BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 2280 (Alejo) - Community Revitalization and Investment
Authorities.
Amended: April 7, 2014 Policy Vote: T&H 8-2; G&F 4-2
Urgency: No Mandate: No
Hearing Date: August 14, 2014
Consultant: Mark McKenzie
SUSPENSE FILE. AS AMENDED.
Bill Summary: AB 2280 would authorize local entities, either
individually or collaboratively and excluding schools and
successor agencies, to form a Community Revitalization and
Investment Authority (CRIA). Participating entities agree to
direct property tax increment revenues to the CRIA to invest in
improvements in specified project areas that are characterized
by low household income, high unemployment and crime, and
deteriorated public infrastructure and structures.
Fiscal Impact (as approved on August 14, 2014):
Potentially major redirection of local property tax
revenues from participating local agencies, excluding
schools, to a CRIA over a period of decades. Since the bill
prohibits schools from participating, there is no state
fiscal impact related to the redirection of local property
tax revenues.
Estimated one-time costs to the State Controller's Office
(SCO) of up to $100,000 in 2018-19 and 2019-20 (General
Fund) to establish guidelines for periodic financial and
performance audits that include provisions for determining
compliance with affordable housing requirements as well as
secondary review and compliance measures for failure to
achieve initial compliance on the regular audit schedule.
(Staff assumes up to 1 PY of audit staff over two fiscal
years)
Estimated periodic SCO costs in the range of $50,000 to
$100,000 (General Fund) on a periodic basis for accepting
audits and reviewing and approving secondary compliance
plans submitted by agencies that fail to comply with initial
audit requirements. (Staff assumes up to 1PY of audit work
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on a periodic basis). These costs would only be incurred to
the extent an agency is out of compliance.
Background: Historically, the Community Redevelopment Law has
allowed a local government to establish redevelopment agencies
(RDAs) and capture all of the increase in property taxes that is
generated within the project area beyond the base year value
(referred to as "tax increment") over a period of decades. RDAs
used tax increment financing to address issues of blight,
construct affordable housing, rehabilitate existing buildings,
and finance development and infrastructure projects.
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. Among the statutory changes
that the Legislature adopted to implement the 2011-12 budget, AB
X1 26 (Blumenfield) Chap 5/2011 dissolved all RDAs and
established procedures for winding down RDA activity. Existing
law requires successor agencies to dispose of former RDAs'
assets and properties, at an oversight board's direction, in an
expeditious manner aimed at maximizing value. Successor
agencies are required to make any payments related to
enforceable obligations, as specified in an adopted recognized
obligation payment schedule and remit unencumbered balances of
RDA funds and proceeds from asset sales to the county
auditor-controller for distribution to local taxing entities in
the county. Successor agencies cannot enter into new
enforceable obligations.
Proposed Law: AB 2280 would authorize local agencies, excluding
schools and successor agencies, to establish a CRIA to finance
specified activities within a revitalization and investment area
according to a specified community revitalization and investment
plan. Among other things, this bill would:
Provide for the formation of a CRIA by local agencies,
excluding school entities and successor agencies, individually
by adopting a resolution, or collaboratively by forming a
joint powers authority.
Prohibit a city or county that created an RDA from forming a
CRIA unless the successor agency has received a finding of
completion from the Department of Finance (DOF). Any tax
increment derived from an area that includes RDA land would be
subordinate to any preexisting enforceable obligations.
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Require at least 80 percent of the land in an investment area,
as specified, to be characterized by an annual median
household income of less than 80 percent of the statewide
median household income and three of the following four
conditions:
o Nonseasonable unemployment at least 3 percent higher
than the statewide median unemployment rate, as
specified.
o Crime rates that are at least 5 percent higher than
the statewide rate.
o Deteriorated or inadequate infrastructure, such as
streets, sidewalks, water supply, sewer treatment or
processing, and parks.
o Deteriorated commercial or residential structures.
Authorize a CRIA, as an alternative to the above criteria, to
establish an investment area within a former military base
principally characterized by deteriorated or inadequate
infrastructure and structures.
Authorize the administrative expenses of a CRIA to be paid
from tax increment.
Allow a plan for a CRIA to include a provision for the receipt
of tax increment funds, as specified, and require the plan to
include specified mandatory elements, including a program that
dedicates 25% of tax increment proceeds to be spent on
affordable housing, rather than the 20% required under
redevelopment law.
Authorize a CRIA to dedicate funding to specified
infrastructure, low and moderate income housing, brownfield
cleanup, seismic retrofits, property acquisition, and direct
assistance to businesses for industrial and manufacturing
uses.
Require a CRIA to annually review the plan, prepare an
independent financial audit, and adopt an annual report in a
public hearing.
Require a CRIA to conduct a protest proceeding every 10 years.
If there is a majority protest, the CRIA must not initiate
any new projects until an election of property owners and
residents is held. If a majority of the electorate votes
against the CRIA, it must not take any further action to
implement the plan.
Require the SCO to establish audit guidelines to determine
compliance with specified affordable housing maintenance and
replacement requirements.
Require a CRIA to contract for an independent performance
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audit every five years, consistent with the guidelines
established by the SCO.
Require a CRIA to submit a plan for compliance to the SCO, if
the initial audit contains findings of failure to comply with
the specified housing requirements identified in the audit
guidelines.
Require the SCO to review and approve the compliance plan to
ensure that it includes specified means of achieving
compliance, including expenditure of an additional 10 percent
of tax increment on low-income housing, increasing production
of units for very low income households by 10 percent, or
targeting expenditures to rental housing affordable to very
low and extremely low income persons.
Establish specified monetary penalties if a CRIA fails to
provide a copy of the completed audit to the SCO within 20
days of receiving a written notice of failure. If a CRIA
fails to provide a copy of the audit for two or three
consecutive years, the amount of the original penalties will
be doubled or tripled, respectively, and the SCO will conduct
an independent audit and charge the CRIA for the audit costs.
Related Legislation: AB 1080 (Alejo), which is nearly identical
to this bill, was held on this Committee's Suspense File last
year.
SB 1(Steinberg), currently on the inactive file on the Senate
Floor pending a concurrence vote, would authorize local
entities, excluding schools, to form a Sustainable Communities
Investment Authority (SCIA). Participating entities agree to
direct property tax increment revenues to the SCIA to invest in
improvements that relieve blight in transit priority project
areas, small walkable communities, and sites designated for
clean energy manufacturing, as specified.
Staff Comments: The Governor has vetoed a number of bills in
recent years that were intended to provide economic development
options for local governments in the wake of the dissolution of
RDAs, including SB 1156 (Steinberg, 2012), which was similar in
approach to this bill. In his veto message of SB 1156, Governor
Brown indicated that he was supportive of taking a constructive
look at implementing this type of program once the winding down
of redevelopment is complete. That process is ongoing.
Prior to 2011, local communities used redevelopment as a tool to
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alleviate blight by diverting over $6 billion annually in
property tax increment to pay for development projects,
repairing infrastructure, and building affordable housing.
Since approximately half of property tax revenues statewide are
a dedicated source of funding for K-14 schools, redevelopment
diverted significant revenues away from schools. Generally, the
loss in school funding related to the tax increment dedicated
for redevelopment purposes has been backfilled by the General
Fund pursuant to the minimum funding guarantees specified in
Proposition 98. Although AB 2280 uses tax increment financing
for CRIA activities, the bill avoids the impact to the state
General Fund by explicitly prohibiting school entity
participation.
This bill requires that a disadvantaged community have at least
80 percent of the land (calculated by census tracts) within an
investment area be characterized by an annual household income
that is less than 80 percent of the statewide median household
income, and three out of the following four characteristics:
unemployment that is at least 3 percent above the statewide
average, crime rates that are at least 5 percent above the
statewide average, deteriorated or inadequate infrastructure,
and deteriorated commercial or residential structures.
According to DOF economic data, the statewide median household
income was $55,100 in 2010-11. The most recent labor market
information on the Employment Development Department's website
indicates a statewide unemployment rate of 8.1 percent in March
of 2014. Earning $45,000 or less annually per household is the
U.S. Census Bureau's current threshold for "low-income," and the
poverty line is approximately half of that amount at a household
income of $22,350. This bill requires that an investment area
be characterized by an average household income of about $44,080
in 80 percent of the census tracts, in addition to meeting three
of the four characteristics enumerated above. Staff notes that
the income requirements are roughly what the Census Bureau
classifies as low-income, but is nearly twice the amount
considered to be the poverty line. The extent to which the
criteria specified in the bill would constrain the use of this
new economic development tool is unclear.
AB 2280 requires periodic audits to determine compliance with
affordable housing maintenance and replacement requirements of
the bill. These audits are to be submitted to the SCO, but the
bill explicitly states that the SCO is not required to review
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and approve completed audits. However, if a CRIA audit is
deemed out of compliance, the SCO is required to review and
approve plans submitted by a CRIA to achieve compliance. As
part of this secondary review, the SCO must ensure that the plan
meets specified compliance measures. It is unclear why the SCO
is relieved from the first-level review and certification of
CRIA audits, but is required to ensure compliance with the
secondary review of compliance plans. The Community
Redevelopment Law required RDAs to submit financial information
to the SCO annually. Although AB 2280 requires CRIA's to
annually conduct financial audits, there is no requirement that
the SCO receive, review, or approve those audits.
Author Amendments (as adopted on August 14, 2014): Amendments
would do the following:
Specify that a CRIA formation will not be effective
until a successor agency has adopted a finding that no
former RDA assets that are subject of litigation against
the state have or will be used to benefit a CRIA unless the
litigation has been resolved, including any appeals.
Require an authority to hold a third public hearing to
conduct a protest proceeding to consider whether property
owners and residents within a plan area wish to present
oral or written protests against the creation of a CRIA.
Require the authority to consider all protests, and if
there is a majority protest, as specified, the bill
requires the authority to hold an election within 90 days.
If a majority of the voters reject the plan, the authority
shall not take any further action to implement the plan,
and shall not propose a new plan for at least one year.
Specify that an authority does not have to contract for
an independent audit to determine compliance with specified
affordable housing requirements until the authority has
accumulated $1 million in tax increment revenues.
Require the SCO to establish audit guidelines by
December 31, 2020.
Make other technical and conforming changes.