BILL ANALYSIS Ó
AB 1338
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Date of Hearing: April 13, 2011
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
AB 1338 (Hernández) - As Introduced: February 18, 2011
SUBJECT : Local government: economic development: financial
assistance.
SUMMARY : Establishes, for local governments, specified
requirements to be met prior to the issuance of economic
development loans, grants or similar financial assistance from
that local government. Specifically, this bill :
1)Requires any local agency that provides economic development
loans, grants, or similar financial assistance, to do all of
the following:
a) Prior to providing economic development loans, grants or
similar financial assistance, make a written determination
that the subsidy is not a gift of public funds, as defined
in the California Constitution;
b) In the case of assistance involving property
acquisition, prior to providing any economic development
loans, grants, or similar financial assistance, require the
applicant to provide third-party appraisal of the property
using fair market value to determine the value of the
property;
c) In the case of assistance involving construction,
provide no more than 25% of the total economic development
loans, grants, or similar financial assistance to be
provided until the applicant is able to demonstrate that
the project is ready to enter the construction phase;
d) In the case of assistance involving construction, if the
applicant has demonstrated that the project is ready to
enter the construction phase and has received up to 25% of
the total economic development loans, grants, or similar
financial assistance, pursuant to c) above, provide no more
than 50% of the total economic development loans, grants,
or similar financial assistance until the applicant can
demonstrate that at least 50% of the project as proposed,
has been completed; and,
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e) In the case of assistance involving construction, if the
applicant has demonstrated that at least 50% of the project
has been completed and has received up to 50% of the total
economic development loans, grants or similar financial
assistance, pursuant to d) above, the local agency may
provide the applicant the remaining portion of the total
amount of the economic development loans, grants or similar
financial assistance.
2)Provides, in the case of assistance involving construction,
if, after two years from the date
of approval of the project and the economic development loans,
grants, or similar financial assistance, the local agency
determines that the project is not ready to enter the
construction phase, pursuant to the provisions of the bill,
the local agency may require the applicant to return the total
financial subsidy that the developer has received to the local
agency.
3)Defines "local agency" to mean any city, county, city and
county, special district, or redevelopment agency.
4)States that the Legislature finds and declares that
responsible use of public funds is an issue of statewide
concern and not a municipal affair and states that it is the
intent of the Legislature that the provisions of the bill
apply to charter cities and charter counties.
EXISTING LAW :
1)Prohibits cities, counties and redevelopment agencies from
subsidizing the relocation of big box retailers and auto malls
within the same market area.
2)Prohibits a local agency from entering into any form of
agreement that would result, directly or indirectly, in the
payment, transfer, diversion, or rebate of any tax revenue
resulting from the imposition of sales and use tax under the
Bradley-Burns Uniform Local Sales and Use Tax Law, in
specified conditions.
3)Authorizes a local agency to require an applicant for economic
development loans, grants or similar financial assistance to
sign a statement under penalty of perjury that he or she has
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not been convicted of a felony.
FISCAL EFFECT : Unknown
COMMENTS :
1)This bill places new requirements on local agencies prior to
the issuance of economic development funds. Specifically,
this bill requires a third-party appraisal of the property
under consideration, and once approved, the bill requires that
funds from the local government are allocated in an
incremental fashion, based on the progress of the project.
2)The author argues that massive land grants and subsidies are
being given to private developers without monitoring the
process of construction of the projects. Additionally, the
author notes that loans and grants from local agencies for
economic development are issued to developers in sum, and are
not allocated in an incremental fashion after the developer
has demonstrated developmental progress.
3)There have been previous attempts to increase accountability
by prescribing new requirements for local governments prior to
the issuance of subsidies, including SB 1103 (Cedillo, 2008)
and SB 103 (Cedillo, 2007). Both of those bills would have
required local agencies to provide specified information to
the public before approving any economic development subsidy
over $100,000. SB 103 was vetoed by Governor Schwarzenegger
and SB 1103 was used for another legislative proposal after
passing out of this committee.
4)The bill states that these new requirements shall apply
broadly to all cities and counties and states that the use of
public funds is not a municipal affair. In general terms,
this means that the requirements of the bill, should it be
signed into law, will apply to all cities, including charter
cities, and all counties in the state.
5)This bill does not contain a definition for "economic
development loans, grants or similar financial assistance" as
referenced in the bill. This lack of a definition could
create implementation problems for local governments because
of the overly broad language in the bill and could create
confusion for local governments.
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The Committee may wish to ask the author to explicitly define
the types of economic development activities he wants to
capture under the provisions of the bill.
6)The Committee may wish to ask the author whether the
provisions of this bill might somehow impede the ability of
developers to complete their projects - does this bill account
for the natural problems that can sometimes occur with new
developments? What if the developer is relying on other means
of financing beside the local government's funds to make a
project pencil out, and that that financer or lender backs
out? Will the provisions of the bill create new barriers to
finishing a project on time?
7)Support arguments: Supporters, the Howard Jarvis Taxpayers
Association, argues that
AB 1338 "represents a fiscally prudent use of taxpayer dollars.
By setting construction markers at various points, the bill
provides transparency by ensuring that funds are only spent on
projects that move forward." This additional oversight will
help ensure that public funding is only going to viable
projects.
Opposition arguments: Opposition could argue that the two
-year clock the bill creates once a project is approved could
be problematic. There are a number of factors outside of a
builder's control that would extend the time-period between
project approval and construction; including, building
moratoriums, additional environmental permitting,
unanticipated litigation, etc.
REGISTERED SUPPORT / OPPOSITION :
Support
Howard Jarvis Taxpayers Association
Opposition
None on file
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958
AB 1338
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