopment agency's ability to repay its debts,
the Legislature allowed redevelopment officials to extend
the statutory time limits on their older project areas.
Redevelopment project areas generally got an additional
year's extension for each year in which an ERAF shift
occurred.
Time extensions for pockets of blight
Because pockets of persistent blight remained in some older
project areas, redevelopment officials convinced
legislators to allow them to extend these statutory time
limits (SB 211, Torlakson, 2001). Specifically,
redevelopment officials can extend the time limits that
apply to their older project areas for:
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The plan's effectiveness for 10 more years.
Receiving property tax increment revenue for 10
more years.
However, before they can extend these time limits,
redevelopment officials must find that significant blight
remains in a project area, and that this blight cannot be
eliminated without the time extensions. During the
extension, the agency can spend its tax increment funds
only on the blighted parcels, and on other property that is
"necessary and essential" to eliminating that blight.
Before the agency can amend its redevelopment plan to
extend the time limits, it must adopt a resolution that
finds that:
The city or county has adopted a housing element
certified by the State Department of Housing and
Community Development.
For the previous three years, the State Controller
has not listed the agency in the annual report to the
Attorney General about agencies with major audit
violations.
The State Department of Housing and Community
Development has confirmed that the agency's Low and
Moderate Income Housing Fund does not have an excess
surplus.
If a redevelopment agency and its underlying city want to
extend these time limits, they must amend the redevelopment
project area plan, following additional procedures. The
agency must consult with all affected taxing agencies and
the project area committee. At least 120 days before the
public hearing on the amendment, the agency must send a
detailed preliminary report to the affected taxing
agencies, the State Department of Finance, and the State
Department of Housing and Community Development.
The agency must also send the proposed amendment to the
local planning commission for review, 120 days before the
hearing. At least 45 days before the hearing, the agency
must send hearing notices to the affected taxing agencies,
the State Department of Finance, the State Department of
Housing and Community Development, and anyone who commented
on the preliminary plan. At least 45 days before the
hearing, the agency must also send the city council a
detailed report.
SB 1112 -- 4/12/10 -- Page 3
To amend the redevelopment plan and extend the time limits,
the city council must adopt an ordinance and, based on
substantial evidence, make two findings:
Significant blight remains.
That blight can't be eliminated without
extensions.
An ordinance extending redevelopment time limits is subject
to referendum.
If an affected taxing agency, the State Department of
Finance, or the State Department of Housing and Community
Development believes that significant blight does not
exist, it can ask the Attorney General to participate in
the amendment process. It must ask the Attorney General
within 21 days after the public notice of the hearing was
sent. The Attorney General must determine whether or not
to participate. The Attorney General can sue on behalf of
the State Department of Finance and the State Department of
Housing and Community Development.
Starting in the first year after an amendment that extends
the time limits, the agency must deposit 30% of the tax
increment funds in its Low and Moderate Income Housing
Fund. While an agency may deposit less than 30% under
specified circumstances, the difference becomes a deficit
that the agency must repay.
During the time extension, redevelopment officials must
focus their affordable housing programs on low, very low,
and extremely low income housing. An agency may still
spend housing funds on moderate income housing, but only in
proportion to its spending on extremely low income housing.
If an agency extends the time limits for a redevelopment
plan adopted before 1976, the project area becomes subject
to the one-for-one housing replacement requirement that
applies to post-1976 project areas. The project area must
also follow the housing production standards for post-1976
project areas.
Background
Incorporated in 1968, the City of Carson (Los Angeles
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County) created its first redevelopment project area in
1971. Carson now has four project areas:
Frozen 2007-08 Increment
Name Year Acres Assessed
Value Assessed Value
Project Area No. 1 1971 2,263
$244,831,259$1,161,399,833
Project Area No. 2 1974 931 $141,367,154
$877,794,140
Project Area No. 3 1984 730 $99,449,467
$387,656,451
Project Area No. 4 2002 938 $505,881,872
$369,133,419
Because of these frozen tax bases and the incremental
growth in the assessed valuation within the four project
areas, the Carson Redevelopment Agency receives significant
property tax increment revenues:
Project Area 2003-04 2004-05 2005-06
2006-07 2007-08
No. 1 $7,636,079
$8,428,278$9,772,646$10,268,690$10,645,566
No. 2 $7,824,853
$8,006,586$8,403,737 $8,885,481 $9,001,602
No. 3 $3,481,823
$3,909,945$2,004,528 $3,048,776 $4,267,376
No. 4 $944,400
$1,781,979 $2,638,182 $3,479,335 $3,941,942
Totals: $19,887,155 $21,826,788
$22,819,093$25,682,282 $27,856,486
In 2007-08, the Agency reported total revenues of $36.4
million and $34.4 million in total expenditures.
Because of industrial practices before incorporation,
Carson officials face the challenge of redeveloping
brownfield sites, properties with soil contamination that
inhibit private investment. Although the Carson
Redevelopment Agency has enabled the development of 25% of
the community's brownfields, 217 brownfield sites which
cover 749 acres still remain.
In the oldest portion of Project Area No. 1, there are 130
brownfield sites, covering 602 acres. Remediation of a
SB 1112 -- 4/12/10 -- Page 5
former Class II landfill started in 2009 with completion
expected in 2012. Private developers will build a
mixed-use project on this site, finishing in 2016. Because
of the statutory deadlines, redevelopment activities in the
oldest portion of Project Area No. 1 must stop in 2014 and
property tax increment revenues stop in 2024.
Carson officials say that the cost of remediating the
157-acre "Boulevards at South Bay" site means that they
won't have enough revenue or bonding capacity to pay for
cleaning up the remaining brownfield sites. However, with
a 10-year extension for the oldest portion of Project Area
No. 1, they project an additional $83 million in property
tax increment revenues between 2025-26 and 2034-35. About
$21 million of that amount would have gone to schools.
With the mandatory pass-through payments to schools, Carson
officials say that the net effect on the State General Fund
would be about $18 million.
Carson could use the current law to grant a 10-year
extension to continue working on the remaining blighted
properties, but their obligation to set aside money in the
Low- and Moderate-Income Housing Fund would climb from 20%
to 30%. Carson officials say that they can't afford to
spend more money on affordable housing and still pay for
brownfield remediation. Carson officials want the
Legislature to allow 10-year extensions without having to
increase their housing obligations.
Proposed Law
Senate Bill 1112 allows redevelopment officials to extend
the time limits that apply to their older project areas
for:
The plan's effectiveness for 10 more years.
Receiving property tax increment revenue for 10
more years.
However, before they can extend these time limits,
redevelopment officials must determine that four conditions
exist:
At least 25% of the project area's property is a
brownfield site.
The project area's plan will expire within five
years.
Brownfield sites add significant costs and time to
SB 1112 -- 4/12/10 -- Page 6
the elimination of blight.
Significant blight will remain unless the time
limits are extended.
SB 1112 defines a "brownfield site" as real property where
redevelopment is complicated by the presence or potential
presence of a hazardous substance, pollutant, or
contaminant.
During the time extension, the agency can spend its tax
increment funds only on the blighted parcels, and on other
property that is "necessary and essential" to eliminating
that blight.
Before the agency can amend its redevelopment plan to
extend the time limits, it must adopt a resolution that
finds that:
The city or county has adopted a housing element
certified by the State Department of Housing and
Community Development.
For the previous three years, the State Controller
has not listed the agency in the annual report to the
Attorney General about agencies with major audit
violations.
The State Department of Housing and Community
Development has confirmed that the agency's Low and
Moderate Income Housing Fund does not have an excess
surplus.
If a redevelopment agency and its underlying city want to
extend these time limits, they must amend the redevelopment
project area plan, following additional procedures. The
agency must consult with all affected taxing agencies and
the project area committee. At least 120 days before the
public hearing on the amendment, the agency must send a
detailed preliminary report to the affected taxing
agencies, the State Department of Finance, and the State
Department of Housing and Community Development.
The agency must also send the proposed amendment to the
local planning commission for review, 120 days before the
hearing. At least 45 days before the hearing, the agency
must send hearing notices to the affected taxing agencies,
the State Department of Finance, the State Department of
Housing and Community Development, and anyone who commented
on the preliminary plan. At least 45 days before the
SB 1112 -- 4/12/10 -- Page 7
hearing, the agency must also send the city council a
detailed report.
To amend the redevelopment plan and extend the time limits,
the city council must adopt an ordinance and, based on
substantial evidence, make two findings:
Significant blight remains.
That blight can't be eliminated without
extensions.
An ordinance extending redevelopment time limits is subject
to referendum.
If an affected taxing agency, the State Department of
Finance, or the State Department of Housing and Community
Development believes that significant blight does not
exist, it can ask the Attorney General to participate in
the amendment process. It must ask the Attorney General
within 21 days after the public notice of the hearing was
sent. The Attorney General must determine whether or not
to participate. The Attorney General can sue on behalf of
the State Department of Finance and the State Department of
Housing and Community Development.
If an agency extends the time limits for a redevelopment
plan adopted before 1976, the project area becomes subject
to the one-for-one housing replacement requirement that
applies to post-1976 project areas. The project area must
also follow the housing production standards for post-1976
project areas.
Comments
1. Hard work, hard times . The state government wants
legitimate redevelopment to succeed. Redevelopment can
literally change the way a community looks, boosting
private investment and the supply of affordable housing.
But blight --- especially brownfields --- drags down many
communities. Private builders don't want to buy
contaminated property, even when it's cheap. Local
officials' traditional regulatory programs and public works
spending aren't enough to attract and retain private
investment in contaminated property. Really tough blight
requires the really strong tools that redevelopment
provides. If the Legislature doesn't allow local officials
SB 1112 -- 4/12/10 -- Page 8
to extend the deadlines to pay for remediating contaminated
soils, there's not much hope of eradicating blight and
returning the property to economic productivity. SB 1112
lets redevelopment officials put more money where it's
needed.
2. Not quite Torlakson . Until the 1993 Isenberg bill one
wag said that redevelopment was the closest thing to
perpetual motion that the Legislature ever created. With
the 2001 Torlakson bill, the Legislature recognized the
need to extend the statutory deadlines so that
redevelopment officials could continue to work on pockets
of blight. The Torlakson extensions required a trade-off.
In return for getting 10 more years, redevelopment
officials must set aside 10% more of their revenues for
affordable housing. Further, they must focus their
attention on extremely low, very low, and low-income
housing. SB 1112 follows the Torlakson precedent, except
for the obligation to spend more money on housing for the
neediest families. The Committee may wish to consider
whether the Legislature should side-step its 2001
compromise to benefit Carson and other communities with
brownfields.
3. Defer, not dodge . The 2001 Torlakson bill allowed
redevelopment officials to defer their affordable housing
obligations so they can generate enough money to pay for
fighting blight. The deferred amounts become a deficit
that redevelopment officials must repay to their Low and
Moderate Income Housing Fund in the future. To make the
"Boulevards at South Bay" project pencil-out, Carson
officials could target their initial spending on
remediation, and pay for the housing later. Why can't
Carson officials simply use the current law to defer their
housing payments?
4. Carson or California ? While many redevelopment
officials want their project areas to continue to generate
revenue for local economic development efforts, few are
able to document the blight that justifies continuing the
diversion of property tax increment revenues. At its
February 2008 oversight hearing, "Winding Down: Preparing
for the End of Older Redevelopment Projects," the Senate
Local Government Committee learned that redevelopment
officials have granted only three time extensions under the
2001 Torlakson legislation. Because of the remaining
SB 1112 -- 4/12/10 -- Page 9
brownfields, Carson's Project Area No. 1 might meet the
statutory tests. But SB 1112 is a statewide bill and there
may be tens of thousands of brownfields that need
remediation. The Committee may wish to consider limiting
SB 1112 just to the oldest portion of Carson's Project Area
No. 1.
5. Define dirty . The 1990 Polanco Redevelopment Act lets
redevelopment officials and property owners clean-up
contaminated property and receive limited immunity from
future liability. They can remedy or remove hazardous
substances from property within redevelopment project
areas. The Polanco Act contains strict statutory
definitions to guide its procedures. Instead of relying on
the Polanco Act, SB 1112 creates its own definition of
"brownfield site" which refers to the "presence or
potential presence of a hazardous substance, pollutant, or
contaminant" without defining those subsidiary terms. Why
should undocumented "potential" contamination justify the
diversion of millions more in property tax increment
dollars? To avoid confusion, the Committee may wish to
consider an amendment that uses the Polanco Act's terms.
6. State subsidies, local spending . Although Legislative
Counsel has not designated SB 1112 as a fiscal bill, it
affects the State General Fund. Because redevelopment
agencies divert property tax increment revenues away from
school districts, the State General Fund must backfill
those lost or forgone dollars. In 2007-08, statewide
property tax increment revenues totaled almost $5.4
billion. Because schools receive a little over half of the
property tax revenues, the State General Fund's indirect
subsidy to schools may be as much as $2.7 billion. By
allowing redevelopment officials to extend the flow of
property tax increment dollars beyond the statutory
deadlines, SB 1112 requires the State General Fund to pay
more money to schools in the future. The Senate Rules
Committee has directed the Senate Local Government
Committee to return SB 1112 for further consideration,
perhaps for re-referral to the Senate Appropriations
Committee.
Support and Opposition (4/15/10)
Support : City of Carson.
SB 1112 -- 4/12/10 -- Page 10
Opposition : California State Association of Counties, CRLA
Foundation, Western Center on Law & Poverty.