BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 485 HEARING: 7/6/11
AUTHOR: Ma FISCAL: No
VERSION: 6/29/11 TAX LEVY: No
CONSULTANT: Lui
INFRASTRUCTURE FINANCING DISTRICTS
Makes it easier for cities and counties to use
infrastructure financing districts for transit oriented
development projects.
Background and Existing Law
Federal, state, and local agencies have invested billions
of dollars in mass transit projects and programs. Some
communities have created transit villages, which are areas
of denser residential and commercial development within
walking distance of transit stations.
However, local agencies are often hard-pressed to subsidize
public works, like parks, lighting, or landscaping, which
are necessary to attract private investment, new
businesses, and residents. Transit-oriented development
competes with other local priorities. The San Francisco
Bay Area Rapid Transit District (BART) wants to encourage
more intense development around its stations by linking
transit development with property tax increment financing.
Proposed Law
Assembly Bill 485 allows local officials to divert property
tax increment revenues to pay for public facilities and
amenities within transit village development districts.
I. Transit Village Plans . The Transit Village Development
Planning Act allows cities and counties to adopt transit
village plans that identify areas where local officials
want to encourage neighborhoods centered on transit
stations and to grant density bonuses, among other
characteristics (AB 3152, Bates, 1994). To qualify, a
transit village plan (TVP) must demonstrate five public
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benefits, from a list of 13 benefits (AB 1320, Dutra,
2004).
Assembly Bill 485 requires that one of the five
demonstrable public benefits of a transit village plan must
be either an increased stock of affordable housing or
live-travel options for transit-needy groups. The TVP must
include provisions to implement mixed-housing types within
one-half mile of a transit station.
II. Bond terms . The terms of IFDs' bonds can't exceed 30
years. Assembly Bill 485 extends the maximum term of IFDs'
bonds from 30 years to 40 years.
III. Infrastructure Financing Districts and transit
facilities . A city or county may create an Infrastructure
Financing District (IFD) 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, the IFD can divert property tax
increment revenues from other local governments (not
schools or community colleges) for up to 30 years; local
governments must consent to the diversion. Each IFD must
have a detailed infrastructure financing plan (SB 308,
Seymour, 1990).
After preparing an infrastructure financing plan, state law
requires local officials to obtain voter approval to:
Form the IFD, which requires 2/3-voter approval.
Issue bonds, which requires 2/3-voter approval.
Set the appropriations limit, which requires
majority-voter approval.
If an infrastructure financing district implements a
transit village plan, Assembly Bill 485 removes the
2/3-vote requirement to form the IFD, the 2/3-vote
requirement to issue bonds, and the majority vote to set
the appropriations limit.
AB 485 defines "transit facilities," as any publicly owned
facility and amenity necessary to implement a transit
village plan adopted under the Transit Village Development
Planning Act.
IV. Infrastructure Financing Districts and affordable
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housing . If an IFD finances a transit village project,
Assembly Bill 485 requires the transit village plan to
include an increased stock of affordable housing or live-in
travel options for transit-needy groups. The bill requires
IFDs that finance transit villages to set aside 20% of all
property tax increment revenues to increase, improve, and
preserve housing that is affordable and occupied by
moderate-, low-, very low-, and extremely-low income
households. The amount of very low, low-, and
moderate-income housing must comply with the Community
Redevelopment Law and the adopted transit village plan.
AB 485 requires that the housing units constructed under
the 20% affordable housing requirement must remain
available at an affordable cost and occupied by moderate-,
low-, very low-, and extremely-low income households for
the longest feasible time: at least 55 years for rental
units and 45 years for owner-occupied units.
If dwelling units have been destroyed or removed, AB 485
requires the city, county, or city and county to
rehabilitate, develop, or construct an equal number of
replacement dwelling units. The replacement housing must
have an equal or a larger number of bedrooms as the
destroyed or removed units and must be at an affordable
cost to low- or moderate-income individuals and families.
V. Fire district approval . Before an IFD can divert
property tax increment revenues from another taxing entity,
every local agency that will contribute its property tax
increment revenue to the IFD must approve the
infrastructure financing plan. Some special districts are
governed ex officio by county boards of supervisors or city
councils. In the case of a special district that provides
fire protection services where the county board of
supervisors is the governing authority, Assembly Bill 485
requires the special district to act on an IFD's plan by
adopting a separate resolution.
VI. State's goals . The Sustainable Communities and
Climate Protection Act requires:
The Air Resources Board to set regional targets for
automobiles and light trucks' greenhouse gas emission
reductions.
A regional transportation plan to meet greenhouse
gas emission reduction targets, and the California
AB 485 - 6/29/11 -- Page 4
Transportation Commission to maintain guidelines for
travel demand models.
Cities and counties to revise their housing
elements every eight years in conjunction with the
regional transportation plans.
The Act relaxes CEQA requirements for housing developments
that are consistent with a Sustainable Communities Strategy
(SB 375, Steinberg, 2008). The sustainable communities
strategy and the Global Warming Solutions Act (AB 32,
Nu�ez, 2006) promote dense, walkable communities, mass
transit, and greenhouse gas emission reductions.
Assembly Bill 485 declares that transit village development
districts provide a new tool for achieving the sustainable
communities strategy and meeting the Air Resource's Board
target for greenhouse gas reductions. The bill also
expresses the Legislature's intent to make transit villages
sustainable and environmentally conscious, and that related
construction meets or exceeds the Green Building Standard
Code's requirements.
VII. Accountability . The current IFD law is silent on
fiscal protections, project management, or reporting
measures. Assembly Bill 485 requires that local officials'
resolution of intention to form an IFD must state the goal
and need of the district and that the resolution be posted
on the legislative body's Internet web site. AB 485
clarifies that IFDs can't be used for maintenance,
services, or to compensate the members of the legislative
body. AB 485 requires the legislative body to mail an
annual report to landowners in the district and each
affected taxing entity. The report must also be posted on
the legislative body's website. The report must include:
A summary of the IFD's expenditures.
A progress report of the IFD's adopted goals.
An assessment of the status of the IFD's public
works projects.
If the IFD fails to submit the annual report to its
landowners or taxing entities, or the report is not put on
the legislative body's Internet website, the IFD can't
spend any funds to construct public works projects until
the report is submitted. If the IFD fails to show progress
for five consecutive years, it can't spend any funds to
construct any new public works projects. Any excess
property tax increment revenues that may have been
allocated to the new public works projects would be
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re-allocated according to the adopted formula.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Urban planners, transit agencies,
and many local governments tout transit-oriented
development (TOD) as a tool to address the adverse effects
of urbanization: traffic gridlock, loss of open space, and
increased environmental pollution. Local agencies can
create mixed-used communities, blending residential and
commercial properties, by clustering development around
mass transit hubs. The public sector invests in transit as
part of the wider strategy to improve air quality, save
energy, decrease traffic congestion, and promote compact
development. When communities encourage transit agencies
to build expensive systems, but fail to provide mechanisms
to finance them or to finance the dense development that
accompanies transit stations, there are social, physical,
and fiscal losses. Some communities may not encourage
dense development around transit because of the lack of
incentives to pay for the public works that support new
residents and businesses. AB 485 allows cities and
counties to reap the positive fiscal benefits of new
construction inside transit villages. The bill gives local
officials a tailored fiscal tool to spur private investors
and developers to invest in TODs. Legislators and voters
who have elected their local representatives should let
local officials do their job: setting local priorities for
spending local revenues.
2. No vote required . When Governor Deukmejian signed the
1990 Seymour bill that created IFDs, there was a political
agreement that local officials should get 2/3-voter
approval before they could issue IFD bonds. The California
Constitution requires 2/3-voter approval before cities or
counties can issue long-term debt backed by local general
purpose revenues; school districts need 55%-voter approval.
General obligation bonds need 2/3-voter approval. The
courts have explained that cities need 2/3-voter approval
before they dedicate portions of their general funds to pay
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for bonds. That's why local limited obligation bonds need
2/3-voter approval. But the Constitution is silent on
IFDs. Redevelopment agencies can borrow money without
voter approval by issuing tax allocation bonds backed by
other local governments' diversion of property tax
increment revenues. Similarly, IFDs' tax increment bonds
are backed tax increment revenues from local governments
(but not schools) that consent to diverting their revenues.
IFDs' tax increment bonds are not like local agencies' own
limited obligation or general obligation bonds. AB 485
repeals the statutory requirement for 2/3-voter approval on
IFDs' bonds. Since the vote requirement is not
Constitution-bound, the Committee may wish to consider what
voter approval (if any) local officials should seek before
issuing IFD bonds.
3. IFDs vs. redevelopment . Albert Einstein said that the
only reason for time is so that everything doesn't happen
at once. When Governor Brown proposed the elimination of
redevelopment in this year's Budget, the world of IFDs and
redevelopment intertwined. In the 1990 political
compromise that resulted in IFDs, legislators drew clear
distinctions with redevelopment projects. The land use key
to redevelopment was blight, but IFDs don't have to
demonstrate blight. The fiscal key to redevelopment was
access to the schools' share of property tax increment
revenues, but IFDs can't touch any school funds. The
housing key to redevelopment was that 20% of their property
tax increment revenues must be set aside to support
affordable housing, but because IFDs have no state subsidy,
IFDs only need to replace destroyed housing and provide
relocation assistance. If redevelopment activities stop or
decline, IFDs may become more important. Regardless of
what happens with redevelopment, AB 485 uses IFDs to
incentivize the types of development promoted by the
state's sustainable communities strategy and transit
village project goals.
4. No state subsidy . When redevelopment agencies divert
property tax increment revenues from schools, the State
General Fund backfills school coffers. That diversion
indirectly creates a state subsidy for redevelopment
projects. Unlike redevelopment agencies that capture the
schools' share of property tax increment revenues,
infrastructure financing districts don't benefit from state
subsidies. By diverting property tax increment revenues
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only from local governments that are willing to give up a
share of their revenues, IFDs rely on locally generated
revenues and not a State General Fund subsidy.
5. Not fiscally feasible ? IFDs and redevelopment agencies
are two different approaches to property tax increment
financing; the key difference is that IFDs can't divert the
schools' shares of property taxes. In the 1970s, the
Legislature required redevelopment agencies to set aside
20% of their property tax increment revenues to support
affordable housing for two reasons: because legislators
thought that some redevelopment agencies were harming
residential neighborhoods without sufficient regard for
housing, and because the State General Fund subsidized
redevelopment by backfilling schools. Neither reason
applies to IFDs. Besides, diverting 20% of an IFD's
property tax increment revenues won't produce much money
for affordable housing. Statewide, cities get 11� out of
each property tax dollar, counties get 17�, districts get
20�, and schools get 52�. If this statewide allocation
existed in a hypothetical city that formed an IFD, but
couldn't get the county government and special districts to
allow the diversion of their property tax increment
revenues, then the city would get just 11% of the
incremental dollars. The property tax bill on a new $1
million improvement would be $10,000 and the IFD would get
the city's share of $1,100. If the IFD had to set aside
20% for affordable housing, that would produce $220 a year;
the IFD's other $980 a year would pay off the IFD's bonds.
The Committee may wish to consider if requiring a 20%
set-aside for affordable housing will make cities less
likely to use IFDs to promote transit villages. Is there
enough revenue to do both?
6. Try, try again . AB 485 is not the first attempt to
encourage transit village planning. AB 485 is similar to
AB 1221 (Ma, 2008), AB 338 (Ma, 2009), and AB 987 (Ma,
2010):
AB 987 (2010) expanded 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 a transit station's main
entrance. Governor Schwarzenegger signed AB 987.
AB 338 (2009) would have waived the
voter-approval requirements for setting up
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Infrastructure Financing Districts and issuing IFD
bonds. Governor Schwarzenegger vetoed the measure
because it "would undermine the rights of voters to
approve or reject proposals to redirect their tax
dollars and incur public debt." Governor
Schwarzenegger highlighted that because IFDs don't
need to find "blight" like RDAs do, "elections are
the sole basis of public input and fiscal discipline
in the creation of an IFD."
AB 1221 (Ma, 2008) would have linked IFDs to
transit village development and expanded the
planning area. Governor Schwarzenegger vetoed AB
1221, citing the delayed Budget and stating that he
didn't consider the bill to be a statewide priority.
7. Related bills . AB 485 is not the only bill this year
seeking to update the IFD financing mechanism.
AB 664 (Ammiano, 2011) allows San Francisco to
use IFD revenues along its waterfront to support the
America's Cup venue.
AB 910 (Torres, 2011) expands the list of
projects that IFDs can finance to include affordable
housing facilities, economic development, and
transit village projects. For projects the finance
affordable housing, economic development, and
transit villages, the bill also removes the vote
requirement to form a district, issue bonds, and set
the appropriations limits.
SB 214 (Wolk, 2011) removes the vote
requirement to issue bonds, form an IFD, and to set
the appropriations limit. SB 214 requires annual
construction progress reports, prohibits big-box
subsidies, and promotes the use of IFDs for
environmental protection and disadvantaged
communities.
SB 310 (Hancock, 2011) removes the vote
requirement to form a district, issue bonds, and set
the appropriations limit. SB 310 seeks to use IFDs
for transit priority projects.
As each bill moves through the legislative process, the
Committee may wish to ask how each author intends to
prevent chaptering out.
Assembly Actions
AB 485 - 6/29/11 -- Page 9
Assembly Local Government Committee:6-3
Assembly Floor: 47-29
Support and Opposition (6/30/11)
Support : San Francisco Bay Area Rapid Transit District;
California Association of Realtors; California Transit
Association; Greenbelt Alliance; Metropolitan
Transportation Commission; Santa Clara Valley
Transportation Authority.
Opposition : California Taxpayers Association; City of
Lakewood; Howard Jarvis Taxpayers Association.