BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 664 (Ammiano)
Hearing Date: 08/22/2011 Amended: 08/17/2011
Consultant: Mark McKenzie Policy Vote: G&F 9-0
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BILL SUMMARY: AB 664 would authorize the City and County of San
Francisco to form special waterfront infrastructure financing
districts (IFDs) on specified waterfront property that may be
used as an America's Cup venue (Port America's Cup IFD) and
specified property on Treasure Island and Yerba Buena Island
(Treasure Island IFD). These IFDs would divert property tax
increment to leverage financing for development, as specified,
including increment that would otherwise be allocated to the
Educational Revenue Augmentation Fund (ERAF).
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
Port America's Cup IFD Annual diversion of $2,056 - $3,650
inGeneral
ERAF property tax increment from 2014
through 2043 (see staff comments)
Treasure Island IFD Annual diversion of ERAF property
taxGeneral
increment for 45 years. Annual impact
of $700 in 2015, rising to $12,000 by
2030,
and increasing annually thereafter.
---------(see staff comments)---------
I-Bank: financing plan review Unknown one-time costs,
reimbursed by General
local entity submitting plan for review
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
In February 2010, the BMW ORACLE Racing Team, sailing for the
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Golden Gate Yacht Club, won the 33rd America's Cup off the coast
of Valencia, Spain. On December 31, 2010, the team designated
the City and County of San Francisco to host the 34th America's
Cup sailing regatta (AC34). The team anticipates holding the
AC34 match in San Francisco Bay in 2013, with preliminary races
beginning worldwide in 2011 and locally in 2012.
The Port of San Francisco is currently conducting environmental
review of the proposed AC34 event locations and on proposed
improvements to Pier 27 to build a new primary cruise terminal
for the Port, which would serve as one of the central venues in
the proposed America's Cup Village. A draft environmental
impact report was released for public review on July 11, 2011.
Pursuant to the AC34 Host and Venue Agreement between event
organizers and the City and County of San Francisco, the City is
funding the costs of environmental compliance and all
transportation and public safety requirements. In addition, the
City has agreed to fund the construction of the new cruise
terminal at Pier 27, at an estimated cost of $97 million.
According to a Beacon Economics report on the 34th America's
Cup, the state is projected to receive $61 million in direct tax
benefits (in 2013 dollars) from the 34th America's Cup.
AB 664 would authorize the City and County of San Francisco to
establish a Port America's Cup special waterfront IFD, and adopt
an enhanced financing plan that allows the district to retain
the ERAF share of property tax increment. The ERAF share in
this district may only be used to finance the following:
Construction of the Port's maritime facilities at Pier 27,
including public access and open space improvements.
Planning and design work for the Port's maritime facilities at
Pier 27.
Planning, design, and construction of improvements to publicly
owned waterfront lands used as public spectator viewing sites
for America's Cup events, including the San Francisco Bay
Trail.
Future installations of shoreside power facilities on Port
maritime facilities.
20% of the ERAF share must be set aside to finance
improvements to publicly owned lands approved by federal or
state trustee agencies, as applicable.
AB 664 would also authorize the City and County of San Francisco
to establish a Treasure Island special waterfront IFD, and adopt
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an enhanced financing plan that allows the district to retain
the ERAF share of property tax increment. For a Treasure Island
district, the ERAF share may be used to finance the following
authorized improvements necessary for the development of
Treasure Island:
Any facilities and services that an IFD and a waterfront IFD
is authorized to finance, pursuant to existing law.
The costs to increase, improve, and preserve the supply of
affordable housing on Treasure Island property. At least 20%
of the ERAF share must be set aside for this purpose.
The costs of work deemed necessary to bring public or private
property on Treasure Island into compliance with seismic
safety standards or regulations.
Before authorizing debt by either an America's Cup special
waterfront IFD or a Treasure Island special waterfront IFD, the
San Francisco Board of Supervisors officials must submit a
fiscal analysis to the California Infrastructure and Economic
Development Bank (I-Bank) for review and approval. The I-Bank
can ask other state agencies to comment and offer
recommendations. AB 664 requires the I-Bank to act within 90
days to either approve the fiscal analysis or return it with
specific recommendations for changes. The fiscal analysis would
be "deemed approved" if the I-Bank fails to act within 90 days.
To approve the fiscal analysis, the I-Bank must find that there
is a reasonable probability that the economic activity proposed
to occur from hosting the America's Cup or the development of
the Treasure Island property would result in State General Fund
revenue with a net present value greater than the net present
value of the property tax increment revenues diverted from ERAF
over the term of the respective special waterfront IFD. The
I-Bank must consider only those State General Fund revenues that
would occur as a result of hosting the America's Cup in
California or developing the Treasure Island property. AB 664
prohibits the I-Bank from considering State General Fund
revenues that would have occurred if the America's Cup event
were not held in California or if the Treasure Island property
is not developed. AB 664 requires the board of supervisors to
reimburse the I-Bank for the reasonable costs of reviewing and
approving the fiscal analysis.
Staff notes that the bill does not provide an option for the
I-Bank to deny that a fiscal analysis has shown that the General
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Fund impacts of the event or development are greater than the
value of the diverted ERAF increment revenues. The Port of San
Francisco indicates that it is unlikely that development related
to the America's Cup would occur absent the investment of the
State's ERAF funds. While specific improvements to Pier 27 may
not occur absent the ERAF investment, it seems highly unlikely
that the AC34 events would not take place and other improvements
to the waterfront would not occur without this subsidy. The
America's Cup official website indicates that the San Francisco
Bay will be home to the 2013 America's Cup Finals and the Louis
Vuitton Cup, America's Cup Challenge Series. Additionally,
there will be two America's Cup World Series events in San
Francisco in 2012. As such, the economic benefits to the region
and to the State General Fund as a result of hosting the
America's Cup in San Francisco would likely occur with or
without the authority granted by this bill.
According to the Port's economic analysis that compares the net
present value of ERAF share of property tax revenue with other
state tax revenue expected to accrue from AC 34, the ERAF share
represents approximately 50 percent of the state's potential tax
revenue. The Port's analysis estimates that the AC34 would
generate up to $60.9 million in tax revenue in 2013 (with a net
present value of $49.7 million), and that the net present value
of the ERAF share over 30 years would be approximately $25.6
million. This bill would divert approximately $2 million in
ERAF property tax increment in 2014, which would grow to an
annual diversion of approximately $3.6 million by 2043; the
aggregate amount diverted over 30 years would be approximately
$83 million. AB 664 would allow the Port America's Cup IFD to
divert ERAF revenues for up to 45 years after the increment
diversion reaches at least $100,000, so the total amount of
diverted increment revenues would likely exceed $140 million.
Staff notes that the estimated tax revenues that the state would
receive as a result of the AC34 are overstated by roughly $5
million because the State General Fund portion of the sales and
use tax has dropped from 5% to 3.94% as a result of the recently
enacted Budget Act.
The Treasure Island Development Authority, the designated
redevelopment authority for Treasure Island, has commissioned a
study of the potential fiscal impacts on the state as a result
of the development of Treasure Island. This study estimates
that the ERAF increment attributable to development would be
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$701,122 in 2014, which would grow to nearly $12 million
annually by 2030, after which the amount would stabilize and
only grow by the annual overall property tax growth rate. The
study indicates that the value of the state tax gains would be
nearly four times the value of the diverted ERAF property tax
revenues after 20 years. AB 664 would allow the Treasure Island
IFD to divert ERAF revenues for up to 45 years after the
increment diversion reaches at least $100,000, so the total
amount of increment diverted could exceed $400 million. Staff
notes that the estimated state tax revenues are also slightly
overstated as a result of recent reductions in the General Fund
portion of the sales and use tax rates.
Staff notes that AB 664 creates a substantial diversion of tax
increment that would otherwise flow to the ERAF, resulting in a
General Fund loss for the 45-year life of the special waterfront
IFDs create by the bill. The primary consideration of potential
offsetting state revenue gains is the extent to which the state
benefits would accrue absent this bill. In the case of the Port
America's Cup IFD, it appears highly likely that the vast
majority of economic benefits are inevitable as evidenced by
development and financing agreements between San Francisco
officials and event organizers, as well as a documented schedule
of America's Cup race events. The extent of development of a
new cruise ship terminal at Pier 27 may be questionable without
the diversion of ERAF property tax increment. Since the AC34
events are likely to occur absent this bill, however, state
General Fund benefits from the event should not be considered
contingent upon its passage.
Existing law (AB 699, Migden, 1997) authorized the designation
of the Treasure Island Development Authority (TIDA) as the
redevelopment agency for the former naval base on the island.
Since 1997, the long-term plan for development on Treasure
Island has always been based on the redevelopment model.
However, following the passage of ABx1 26 (Blumenfield) and ABx1
27 (Blumenfield), Chapters 5 and 6, respectively, of the 2011-12
First Extraordinary Session, there has been statewide
uncertainty about the continued viability of some redevelopment
agencies. These bills dissolved all existing redevelopment
agencies and provide for a voluntary alternative redevelopment
program that requires a one-time payment to the state and
reductions in the amount of property tax increment that may be
used for redevelopment purposes. The timing and extent of
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development on Treasure Island is unclear at this time. AB 664
would allow for the establishment of a Treasure Island IFD, and
provide for the diversion of ERAF property tax increment for
purposes of development on the island. To the extent that
development would occur by means other than diversion of ERAF
increment revenues, this bill creates a substantial diversion of
tax increment that would otherwise flow to the ERAF, resulting
in a General Fund loss for the 45-year life of the IFD.
However, the extent to which this bill promotes economic
development that could not happen without the diversion of ERAF
increment, there could be offsetting future state and local
revenue gains.
The Committee may wish to consider whether this bill provides a
direct and long-term state subsidy for economic benefits and
development that may occur with or without this bill.
Staff notes that this bill is similar to AB 1199 (Ammiano),
Chapter 664 of 2010, which revised the special statute that
controls how local officials can form, finance, and operate an
IFD along the San Francisco waterfront at Pier 70, on land that
is under the jurisdiction of the Port of San Francisco. AB 1199
authorized the use of ERAF property tax increment to support the
development of an area that has not attracted private investment
for development in over 40 years.