SENATE VOTE: 24-13

LOCAL GOVERNMENT 5-3

Ayes: Alejo, Bradford, Campos, Gordon, Hueso
Nays: Smyth, Knight, Norby

SUMMARY: Eliminates the requirement of voter approval to create an infrastructure financing district (IFD) and revises the provisions governing the public facilities that may be financed by an IFD. Specifically, this bill:

1) Requires an IFD to only finance structural or nonstructural public capital facilities.

2) Adds the following to the types of facilities an IFD can finance:

a) Facilities and watershed lands used for the collection and treatment of water for urban uses;

b) Flood management, including levees, bypasses; and,

c) Habitat restoration.

3) Authorizes an IFD to finance the cleanup and development of brownfields-properties contaminated by hazardous waste under the provisions of the Polanco Redevelopment Act.

4) Removes the prohibition against an IFD including any portion of a redevelopment project area.

5) Authorizes an IFD to finance any projects that implement a sustainable communities strategy (SCS) as required under SB 375 (Steinberg), Chapter 728, Statutes of 2008.

6) Removes intent language that an IFD has to cover areas that are substantially undeveloped.

7) Changes the time period that any action or proceeding to attack, review, set aside, void, or annul the creation of an IFD or the adoption of an infrastructure financing plan from 30 days after the enactment of the ordinance creating the IFD to 30 days after the date the legislative body adopted the resolution adopting the infrastructure financing plan.

8) Changes the time period that any action or proceeding to attack, review, set aside, void, or annul the issuance of bonds by the IFD from 30 days after the resolution that the voters approved the issuance of bonds to 30 days from the date the legislative body adopted the resolution providing for the issuance of bonds.

9) Prohibits an IFD from providing any form of financial assistance to a vehicle dealer or big box retailer, or a business entity that sells or leases land to a vehicle dealer or big box retailer that is relocating from the territorial jurisdiction of one local agency to the territorial jurisdiction of another local agency but within the same market area.

10) Requires the resolution of intention for the creation of an IFD to state the need for the IFD and the goals the IFD proposes to achieve by financing public facilities.

11) Requires the legislative body to direct the clerk to mail a copy of the resolution of intention to create an IFD to each affected taxing entity.

12) Removes the requirement that the public facilities of the IFD are of communitywide significance.

13) Expands the life of an IFD from 30 to 40 years.

14) Provides that in the case of an affected taxing entity that is a special district that provides fire protection service and where the county board of supervisors is the governing authority or has appointed itself as the governing board of the district, the plan shall be adopted by a separate resolution approved by the district's governing authority or governing board

15) Removes the election requirement to form an IFD, adopt an infrastructure financing plan, or issue bonds.

16) Requires an annual report to be sent to each land owner and affected taxing entity in the IFD that contains all of the following:

a) A summary of the IFD's expenditures;

b) A description of the progress made towards the IFD's adopted goals; and,

c) An assessment of the status regarding completion of the IFD's public works projects.

17) Prohibits the IFD, if it fails to provide the annual report, from spending any funds to construct public works projects until the annual report is submitted.

18) States that if the IFD fails to produce evidence of progress made towards achieving its adopted goals for five consecutive years, the IFD shall not spend any funds to construct any new public works projects, except to complete any public works projects that it had started.

19) Requires, if the IFD fails, that any excess property tax increment revenues that had been allocated for new public works projects be reallocated to the affected taxing entities.

20) Makes other technical and clarifying changes.

EXISTING LAW:

1) Authorizes cities and counties to create 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.

2) Allows an IFD to divert property tax increment revenues from other local governments, excluding school districts, for up to 30 years, in order to pay back bonds issued by the IFD.

3) Requires that in order to form an IFD a city or county must develop an infrastructure plan, send copies to every landowner, consult with other local governments, and hold a public hearing.

4) Requires that when forming an IFD, local officials must find that its public facilities are of communitywide significance and provide significant benefits to an area larger than the IFD.

5) Requires that every local agency who will contribute its property tax increment revenue to the IFD approve the plan.

6) Requires a two-thirds voter approval of the formation of the IFD and the issuance of bonds.

7) Requires majority voter approval for setting the IFD's appropriations limits.

8) Specifies that public agencies that own land in a proposed IFD may not vote on issues regarding the district.

9) Authorizes IFDs to issue a variety of debt instruments, including bonds, certificates of participation, leases, and loans.

10) Requires any IFD that constructs dwelling units to set aside not less than 20% of those units to increase and improve the community's supply of low- and moderate-income housing available at an affordable housing cost to persons and families of low- and moderate-income.

11) Prohibits a local agency from providing any form of financial assistance to a vehicle dealer or big box retailer, or a business entity that sells or leases land to a vehicle dealer or big box retailer, that is relocating from the territorial jurisdiction of one local agency to the territorial jurisdiction of another local agency but within the same market area.

12) Requires the regional transportation plan for specified regions to include an SCS, as specified, designed to achieve certain goals for the reduction of greenhouse gas emissions from automobiles and light trucks in a region.

FISCAL EFFECT: None

COMMENTS: According to the author "SB 214 makes it easier for local agencies to use IFDs to pay for public projects, without impacting school district's share of property tax or the state's general fund. In a fiscally distressed economic climate, local officials need a flexible financing tool that is rigorous and responsible. Currently, existing law perversely incentivizes locals to pursue less accountable financing mechanisms."

Cities and counties can create 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 are prohibited from diverting property tax increment revenues from schools.

For several years, local officials were reluctant to form IFDs because they worried about the constitutionality of using tax increment revenue from property that was not within the redevelopment project area. When a 1998 Attorney General's opinion allayed those concerns, the City of Carlsbad formed an IFD in 1999 to fund the public works for a new hotel located adjacent to the Legoland theme park. That small project is the only example of local officials' use of the 1990 IFD law. The broader use of IFDs may attract more attention and the appellate courts may be asked to determine whether it is constitutional to divert property tax increment to IFDs.

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. When redevelopment officials use property tax increment financing to eradicate blight, state law does not require voter approval. When local officials use IFDs to capture property tax increment revenues, state law requires a two-thirds approval.

Recognizing these barriers, this bill removes key impediments to IFDs, such as the voting requirements to form and bond the IFD. In addition, the bill extends the term of the IFD bonds from 30 to 40 years, allowing for a longer debt repayment period lowering monthly payments. Also, to increase transparency, this bill includes measures of programmatic and fiscal accountability, requiring IFDs to annually report its progress and expenditures to its affected taxing entities and landowners.

Since the creation of IFD law there have been multiple bills that have tailored IFD law to specific local circumstances. In 1999 the Legislature created a parallel law for IFDs to stimulate development and international trade in the "border development zone," about 400 square miles next to the Mexico border [SB 207 (Peace), Chapter 773, Statutes of 1999]. However, San Diego officials have yet to use this authority. In 2005, the Legislature passed SB 1085 (Migden), Chapter 213, Statutes of 2005, which provided for changes and additions to the IFD law to enable the City and County of San Francisco to finance needed public infrastructure improvements to specified waterfront properties. This authority was expanded even further for San Francisco last year in AB 1199 (Ammiano), Chapter 664, Statutes of 2010.

This bill contains provisions that allow an IFD to be formed in an area that is or was previously in a redevelopment project area. Current law expressly prohibits this. The Legislature may wish to consider if the Legislature chooses not to end redevelopment agencies out right then should we really be allowing the overlap of an IFD and a redevelopment agency since they both are funded through tax increment?

This bill allows an IFD to finance the costs of projects that implement and SCS; however,
SB 375 (Steinberg) also authorized regional planning agencies to create an alternative planning strategy (APS) in lieu of an SCS. The Legislature may wish to ask the author to amend the bill to allow for projects in an APS to also be financed by an IFD.

Support arguments: Supporters argue that this bill creates a more flexible development tool to finance needed public works projects. Given the "opt-in" nature of IFDs tax increment financing, more local governments will have a voice in if their growth in property tax is allocated, a luxury currently not provided to them under redevelopment law.

Opposition arguments: Opposition could say that by removing the voter approval requirements for the creation of an IFD and the issuance of tax allocation bonds will remove any input or direct voter oversight. Moreover, with the removal of the voting requirement the measure is creating more of a redevelopment type agency without the requirement of making a finding of blight.

This measure, AB 485 (Ma), AB 910 (Torres), and SB 310 (Hancock) all contain similar provisions in IFD law and will need to contain double-jointing language in order to not have chaptering out issues if the measures move forward.

Analysis Prepared by: Katie Kolitsos / L. GOV. / (916) 319-3958

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