BILL ANALYSIS �
SB 614
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Date of Hearing: June 25, 2014
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
K.H. "Katcho" Achadjian, Chair
SB 614 (Wolk) - As Amended: June 16, 2014
SENATE VOTE : Vote not relevant
SUBJECT : Local government: jurisdictional changes:
infrastructure financing.
SUMMARY : Allows a local agency to use tax increment financing
in a newly formed or reorganized district to fund infrastructure
improvements in disadvantaged unincorporated communities.
Specifically, this bill :
1)Allows a local agency to include in its resolution of an
application for change of organization or reorganization a tax
increment financing plan to improve or upgrade infrastructure
in a disadvantaged unincorporated community through the
formation or reorganization of a special district.
2)Allows a local agency formation commission (LAFCO) to amend
the proposal for a change of organization or reorganization,
if a local agency includes a plan pursuant to 1), above, to
include the formation of a special district or reorganization
of a special district with the consent of the special
district.
3)Specifies that the district can be, but are not limited to, a
community services district, municipal water district, or
sanitary district to provide financing to improve or upgrade
structures, roads, sewer, water facilities, or other
infrastructure needs to serve a disadvantaged unincorporated
community.
4)Requires the formation of a special district to be in
conformity with the requirements of the principal act of the
proposed district and all required formation proceedings.
5)Provides that nothing in this section precludes a LAFCO from
considering any other options or exercising its powers as
defined in existing law.
6)Allows a local agency's plan for financing services that is
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included in the petition for a change of organization,
consented to by each affected agency, to include a tax
increment financing plan, pursuant to the authority granted by
this bill.
7)Authorizes the local agency that files the resolution of
application for a change of organization or reorganization,
and one or more other local agencies that will improve or
upgrade structures to serve a disadvantaged unincorporated
community, to agree on a plan for financing services and
structures.
8)Authorizes the plan to contain a provision that taxes levied
upon taxable property in the area included within the
territory each year by or for the benefit of the local agency
and one or more other local agencies that consent to the plan,
be divided as follows:
a) Requires that portion of the taxes that would have been
produced by the rate upon which the tax is levied each year
by or for each affected local agency, prior to the
effective date of the certification of completion, and that
portion of taxes by or for each school entity is allocated
to the respective affected local agencies and school
entities as taxes by or for the affected local agencies and
school entities on all property paid; and,
b) Requires that portion of levied taxes each year
specified in the adopted infrastructure financing plan for
the city and each affected taxing entity that has agreed to
participate, in excess of the amount specified in a),
above, is allocated into a special fund of a special
district formed or reorganized to finance the
infrastructure improvements to serve the disadvantaged
unincorporated community.
9)Requires the plan to specify a date upon which the division of
taxes described in 8), above, shall terminate.
10)Allows the plan to include a provision for the issuance of
indebtedness. Requires any indebtedness to be issued in
conformity with current law which governs the issuance of
general obligation bonds for local agencies or the principal
act of the special district.
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11)Prohibits any plan adopted pursuant to this bill to result in
the reduction of property tax revenues allocated to any school
entity as defined by current law.
12)Defines terms as follows:
a) "Local agency" to mean a city, county, and special
district;
b) "Affected local agency" to mean a local agency that has
adopted a resolution of its governing board consenting to
the plan developed pursuant to this bill;
c) "Territory" to mean all or part of the land that is
included in the petition for change of organization or
reorganization filed by the local agency;
d) "Certificate of completion" to mean "the document
prepared by the [LAFCO] executive officer and recorded with
the county recorder that confirms the final successful
completion of a change of organization or reorganization";
and,
e) "Disadvantaged unincorporated community" to mean
inhabited territory with 12 or more registered voters, or
as determined by LAFCO policy, that constitutes all or a
portion of a disadvantaged community, which is defined in
the Water Code to mean "a community with an annual median
household income that is less than 80% of the statewide
annual median household income."
13)States that it is the intent of the Legislature to provide
additional options for financing infrastructure that can be
incorporated into the approval of an annexation of a
disadvantaged, unincorporated community.
14)Makes other technical and conforming changes.
EXISTING LAW :
1)Establishes the procedures for the organization and
reorganization of cities, counties,
and special districts under the Cortese-Knox-Hertzberg Local
Reorganization Act of 2000 (CKH Act).
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2)Requires a local agency, when submitting an application for a
change of organization or reorganization, to include a plan
for providing services within the affected territory, as
follows:
a) Description of the services, including the level and
range of those services, to be extended to the affected
territory;
b) Indication of when those services can feasibly be
extended to the affected territory;
c) Indication of any improvement or upgrading of structure,
roads, sewer or water facilities, or other conditions the
local agency would impose or require within the affected
agency if the change of organization or reorganization is
completed; and,
d) Information as to how the services will be financed.
1)Prohibits, in specified circumstances, a LAFCO from approving
an annexation to a city
of any territory greater than 10 acres, or as determined by
LAFCO policy, where there exists a disadvantaged
unincorporated community that is contiguous to the area of
proposed annexation, unless an application to annex the
disadvantaged unincorporated community to the subject city has
been filed with the executive officer.
2)Requires the LAFCO, in determining the sphere of influence of
each local agency and in the written statement of its
determinations for a municipal service review, to include
specified information regarding disadvantaged unincorporated
communities, beginning on or after
July 1, 2012.
3)Authorizes cities and counties to 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.
4)Allows an IFD to divert property tax increment revenues from
other local governments, excluding school districts, for up to
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30 years, in order to pay back bonds issued by the IFD.
5)Requires that in order to form an IFD a city or county must
develop an infrastructure plan, send copies to every
landowner, consult with other local governments, and hold a
public hearing.
6)Requires a two-thirds voter approval of the formation of the
IFD and the issuance of bonds, and requires majority voter
approval for setting the IFD's appropriations limits.
FISCAL EFFECT : None
COMMENTS :
1)Purpose of this bill . This bill adds new provisions within
the change of organization or reorganization process in the
CKH Act that require a local agency to submit a plan for
providing services and how those services will be financed.
This bill allows a local agency to include in resolution of
application a plan to use tax increment financing in a new or
reorganized special district to provide infrastructure in a
disadvantaged unincorporated community. This bill is
permissive and allows the affected agencies to agree to
utilize tax increment financing.
The bill includes the tax increment allocation established in
existing IFD law, but relies on requirements in the CKH Act
for a change of organization or reorganization for
notification, hearings, protest, and overall voter
involvement. The availability of tax increment financing
under this bill is limited to proposals for a change of
organization or reorganization by a local agency that will
create or reorganize a special district in order to provide
infrastructure to a disadvantaged unincorporated community,
which may include improving or upgrading structures, roads,
sewer, water facilities, or other infrastructure needs. This
bill is author-sponsored.
2)Background on disadvantaged unincorporated communities . SB
244 (Wolk), Chapter 513, Statutes of 2011, took a two-pronged
approach in establishing new requirements for local officials
to consider disadvantaged communities. First, SB 244
established a process for the identification of service
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deficiencies in disadvantaged communities through the LAFCO
planning process, therefore adding new duties to LAFCOs in the
preparation of MSRs and when reviewing and updating a city or
a special district's sphere of influence, starting after July
1, 2012. Second, SB 244 required each city or county to
update the land use element
of its general plan to address the presence of these types of
communities, and for each identified community, the city or
county is required to do an analysis of water, wastewater,
stormwater drainage, and structural fire protection needs or
deficiencies. SB 244 also prohibits a LAFCO, in specified
circumstances, from approving an annexation to a city
of any territory greater than 10 acres where there exists a
disadvantaged inhabited community that is contiguous to the
area of proposed annexation, unless the annexation application
includes a separate application to annex the disadvantaged
unincorporated inhabited territory to the subject city.
3)Author's statement . The author notes that, "According to U.S.
Census data, approximately
1 million of Californians live in disadvantaged, unincorporated
communities. Residents of these areas often live without the
basic features of a safe and healthy environment, such as
access to clean water, sewage lines, storm drains,
streetlights, sidewalks, and safe housing. These communities
are systematically underserved in the overall allocation of
public resources and are frequently left out of local planning
processes.
"To address infrastructure deficits in disadvantaged
unincorporated communities, SB 244 (Wolk) requires cities and
counties to identify and include these communities in their
long-range planning. LAFCOs are prohibited from approving
specific annexations unless the contiguous disadvantaged
unincorporated community is also annexed. Local governments
currently lack financial tools necessary to fund the
infrastructure upgrades that are necessary when cities annex
these communities.
"This bill allows local agencies to include tax-increment
financing as part of their plan to annex disadvantaged
unincorporated communities. By agreeing to form a special
district as part of the annexation process, local agencies may
use tax-increment financing to improve or upgrade structures,
roads, sewer or water facilitates, or other infrastructure to
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serve the community."
4)LAFCO process - change of organization or reorganization . The
CKH Act establishes the process for a change of organization
(a single proposed change like an annexation which is when a
city adds territory to its boundary) or reorganization (more
than one change of organization in one proposal like an
annexation to a city and detachment from a special district).
Existing law provides that a change of organization or
reorganization can be initiated in several ways, including by
resolution of application by an affected local agency.
Upon receipt of a resolution of application by an affected
local agency, LAFCO determines
if an application is complete if it contains the components
required by existing law, including an application fee. A
local agency is required to submit a plan for providing
services which must include a description of the services, the
level and range of those services, an indication of whether
those services can feasibly be extended to the affected
territory, an indication of any improvement or upgrading of
structure, roads, sewer or water facilities or other
conditions the local agency would impose or require within the
affected territory and information with respect to how those
services will be financed.
The CKH Act outlines public notice, hearing, and written
report and recommendation requirements on the proposal. A
LAFCO can deny an application, approve an application, and
attach terms and conditions to an approval. If approved by
the LAFCO, the proposal is subject to a protest proceeding,
unless certain circumstances apply to allow that provision to
be waived. If the protest proceedings have not been waived,
then the LAFCO conducts a noticed public hearing to accept
protest. The CKH Act prescribes several different processes
for protest and further election requirements depending on the
type of organization or reorganization being proposed and the
controversy surrounding it.
5)Infrastructure Financing Districts (IFDs) . Currently, cities
and counties can create IFDs and issue bonds to pay for
community scale public works, including 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
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from other local governments for a period of 30 years. IFDs,
however, are prohibited from diverting property tax increment
revenues from schools.
To begin the process for establishing an IFD, current law
requires the legislative body of a city to adopt a resolution
of intention, which must include: a) a statement that the IFD
is proposed to be established, with a description of the
boundaries; b) a statement of the type of public facilities
proposed to be financed; c) a statement that the tax increment
revenue from affected taxing entities may be used; and, d) a
time and place for a public hearing on the proposal.
Additionally, 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 approval
of voters in the proposed district, specifically: two-thirds
vote to create the district, two-thirds vote to issue bonds,
and a majority-vote to set the district's appropriations
limit. 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 local
officials obtain voter approval.
This bill utilizes the tax increment financing mechanism in
IFD Law and requires that the local agencies that choose to
participate in the financing plan specify when the tax
increment will terminate. Additionally, this bill allows the
tax increment financing plan to include the issuance of debt,
but does not contain any of additional requirements described
below in IFD Law.
6)Policy considerations . The Committee may wish to consider the
following:
a) IFDs and absence of voter threshold . The California
Taxpayers Association, in opposition to the bill, argues
that this bill "creates a backdoor procedure to use tax
increment financing without the creation of an
infrastructure financing district, which requires a vote of
the people. Should local governments wish to fund new
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development with tax increment financing, they can already
do so by creating an infrastructure financing district with
approval from their constituents." Supporters of this bill
argue that the CKH Act already includes requirements that
will provide for a public process and voter involvement.
The Committee may wish to consider if that is sufficient,
absent separate voter requirements pursuant to IFD Law.
b) Type of district .
i) Financing vs. services . Although financing is
necessary to enable the provision of services, it should
be noted that districts for the sole purpose of providing
a financing mechanism that do not deliver services (like
benefit assessment and Mello-Roos districts) are not
under the purview of LAFCOs and are inherently different
than special districts which provide specific public
services. Given that the Legislature has repeatedly
heard concerns about the large number of special
districts in California, the Committee may wish to
consider if this bill will increase the number of
independent special districts unnecessarily.
ii) Independent vs. dependent . The issue that this bill
seeks to address is how to finance infrastructure in
disadvantaged unincorporated communities in light of the
financial obstacles to annexing these communities. The
Committee may wish to consider if the barrier for a city
or county in providing these services to these
communities is financial, that it may then be appropriate
to only allow new dependent districts to be formed.
Dependent districts are governed by existing legislative
bodies so either a city council or county board of
supervisors would serve as the governing board of the
district. All County Service Areas which deliver
additional, tailored county services to specific
geographic areas in an unincorporated area, for example,
are dependent districts.
c) Practical considerations. The Committee may wish to ask
the author to make further clarifications in the bill to
distinguish the different "plans" the bill authorizes local
agencies to use. This bill includes references to an
overall financial plan for providing infrastructure
included in the proposal for a change of organization or
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reorganization, a plan for financing services and
structures agreed to by the local agency submitting the
resolution and one or more of the agencies that will
provide services, and an infrastructure financing plan
adopted by the city and each affected taxing agency.
Further clarification would provide better guidance to both
local agencies and LAFCOs as to what the bill requires for
each plan.
In a letter of concern, the California Association of Local
Agency Formation Commissions argues that LAFCOs should be
provided with additional information including a financial
feasibility plan with specified information, and that the
process for determination should be more clearly defined so
that the applicant will identify the option to form or
reorganize a special district instead of a LAFCO amending
the proposal. The Committee may wish to request that the
author further work with LAFCOs to address these types of
practical and technical issues.
7)Related legislation addressing financial disincentives for
annexations . AB 1521 (Fox), pending in the Senate Governance
and Finance Committee, would change the way that growth in the
vehicle license fee adjustment amount is calculated to include
the growth
of assessed valuation including in an annexed area. Supporters
of AB 1521 argue that the bill would remove the fiscal
disincentive for existing cities to annex inhabited territory
which is inconsistent with state and local growth and
governance policies.
8)Arguments in support . Supporters argue that this bill takes
advantage of special districts' ability to provide services to
address specific core local service needs and matches it with
the utility of tax increment financing.
9)Arguments in opposition . Opposition argues that this bill
creates a backdoor procedure to use tax increment financing
without a vote of the people, and creates a funding gap for
critical government services.
REGISTERED SUPPORT / OPPOSITION :
Support
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California Special Districts Association
League of California Cities
Concerns
California Association of Local Agency Formation Commissions
Opposition
California Taxpayers Association
Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916)
319-3958