BILL ANALYSIS �
SB 614
Page 1
SENATE THIRD READING
SB 614 (Wolk)
As Amended June 16, 2014
Majority vote
SENATE VOTE :Vote not relevant
LOCAL GOVERNMENT 7-2
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|Ayes:|Levine, Alejo, Bradford, | | |
| |Gordon, Frazier, Rendon, | | |
| |Waldron | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Achadjian, Melendez | | |
| | | | |
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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.
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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
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
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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.
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
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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).
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
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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 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
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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 deficiencies in disadvantaged
communities through the LAFCO planning process, therefore adding
new duties to LAFCOs in the preparation of municipal service
reviews 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.
[United States] 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
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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 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
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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 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
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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 Legislature 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 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 Legislature 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 Legislature may
wish to consider if this bill will increase the number of
independent special districts unnecessarily.
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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
Legislature 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 Legislature 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 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
Legislature 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
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annexations. AB 1521 (Fox) of the current legislative session,
pending in the Senate, 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.
Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916)
319-3958
FN: 0004139