BILL ANALYSIS Ó AB 2 Page 1 Date of Hearing: April 15, 2015 ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT Ed Chau, Chair AB 2 (Alejo) - As Amended March 26, 2015 SUBJECT: Community revitalization authority SUMMARY: Allows local governments to establish a Community Revitalization and Investment Authority (Authority) in a disadvantaged community to fund specified activities and allows the Authority to collect tax increment. Specifically, this bill: 1)Includes legislative findings regarding the intent of the Legislature to create a planning and financing tool to support the revitalization of disadvantaged communities. 2)Establishes an Authority as a public body to carry out a community revitalization plan (plan) within a community revitalization investment area (area). 3)Provides that a plan has the same meaning as a redevelopment plan described in Article XVI of Section 16 of the California Constitution. 4)Provides that for the purposes of receiving tax increment revenues, pursuant to subdivision (b) of Article XVI of Section 16 of the California Constitution, an Authority is a redevelopment agency. AB 2 Page 2 5)Allows an Authority to be created in either of the following ways: a) A city, county, or city and county may adopt a resolution creating the Authority. The governing board must include three members of the governing board of the city, county, or city and county that created the Authority and two public members who live or work in the area; or b) A city, county, city and county, and special district may create an Authority by entering into a joint powers agreement that establishes the composition of the governing board, which must include two public members who live or work in the area. 1)Prohibits a school entity from participating in an Authority. 2)Prohibits a city or county from forming an Authority until the successor agency or designated local authority of a former redevelopment agency has received a finding of completion from the Department of Finance that the former redevelopment agency is fully dissolved. 3)Prohibits a successor agency to a former redevelopment agency from participating in an Authority. 4)Allows an Authority to establish an area if at least 80% of the land, calculated by census tract, is characterized by both of the following conditions: a) An annual median income that is less than 80% of the statewide annual median income; and b) Three of the following four conditions exist: i. Unemployment that is at least 3% higher than the statewide median unemployment rate; AB 2 Page 3 ii. A crime rate that is 5% higher than the statewide median crime rate; iii. Deteriorated or inadequate infrastructure such as streets, sidewalks, water supply, sewer treatment or processing, and parks; and iv. Deteriorated commercial or residential structures. 1)Allows an Authority to establish an area in a former military base that is principally characterized by deteriorated or inadequate infrastructure and structures. 2)Requires a governing board of an Authority established in a former military base to include, as one of its public members, a member of the military base closure commission. 3)Subjects an Authority to the Ralph M. Brown Act. 4)Allows an Authority to do any of the following: a) Provide funding to rehabilitate, repair, upgrade, or construct infrastructure; b) Provide funding for low- and moderate-income housing; c) Remedy or remove hazardous substances pursuant to the Polanco Redevelopment Act; d) Provide for seismic retrofits of existing buildings; e) Acquire and transfer property subject to eminent domain; f) Prepare and adopt a plan for an area subject to Community Redevelopment Law; g) Issue bonds; AB 2 Page 4 h) Borrow money, receive grants, or accept financial or other assistance or investment from the state and federal government or any private lending institution for any project within its area of operation; i) Receive funding from the California Environmental Protection Agency under the Water Security, Clean Drinking Water, Coastal and Beach Protection Act of 2002; j) Coordinate with a qualified community development entity to maximize the benefit of New Markets Tax Credits; aa) Appropriate funding that the governing body deems appropriate for administrative expenses; bb) Make loans or grants for owners or tenants to improve, rehabilitate, or retrofit buildings or structures in the area; cc) Construct foundations, platforms, and other like structural forms necessary for the provision or utilization of air rights sites for buildings to be used for residential and commercial industrial; and dd) Provide direct assistance to businesses within the plan in connection with new or existing facilities for industrial or manufacturing uses. 1)Allows money appropriated to the Authority, from the legislative body or bodies that created the Authority, for administrative expenses to be paid as a loan or grant. 2)Provides that if the Authority is loaned funding for administrative expenses, the property owners within the plan area will be made third party beneficiaries of the repayment of the loan. 3)Provides that in addition to the common understanding and usual interpretation, the term "administrative expenses" AB 2 Page 5 includes, but is not limited to, expenses for planning and dissemination of information. 4)Allows an Authority to adopt a plan to receive tax increment generated in an area. The plan must include the following: a) A statement of the principal goals and objectives; b) A description of the deteriorated or inadequate infrastructure within the area and a program for construction, repair, or upgrade of existing infrastructure; c) A program to spend 25% of the tax increment collected to increase, improve, and preserve the community's supply of low- and moderate-income housing; d) A program to remedy and remove a release of hazardous substances; e) A program to fund or facilitate economic revitalization of the area; and f) A fiscal analysis of the projected receipt of revenue and projected expenses over a five year planning period. 1)Requires the Authority to adopt a program that prohibits the number of housing units for extremely low-, very low- and low-income households in the sustainable communities investment area from being reduced during the effective period of the sustainable communities investment plan, and requires the replacement of these housing units within two years of their displacement. 2)Allows an Authority to transfer funding for affordable housing to a housing authority or the entity that received the housing assets of the former redevelopment agency within the project area, if it makes a finding that the transfer will reduce administrative costs or expedite the construction of AB 2 Page 6 affordable housing. 3)Incorporates into the Act the provisions of Community Redevelopment Law (CRL) that required an redevelopment agecny to set set-aside funds for affordable housing and the provisions for administering those funds. 4)Requires an Authority to contract for an independent and financial audit every five years, conducted by guidelines established by the Controller, and submit it to the Controller, the Director of Department of Finance, and the Joint Legislative Budget Committee. 5)Requires the audit to determine compliance with the affordable housing maintenance and replacement requirement including provisions to ensure that the replacement requirements are met within the five year period covered by the audit. 6)Provides that if the Authority fails to meet the maintenance and replacement requirement for affordable housing it must adopt and submit to a plan with its yearly financial audit to show how it will comply with those provisions within two years. 7)Requires the controller to review and approve an Authority's plan to meet the replacement housing requirements and ensure that the plan includes one or more of the following means of achieving compliance: a) Expenditure of an additional 10% of gross tax increment revenue on increasing, preserving, or improving the supply of low-income housing; b) An increase in the production by an additional 10% of housing for very low-income households as required under the CRL housing production requirements; and/or c) The targeting of expenditures from the Low- and Moderate -Income Housing Fund toward rental housing affordable to AB 2 Page 7 and occupied by person of very low and extremely low income. 1)Establishes a public process for adopting a plan or amending a plan to receive tax increment generated in an area that must include the following: a) The Authority must hold two public hearings at least 30 days apart; b) The plan must be made available to the public and to each property owner within the area at a meeting held at least 30 days prior to notice of the first public hearing; c) Notice of the first public hearing must be given at least once a week for four weeks prior to the hearing in a newspaper of general circulation and mailed to each property owner in the proposed area of the plan; and d) Notice of the second public hearing must be given not less than 10 days prior to the date of the second hearing in a newspaper of general circulation and mailed to each property owner in the area of the plan. 1)Requires a notice informing the public and property owners in the area of a public hearing to discuss the plan to receive tax increment to include: a) The specific boundaries of the proposed area; b) The purpose of the plan; and c) The time and place of the public hearing. 27) Requires that notice of the second hearing must include a summary of the changes made to the plan from the first AB 2 Page 8 hearing. 28) Allows the Authority to inform tenants of properties in the area of the plan to receive tax increment in a manner of its choosing. 29) Allows an Authority to adopt a plan by ordinance at the conclusion of the second public hearing. 29)Allows an Authority to begin receiving tax increment funds beginning on the December 1 after the plan is adopted. 30)Allows any taxing entity other than a school entity that receives property taxes in an area to adopt a resolution, prior to the adoption of the plan, to direct the county auditor-controller to allocate its share of tax increment funds to the Authority. 31)Allows the resolution adopted by a taxing entity directing its share of tax increment to the Authority to allocate less than the full amount of tax increment, establish a maximum amount of time in years, or limit the use of funds to specific purposes or programs. 32)Allows a taxing entity to repeal a resolution directing a portion of its tax increment to the Authority by giving the county auditor-controller 60 days' notice, except that the auditor-controller will continue to allocate to the Authority the portion of tax increment necessary to repay any debt issued by the Authority that has not been fully repaid. 33)Requires that if an area overlaps with a former redevelopment agency the plan must specify that any tax increment collected is subject to and subordinate to any preexisting enforceable obligations of the former redevelopment agency. 34)Requires an Authority to complete an annual independent AB 2 Page 9 audit. 35)Requires an Authority to post a draft of the audit on their Web site and mail it to the each of the taxing entities that are contributing tax increment to the area. 36)Requires the annual audit to include: a) A description of the projects undertaken in the fiscal year and a comparison of the progress expected on those projects compared to the actual progress; b) A chart comparing the actual revenues and expenses including administrative costs of the Authority to the budgeted revenues and expenses; c) Amount of tax increment revenues received; d) Amount of revenues received and expended for low-and moderate-income housing; e) Assessment of the level of completion of the projects in the plan; and f) Amount of revenues expended to assist private businesses. 1)Provides that if an Authority fails to provide a copy of a completed financial audit to the Controller within 20 days of receiving a written notice of failure to comply, the Authority shall forfeit the following to the state: a) $2,500 where the Authority has total revenue of less than $100,000; b) $5,000 where the Authority has total revenue of at least $100,000 but less than $200,000; and c) $10,000 where the Authority has total revenue of at AB 2 Page 10 least $250,000. 1)Provides that if an Authority fails to provide an audit for two years in a row, after receiving a notice of failure to comply, it must forfeit double the amount required above based on its revenue size. 2)Provides that if an Authority fails to provide an audit for three or more years in a row, after receiving a notice of failure to comply, it must forfeit triple the amount required above based on its revenue size. 3)Provides that if an Authority fails to provide an audit for three or more years in a row the Controller shall conduct or contract to conduct an independent financial audit report paid for by the Authority. 4)Provides that the Controller may request the Attorney General (AG) bring an action for the forfeiture of penalties in the name of the people of the state of California. 5)Provides that the Controller may waive the forfeiture request upon a satisfactory showing of good cause of why the Authority did not provide the audit. 6)Provides that if an Authority does not complete an annual report then it cannot expend any tax increment funds it receives. 7)Requires an Authority, every 10 years, to hold a protest proceeding at the public hearing to review an annual report, to give property owners an opportunity to provide oral or written protests against an Authority. 8)Requires an Authority to hold an election of the property owners in the areas covered by the plan if between 25% and 50% of the owners protest, and not initiate any new projects until the election is held. AB 2 Page 11 9)Provides that a majority protest exists if protests have been filed representing 50% of the assessed value of the area. 10)Requires the election to be held 90 days after the public hearing and permits it to be held by mail-in ballot. 11)Prevents an Authority from taking any further action to implement a plan if a majority of the property owners, weighted proportional to the assessed value of their property, vote against the Authority. 12)Allows the Authority to continue to appropriate and expend funds for contractual indebtedness and complete projects for which expenditures of any kind have been made prior to the effective date of the election. EXISTING LAW: 1)Dissolves redevelopment agencies as of February 1, 2012 (Health and Safety Code Section 34170). 2)Establishes the Community Redevelopment Law (CRL), which governs the authority to establish a redevelopment agency and the authority for a redevelopment agency to function as an agency and to adopt and implement a redevelopment plan (Health and Safety Code Section 33000 et seq.). FISCAL EFFECT: Unknown. COMMENTS: Background: In 2011, the Legislature approved and the Governor signed two measures, ABX1 26 and ABX1 27 that together dissolved redevelopment agencies as they existed at the time and created a AB 2 Page 12 voluntary redevelopment program on a smaller scale. In response, the California Redevelopment Association (CRA), League of California Cities, along with other parties, filed suit challenging the two measures. The Supreme Court denied the petition for peremptory writ of mandate with respect to ABX1 26. However, the Court did grant CRA's petition with respect to ABX1 27. As a result, all redevelopment agencies were required to dissolve as of February 1, 2012. Over the last sixty years, redevelopment agencies used tax increment to finance affordable housing, community development, and economic development projects. The dissolution of redevelopment agencies has created a void and an effort to create new tools that would support community and economic development activities. This bill would allow local government entities, excluding schools, to form an Authority to collect tax increment and issue debt. The Authority could use its powers to invest in disadvantaged communities with a high crime rate, high unemployment, and deteriorated and inadequate infrastructure, commercial, and residential buildings. Three of these four conditions would constitute blight. The area where the Authority could invest would also be required to have an annual median household income that is less than 80% of the statewide annual median income. This is different from redevelopment agencies that were required to conduct a study and make a finding that blight existed in a project area before they could use their extraordinary powers, like eminent domain, to eradicate blight. Like redevelopment agencies, this bill would allow Authorities to freeze the property taxes at the time the plan for revitalizing the area is approved. The Authority will collect all the tax increment or the increase in property taxes that is generated after that point and use it on specified activities. Unlike redevelopment agencies, this bill would require the taxing entities in the area including the county, city, special districts, or a military base to agree to divert tax increment to the Authority. Local government entities that initially participate can opt out by giving the auditor-controller sixty AB 2 Page 13 days' notice; however, the auditor controller will continue to collect the local government entities' portions of tax increment until any debts issued up until then have been repaid. No portion of the local schools' share of tax increment may go to the Authority. Addressing Governor's Veto of Previous Bill : This bill is largely similar to AB 2280 which was vetoed by the Governor. The Governor's veto message stated the following: "I am returning Assembly Bill 2280 without my signature. This bill allows local governments to establish a Community Revitalization and Investment Authority to use tax increment revenues to invest in disadvantaged communities. I applaud the author's efforts to create an economic development program, with voter approval, that focuses on disadvantaged communities and communities with high unemployment. The bill, however, unnecessarily vests this new program in redevelopment law. I look forward to working with the author to craft an appropriate legislative solution." To address the Governor's concerns, AB 2 takes portions of the Community Redevelopment Law (CRL) and incorporates it into the bill rather than cross referencing the CRL. Purpose of this bill : According to the author, "redevelopment was a multi-purpose tool that focused over $6 billion per year toward repairing and redeveloping urban cores, and building affordable housing, especially in those areas most economically and physically disadvantaged. Since the dissolution of redevelopment agencies, communities across California are seeking an economic development tool to use. Multiple legislative measures were introduced after the dissolution of redevelopment agencies in an effort to provide local governments options for sustainable community economic development. Several measures were approved by the Legislature, however, all were vetoed by Governor Brown. While the dissolution of former AB 2 Page 14 redevelopment agencies continues, the pervasive question is, what economic development tool can local governments use? This proposal provides a viable option targeting the state's disadvantaged poorer areas and neighborhoods." Affordable housing provisions : Prior to their dissolution, redevelopment generated up to $1 billion a year for affordable housing in the state. Redevelopment agencies were required to set- a-side 20% of tax increment generated in a project area to increase, improve, or rehabilitate affordable housing for low, very-low, and moderate income families and individuals. AB 2 changes the requirements of RDAs in three ways. It increases the amount an Authority must set aside for affordable housing from 20% to 25%. Second, the bill requires a community revitalization and investment plan to ensure that housing affordable to and occupied by extremely low-, very low-, and low-income households within an area does not decrease during the life of the area plan. Third, the bill requires the authority to provide replacement housing in two rather than four years. The Authority would be allowed to transfer the funds collected for affordable housing to a housing authority within the project area or to the successor agency to a former redevelopment agency. An Authority would have to make a finding that transferring the funds and combining them with other funding for housing would reduce administrative costs or expedite the construction of affordable housing. Related legislation : AB 2280 (Alejo) of 2014 would have established an Authority and gave it the same rights, responsibilities and powers as redevelopment agencies. It was vetoed by the Governor. AB 1080 (Alejo) of 2013 would have established an Authority and AB 2 Page 15 given it the same rights, responsibilities and powers as redevelopment agencies. It was held on suspense in the Senate Appropriations Committee. SB 1 (Steinberg) of 2013 would have allowed local governments to establish a Sustainable Communities Investment Authority to finance specified activities within a sustainable communities investment area using tax increment financing. This bill died on the Inactive File on the Senate Floor. SB 1156 (Steinberg) of 2012 would have allowed local governments to establish a Sustainable Communities Investment Authority after July 1, 2012, to finance specified activities within a sustainable communities investment area using tax increment financing. This bill was vetoed by the Governor. Double referred : If AB 2 passes out of this committee, the bill will be referred to the Committee on Local Government. REGISTERED SUPPORT / OPPOSITION: Support African American Caucus of the League of California Cities American Planning Association AB 2 Page 16 Building Owners and Managers Association of California California Association for Local Economic Development California Building Industry Association California Business Properties Association California Chamber of Commerce California Coalition for Rural Housing City of Mendota Glendale City Employees Association Housing California International Council of Shopping Centers Latino Caucus of the League of California Cities Leading Age California League of California Cities AB 2 Page 17 NAIOP of California, the Commercial Real Estate Development Association Organization of SMUD Employees San Bernardino Public Employees Association San Luis Obispo County Employees Association Opposition California Alliance to Protect Private Property Rights Fieldstead and Company Analysis Prepared by:Lisa Engel / H. & C.D. / (916) 319-2085 AB 2 Page 18