California Lawmakers Try Again to Replace Redevelopment

TAHOMA, Calif. — A new push is underway to reinvigorate local economic development financing in California after the 2012 shutdown of redevelopment agencies.

Several bills are winding through the state Assembly and Senate that try to reinvent economic development tools for municipalities primarily by using incremental growth in property tax revenues, as redevelopment agencies once did.

Even if some of the legislation makes it to Gov. Jerry Brown's desk, the question is whether he's ready to act on them.

"The key wild card is the governor," said Michael Coleman, a fiscal policy advisor to the California Society of Municipal Finance Officers and the League of California Cities. "We had bills that we thought were well crafted last year and that went all the way to his desk, and he vetoed them."

In a veto message last year Brown said it would be "premature" to return to economic development financing and encourage cities to focus on using the new tools rather than finishing the job of unwinding redevelopment.

The bill that is farthest along passed the Senate last week. Senate Bill 33 sponsored by Sen. Lois Wolk, D-Davis, would reinvent infrastructure financing districts and would allow municipalities to return to funding projects by using tax increment.

The legislation would remove the need for municipalities to get voter approval to form infrastructure financing districts or to issue debt. The measure would also extend the maximum term of such bonds to 40 years from 30 years.

Wolk's bill would add an annual independent audit of the public agencies and landowners.

"SB 33 removes key impediments to forming IFDs, gives local officials the decision-making authority to determine project priorities at the ground level, and works to ensure IFDs are fiscally accountable to their communities," Wolk said in a recent statement.

Currently cities and counties need a two-thirds voter approval to create the districts and issue bonds to pay for public works projects using tax increment financing. To set appropriations limits, they need a majority of voters to agree. Tax increment financing allows bonds to be issued backed by the incremental property tax revenue growth in the specified district.

IFDs also need the consent of local agencies before diverting tax increment, unlike redevelopment agencies, and in contrast to redevelopment lack the power of eminent domain and don't divert property tax revenue from schools.

Local governments have been wary of forming IFDs because of the concern over the constitutionality of using tax increment revenue from property outside of redevelopment areas.

The only example of the use of the IFD law, passed in 1990, is when Carlsbad formed a district in 1999 to fund the public works for a new hotel next to the Legoland theme park. That happened only after an Attorney General opinion in 1998 eased worries.

A 2011 law created a special exemption allowing San Francisco to create an IFD without voter approval to finance waterfront improvements for the America's Cup sailing races.

Wolk's new bill is similar to a bill she proposed last year, SB 214, which was vetoed by the governor. Brown also vetoed other similar legislation, including SB 1156 authored by Senate President pro Tem Darrell Steinberg, D-Sacramento.

Steinberg has introduced an exact reproduction of SB 1156 — SB 1 — which is now in committee.

His bill would create Sustainable Communities Investment Authorities that could use property tax increment. It would allow local governments to create an authority by entering into a joint powers agreement. They would also be able to use current local redevelopment law, minus the payments of tax increment from other taxing entities, such as schools.

Additionally, the bill would enable local governments to use sales taxes and leverage public pension fund investments, and allow the authority to use the Marks-Roos Local Bond Pooling act to finance infrastructure.

Like the former RDAs, the new authorities would also have to contribute 20% of tax increment revenues to affordable housing.

Another bill in the Assembly is similar to Steinberg's bill.

AB 1080 by assembly member Luis Alejo, D-Salinas, would try to reestablish financing tools to help revitalize "disadvantaged communities." The measure would allow a city, county or joint powers authority to establish a community revitalization and investment authority that could collect tax increment.

According to the bill, 80% of land needs to have an unemployment rate of 3% or greater than the statewide median, the crime rate must be 5% higher than state median and it must have deteriorated or inadequate infrastructure or downtrodden commercial and residential structures.

"It is unrealistic to expect a single solution could work successfully in all California cities. This proposal provides a viable option targeting the state's disadvantaged poorer areas and neighborhoods," Alejo said in a recent statement.

Speaker of the Assembly John Perez, D-Los Angeles, has authored AB 229 that would create Infrastructure and Revitalization Financing Districts, which would build upon that existing law to help municipalities redevelop shuttered military bases.

Several other measures are also tied to economic development.

SB 628 would remove voter-approval requirements needed to form an IFD and issue bonds for a transit priority project.

AB 243 would allow local governments to create Infrastructure and Revitalization Financing Districts.

AB 294 would enable IFDs to use some of a county's education tax increment money.

AB 662 would repeal the ban against forming an IFD within a former redevelopment area.

AB 690 would lower the voter approval threshold to create an IFD and require a job creation plan that ensures that 10 prevailing wage jobs are created for every $1 million invested.

Coleman said that even if some of these bills pass, many municipalities would still likely be too preoccupied with the unwinding of redevelopment to be able to utilize the new tools in the near-term. And, he said, many of the bills only be able utilize a much smaller share of property tax growth revenue than did RDAs.

The next phase appears to be the sale of properties and assets by the agencies that took over the RDAs after they were dissolved by a law in 2011. The governor signed a so-called "clean-up" bill the following year.

Many cities have been hard hit by the dissolution because RDAs had been a source of inter-governmental loans as well as tangled assets, and untangling those arrangements has been costly for some.

Rating firms have issued several warnings about the impact of the RDA dissolution on municipal finances, and have handed out many downgrades and negative outlooks to RDA debt as a result.

Some cities have filed lawsuits against the state over the shutdown of the redevelopment agencies.

In August, bond insurer Syncora sued the state in Sacramento County Superior Court, challenging the laws shutting down redevelopment agencies. It said they imperil bond payments and unconstitutionally impair bondholder and insurers' rights.

The insurer claims the laws have significantly reduced money available to repay bonds, and wants the court to declare them unconstitutional.

Earlier this month, the National Federation of Municipal Analysts said it filed an amicus curiae brief in a California Superior Court in support of the Syncora lawsuit.

The NFMA said the brief is meant to alert the court to the "significant negative ramifications" to the municipal bond market that can result from a law that eliminates existing bondholder protections.

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