BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 2 |Hearing |6/10/15 |
| | |Date: | |
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|Author: |Alejo |Tax Levy: |No |
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|Version: |3/26/15 |Fiscal: |Yes |
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|Consultant|Weinberger |
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COMMUNITY REVITALIZATION AND INVESTMENT AUTHORITIES
Allows local governments to form Community Revitalization and
Investment Authorities to administer economic development and
affordable housing programs.
Background and Existing Law
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 deficit, Governor
Brown's 2011-12 budget proposed eliminating 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. The California
Supreme Court's 2011 ruling in California Redevelopment
Association v. Matosantos upheld AB X1 26, but invalidated AB X1
27 (Blumenfield, 2011), which would have allowed most RDAs to
avoid dissolution.
RDAs used property tax revenues generated by growth in the
assessed value of properties in a project area - commonly known
as tax increment revenues - to finance their redevelopment
activities. RDAs' dissolution deprived many local governments
of the primary tool they used to eliminate physical and economic
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blight, finance new construction, improve public infrastructure,
rehabilitate existing buildings, and increase the supply of
affordable housing.
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 can divert
property tax increment revenues. However, IFDs can't divert
property tax increment revenues from schools (SB 308, Seymour,
1990). Last year, in response to RDAs' dissolution, legislators
enacted SB 628 (Beall, 2014) to allow local officials to create
Enhanced Infrastructure Financing Districts (EIFDs), which
augment the tax increment financing powers that are available to
local government under the IFD statutes. City or county
officials can create an 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.
Some legislators, local government officials, affordable housing
advocates, and others continue to seek additional tax increment
financing tools to promote local economic development.
Proposed Law
Assembly Bill 2 allows local government officials to establish a
Community Revitalization and Investment Authority (authority)
and use property tax increment revenues to finance the
implementation of a community revitalization plan within a
community revitalization and investment area. Assembly Bill 2
specifies:
I. The process for creating an authority.
II. Criteria for establishing a community revitalization and
investment area.
III. The powers and duties that apply to an authority.
IV. The process for adopting a community revitalization and
investment plan.
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V. How tax increment revenues are allocated to, and used by,
an authority.
VI. An authority's obligations relating to affordable housing.
VII. Reporting, accountability, and audit requirements.
I. Formation process . Assembly Bill 2 allows local governments
to form an authority in two ways:
A city, county, or city and county can adopt a
resolution creating an authority governed by a five-member
board that is appointed by the city, county, or city and
county's legislative body. Three board members must be
members of the city, county, or city and county's
legislative body and two must be public members who live or
work within the community revitalization and investment
area.
A city, county, city and county, and special district,
in any combination, may create an authority by entering
into a joint powers agreement. The authority's governing
body must be comprised of a majority of members from the
legislative bodies of the public agencies that created the
authority. The governing body must include at least two
public members who are appointed by a majority of the
authority's board and must live or work within the
community revitalization and investment area.
Assembly Bill 2 prohibits:
School entities from participating in a community
revitalization and investment authority.
Redevelopment successor agencies from participating in a
community revitalization and investment authority.
A city or county that created a former redevelopment
agency from forming a community revitalization and
investment authority, unless the former redevelopment
agency's successor agency has received a finding of
completion from the Department of Finance, and complies
with other specified conditions.
II. Community revitalization and investment areas . Assembly
Bill 2 allows an authority to carry out a community
revitalization plan within a community revitalization and
investment area. The bill requires that at least 80% of the
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land calculated by census tracts or census block groups within
the area must be characterized by both of the following
conditions:
An annual median household income that is less than 80%
of the statewide annual median income.
Three of the following four conditions:
o Nonseasonal unemployment that is at least 3%
higher than the statewide median, as defined by a
specified labor market report.
o Crime rates that are 5% higher than the
statewide median crime rate, as defined by a specified
Department of Justice report.
o Deteriorated or inadequate infrastructure such
as streets, sidewalks, water supply, sewer treatment
or processing, and parks.
o Deteriorated commercial or residential
structures.
Assembly Bill 2 also allows an Authority to carry out a
community revitalization plan within a community revitalization
and investment area established within a former military base
that is principally characterized by deteriorated or inadequate
infrastructure and structures. The governing board of an
Authority established within a former military base must include
a member of the military base closure commission as a public
member.
Assembly Bill 2 allows the legislative body or bodies of the
local government or governments that created the authority to
appropriate any amount the legislative body or bodies deem
necessary for the administrative expenses and overhead of the
authority. The money appropriated may be paid to the authority
as a grant to defray the expenses and overhead, or as a loan to
be repaid upon the terms and conditions as the legislative body
may provide. If appropriated as a loan, the property owners
within the plan area must be made third-party beneficiaries of
the repayment of the loan. The bill specifies that the term,
"administrative expense" includes expenses of planning and
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dissemination of information.
III. Powers and duties . Assembly Bill 2 directs that an
Authority has the following powers and duties:
Provide funding to rehabilitate, repair, upgrade, or
construct infrastructure.
Provide for low- and moderate-income housing.
Remedy or remove a release of hazardous substances
pursuant to the Polanco Redevelopment Act or other
specified statutes authorizing hazardous material cleanup.
Provide for seismic retrofits of existing buildings.
Acquire and transfer real property in accordance with
specified statutes, including through the use of eminent
domain. An authority must retain controls and establish
restrictions or covenants running with the land sold or
leased for private use for such periods of time and under
such conditions as are provided in the community
revitalization and investment plan. The bill declares the
establishment of such controls to be a public purpose.
Issue bonds.
Borrow money, receive grants, or accept financial or
other assistance or investment from the state or the
federal government or any other public agency or private
lending institution for any project within its area of
operation, and comply with any conditions of the loan or
grant.
Adopt a community revitalization plan.
Make loans or grants for owners or tenants to improve,
rehabilitate, or retrofit buildings or structures within
the plan area.
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, commercial industrial, or other uses
contemplated by a revitalization plan
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With specified exceptions, provide direct assistance to
businesses within the plan area in connection with new or
existing facilities for industrial or manufacturing uses.
Assembly Bill 2 deems an Authority to be a local public agency
subject to the Ralph M. Brown Act, the Public Records Act, and
the Political Reform Act.
IV. Community revitalization and investment plans . Assembly
Bill 2 requires an Authority to adopt a community revitalization
and investment plan that may include a provision for the receipt
of tax increment funds generated within the area, provided the
plan includes:
A statement of the plan's principal goals and
objectives, including territory to be covered by the plan.
A description of the deteriorated or inadequate
infrastructure within the area and a program for
construction of adequate infrastructure or repair or
upgrading of existing infrastructure.
A program to remedy or remove a release of hazardous
substances, if applicable.
A program to provide funding for or otherwise facilitate
the economic revitalization of the area.
A fiscal analysis setting forth the projected receipt of
revenue and projected expenses over a five-year planning
horizon.
Time limits designating the maximum length of time an
Authority can establish debt, act pursuant to a plan, repay
debt, and commence eminent domain proceedings.
Assembly Bill 2 specifies the manner in which an authority must
consider adoption of the plan, including requiring public
hearing, a protest process and, in some cases, voter approval of
the plan through a specified election process.
Assembly Bill 2 directs that an authority must consider and
adopt a plan amendment in accordance with the procedures that
applied to the consideration and adoption of the original plan.
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V. Tax increment financing . Article XVI, Section 16 of the
California Constitution allows local officials to use property
tax increment revenues to repay bonds, debts, and loans needed
to finance a redevelopment project. Assembly Bill 2 deems a
community revitalization and investment authority to be the
"agency" described in Article XVI, Section 16 for purposes of
receiving tax increment revenues.
Assembly Bill 2 allows a community revitalization and investment
plan to include a provision for the receipt of tax increment
funds.
Assembly Bill 2 allows any city, county, or special district
that receives ad valorem property taxes from property located
within an area to adopt a resolution directing the county
auditor-controller to allocate its share of tax increment funds
within the area covered by the plan to the authority. The
resolution may direct the county auditor-controller to allocate
less than the full amount of the tax increment, establish a
maximum amount of time in years that the allocation takes place,
or limit the use of the funds by the authority for specific
purposes or programs. A resolution may be repealed by giving
the county auditor-controller 60 days' notice. However, the
county auditor-controller must continue to allocate the taxing
entity's taxes that have been pledged to repay debt issued by
the authority until the debt has been fully repaid.
Assembly Bill 2 requires that, before adopting a resolution
allocating a share of its tax increment funds to an authority, a
city, county, or special district must approve a memorandum of
understanding with the authority governing the authority's use
of tax increment funds for administrative and overhead expenses.
Assembly Bill 2 requires that a provision for the receipt of tax
increment funds must become effective in the tax year that
begins after the December 1 following the adoption of the plan.
Assembly Bill 2 specifies the manner in which a county
auditor-controller must allocate tax revenue to an authority
upon adoption of a plan that includes a provision for the
receipt of tax increment funds.
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Assembly Bill 2 requires that an authority's plan for an area
that includes land formerly or currently designated as part of a
redevelopment area must subordinate tax increment amounts
received by the authority to any preexisting enforceable
obligation, as defined in statute.
VI. Affordable housing . Assembly Bill 2 enacts extensive
affordable housing set-aside, maintenance and replacement
requirements. Specifically, the bill:
Requires that at least 25% of all tax increment revenues
that are allocated to the authority must be deposited into
a separate Low and Moderate Income Housing Fund and used by
the authority for the purposes of increasing, improving,
and preserving the community's supply of low- and
moderate-income housing available at affordable housing
cost, as defined in state law.
Allows an authority to exercise any or all of its powers
for the construction, rehabilitation, or preservation of
affordable housing for extremely low, very low, low- and
moderate-income persons or families.
Enumerates detailed requirements governing the manner in
which an authority may manage and expend tax increment
revenues deposited into a Low and Moderate Income Housing
Fund.
Requires every community revitalization plan to contain
a provision that whenever dwelling units housing persons
and families of low or moderate income are destroyed or
removed from the low- and moderate-income housing market as
part of a revitalization project the authority must, within
two years of such destruction or removal, rehabilitate,
develop, or construct, or cause to be rehabilitated,
developed, or constructed, for rental or sale to persons
and families of low or moderate income an equal number of
replacement dwelling units at affordable housing costs, as
defined by state law, within the territorial jurisdiction
of the authority.
Requires an authority to prepare a feasible method or
plan for relocating:
o Families and persons to be temporarily or
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permanently displaced from housing facilities in the
plan area.
o Nonprofit local community institutions to be
temporarily or permanently displaced from facilities
used for institutional purposes in the project area.
VII. Reporting, Accountability, and Audits . Assembly Bill 2
requires an Authority to review a community revitalization and
investment plan at least annually and make any amendments that
are necessary and appropriate in accordance with specified
statutory provisions. An authority must require the preparation
of an annual independent financial audit paid for from its
revenues.
Assembly Bill 2 requires an authority, after holding a public
hearing, to adopt an annual report on or before June 30 of each
year and specifies the manner in which the authority must make
the report available to the public.
Assembly Bill 2 requires the annual report to contain specified
information and prohibits an authority from spending specified
tax increment revenues if it fails to provide the annual report.
Assembly Bill 2 requires an authority, every 10 years, to
conduct a protest proceeding at a public hearing to consider
whether the property owners and residents within the plan area
wish to present oral or written protests against the authority.
The authority must consider all written and oral protests
received before the close of the public hearing. A majority
protest exists if protests have been filed representing over 50%
of the combined number of property owners and residents, at
least 18 years of age or older, in the area.
If there is a majority protest, Assembly Bill 2 requires the
authority to call an election of the property owners and
residents in the area covered by the plan, and prohibits the
authority from initiating or authorizing any new projects until
the election is held. The election must be held within 90 days
of the public hearing and may be held by mail-in ballot. The
authority must adopt, at a duly noticed public hearing,
procedures for holding the election. If a majority of the
property owners and residents vote against the authority, then
it must not take any further action to implement the plan on and
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after the date of the election. This prohibition does not
prevent the authority from taking any and all actions and
appropriating and expending funds.
Assembly Bill 2 requires an authority to contract every five
years for an independent audit to determine compliance with
affordable housing maintenance and replacement requirements,
including provisions to ensure that the requirements are met
within each five-year period covered by the audit. The audit
must be conducted according to guidelines established by the
Controller. An authority must provide a copy of the completed
audit to the Controller.
If an audit demonstrates a failure to comply with the statutory
requirements, an authority must adopt and submit to the
Controller, as part of the audit, a plan to achieve compliance
with those provisions as soon as feasible, but not less than two
years following the findings. The Controller must review and
approve the plan, and require the plan to stay in effect until
compliance is achieved. The plan must include one or more of the
following means of achieving compliance:
The expenditure of an additional 10% of gross tax
increment revenue on increasing, preserving, and improving
the supply of low-income housing.
An increase in the production, by an additional 10%, of
housing for very low-income households.
The targeting of specified expenditures exclusively to
rental housing affordable to, and occupied by, persons of
very low and extremely low income.
Assembly Bill 2 enumerates penalties that apply to an authority
that fails to provide a copy of a completed audit to the
Controller after receiving a written notice from the Controller.
Penalty amounts can be $2,500 to as much $10,000, depending on
an authority's revenues. The penalties are doubled for a second
consecutive year of failure and tripled for a third or more
consecutive year. After three or more consecutive years, the
Controller must conduct its own financial audit report for which
the authority must pay. The Attorney General may, at the
Controller's request, take action to collect the fines.
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State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Eliminating redevelopment agencies did
not eliminate the need for California communities to build more
affordable housing, eliminate blight, foster business activity,
clean up contaminated brownfields, and create jobs. AB 2
establishes a new approach to local economic development and
housing policy that is focused on the state's disadvantaged
communities. AB 2 fosters collaboration between cities and
counties on local economic development efforts and mitigates the
zero-sum competition for scarce property tax revenues among
cities, counties, and school districts. To ensure public
accountability, the bill requires a community revitalization and
investment authority to conduct an annual review and reporting
process, and periodically allows local residents to prohibit an
Authority from taking further actions. While it is unrealistic
to expect that a single economic development tool will work in
all California communities, AB 2 is a viable option for bringing
vital investments to communities that most need employment
opportunities, crime reduction, upgraded infrastructure,
brownfield remediation, and affordable housing.
2. Wait and see ? After the Supreme Court's 2011 Matosantos
decision dissolved all RDAs, legislators introduced a wide
variety of bills creating new tax increment financing tools to
pay for local economic development. Last year, elements of
several of those bills were integrated into SB 628 (Beall,
2014), which created a new Enhanced Infrastructure Financing
District (EIFD) tax increment financing mechanism for local
governments. It is too early judge how well the new EIFD
structure will work for most local governments and AB 2's
proponents assert that it would be unrealistic to expect that a
single approach to tax increment financing will meet the needs
of every local community. However, in light of SB 628's recent
enactment, legislators may wish to consider whether it is
premature to enact another complex set of statutes granting new
tax increment financing powers to local governments.
3. Eminent domain . One tool that AB 2 would grant local
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governments that is not available through an EIFD is the power
to take private property through the power of eminent domain and
to pay for it using tax increment revenues. Some property
owners object to the way in which former redevelopment agencies
used their eminent domain authority, arguing that RDA's use of
eminent domain hurt businesses and depressed property values in
some communities. They oppose the provisions in AB 2 which
would allow community revitalization and investment authorities
to use land acquisition and management powers that largely
replicate the powers granted to former redevelopment agencies
under the Community Redevelopment Act.
4. Plan approval . AB 2 specifies the process by which an
authority must approve a community revitalization and investment
plan. Some of the approval requirements appear to be
inconsistent. The bill allows an authority, after holding three
hearings, to adopt a plan by ordinance if no majority protest
exists. However, the bill also requires that an Authority must
call an election if more than 25%, but less than 50%, of
property owners and residents file protests. It is unclear
whether the authority's adoption of an ordinance is intended to
be conditional on the outcome of the election. The Committee
may wish to consider amending AB 2 to clarify the bill's plan
approval requirements by specifying that an authority can
approve a plan by adopting an ordinance only if less than 25% of
property owners and residents file protests.
5. Let's get technical . To clarify AB 2's provisions, the
Committee may wish to consider amending the bill to make the
following changes:
On page 8, line 26, delete "62006" and insert "62005"
On page 16, line 40, delete "62006" and insert "62005"
6. Legislative history . AB 2 is similar to AB 1080 (Alejo,
2013), which the Senate Governance & Finance Committee approved
4-1, but which later died in the Senate Appropriations
Committee. AB 2 is also similar to AB 2280 (Alejo, 2014) which
Governor Brown vetoed. The Governor's veto message for AB 2280
stated, in part:
I applaud the author's efforts to create an economic
development program, with voter approval, that focuses on
disadvantaged communities and communities with high
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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.
7. Double referral . The Senate Rules Committee has ordered a
double-referral of AB 2, first to the Senate Governance &
Finance Committee, which has jurisdiction over the statutes
governing local governments' finances, and then to the Senate
Transportation & Housing Committee, which has jurisdiction over
the bill's housing provisions.
Assembly Actions
Assembly Housing & Community Development Committee: 6-1
Assembly Local Government Committee: 7-2
Assembly Appropriations Committee: 13-3
Assembly Floor: 63-13
Support and
Opposition (6/4/15)
Support : African American Caucus, League of California Cities;
American Planning Association, California Chapter; The ARC
California; Asian and Pacific Islander Caucus, League of
California Cities; Building Owners and Managers Association of
California; California Apartment Association; California Asian
Pacific Chamber of Commerce; California Association for Local
Economic Development; California Building Industry Association;
California Business Properties Association; California Chamber
of Commerce; California Coalition for Rural Housing; California
Special Districts Association; Cities of Hesperia, Indian Wells,
Lakewood, Mendota, Rosemead, Sacramento, Salinas, Thousand Oaks;
Glendale City Employees Association; Housing California;
International Council of Shopping Centers; Latino Caucus, League
of California Cities; Leading Age California; League of
California Cities; NAIOP of California, the Commercial Real
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Estate Development Association; Organization of SMUD Employees;
San Bernardino Public Employees Association; San Luis Obispo
County Employees Association; Transportation Agency of Monterey
County; United Cerebral Palsy California Collaboration.
Opposition : California Alliance to Protect Private Property
Rights; Fieldstead and Company.
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