BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 214 HEARING: 4/27/11
AUTHOR: Wolk FISCAL: No
VERSION: 4/25/11 TAX LEVY: No
CONSULTANT: Lui
INFRASTRUCTURE FINANCING DISTRICTS
Makes it easier for local governments to use infrastructure
Financing Districts.
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 redevelopment, 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.
Public officials continue to search for ways to raise the
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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
I. Voter approval . After preparing an infrastructure
financing plan, local officials must 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.
Senate Bill 214 repeals the voter approval requirements to
form an IFD, issue IFD bonds, and set the IFD's
appropriations limit.
II. Fire district approval . Before an IFD can divert
property tax increment 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, Senate Bill 214
requires the special district to act on an IFD's plan by
adopting a separate resolution.
III. Bond terms . The terms of IFDs' bonds can't be more
than 30 years. Senate Bill 214 extends the maximum term of
IFDs' bonds from 30 years to 40 years.
IV. Accountability . The current IFD law is silent on
fiscal protections, project management, or reporting
measures. Senate Bill 214 requires that local officials'
SB 214 -- 4/25/11 -- Page 3
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. SB 214
clarifies that IFDs can't be used for maintenance,
services, or to compensate the members of the legislative
body. SB 214 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, it 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 re-allocated according to
the adopted formula.
V. Redevelopment project areas . An IFD can't overlap a
redevelopment project area. Senate Bill 214 repeals that
statutory prohibition.
VI. Big box retailers and vehicle dealers . State law
prohibits a community from giving financial
assistance-direct below-market property deals or cuts in
fees-to a big box retailer or vehicle dealer that relocates
in the same market area (SB 114, Torlakson, 2003). That
law applies to counties, cities, and redevelopment
agencies. Senate Bill 214 prohibits IFDs from providing
financial assistance to big box retailers or vehicle
dealers to relocate from one local agency to another in the
same market area.
VII. Disadvantaged communities . State law defines
disadvantaged communities as those with median household
incomes less than 80% of the statewide average. Severely
disadvantaged communities have median household incomes
less than 60% of the statewide average. Many disadvantaged
communities lack adequate public services and facilities
like clean water, sewers, paved streets, storm drains, and
street lights. Advocates want legislators to require local
SB 214 -- 4/25/11 -- Page 4
officials to include disadvantaged communities in their
long-range planning for land use and public facilities.
Senate Bill 214 declares that it is in the public interest
for IFDs to finance public works for disadvantaged
communities.
VIII. Polanco Act . The Polanco Redevelopment Act
encourages cleanup and development of
brownfields-properties contaminated by hazardous waste.
The Act authorizes redevelopment agencies to conduct a
cleanup and to recover the costs of that cleanup from
responsible parties. Redevelopment agencies that conduct
these cleanups, and individuals that enter into
redevelopment agreements with the agency, immune from
future cleanup liability. Senate Bill 214 allows IFDs to
finance necessary actions to clean-up brownfield sites
under the Polanco Act.
IX. 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).
Senate Bill 214 allows IFDs to finance any projects to
implement a sustainable communities strategy.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Senate Bill 214 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. SB
214 recognizes the potential for infrastructure financing
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districts to implement SB 375's (Steinberg, 2008)
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 IFD. If a local government decides not to
participate in the IFD 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 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.
SB 214 removes the requirement for voter approval of IFDs'
plans, bonds, and appropriations limits. Legislators and
voters who have elected their local representatives should
let local officials do their job-setting local priorities
for spending local revenues.
2. Voter review . 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 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. However, because that constitutional
limit doesn't mention redevelopment agencies, local
officials don't need voter approval before they issue tax
allocation bonds. Redevelopment agencies are not diverting
local general funds, they pay for their bonds with property
tax increment revenues. 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. That
requirement is statutory and not based on a constitutional
limitation. There is no constitutional requirement for
IFDs to seek 2/3-voter approval (or any voter-approval)
before they issue bonds backed by property tax increment
revenues. SB 214 repeals the statutory requirement for
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2/3-voter approval on IFDs' bonds. 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 once said that
the only reason for time is so that everything doesn't
happen at once. When Governor Brown proposed the
elimination of 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. If redevelopment activities stop or
decline, IFDs may become more important.
4. No state subsidy . When redevelopment agencies divert
property tax increment revenues from schools, the State
General Fund backfills the schools. That diversion
indirectly creates state subsidy for redevelopment
projects. Unlike redevelopment agencies that can capture
the schools' share of property tax increment revenues,
infrastructure financing districts don't benefit from state
subsidies. By diverting property tax increment revenues
only from those other 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.
Is the Legislature ready and willing to grant local
officials the authority to create public financing tools
that locals have joined to form?
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.
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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.
The Committee may wish to consider if SB 214 adequately
addresses external barriers when implementing an IFD.
6. Similar bill . SB 214 is similar to AB 1836 (Fueur,
2008) which would have repealed the 2/3-voter approval for
local officials to form an IFD, repealed the 2/3-voter
approval to issue tax bonds, and extended the time an IFD
could receive property tax increment revenues from 30 years
to 40 years. AB 1836's intent was to adapt IFDs to public
transit projects. The bill failed passage in the Senate
Local Government Committee.
7. Related bills . SB 214 is not the only bill seeking to
update the IFD financing mechanism. AB 485 (Ma, 2011)
utilizes IFDs to create more transit-oriented development
and related low-income housing. AB 664 (Ammiano, 2011)
authorizes, under existing authorization for the City of
County of San Francisco to create IFDs, the adoption of a
financing plan and use of IFD revenues for the portion of
the San Francisco waterfront district designated as the
America's Cup venue. AB 664 (Ammiano, 2011) also requires
the County Board of Supervisors to submit a fiscal analysis
to the California Infrastructure and Economic Development
Bank for review and approval before adopting the resolution
authorizing issuance of debt. AB 910 (Torres, 2011)
expands the list of project IFDs can finance to include
affordable housing facilities and economic development. On
April 27, the Committee will hear SB 310 (Hancock, 2011)
which seeks to use IFDs for transit priority projects.
Support and Opposition (4/21/11)
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Support : California State Association of Counties;
California Professional Firefighters; California Rural
Legal Assistance Foundation; California Special Districts
Association; Non-Profit Housing Association of Northern
California; County of Yolo; Davis Board of Education
Trustee Susan Lovenburg; Imperial County Supervisor Gary
Wyatt.
Opposition : California Taxpayers Association.