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california legislation > SB 1156

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SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair


BILL NO: SB 1156 HEARING: 4/18/12
AUTHOR: SteinbergFISCAL: Yes
VERSION: 3/29/12 TAX LEVY: No
CONSULTANT: Weinberger

COMMUNITY DEVELOPMENT AND HOUSING
JOINT POWERS AUTHORITIES


Allows cities and counties to form Community Development
and Housing JPAs to administer economic development and
affordable housing programs.


Background

Until 2011, the Community Redevelopment Law allowed local
officials to set up redevelopment agencies (RDAs), prepare
and adopt redevelopment plans, and finance redevelopment
activities.

A redevelopment agency kept the property tax increment
revenues generated from increases in property values within
a redevelopment project area. As a redevelopment project
area's assessed valuation grew above its base-year value,
the resulting property tax revenues - the property tax
increment - went to the RDA instead of going to the
underlying local governments. When a redevelopment agency
diverted property tax revenues from a school district, the
State General Fund paid the difference.

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.

RDAs' dissolution deprived many local governments of the
primary tool they used to eliminate physical and economic
blight, finance new construction, improve public
infrastructure, rehabilitate existing buildings, and
increase the supply of affordable housing. Legislators,




SB 1156 -- 3/29/12 -- Page 2



local government officials, affordable housing advocates,
and others want to develop alternative tools to promote
local economic development.




Proposed Law

Senate Bill 1156 allows cities and counties to use a
variety of local economic development and housing tools
through the formation of a Community Development and
Housing Joint Powers Authority.

I. Joint Powers Authority. The Joint Exercise of Powers
Act allows two or more public agencies to use their powers
in common if they sign a joint powers agreement. Sometimes
an agreement creates a new public entity called a joint
powers agency or joint powers authority (JPA), which is
separate from the parties to the agreement. Senate Bill
1156 allows a city council and county board of supervisors
representing the geographic territory covering the area
served by a former redevelopment agency to form a Community
Development and Housing Joint Powers Authority, after July
1, 2012, to carry out the Community Redevelopment Law's
provisions. If the former redevelopment agency was formed
solely by a county, Senate Bill 1156 allows the county to
exercise the powers authorized by the bill.

II. Redevelopment plans and project areas. Before
redevelopment officials could wield their extraordinary
powers of property tax increment funding and property
management (including eminent domain), the Community
Redevelopment Law required them determine if an area was
blighted. Senate Bill 1156 allows a Community Development
and Housing JPA to adopt a redevelopment plan for a project
area. The bill states that a determination is not required
to be made regarding blight within the project area, and an
action is not required to be taken for the elimination of
blight in connection with the JPA's creation of a
redevelopment plan for a project area.

Senate Bill 1156 requires a JPA's redevelopment plan to
terminate on a specified date within 30 years of the date
the agency first issues bond indebtedness.






SB 1156 -- 3/29/12 -- Page 3



To help reduce greenhouse gas emissions by reducing vehicle
miles travelled, the Legislature linked transportation
planning and land use planning by state, regional, and
local agencies. Metropolitan planning organizations and
their constituent counties and cities are preparing
sustainable communities strategies. Among the incentives
to implement those policies is the opportunity for
developers to gain accelerated approval for projects that
promote those goals (SB 375, Steinberg, 2008). Senate Bill
1156 requires that a project area must include only
specific areas. For areas within the geographic boundaries
of a metropolitan planning organization where a sustainable
communities strategy has been adopted by the metropolitan
planning organization, and the State Air Resources Board
has accepted the metropolitan planning organization's
determination that the sustainable communities strategy
would achieve the greenhouse gas emission reduction
targets, a project area can include:

Transit priority areas where a transit priority
project, as defined in statute, may be constructed.
If the project area is based on proximity to a planned
major transit stop or a high-quality transit corridor,
the stop or the corridor must be scheduled to be
completed within the planning horizon established by
specified federal regulations governing the
metropolitan transportation planning process. The
bill specifies that a transit priority area can
include a military base reuse plan that meets the
definition of a transit priority area and a
contaminated site within a transit priority area.

Areas that are small walkable communities, as
defined in state law. The bill prohibits a
redevelopment plan from designating more than one
small walkable community project area within a city.

Senate Bill 1156 defines a "small walkable community
project" as a project that is located in a small walkable
community project area. A small walkable community project
area means an area within an incorporated city that is not
within the boundary of a metropolitan planning organization
and meets all the following requirements:
Has a project area of approximately
one-quarter-mile diameter of contiguous land
completely within the existing incorporated boundaries





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of the city.
Has a project area that includes a residential area
adjacent to a retail downtown area.
The project area has an average net density of at
least eight dwelling units per acre or a floor area
ratio for retail or commercial use of not less than
0.50. "Floor area ratio" means the ratio of gross
building area (GBA) of development, exclusive of
structured parking areas, proposed for the project
divided by the total net lot area (NLA). "Gross
building area" means the sum of all finished areas of
all floors of a building included within the outside
faces of its exterior walls. "Net lot area" means the
area of a lot excluding publicly dedicated land,
private streets that meet local standards, and other
public use areas as determined by the local land use
authority.

Senate Bill 1156 also allows redevelopment project areas to
include sites that have land use approvals, covenants,
conditions and restrictions, or other effective controls
restricting the sites to clean energy manufacturing, and
sites that are consistent with the sustainable communities
strategy, if those sites are within the geographic
boundaries of a metropolitan planning organization. The
bill defines clean energy manufacturing as manufacturing
components, parts, or materials for the generation of
renewable energy resources or for alternative fuel
vehicles.

III. Tax increment financing. The California Constitution
and the Community Redevelopment Law allow local officials
to use property tax increment revenues to repay bonds,
debts, and loans needed to finance a redevelopment project.
Senate Bill 1156 allows a JPA's redevelopment plan to
include, solely for purposes of Section 16 of Article XVI
of the California Constitution, a provision for the receipt
of tax increment funds according to state law, provided
that the local government with land use jurisdiction adopts
all of the following:

A school mitigation plan to offset losses of
property tax revenue to schools serving the project
area as a result of the imposition of a provision for
the receipt of tax increment funds. The plan may
include assessment districts, provisions of covenants,





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conditions and restrictions, or other mechanisms.
Except as otherwise specified, the plan must be
approved by the fiscally affected school districts.
If the plan is not approved by the school districts,
the Community Development and Housing can submit the
plan to the Department of Finance for approval. The
department must approve the plan if there is no impact
on the state budget because of specified provisions of
the California Constitution governing state school
funding or if the impacts on the state budget are not
unacceptable.

An analysis of the public service costs and
revenue-generating impact of new development with
respect to the provision of basic public services,
including police, fire, and rescue services. The plan
shall include a strategy for mitigating unfunded
service impacts.

A sustainable parking standards ordinance that
restricts parking in transit priority project areas.

A provision requiring that 20 percent of the
housing in the project area be affordable to persons
of low- and moderate-income.

For transit priority areas and small walkable
communities within a metropolitan planning
organization, a plan consistent with the use
designation, density, building intensity, and
applicable policies specified for the project area in
the sustainable communities strategy and that, for new
residential construction, provides a density of at
least 20 dwelling units per net acre and for
nonresidential uses, provides a minimum floor area
ratio of 0.75. The authority must obtain the
metropolitan planning organization's concurrence that
the plan is consistent with the use designation,
density, building intensity, and applicable policies
for the project area in the sustainable communities
strategy.

Within small walkable communities outside a
metropolitan planning organization, a plan for new
residential construction that provides a density of at
least 20 dwelling units per acre and, for





SB 1156 -- 3/29/12 -- Page 6



nonresidential uses, provides a minimum floor area
ratio of 0.75.

IV. Other provisions. Senate Bill 1156 requires an
authority to approve any bond financing.

Senate Bill 1156 requires that the Low and Moderate Income
Fund must be retained in the Sustainable Economic
Development and Housing Trust Fund for uses specified in
the Community Redevelopment Law. If the funds are not
contracted for use within 60 months date on which SB 1156
takes effect, the balance must be transferred to an agency
designated by the Governor for use as grants to the
authority for the provision of affordable housing to low-
and moderate-income households. Any funds expended by the
authority for affordable housing from any of the granted
funds shall be credited against the Community Redevelopment
Law's 20-percent set-aside requirement.

Senate Bill 1156 allows a state or local public pension
fund system authorized by state law or local charter to
invest capital in an authority's public infrastructure
projects and private commercial and residential
developments. The bill specifies that eligible pension
systems include the Public Employees' Retirement System,
the State Teachers' Retirement System, a system established
under the County Employees Retirement Law of 1937, or an
independent system.

State law allows cities and counties to create
Infrastructure Financing Districts, which can divert
property tax increment revenues 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
(SB 308, Seymour, 1990). Senate Bill 1156 allows an
authority to exercise the full powers granted under
statutes authorizing the formation of Infrastructure
Financing Districts.

The Marks-Roos Local Bond Pooling Act allows public
agencies to use JPAs to finance infrastructure. These JPAs
issue Marks-Roos Act bonds and loan the capital to local
agencies for public works, working capital, and insurance
programs (SB 17, Marks, 1985). Senate Bill 1156 allows an
authority to exercise the full powers granted under the





SB 1156 -- 3/29/12 -- Page 7



Marks-Roos Local Bond Pooling Act.

State law allows counties, cities, and some other local
agencies to levy "transactions and use" taxes on top of the
7.25% statewide base sales and use tax rate.
Senate Bill 1156 allows an authority to implement a local
transactions and use tax under specified statutes, except
that the resolution authorizing the tax may designate the
use of tax proceeds.

Senate Bill 1156 allows an authority to issue bonds paid
for with authority proceeds, which are deemed to be special
funds to be expended by the authority for the purposes of
carrying out the bill's provisions.

State law requires community colleges to help improve
linkages and career-technical education pathways between
high schools and community colleges and specifies the kinds
of assistance that must be provided (SB 70, Scott, 2007).
Senate Bill 1156 allows a Community Development and Housing
JPA to enter into financial and other agreements with
community colleges, K-12 school districts, and private
businesses to facilitate the development and operation of
articulated career technical education pathways, as
specified in the 2007 Scott bill.


State Revenue Impact

No estimate.


Comments

1. Purpose of the bill . Eliminating redevelopment
agencies did not eliminate the need for communities
throughout California to build more affordable housing,
eliminate blight, foster business activity, clean up
contaminated brownfields, and create jobs. SB 1156
establishes a new approach to local economic development
and housing policy that is focused on building sustainable
communities and creating high skill, high wage jobs. SB
1156's JPA model fosters collaboration between cities and
counties on local economic development efforts and
mitigates the zero-sum competition for scare property tax
revenues among cities, counties, and school districts. The





SB 1156 -- 3/29/12 -- Page 8



bill offers local governments flexibility by allowing an
authority to use a variety of tools, including tax
increment financing, Community Redevelopment Law powers,
local sales taxes, infrastructure financing districts, and
the ability to leverage public pension fund investments.

2. Unintended consequences . SB 1156 broadly allows a
Community Development and Housing Joint Powers Authority to
carry out the Community Redevelopment Law's provisions.
The bill specifically allows an Authority to establish
redevelopment project areas and create redevelopment plans
without making any determination or requiring any action
regarding "blight." For nearly 60 years, eradicating
blight was the central principle underlying the Community
Redevelopment Law. Allowing a JPA to use the Community
Redevelopment Law's provisions without regard to blight may
produce unintended consequences. For example, former RDA
officials were required to determine an area to be blighted
before they could exercise the Community Redevelopment
Law's eminent domain powers. As stated in a court decision
in Emmington v. Solano County RDA (1987), "the blighted
condition of the area is the very basis of the
redevelopment agency's jurisdiction to acquire the property
by eminent domain and expend public funds for its
redevelopment." It is unclear whether SB 1156 can, or
should, allow a JPA to exercise the Community Redevelopment
Law's eminent domain powers unfettered by any requirements
related to blight. To avoid possible unintended
consequences from broadly authorizing the use of the
Community Redevelopment Law, the Committee may wish to
consider amending SB 1156 to specify which Community
Redevelopment Law powers a JPA can use without regard to
blight.

3. Implementation . The extensive list of requirements
that local governments must meet to use SB 1156's economic
development and housing powers may limit the number of
communities in which it is eventually implemented. Not all
cities will be able to form joint powers authorities with
the counties in which they are located. Not all cities and
counties have territory within their jurisdictions that
meets SB 1556's relatively narrow requirements for the
formation of project areas. Many local governments may be
unable to fulfill all of the bill's requirements for using
tax increment financing. The Committee may wish to
consider amending SB 1156 to broaden its potential





SB 1156 -- 3/29/12 -- Page 9



implementation. For example, the bill could be amended to
expand the definition of the types of areas in which a
Community Development and Housing JPA can establish a
redevelopment project area.

4. Special districts . The involuntary diversion of
property tax revenues that would otherwise have gone to
other local taxing entities, including counties, special
districts, and schools, was one of the most controversial
aspects of tax increment financing. SB 1156 mitigates this
issue with regard to counties by establishing a joint
powers governance structure that allows them to participate
equally in decisions to use tax increment financing. The
bill requires a mitigation plan to address the tax
increment financing's impact on schools' property tax
revenues. However, it allows an Authority to divert
special districts' property tax revenues, without the
mitigation requirement that applies to schools. Because
many special districts rely heavily on property tax
revenues to provide core services to residents throughout
California, the Committee may wish to consider amending SB
1156 to require an Authority to mitigate its diversion of
special districts' property tax revenues.

5. Say what you mean . If a JPA wants to use tax increment
financing, SB 1156 says it must adopt a provision requiring
"that 20 percent of the housing in the project area be
affordable to persons of low- and moderate-income." Read
literally, this provision seems to require that one in
every five housing units within a project area's boundaries
must be affordable. However, this provision is intended to
function as an inclusionary housing requirement, mandating
that 20% of the housing units that are built after an
Authority forms the project area must be affordable. The
Committee may wish to consider amending SB 1156 to clarify
the bill's 20% affordable housing requirement.

6. Technical Amendments . To clarify SB 1156's provisions,
the Committee may wish to consider making the following
technical amendments to the bill:
On page 4, line 26, strike out "body" and insert:
"bodies"
On page 5, line 23, strike out "agency" and insert:
"authority"
On page 7, line 13, after "per" insert: "net"
On page 8, line 13, strike out "proceed" and





SB 1156 -- 3/29/12 -- Page 10



insert: "proceeds"
On page 9, line 32, after "per" insert: "net"
On page 11, line 7, after "per" insert: "net"

7. Timing is everything . Regular statutes take effect on
the January 1 following their enactment; bills passed in
2012 take effect on January 1, 2012. The California
Constitution allows bills with urgency clauses to take
effect immediately if they're needed for the public peace,
health, and safety. SB 1156 lets cities and counties form
JPAs to administer economic development and housing
programs after July 1, 2012. However, because SB 1156 is
not an urgency measure, its provisions won't take effect
until January 1, 2013. The Committee may wish to consider
amending SB 1156 to add an urgency clause, allowing the
bill to take effect as soon as it is enacted.

8. Double referral . The Senate Rules Committee has
ordered a double-referral of SB 1156 --- first to the
Senate Governance & Finance Committee which has policy
jurisdiction over the statutes governing local governments'
finances, and then to the Senate Transportation & Housing
Committee, which has jurisdiction over the bill's
housing-related provisions.

9. Related bills . At its April 18 hearing, the Committee
will also hear:
SB 986 (Dutton), which allows successor agencies to
keep former RDAs' bond proceeds and enter into new
enforceable obligations funded by bond proceeds.
SB 1056 (Hancock), which expands the definition of
"enforceable obligation" to include financial
obligations related to a project funded with both tax
increment and federal school construction bonds.
SB 1151 (Steinberg), which creates an alternative
process by which communities can use their former
redevelopment agencies' assets for economic
development and housing purposes.

Other bills that amend the statutes governing the
disposition and use of former RDAs' assets include:
SB 1337 (Pavley), which allows a successor agency
to retain former RDA land that is a brownfield site
for the purpose of hazardous substance remediation or
removal.
AB 1585 (Perez), which makes numerous amendments to





SB 1156 -- 3/29/12 -- Page 11



the statutes governing the redevelopment dissolution
process.


Support and Opposition (4/12/12)

Support : California League of Conservation Voters, BRIDGE
Housing, LAANE, Los Angeles County Federation of Labor,
Mission Bay Development Group, Natural Resources Defense
Council.

Opposition : California Special Districts Association.