BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Richard K. Rainey, Chairman
BILL NO: AB 971 HEARING: 7/14/99
AUTHOR: Olberg FISCAL: Yes
VERSION: 6/30/99 CONSULTANT: Detwiler
REDEVELOPING FORMER MILITARY BASES
Background
When the Cold War ended, the U.S. government closed or
realigned 30 military bases in California. To help local
officials convert these properties to economically
productive uses, the Legislature passed special bills
accelerating the redevelopment procedures. The first of
these measures helped redevelop Norton AFB and George AFB
and considerable amounts of property adjacent to the former
bases in San Bernardino County (AB 419, Eaves, 1989).
Another special military base redevelopment bill targeted
March AFB in Riverside County (AB 3769, Weggeland, 1994).
Redevelopment agencies issue tax allocation bonds to raise
the capital needed to improve blighted conditions inside
redevelopment project areas. They pay off these bonds with
the property tax increment revenues generated by increases
in a project area's property values. To calculate the
annual property tax increment revenues, each year county
officials compare the project area's current property
values with the values in the base year. The California
Constitution says that the base year value is the property
tax roll in effect before the city or county adopted the
redevelopment plan.
I. Victor Valley Economic Development Authority's base
year . After an earlier false start, the Victor Valley
Economic Development Authority (VVEDA) set up a 46,200-acre
redevelopment project area for George AFB with a 1993-94
base year assessed valuation of $1.934 billion.
Recessionary pressures caused the project area's property
values to fall to $1.867 billion in 1995-96. Because the
George AFB project area was not producing any property tax
increment revenues, the Legislature passed special
legislation allowing VVEDA to use 1994-95 as its base year
until the property values climbed back to their original
levels. In return, the bill required VVEDA to repay the
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State General Fund for the increased backfill payments to
schools within five years (AB 1089, Olberg, 1996). VVEDA
never filed the formal documents triggering the 1996 law.
In 1996-97, property values fell to $1.786 billion; in
1997-98 values dropped again to $1.784 billion. By
1998-99, property values crept back up to $1.804 billion,
and county officials project the 1999-00 values to be
$1.867 billion. Because the project area's property values
are still below the 1993-94 base year, VVEDA wants to use
1997-98 as its base year.
Assembly Bill 971 allows local officials to reduce the base
value of the George AFB Project Area and Inland Valley
Project Area to either the existing base year or 1997-98 if
the redevelopment plan was adopted on or after July 1,
1993.
AB 971 repeals the requirement to use the original base
year valuations once the property values return to their
original level. The bill requires local officials to repay
the State General Fund for its increased payments to
schools only if the change in the base year creates a
"direct" negative fiscal impact on the state.
II. March AFB's pass-through payments . The California
Constitution and the Community Redevelopment Law allow
redevelopment agencies to capture all of the property tax
increment revenues generated within a project area.
Sometimes that revenue diversion creates financial burdens
on the county government, special districts, and schools
that serve the same area. State law allows redevelopment
agencies to share some of their tax increment revenues with
these other local governments. These sharing agreements
are called pass-through payments.
Before 1994, redevelopment officials negotiated these
pass-through payments with the county government, special
districts, and schools to alleviate financial burdens.
Because these local agreements sometimes resulted in deals
that didn't protect the State General Fund, the Legislature
replaced these negotiations with a set of statutory
pass-through payments (AB 1290, Isenberg, 1993). After
setting aside the money required for affordable housing,
redevelopment officials must follow specific formulas:
AB 971 -- 6/30/99 -- Page 3
From Year 1 to the project's end, 25% of the property
tax increment revenues.
From Year 11 to the project's end, another 21%, using
Year 11 as the new base.
From Year 31 to the project's end, another 14%, using
Year 31 as the new base.
In 1996, the Legislature applied these formulas to military
base redevelopment projects (AB 2736, Weggeland, 1996), an
urgency bill that took effect on July 22, 1996. On August
20, 1996, Riverside County, the March Joint Powers Agency,
and the March Joint Powers Redevelopment Agency signed a
cooperation agreement with a different pass-through
formula. The parties agreed to pass-through 100% of the
tax increment shares to the County Free Library Fund and
the County Fire Fund. State law treats these county
programs that receive separate shares of property tax
revenues as if they were special districts. For the
County, the parties agreed to pay:
0% until the total property tax increment revenues
reached $1 million a year.
50% after the tax increment revenues reached $1
million a year.
100% after the revenues reached $2 million a year.
The July 1996 statutory change superceded the August 1996
local agreement.
As a practical matter, the March Joint Powers Redevelopment
Agency has not made any no pass-through payments to other
local governments because the March AFB redevelopment
project has yet to generate any property tax increment
revenues. Nevertheless, local officials hope that
redevelopment activity at the former base will increase and
produce new investment result in new revenues. They want
legislative permission to use their local agreement instead
of the statutory formulas.
Assembly Bill 971 relieves the March Joint Powers
Redevelopment Authority from making the statutory
pass-through payments to the County of Riverside. AB 971
requires the Agency to make the payments required by the
Cooperative Agreement dated August 20, 1996, as it may be
amended.
AB 971 -- 6/30/99 -- Page 4
Comments
1. Slip sliding away . Armed with a special statute, local
officials in the Victor Valley had high hopes for rapidly
redeveloping 72 square miles of desert. Because the
recession ate away at property values, the George AFB
project area never produced any property tax increment
revenues. Even the unique 1996 law that allowed local
officials to artificially lower the project area's base
year didn't help as property values continued to drop.
VVEDA can't eliminate blight if it's not generating
revenues. AB 971 lets VVEDA use 1997-98 as its new base
year for computing property tax increment revenues.
2. Revisionist redevelopment . Physical and economic
blight drag down property values so it's not unusual for a
project area's assessed valuation to erode until
redevelopment efforts take hold. When the Legislature let
VVEDA rewrite economic history and pick a lower base year,
the 1996 Olberg bill required local officials to revert to
their original base year once property values climbed back
to that level. AB 971 repeals that requirement and allows
the base year to remain artificially low. The permanent
use of an artificial base year may violate the California
Constitution's mandate to use the property tax roll that
existed before local officials adopted their redevelopment
plan. The Committee may wish to consider restoring the
requirement for VVEDA to use its authentic base year once
property values return.
3. Who subsidizes VVEDA ? Redevelopment works by diverting
property tax increment revenues from other local
governments: cities, counties, special districts, and
schools. To the extent that property values would not have
increased but for redevelopment, there's no real loss to
the other local governments. But if the agency captures
tax increment revenues that would have occurred without
redevelopment, then the other local governments suffer real
losses. The only rigorous, independent study of
redevelopment's effects concluded that about half of the
growth in property values would have occurred anyway,
without redevelopment. Letting VVEDA use 1997-98 as its
new base year will generate about $84 million in property
value growth and $840,000 in property tax increment
revenues in 1999-00. Of that amount, about half comes from
the county government, cities, special districts, and the
AB 971 -- 6/30/99 -- Page 5
community college district. The other half comes from K-12
schools and the county superintendent of schools. Because
the state must backfill K-12 schools' losses, AB 971
creates a State General Fund subsidy worth about $420,000.
4. Turn over a new LAIF ? After the voters passed
Proposition 13, assessed values dropped and property tax
revenues fell, sending some redevelopment bonds into
technical default. In response, the Legislature created a
$30 million Local Agency Indebtedness Fund to loan money
needed to prevent bond defaults. Redevelopment officials
could borrow from LAIF to avoid defaults. The Legislature
disbanded LAIF after it outlived its usefulness. Rather
than create the complicated financing scheme in AB 971, the
Committee may wish to recreate LAIF. That alternative lets
VVEDA and other redevelopment agencies borrow money to tide
them over. VVEDA gets the money it wants, other local
agencies avoid their own losses, and the State General Fund
gets repaid with interest.
5. State bail-out, state pay-back ? Because AB 971 lets
VVEDA permanently use a lower base year, the bill
permanently increases the state's indirect subsidy to the
redevelopment of George AFB. The 1996 Olberg bill required
VVEDA to repay the state for its "negative fiscal impact"
but AB 971 says VVEDA must repay only if the effect is
direct. The requirement for the state to backfill schools'
losses to redevelopment agencies is an indirect loss. To
avoid ambiguities, the bill should plainly require VVEDA to
reimburse the State General Fund for the property tax
increment revenues that it diverts from the K-12 schools.
6. Terms of repayment . VVEDA must repay the State General
Fund for the first five years of increased apportionments
to schools. But neither current law nor AB 971 explains if
VVEDA must pay interest on this loan, nor does it explain
if the repayments are in monthly, quarterly, or annual
installments. Maybe it's a one-time balloon payment. The
bill should spell out the terms of the repayment.
7. Let George (not Norton) do it . As written, AB 971
applies to both the Victor Valley Economic Development
Authority (for George AFB) and the Inland Valley
Development Agency (for Norton AFB). If the author intends
for AB 971 to apply only to the redevelopment of George
AFB, the Committee may wish to consider an amendment that
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clearly restricts the bill to just that project area.
8. Precedential order . VVEDA isn't the only redevelopment
agency to suffer from the recent recession. About 100
other redevelopment project areas have current property
values below their 1990-91 levels. On July 14, the
Committee will also consider AB 774 (Calderon) which allows
Pico Rivera's redevelopment plan to use an earlier base
year to boost its property tax increment revenues. When
other redevelopment agencies sponsor their own bills, will
the Legislature bail-out those projects? Can legislators
find any policy distinctions?
9. Negotiated settlement at March . Months of careful
negotiation led to the August 1996 local agreement to
pass-through property tax increment revenues to Riverside
County, its library program, and its fire program. Local
officials agreed to completely insulate the library and
fire programs from redevelopment's fiscal effects. County
officials agreed to take a "zero pass-through" until the
March AFB project started to generate over a $1 million a
year. That requires $100 million growth in property
values! But an urgency bill signed a month earlier in
Sacramento trumped that settlement. Even though the March
AFB project hasn't taken off, local officials want to use
their agreement, not the state's. AB 971 grants that
special relief.
10. Not Novato . Earlier this year the Committee passed AB
264 (Mazzoni, 1999) which allows Novato officials to
negotiate local pass-through agreements instead of using
the statutory formulas for the Hamilton Field redevelopment
project. Marin County officials had objected to including
some property in the project area but were willing to
withdraw their opposition if they received bigger
pass-through payments. In return, Novato used the higher
property tax increment revenues to finance affordable
housing. Some of that increase in increment revenue will
come from the schools and ultimately from the State General
Fund. Recognizing a trade-off between state fiscal losses
and more affordable housing, Governor Gray Davis signed AB
264 in late June. Unlike the Mazzoni bill, the March AFB
provision in AB 971 does not divert tax increment revenues
from school districts. That part of the bill does not have
a fiscal effect on the State General Fund.
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11. Military base precedents . Redevelopment is hard and
redeveloping former military bases is harder. The special
legislation for the redevelopment of Fort Ord allows local
officials to ignore the statutory pass-through formulas in
favor of special formulas for Monterey County, cities,
schools, and community colleges. The Novato bill and this
measure build on that precedent but unlike the Fort Ord
legislation, these bills don't spell out fixed formulas.
Further, AB 971 lets local officials renegotiate their 1996
deal. The Committee may wish to consider whether the
Legislature should amend the March AFB formula into the
statute.
12. What about the library and fire programs ? The August
1996 agreement requires redevelopment officials to give the
Riverside County Free Library Fund and the Riverside County
Fire Fund full pass-through payments and limited payments
to the county government itself. AB 971 relieves
redevelopment officials of their statutory duty to pay the
County of Riverside but doesn't mention the library and
fire programs. Instead, the bill requires redevelopment
officials to "make those payments required under the
Cooperative Agreement." Riverside County wants the
redevelopment agency to give the library and fire programs
the 100% pass-through payments named in the Cooperative
Agreement. However, a literal reading of AB 971 requires
the redevelopment agency to continue with its lower,
statutory pass-through payments. The Committee may wish to
consider an amendment that specifically names the library
and fire programs, along with the county government.
Assembly Actions
Assembly Housing & Community Development Committee:10-0
Assembly Appropriations Committee:21-0
Assembly Floor: 76-1
Support and Opposition (7/8/)
Support : Victor Valley Economic Development Authority,
City of Victorville, Counties of Riverside and San
Bernardino.
Opposition : Unknown.
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