BILL ANALYSIS �
PURSUANT TO SENATE RULE 29.10
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 628 HEARING: 8/29/14
AUTHOR: Beall FISCAL: Yes
VERSION: 8/26/14 TAX LEVY: No
CONSULTANT: Weinberger
ENHANCED INFRASTRUCTURE FINANCING DISTRICTS
Allows local officials to create Enhanced 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).
To form an IFD, 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: 2/3-vote to create the
district, 2/3-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.
Until 2011, the Community Redevelopment Law allowed local
officials to set up redevelopment agencies (RDAs), prepare
and adopt redevelopment plans, and finance redevelopment
activities. Citing a significant State General Fund
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deficit, Governor Brown's 2011-12 budget proposed
eliminating redevelopment agencies (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, 2011) dissolved
all RDAs.
Public officials continue to search for ways to raise the
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. With the dissolution of RDAs,
local governments and lawmakers seek to enhance IFDs'
property tax increment financing mechanism.
Proposed Law
Senate Bill 628 allows city or county officials to create
an Enhanced Infrastructure Financing District (EIFD), which
is governed by a public finance authority, to finance
public capital facilities or other specified projects of
communitywide significance that provide significant
benefits to the district or the surrounding community.
Specifically, the amendments:
I. Specify the manner in which local officials must
form an EIFD.
II. Define how property tax increment revenues may be
allocated to an EIFD.
III. Authorize an EIFD to issue bonds, with 55% voter
approval, or obtain a loan, to finance infrastructure
projects and other activities.
IV. Enact several other provisions that generally govern
EIFDs.
I. EIFD formation process . Senate Bill 628 requires a
city council or county board of supervisors, before it
adopts an infrastructure financing plan and forms an EIFD,
to establish a public financing authority with a specified
membership comprising both public members and members from
the legislative body of a participating taxing entity or
entities. Members of the public finance authority are
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prohibited from receiving compensation, but may receive
reimbursement for actual and necessary expenses incurred in
the performance of official duties, and are subject to
specified statutes requiring ethics training for local
officials. The public finance authority must comply with
provisions of the Ralph M. Brown Act, California Public
Records Act, and the Political Reform Act of 1974.
Senate Bill 628 prohibits a city or county that created a
redevelopment agency from initiating the creation of an
EIFD, or participating in an EIFD's governance or
financing, unless specified actions have occurred:
The successor agency for the former redevelopment
agency created by the city or county has received a
finding of completion, pursuant to state law.
The city or county certifies to the Department of
Finance that no former redevelopment agency assets
that are the subject of some litigation have or will
be used to benefit an EIFD.
The State Controller has completed a review of
former redevelopment asset transfers, as specified in
state law.
The successor agency and the city or county have
complied with findings and orders stemming from the
Controller's review.
Senate Bill 628 requires a city or county to begin the
process of forming an EIFD by adopting a resolution of
intention to establish an EIFD. The resolution must state
a time and place for a hearing on the proposal, the
proposed district's boundaries, the types of facilities and
development to be financed, the need for the district, the
goals the district proposes to achieve, and that
incremental property tax revenues may be used to finance
the EIFD's activities. After adopting the resolution of
intention, the city or county must provide public notice,
as specified, and direct an official to prepare an
infrastructure financing plan.
Senate Bill 628 requires that an infrastructure financing
plan must include:
A map and legal description of the proposed EIFD.
A description of the public facilities and other
forms of development or financial assistance that is
proposed within the EIFD.
A financing section that:
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o Specifies the maximum amount of
incremental tax revenues each participating
entity proposes to dedicate to the EIFD.
o Revenue projections.
o A plan for financing public facilities.
o A limit on the total revenues that may be
allocated to the EIFD.
o A date on which the district will cease
to exist and when tax allocations to the district
will end, which can be up to 45 years from the
approval date for issuing EIFD bonds or providing
an EIFD loan.
o Fiscal analyses of potential impacts on
the city or county and other taxing entities.
Senate Bill 628 requires that if dwelling units are to be
destroyed by private development or public works
construction within an EIFD, the district's adopted
infrastructure financing plan must:
Contain specified requirements for the replacement
of dwelling units within two years of the units'
removal or destruction.
Provide for relocation assistance, and specified
payments required by state law, to persons displaced
by public or private development within the EIFD.
Ensure that housing units occupied by person or
families of low or moderate income are not removed or
destroyed unless other units that meet specified
conditions are available and ready for occupancy.
Require that replacement affordable housing units
must remain available as affordable units for
specified minimum time periods.
Senate Bill 628 requires a city council or county board of
supervisors to hold a public hearing before adopting the
proposed infrastructure financing plan and specify how the
hearing must be publicly noticed and conducted. At the end
of the hearing the city council or board of supervisors may
abandon the proceedings, or may adopt a resolution
proposing adoption of the infrastructure financing plan,
with any modifications, and the formation of the EIFD.
II. Property tax increment . Senate Bill 628 allows an
infrastructure financing plan to contain a provision
requiring that property tax increment revenues from
specified taxes levied by the city or county that formed an
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EIFD, and any other affected taxing entity that has agreed
to participate, must be divided in a specified manner and
allocated to the EIFD.
Senate Bill 628 subordinates an EIFD's debts to any
enforceable obligations of a former redevelopment agency
and prohibits any taxes that are required to be deposited
into a Redevelopment Property Tax Trust Fund from being
allocated to an EIFD pursuant to specified statutes.
Senate Bill 628 allows a city or county that forms an EIFD
to dedicate to the EIFD any portion of specified
distributions from a Redevelopment Property Tax Trust Fund
that meet the definition of "net available revenues."
Senate Bill 628 directs that the statutes authorizing the
allocation of tax increment revenues to an EIFD must not be
construed to prevent an EIFD from using revenues authorized
by other specified statutes, subject to applicable voter
approval requirements.
Senate Bill 628 requires an EIFD to pay all costs incurred
by a county in connection with the division of taxes for
the EIFD.
III. Bonds and loans . Senate Bill 628 allows a public
finance authority to initiate proceedings to issue bonds by
adopting a resolution of intention that contains specified
information about the proposed bond issuance and by
providing public notice of the resolution of intention in a
newspaper, subject to specified conditions.
Senate Bill 628 requires a public finance authority to seek
voter approval of a proposal to issue bonds. The proposal
to issue bonds must be submitted to qualified voters either
at the next general election or at a special election held
at least 90, but not more than 180, days after the
resolution of intention was adopted. A special election
may be conducted by mail, subject to specified
requirements. The public finance authority must provide
specified information regarding the bond proposal and the
EIFD to the elections official conducting the election. If
there are fewer than 12 registered voters within the EIFD,
the vote on the proposed bond issuance must be by the
landowners in the EIFD, with votes weighted by the number
of acres the landowner owns within the EIFD.
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Senate Bill 628 authorizes a public finance authority to
issue bonds if more than 55% of the voters voting on the
proposition vote in favor of issuing the bonds. If voters
defeat a bond proposition, a public finance authority must
wait at least one year after the date of the election
before submitting a similar proposition to voters. EIFD
bonds:
Are not a debt of the city, county, state, or any
of its political subdivisions, other than the EIFD,
and are payable exclusively from the EIFD's funds or
property.
Do not constitute an indebtedness within the
meaning of any constitutional or statutory debt
limitation.
May be sold at discount not to exceed 5% of par at
public sale, with specified public notice.
May be sold at not less than par to the federal
government at private sale without any public
advertisement.
May be refunded by the public finance authority.
Senate Bill 628 specifies the manner in which a party may
bring an action to determine the validity of the issuance
of EIFD bonds.
Senate Bill 628 requires an EIFD, every two years after
issuing bonds, to contract for an independent financial and
performance audit, conducted in accordance with guidelines
established by the State Controller.
Senate Bill 628 allows the governing board of a city,
county, or special district with territory within an EIFD's
boundaries to loan money to the EIFD to fund activities
described in an approved infrastructure financing plan,
subject to specified interest rate limits and other
repayment provisions.
IV. Other provisions . Senate Bill 628 defines the types of
public capital facilities and other projects of
communitywide significance that provide significant
benefits to the district or the surrounding community that
an EIFD may finance.
Senate Bill 628 directs that an EIFD:
Must require, by recorded covenants and
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restrictions that housing units built by the district
must remain available as affordable housing and be
occupied by persons and families of low- and
moderate-income households for specified time periods.
May finance mixed-income housing developments only
pursuant to specified conditions.
May utilize any powers under the Polanco
Redevelopment Act and finance any action necessary to
implement that Act.
Senate Bill 628 specifies the manner in which parties may
bring actions to attack, review, set aside, void, or annul
the creation of an EIFD, adoption of an infrastructure
financing plan, or an EIFD election.
Senate Bill 628 allows a public financing authority to
submit, for voter approval, a proposition to establish or
change an EIFD's appropriations limit, as defined by the
California Constitution.
Senate Bill 628 defines several terms used in the bill.
Senate Bill 628 contains legislative findings and
declarations regarding the need to help local agencies
finance specified infrastructure and economic development
projects.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . The dissolution of redevelopment
agencies left local officials without sufficient tools to
finance many worthwhile local economic development
activities. Senate Bill 628 responds by allowing local
officials to form Enhanced Infrastructure Financing
Districts, which can be formed more easily than IFDs, can
use an expanded range of financing tools, and can finance a
broader array of local economic development activities.
While making it easier for local officials to use tax
increment financing tools, SB 628 ensures that EIFDs
incorporate several important safeguards against problems
SB 628 -- 8/26/14 -- Page 8
that were associated with redevelopment agencies. SB 628
requires other local governments to consent and opt-in to
an EIFD's formation; if an agency doesn't want to
participate, its tax increment revenue shares aren't
touched. EIFDs cannot divert property tax revenues from
schools, thereby avoiding State General Fund costs. SB 628
requires 55% voter approval for issuing bonds and, as an
additional safeguard, requires biennial, independent
financial and performance audits.
2. Voter review . 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 create an IFD and issue bonds.
That requirement is statutory, and not based on a
constitutional limitation. SB 628 does not require local
officials to seek voter approval before forming an EIFD.
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. However, because that constitutional
limit doesn't mention infrastructure financing districts,
local officials don't need voter approval before they issue
tax allocation bonds. 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 628 lowers the statutory
threshold for voter-approval of EIFDs' bonds from 66.67% to
55%. It is unclear whether eliminating voter approval for
EIFD formation and lowering the vote threshold for
approving EIFD bonds provides taxpayers with a sufficient
voice in EIFDs' economic development activities.
3. Housing . SB 628 allows EIFDs to finance housing for
low- and moderate income households and requires EIFDs to
replace low- and moderate- income housing that is removed
or destroyed. However, the bill does not replicate the
affordable housing set-aside requirements that applied to
former RDAs. Some housing advocates worry that without any
minimum requirement for new affordable housing investment,
EIFDs' economic development activities, which are presumed
to increase real property values, will shrink many
communities' affordable housing supply. Because the amount
of tax increment revenues available to EIFDs is generated
only by those local governments that choose to participate,
and doesn't include any revenues drawn from the State
SB 628 -- 8/26/14 -- Page 9
General Fund, some local officials suggest that it would
not be appropriate to require EIFDs to comply with the same
housing requirements that applied to RDAs. Doing so could
significantly constrain local governments' ability to use
EIFDs to finance any sizeable economic development
projects. Legislators may wish to consider whether SB 628
strikes the right balance between the state's interests in
restoring local funding for economic development and
preserving affordable housing.
4. Mandate . SB 628 requires electors in an EIFD to make a
specified declaration, under penalty of perjury, on the
identification envelope for a mail ballot. By creating a
new crime, SB 628 also creates a new state-mandated
program. But, the bill disclaims the state's
responsibility for reimbursing local governments for
enforcing these new crimes. That's consistent with the
California Constitution, which says that the state does not
have to reimburse local governments for the costs of new
crimes (Article XIIIB, 6[a] [2]).
5. Legislative history . As introduced, SB 628 made it
easier for city or county officials to create
infrastructure financing districts to finance
transit-oriented development projects. The Senate and
Assembly passed an amended version of the bill last year,
but held it at the Senate Desk without sending it to the
Governor for a signature. SB 628 was returned to the
Assembly Floor earlier this year and, on August 7,
amendments deleted the bill's contents and inserted
language requiring the Department of Managed Health Care to
conduct surveys evaluating mental health care coverage
parity. The August 26 Assembly amendments deleted that
language and converted the bill into a measure allowing
local officials to create enhanced infrastructure financing
districts. Because this topic was never heard in the
Senate, the Senate Rules Committee has referred the amended
bill under Senate Rule 29.10 to the Senate Governance &
Finance Committee for a hearing on the Assembly's
amendments. At its August 29 hearing, the Committee has
two choices:
Send the bill back to the Senate Floor, or
Hold the bill.
6. Related legislation . SB 628 is similar to a budget
trailer bill proposal that reflected recommendations
SB 628 -- 8/26/14 -- Page 10
included in the Governor's proposed 2014-15 State Budget.
Many of the bill's provisions also are similar to language
in several alternative legislative proposals that sought to
provide local governments with expanded infrastructure
financing district powers to replace redevelopment,
including:
SB 33 (Wolk, 2013) expanded local officials'
authority to create Infrastructure Financing Districts
(IFDs).
AB 229 (J. P�rez, 2013) allows local government to
create Infrastructure and Re-vitalization Financing
Districts.
AB 243 (Dickinson, 2013) allows local governments
to create Infrastructure and Revitalization Financing
Districts.
AB 294 (Holden, 2013) authorizes IFDs to use the
county's Educational Revenue Augmentation Fund portion
of tax increment revenues.
AB 471 (Atkins, 2014) repealed the prohibition
against forming an IFD within a former redevelopment
area.
Assembly Actions
Assembly Local Government Committee: 5-2
Assembly Floor: 44-30
Support and Opposition (8/29/14)
Support : California Economic Summit; California Infill
Builders Association; California Park and Recreation
Society; California Special Districts Association;
California State Association of Counties; League of
California Cities; Majestic Realty Co.; State Building and
Construction Trades Council of California.
Opposition : California Association of Realtors; California
Rural Legal Assistance Foundation; California Taxpayers
Association; Community Legal Services in East Palo Alto;
Council of Community Housing Organizations; East Bay
Housing Organizations; Housing Leadership Council of San
Mateo County; Howard Jarvis Taxpayers Association; Move LA;
Public Advocates, Inc.; Western Center on Law and Poverty.
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