BILL ANALYSIS �
SB 614
Page 1
SENATE THIRD READING
SB 614 (Wolk)
As Amended August 18, 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, until January 1, 2025, 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, until January 1, 2025, to include in its
resolution of an application for change of organization or
reorganization an annexation development plan to improve or
upgrade infrastructure in a disadvantaged unincorporated
community through the formation or reorganization of a special
district.
2)Requires an annexation development plan to include information
that demonstrates that the formation or reorganization of the
special district will provide all of the following:
a) The necessary financial resources to improve or upgrade
structures, roads, sewer, or water facilities or other
infrastructure. The annexation development plan shall also
clarify the local entity that shall be responsible for the
delivery and maintenance of the services identified in the
application;
b) An estimated time frame for constructing and delivering
the services identified in the application; and,
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c) The governance, oversight, and long-term maintenance of
the services identified in the application after the initial
costs are recouped and the tax increment financing
terminates.
3)Allows a local agency formation commission (LAFCO) to approve
the proposal for a change of organization or reorganization, if
a local agency includes a plan pursuant to 1) and 2) above, to
include the formation of a special district or reorganization of
one or more existing special districts with the consent of each
special district's governing body.
4)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.
5)Requires the LAFCO to include in its resolution making
determinations a description of the annexation development plan,
including, but not limited to, an explanation of the proposed
financing mechanism, as specified, including, but not limited
to, any planned debt issuance associated with that annexation
development plan.
6)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.
7)Provides that the LAFCO is not precluded from considering any
other options or exercising its powers as defined in existing
law.
8)Allows a local agency's plan for financing services that is
included with a resolution of application 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.
9)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 an annexation development plan for financing services
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and structures.
10)Authorizes the annexation development 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 consenting 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 consenting 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 consenting local agencies and school entities
as taxes by or for the consenting local agencies and school
entities on all property paid; and,
b) Requires that portion of levied taxes each year specified
in the adopted annexation development plan for the city and
each consenting local agency 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.
11)Requires the plan to specify a date upon which the division of
taxes described in 10), above, shall terminate.
12)Allows the annexation development 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.
13)Prohibits any annexation development 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.
14)Defines terms as follows:
a) "Local agency" to mean a "city, county, and special
district";
b) "Consenting local agency" to mean "a local agency that has
adopted a resolution of its governing body consenting to the
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annexation development plan";
c) "Territory" to mean "all or part of the land that is
included in the resolution of application 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."
15)Allows a consenting local agency to advance funds to the
special district that is formed or reorganized as specified, and
requires the special district to use those advanced funds solely
for the purposes specified in the annexation development plan.
Requires the special district to repay the consenting local
agency with revenue from the taxes received, as specified.
16)Prohibits any plan adopted pursuant to the bill's provisions
from including any portion of a redevelopment project area which
is or has been previously created pursuant to existing law.
17)States that it is the intent of the Legislature to provide
additional options for financing infrastructure that can be
considered by local agencies and the LAFCO when evaluating the
proposal for an annexation of a disadvantaged, unincorporated
community.
18)Makes other technical and conforming changes.
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
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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.
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 a special
district or reorganize one or more existing special districts 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.
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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
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
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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 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; 1) a statement that the IFD is
proposed to be established, with a description of the
boundaries, 2) a statement of the type of public facilities
proposed to be financed, 3) a statement that the tax increment
revenue from affected taxing entities may be used, and 4) 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,
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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 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.
ii) Independent vs. dependent. The issue that this bill
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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.
7)Related legislation addressing financial disincentives for
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: 0004886