BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 2144 HEARING: 6/27/12
AUTHOR: Pérez FISCAL: Yes
VERSION: 6/21/12 TAX LEVY: No
CONSULTANT: Lui
INFRASTRUCTURE FINANCING AND REVITALIZATION DISTRICTS
Allows local governments to use Infrastructure and
Revitalization Financing Districts to finance specified
improvements.
Background and Existing Law
Cities and counties can create Infrastructure Financing
Districts (IFDs) 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,
IFDs divert property tax increment revenues from other
local governments for 30 years. However, IFDs can't divert
property tax increment revenues from schools (SB 308,
Seymour, 1990).
Unlike in former redevelopment project areas, the property
in an IFD doesn't have to be blighted, but an IFD can't
overlap a redevelopment project area. The Legislature has
declared, but not required, that IFDs should include
substantially undeveloped areas.
Forming an IFD is cumbersome. The city or county must
develop an infrastructure plan, send copies to every
landowner, consult with other local governments, and hold a
public hearing. Every local agency that will contribute
its property tax increment revenue to the IFD must approve
the plan. Once the other local officials approve, the city
or county must still get the voters' approval.
The deadline for filing lawsuits to challenge an IFD's
creation, financing plan, allocation of property tax
increment revenues, and tax allocation bonds is 30 days
after the local officials get voter approval.
AB 2144 -- 6/21/12 -- Page 2
Public officials continue to search for ways to raise the
capital they need to invest in public works projects, like
public transit facilities, infill development, or clean
water. One concept recognizes that expanded public
structures can boost the value of nearby property. Higher
property values produce higher property tax revenues.
Property tax increment financing captures those property
tax increment revenues. When redevelopment officials use
property tax increment financing to eradicate blight, state
law doesn't require voter approval. When local
officials use IFDs to capture property tax increment
revenues, state law requires 2/3-voter approval.
Proposed Law
Assembly Bill 2144 renames Infrastructure Financing
Districts as "Infrastructure and Revitalization Financing
Districts." AB 2144 makes the following changes to the
statutes governing the districts:
I. Voter approval . Current law requires local officials
to prepare an infrastructure financing plan and get 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.
Assembly Bill 2144 authorizes local officials to create
infrastructure and revitalization financing district and
issue debt with 55% voter approval.
II. Net available revenue . Citing a significant State
General Fund deficit, Governor Brown's 2011-12 budget
proposed eliminating RDAs and returning billions of dollars
of property tax revenues to schools, cities, and counties
to fund core services. The Legislature adopted AB X1 26
(Blumenfield, 2011), which dissolved all RDAs. Current law
creates the Redevelopment Property Tax Fund, which receives
property taxes that formerly would have been allocated to a
redevelopment agency. Money deposited in the fund is used
to help a successor agency wind down its affairs. Any
excess funds are allocated to local governments as property
taxes.
AB 2144 -- 6/21/12 -- Page 3
AB 2144 defines "net available revenue" (NAR) as periodic
distributions to the city from the Redevelopment Property
Tax Trust Fund, pursuant to state law, available to the
city after all preexisting legal commitments and
obligations from that revenue are made, pursuant to state
law. It must only include revenue remaining after all
current distributions, including, but not limited to
payment of enforceable obligations, all distributions to
other taxing entities, an applicable administrate fees,
have been made.
The bill:
Authorizes the city's legislative body to dedicate
any NAR through the financing plan;
Requires a legislative body to states that NAR from
the city may be used to finance public facilities and
must state the maximum portion of NAR to be committed
to the district for each year in the resolution of
intention to establish the proposed district and in
the IRFD's financing plan.
III. Bond sale . Current law allows IFD bonds to be sold
at discount not to exceed 5% of par at public sale. Bonds
may be sold at no less than par to the federal government
at private sale without any public advertisement. At least
five days prior to the sale, a notice must be published in
a general circulation newspaper and financial newspaper
published in the Cities of San Francisco and Los Angeles.
AB 2144 authorizes bonds to be sold at discount not to
exceed five percent of par at negotiated sale. AB 2144
specifies that the notice of the bond sale in newspapers
only apply to a public sale.
IV. Fire district approval . Before an IFD can divert
property tax increment from another taxing entity, current
law requires 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, AB 2144 requires
the special district to act on an IRFD's plan by adopting a
separate resolution.
AB 2144 -- 6/21/12 -- Page 4
V. Term life . Current law limits the terms of IFDs' bonds
to no more than 30 years. AB 2144 extends the maximum term
of IFDs' bonds from 30 years to 40 years, or a later date,
if specified by an ordinance, on which the allocation of
tax increment will begin.
AB 2144 requires the resolution of intent to establish a
district to state a date when the district and any NAR
allocation will end.
The district may issue debt with a final maturity date of
up to 30 years from the date of issuance of each debt
issue, subject to the time limit on tax allocation to the
district.
VI. Accountability . The current IFD law is silent on
fiscal protections, project management, or reporting
measures. AB 2144 requires that no later than June 30 each
year after an IRFD is created, the legislative body must
post on the legislative body's website an annual report,
which must contain:
A summary of the district's expenditures.
A progress report of the district's adopted goals.
An assessment of the status of the IRFD's public
works projects.
VII. Redevelopment . An IFD can't overlap a redevelopment
project area. AB 2144 repeals that statutory prohibition.
AB 2144 provides that any debt or obligation of a district
must be subordinate to an enforceable obligation of a
former redevelopment agency, pursuant to state law.
VIII. Types of projects . IFDs may finance the (1)
purchase, construction, expansion, improvement, seismic
retrofit rehabilitation of any real property, (2) planning
and design work directly related to the purchase,
construction, expansion, or rehabilitation, and (3) other
authorized costs pertaining to replacement dwelling units
or action seeking to void the creation of a district. An
IFD must finance only public capital facilities of
communitywide significance, like highways, transit, water
systems, sewer projects, flood control, child care
facilities, libraries, parks, and solid waste facilities.
AB 2144 adds to the list of authorized improvements that an
AB 2144 -- 6/21/12 -- Page 5
IRFD may finance to include:
Watershed lands used for the collection and
treatment of water for urban uses.
Flood management, including levees, bypasses.
Open space, and habitat restoration.
Brownfields restoration and other environmental
mitigation.
Purchase of land and property for development
purposes and related site improvements.
Acquisition, construction, or repair of housing for
rental or purchase, including multipurpose facilities.
Acquisition, construction, or repair of commercial
or industrial structures for private use.
The repayment of the transfer of funds to a
military base reuse authority pursuant to state law.
AB 2144 requires a district to finance projects of
communitywide significance. The bill also adds that an IRFD
may finance the planning and design related to a property's
seismic retrofit.
AB 2144 makes conforming changes throughout the bill
pertaining to public facilities.
IX. Polanco Act . The Polanco Redevelopment Act encourages
cleanup and development of brownfields-properties
contaminated by hazardous waste. The Act authorized former
redevelopment agencies to conduct a cleanup and to recover
the costs of that cleanup from responsible parties. AB
2144 authorizes an IRFD to utilize any powers under the
Polanco Act.
X. Sustainable Communities Strategy . The Sustainable
Communities and Climate Protect Act requires the Air
Resources Board to set regional targets for automobiles'
and light trucks' greenhouse gas emission reduction,
requires a regional transportation plan to include a
Sustainable Communities Strategy to meet targets for
greenhouse gas emission reduction, requires the California
Transportation Commission to maintain guidelines for travel
demand models, requires cities and counties to revise their
housing elements every eight years in conjunction with the
regional transportation plan, and relaxes CEQA requirements
for housing developments that are consistent with a
Sustainable Communities Strategy (SB 375, Steinberg, 2008).
AB 2144 allows IRFDs to finance any projects to implement
AB 2144 -- 6/21/12 -- Page 6
a sustainable communities strategy.
XI. Military bases . AB 2144 authorizes cities and
counties to finance a project on a former military base,
only if the project is consistent with the authority reuse
plan and is approved by the military base reuse authority,
if applicable.
The bill removes voter approval for any debt issued
pertaining to a former military base that is publicly
owned, provided that, all land within the proposed district
or project area is owned by one or more public entities,
military base reuse authorities, or entities control by
governmental agencies.
XII. Housing . IFD law provides that if any dwelling units
are proposed to be removed or destroyed, the legislative
body must:
Within four years of the removal or destruction,
require the construction or rehabilitation, for rental
or sale to persons or families of low or moderate
income, of an equal number of replacement dwelling
units at affordable housing cost.
Within four years of the removal or destruction,
require the construction or rehabilitation, for rental
or sale to persons of low or moderate income, a number
of dwelling units which is at least one unit but not
less than 20 percent of the total dwelling units
removed at affordable housing cost.
Provide relocation assistance and make all the
payments required to displaced persons.
Ensure that removal or destruction of any dwelling
units occupied by persons or families of low or
moderate income not take place unless and until there
are suitable housing units, at comparable cost to the
units.
AB 2144 adds that an equal number of replacement dwelling
units may also be at affordable rent, as defined in state
law.
Current law states the Legislature's intent that an IFD's
territory should be substantially undeveloped. AB 2144
removes this intent language and adds that an IRFD's
establishment should not ordinarily lead to the removal of
existing functional, habitable, and safe dwelling units
AB 2144 -- 6/21/12 -- Page 7
XIII. Definitions . AB 2144 defines "district" as an
infrastructure financing and revitalization district.
AB 2144 authorizes a district to be divided into project
areas, which may be subject to distinct limitations. The
legislative body may, at any time, add territory to a
district or amend the IRFD financial plan, pursuant to
procedures for the formation of the district and bond
approval.
The bill defines "project area" as a defined area within a
district in which activities of the district share a common
purpose or goal and an overall financing plan.
XIV. Findings and declarations . AB 2144 makes finding to
support the bill's purpose.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . AB 2144 creates a more flexible
development tool to finance needed public works projects,
while incorporating rigorous accountability measures to
ensure local government diligence, positive project
results, and healthier community development. AB 2144
recognizes the potential for infrastructure revitalization
and financing districts to implement SB 375's sustainable
communities strategy and the benefits of protecting and
rehabilitating brownfields from hazardous waste. Local
officials use tax increment financing to divert part of the
property tax revenue stream to a separate IRFD. If a local
government decides not to participate in the IRFD
formation, its tax increment revenue shares aren't touched.
Before taxes are raised, assessments are levied, or bonds
are issued, the California Constitution requires local
officials to get voters' approval: special taxes require
2/3-voter approval; general taxes require majority-voter
approval; benefit assessments require a weighted ballot
approval by property owners; local general obligation bonds
that require new property tax revenues need 2/3-voter
AB 2144 -- 6/21/12 -- Page 8
approval; local revenue bonds that rely on new fee revenues
require majority-voter approval. However, in contrast to
taxes, assessments, or bonds, IFDs neither raise taxes nor
generate new revenue. AB 2144 makes it easier for local
governments to use property tax increment financing while
retaining voter-approval.
2. Bond sales . Competitive sale" and "negotiated sale"
are two principal methods by which a bond issuer selects an
underwriter to purchase its bonds and resell them to
investors. In a competitive sale, underwriters deliver
sealed bids to the bond issuer. The underwriter with the
lowest bid is awarded the sale of the bonds. The
appropriate method for selling bonds depends on specific
details of each individual debt issuance, but competitive
sales of GO bonds usually cost less than negotiated sales.
AB 2144 allows negotiated sales, a significant change in
how districts may currently sell bonds. While negotiated
bond sales provide an opportunity to pre-market bonds that
potential investors may not be familiar with, competitive
sales provide the certainty of lower interest rates.
Because local governments need more certainty, the
Committee may wish to consider amending AB 2144 to delete
the authorization for negotiated sales.
3. IFDs vs. redevelopment . Albert Einstein once said that
the only reason for time is so that everything doesn't
happen at once. When Governor Brown eliminated
redevelopment, 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 IFDs have
no state funds, so IFDs need only to replace destroyed
housing and provide relocation assistance. Local
governments are reconsidering IFDs as an alternative
financing tool.
4. Net available revenues . 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. That's
AB 2144 -- 6/21/12 -- Page 9
why local 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 for bonds. That's why local limited
obligation bonds need 2/3-voter approval. These new bonds
are similar to limited obligation bonds because they rely
on a pledge of existing revenues, but they also involve
pledging other governments' revenues. AB 2144 authorizes
cities and counties to use revenue in excess of general
property tax revenue, after bonds, pass-through payments.
IFDs take a long time to accumulate the necessary capital
to bond against large-scale projects. Authorizing cities
and counties to use excess general property tax revenue,
after all legal commitments are paid, provides a necessary
additional source of revenue for an IRFD. It is unclear
whether the use of net available revenue is different from
a limited obligation bond, which requires 2/3-voter
approval.
5. One building block at a time . For many years, local
officials were reluctant to form IFDs because they worried
about the constitutionality of using tax increment revenue
from property not within a redevelopment project area. In
1998, an Attorney General's opinion allayed those concerns,
and the City of Carlsbad formed an IFD to fund the public
works for a new hotel and any future public works needed to
develop Legoland theme park up to $1.5 million. To date,
it is the only example of a finished IFD project.
Intrigued by the concept, other local officials have
persuaded legislators to pass special bills that adapt the
IFD statute to their local circumstances:
SB 207 (Peace, 1999): border development zone IFD.
SB 223 (Kelley, 1999): Salton Sea Authority IFD.
SB 1085 (Migden, 2005): San Francisco waterfront
IFD.
AB 2882 (De La Torre, 2006): Orangeline mag-lev
train IFD.
The existence of one complete IFD project underscores the
lack of evidence on IFD's viability as a local financing
tool. Rather, the list of incomplete projects attests to
the practical barriers that exist when implementing an IFD.
6. Related legislation . AB 2144 is not the only bill
seeking to update the IFD financing mechanism.
SB 214 (Wolk, 2011) removes the vote requirement to
issue bonds, form an IFD, and to set the appropriation
AB 2144 -- 6/21/12 -- Page 10
limit. SB 214 requires annual construction progress
reports, prohibits big-box subsidies, and promotes the
use of IFDS for Polanco Act clean-up, transit priority
projects, and disadvantaged communities. The Senate
Governance and Finance Committee passed the bill on a
vote of 6-3.
SB 310 (Hancock, 2011) SB 310 seeks to use IFDs for
transit priority projects. This bill was signed by
Governor Brown.
AB 485 (Ma, 2011) removes the vote requirement to
issue bonds, form an IFD, and to set the
appropriations limit, if an infrastructure financing
district implements a transit village plans. Also,
the bill requires the transit village plan to
set-aside 20% of the IFD's property tax increment for
affordable housing. The Senate Governance and Finance
Committee passed the bill on a vote of 6-3.
AB 664 (Ammiano, 2011) allows San Francisco to use
IFD revenues along its waterfront to support the
America's Cup venue. Governor Brown signed this bill.
AB 910 (Torres, 2011) adds affordable housing,
economic development, and transit villages to the list
of authorized IFD projects.
AB 1827 (Bonilla, 2012) authorizes military base
reuse authority to form IFDs. The bill authorizes
IFDs to finance homeless accommodations.
AB 2551 (Hueso, 2012) authorizes local agencies to
form IFDs in renewable energy infrastructure
districts, as defined. The bill exempts local
agencies from voter-approval requirements when
creating an IFD in a renewable energy infrastructure
district. The Senate Governance and Finance Committee
will hear this bill at its July 3 hearing.
AB 2259 (Ammiano, 2012) amends provisions
pertaining to San Francisco's use of IFD revenues to
support America's Cup. The Senate Governance and
Finance Committee will hear this bill at its July 3
hearing.
7. Technical . AB 2144 expands the list of projects
financed by a district. It makes technical conforming
changes to reflect that not all projects may be public
capital facilities. Some portions of the bill strike out
the word "public" but not in others. The Committee may
wish to consider amending the bill to make further
AB 2144 -- 6/21/12 -- Page 11
conforming clarifications:
On page 8, line 18, after "or" strike "public
works"
On page 8, line 19, strike "construction" and
insert "facilities"
On page 10, line 10, after "the" strike "public"
On page 10, line 14, before "improvements" strike
"public"
On page 10, line 17, after "the" strike "public"
On page 10, line 18, after "the" strike "public"
On page 11, line 27, strike out "public works
construction" and insert "facilities"
On page 37, line 27, after "the" strike "public"
Assembly Actions
Assembly Local Government Committee: 6-3
Assembly Appropriations Committee: 12-5
Assembly Floor: 50-25
Support and Opposition (6/22/12)
Support : California Special Districts Association.
Opposition : California Association of Realtors; California
Taxpayers Association; Fieldstead and Company; Howard
Jarvis Taxpayers Association.