2014 Legislative Year in Review
Dan Carrigg is senior director of legislative affairs for the League and can be reached at email@example.com.
The tone of a Legislative Session always begins with the budget. With an improved economy and Proposition 30 state revenues pouring in, 2014 became a year of opportunities:
- Cap-and-trade revenue allocations commenced;
- Funding was restored to some state programs;
- Investments were made in infrastructure and affordable housing; and
- Repayment began on the decade-old state debt for local government mandates.
And the good news didn’t end there. After three years of post-redevelopment stalemate, Gov. Jerry Brown put a tax-increment proposal for local infrastructure and economic development on the table, legislators advanced other proposals designed to spur urban revitalization and attract and retain jobs, and a bipartisan agreement was forged on a water bond.
The League took advantage of these opportunities and played more offense than defense. Its actions included sponsoring and supporting legislation on infrastructure, economic development and the redevelopment dissolution process. Other efforts focused on improving the regulatory framework for medical marijuana and restoring local control over massage establishments. However, local control had to be defended against measures that increased costs for financially struggling cities or unduly restricted local authority and flexibility; many of these stalled or were neutralized by amendments, and the most troubling ones that reached the governor’s desk were vetoed.
Democrats Lose Supermajority; Leadership Transitions
Speculation reigned in January about how the Democrats might use their supermajority power. With no need for Republican votes, they could write their own water bond, advance a lower vote threshold for local governments or put forward a policy measure to help turn out the party’s voter base. While the supermajority could override vetoes, the governor was in firm command, and little appetite existed for challenging that. So the most likely exercise of the supermajority’s authority would be on ballot measures and maneuvering around the minority party’s objections.
Political dynamics in the Senate fundamentally altered, however, in March when three Democratic senators were suspended pending the outcome of their legal matters. Consequently Democratic representation dropped from 28 to 25, two members short of the 27 needed to sustain supermajority votes. Other clouds formed over the Capitol following a Fair Political Practices Commission (FPPC) investigation on fundraising practices and revelations of nepotism in Senate hiring and management decisions that resulted in the resignation of key staff. Democrats held mandatory ethics training for all staff and legislators, introduced a package of political reform bills and adopted house rules prohibiting fundraising during the last month of session. Senate Republicans became politically relevant now that the path to placing measures on the ballot went through them.
Leadership transitions occurred in both houses. In April, prior to budget negotiations, Toni Atkins (D-San Diego) took over as speaker of the Assembly from termed-out John A. Pérez (D-Los Angeles). Assembly Republican Leader Connie Conway (R-Tulare), also termed out, prepared her successor-elect Kristin Olsen (R-Modesto) to assume her duties in the fall. In the Senate, Senator Kevin de León (D-Los Angeles) assumed the duties of outgoing Senate President Pro Tem Darrell Steinberg (D-Sacramento) in October. Senate Republican Leader Bob Huff (R-Diamond Bar), who does not term out until 2016, remains in his position.
Budget Conservative Yet Positive for Cities
The final state budget agreement reflected Gov. Brown’s focus on resisting major new spending commitments and included $10.6 billion dedicated to repaying accumulated state debt. Additional agreements included a plan to address solvency concerns with the State Teachers’ Retirement Fund and bipartisan support for Prop. 2 to revise the flawed state Rainy Day Reserve fund. The budget also delivered good news for cities by allocating:
- $832 million of cap-and-trade auction revenues;
- $242 million in local streets and roads from an early loan repayment and reallocation of state highway account funds;
- $40 million in city law enforcement grants (an increase of $12.5 million);
- $100 million for affordable housing programs; and
- $100 million for mandates incurred prior to FY 2004–05, with trigger language to repay up to $800 million more if revenues exceed projections.
Continuing Efforts to Secure New Economic Development Tools
In addition to supporting cleanup of redevelopment dissolution laws, the League continued to advocate for new workable economic development tools so local communities could move forward. The League sponsored two property tax-increment measures:
SB 33 by Sen. Lois Wolk (D-Davis), designed to make Infrastructure Financing District (IFD) law more workable; and AB 2280 by Assembly Member Luis Alejo (D-Watsonville) to authorize redevelopment for disadvantaged areas. Such efforts had stalled in previous years with the governor unwilling to consider new tools until redevelopment dissolution had proceeded further.
Although these measures did not become law, an opening occurred in January when Gov. Brown proposed changing IFD law. As modified in his “May Revise,” the governor’s proposal created a new option called the “Enhanced Infrastructure Financing District” (EIFD). This concept differs significantly from IFD law in several ways, which included eliminating the vote requirement to create districts and reducing voter thresholds to approve bonds from two-thirds to 55 percent. The League lobbied the administration for various changes and, with assistance from Assembly Speaker Toni Atkins, obtained significant improvements, such as removing the voter approval requirement to create an IFD. The League lobbied for the revised proposal, SB 628 (Beall), during the closing hours of the session, and Gov. Brown signed it into law, establishing a tool that local agencies can potentially use.
Consistent with cities’ desire to have more economic development options, the League worked on another tax-increment proposal, SB 614 (Wolk), which responds to the challenge of financing infrastructure upgrades in poorer areas on city boundaries designated as “disadvantaged unincorporated communities.” The League worked with Sen. Wolk and the California Special Districts Association and the California Association for Local Agency Formation Commissions to draft and refine this legislation. The measure allows the adoption of a tax-increment financing plan to upgrade the infrastructure as part of the annexation process. This option can foster collaborative problem-solving that leads to more annexations of these areas, especially when special districts and counties contribute to the financing.
The League has been working with Assembly Member Luis Alejo in an effort to restore the redevelopment tool. AB 2280 targeted areas where at least 80 percent of the census tracts are occupied by low-income (80 percent of statewide median income) individuals and are characterized by three of the four following conditions:
- Deteriorated or inadequate infrastructure;
- Deteriorated commercial or residential structures;
- Unemployment 3 percent higher than the statewide median; and
- A crime rate 5 percent higher than the statewide median.
A diverse coalition of business organizations, housing advocates, planning associations and other groups supported the bill. Although Gov. Brown vetoed the measure, his veto message and conversations with the author indicated that he would sign it if it was drafted outside the parameters of former redevelopment law. Assembly Member Alejo plans to reintroduce the bill in this revised form in 2015.
In addition to the property tax-increment tools listed here, the League supported three proposals aimed at providing incentives for private-sector investment by offering income tax credits to attract and retain economic development.
- AB 1839 (Gatto), signed by the governor, increases available tax credits from $100 million to $330 million per year for five years under the California Film and Television Tax Credit Program and expands eligibility to include larger films and television production activities
- AB 1999 (Atkins) proposed additional incentives to rehabilitate historic properties by offering a state income tax credit of up to 25 percent; and
- AB 1399 (Medina) proposed a California New Markets Tax Credit program that would attract private capital and matching federal funds to spur investment in low-income communities.
Gov. Brown vetoed the latter two bills, citing concerns over costs, but remains open to these proposals in the next budget.
Broader efforts to create a permanent source of affordable housing financing — via a tax on real estate transfer documents proposed in SB 391 by Sen. Mark DeSaulnier (D-Concord) — stalled. Affordable housing funding, however, received a $100 million boost in the budget, and affordable housing gained additional priorities under cap-and-trade funding allocations. In addition, Prop. 41, approved in the June primary election, made $600 million in unused bonds available for veteran multifamily housing.
Minor Redevelopment Dissolution Cleanup Bills Signed, Broader Proposals Vetoed
Legislators introduced several major “cleanup” measures to address the complicated and frustrating redevelopment dissolution process, but the governor signed only minor measures. Despite the Brown administration’s support for climate change goals, sustainable communities strategies, transit-oriented development and disadvantaged communities, when it comes to redevelopment dissolution there appears to be little crossover among these efforts. AB 2493 by Assembly Member Richard Bloom (D-Santa Monica) would have allowed local infrastructure and affordable housing projects, which had been stalled by the statutory prohibition against accessing 2011 redevelopment bond proceeds, to move forward. To ensure quality, projects were required to be consistent with regional sustainable communities strategies, and the Department of Finance (DOF) had full authority to verify such conditions. Gov. Brown vetoed the measure, citing concerns about its fiscal impact. His veto message recognized that the cost to local agencies to address the high interest-rate bonds was significant and indicated that he would direct DOF to develop a plan to address the outstanding bond debt of these agencies.
The governor also vetoed SB 1129 (Steinberg). Sen. Steinberg, who was Senate leader during the redevelopment dissolution process, sought to clarify a number of areas of the statute to reflect legislative intent. The League supported these clarifications because they would help expedite the dissolution process and avoid future legal disputes with DOF over the interpretation of vague areas in the statute. One such issue was defining the method for calculating the interest rate on loans repaid to cities and counties. The governor’s veto message demonstrated interest in working to refine redevelopment dissolution statutes that will make them operate “more fairly and advantageously for everyone.”
Gov. Brown signed two bills that made several helpful changes to ease redevelopment dissolution implementation: AB 471 and AB 1963, both by Assembly Speaker Toni Atkins.
Playing Offense for City Interests
The League advocated for local control and city interests on numerous fronts.
Medical Marijuana. After several years defending against legislation that would have undermined local authority on marijuana regulation, the League joined forces with the California Police Chiefs Association and sponsored SB 1262 (Correa). This measure proposed a comprehensive regulatory framework for medical cannabis that protected local control, addressed public safety concerns and enhanced health and safety standards. After overcoming many obstacles, the measure passed the Senate unanimously and several Assembly policy committees but was held in the Assembly Appropriations Committee. The strategic benefit of giving legislators an alternative was evident when rival legislation died on the Assembly floor by a wide margin. SB 1262 also helped change the nature of the policy discussion in the Capitol and ensure that cities will be at the table in future discussions.
Massage. Restoring local land use authority became critical after a statewide regulatory and certification scheme went awry, resulting in the proliferation of illicit massage parlors. The League worked to educate legislators on this matter. Assembly Member Susan Bonilla (D-Concord), chair of the Assembly Business, Professions and Consumer Protection Committee, a key policy committee, led the effort to return local authority in AB 1147. She was joined by Assembly Member Jimmy Gomez (D-Los Angeles), who had been working with the League on this issue, and Assembly Member Chris Holden (D-Pasadena), who was hearing about the problem from city officials in his district.
Cap-and-Trade Lobbying Coalitions. For the past several years, the League has prepared for cap-and-trade allocations by establishing policies and common ground with partner organizations. Those actions bore fruit in 2014 as the League worked with two separate coalitions to advocate for allocations that benefit local agencies. One coalition involved over 60 organizations to press the case for funding transportation, affordable housing and sustainable communities strategies. Cities, counties, special districts and schools formed another coalition that advocated for energy efficiency, weatherization, urban forestry and other natural resource funds. These combined efforts helped ensure that the $832 million allocated this year matches city priorities and provides the template for future funding.
Repaying Local Mandates. During the past several years, the governor focused on repaying debt accumulated over years of state budget deficits. Repaying the $900 million on pre-2004 unfunded mandates owed to local agencies was on the governor’s to-do list, but it was at the bottom, after debts owed to schools and other entities. With state revenues increasing, it was time to act. Prior to the May Revise, the League partnered with the California Special Districts Association to support an effort led by the California State Association of Counties to lobby the governor for a $100 million down payment on the mandate payments owed to local agencies. The League was pleased when Gov. Brown included this in his May budget revision. Local agencies may receive more funds in FY 2014–15 if revenues exceed projections.
Water Bond and Groundwater. The water bond was a major issue, and a severe drought sharpened the focus on groundwater. The $11 billion bond scheduled for the November ballot had already been delayed twice — it polled poorly, was considered too expensive and contained special provisions that amounted to “pork.” For a water bond to have a chance it had to be replaced with a leaner proposal. The League prepared for these discussions by forming a working group and engaging its policy committees in the discussion, building on priorities articulated in a 2013 annual conference resolution. This approach helped the League’s efforts to inform legislators and other stakeholders of city priorities as various bond proposals were developed. The water bond’s final components, placed on the ballot as Prop. 1, matched well with the League’s principles and underscored the good work of city officials on this issue. Voters agreed and approved Prop. 1 by a wide margin in the November election.
As the groundwater issue emerged, the League convened conference calls with interested cities when legislators and the Brown administration unveiled measures to address the overuse of groundwater in non-adjudicated water basins. These consultations helped focus the League’s efforts and ensure that the final adopted actions were workable for the affected agencies.
Transportation Revenues. The League remains involved in numerous efforts to secure additional investment in California’s transportation system. In addition to lobbying for additional budget and cap-and-trade allocations, the League — in partnership with California State Association of Counties and regional transportation planning agencies — released an update of the California StatewideLocal Streets and Roads Needs Assessment in October 2014. This biennial assessment has historically served as a powerful resource for protecting local transportation revenues from state diversion. Now that the state budget is stable, the assessment can also be used to support advocacy efforts to secure additional funding for the local road system.
To help shape future transportation policy development, the League participates in the governor’s California Transportation Infrastructure Priorities working group, which is planning to release white papers soon on:
- The prospect of a road usage charge demonstration project;
- Tolling and congestion management pricing; and
- Recommendations to update the State Transportation Improvement Program (STIP).
Future activities will focus on freight, goods movement and exploring lower vote thresholds for local transportation measures.
California Environmental Quality Act (CEQA). Although it was a slower year for perennial reform discussions on CEQA, the League took action on several bills. League-supported SB 1451 by Sen. Jerry Hill (D-San Mateo) addressed problems associated with “document dumps,” which occur when project opponents wait until the end of the environmental review process to bring issues forward. The bill passed the Environmental Quality Committee but died in the Senate Judiciary Committee. The League also worked on AB 52 (Gatto) — related to Native American sacred sites — as the bill’s language evolved, to ensure that the final product worked for local agencies.
Realignment Database Launched. The California Department of Justice in 2014 launched a digital, Internet-based information-sharing platform called SmartJustice, which allows state law enforcement agencies, county sheriffs, probation offices and municipal police departments to efficiently share information about offenders. This action was spurred in part by AB 810 (Muratsuchi) of 2013, which the League sponsored after the initial stages of realignment implementation revealed that state, county and municipal law enforcement agencies did not have an effective means of sharing real-time information on offenders.
Defending Local Control
When 120 legislators carry 20 to 30 bills each, defensive actions are essential. Examples of the League’s legislative activity on defense include the following.
PILOTs. Few in the Capitol had ever heard of the acronym PILOTs (payments in lieu of taxes), but the League recognized it was an issue of protecting fundamental local land use and fee authority. Legislators wanted to stop the practice of a few cities that requires PILOTs from affordable housing developers to preserve the benefit of the existing affordable housing property-tax exemption. The League wanted to make sure that any solution was limited strictly to PILOTs and did not undermine general local fee authority. Ultimately, a compromise was reached and contained in AB 1760 (Chau) and SB 1203 (Jackson). The League thanks the authors for working on an acceptable solution.
Community Choice Aggregation. Since utility deregulation, local agencies have the option to provide for their own power within their jurisdiction via community choice aggregation. Several municipalities have taken advantage of this option, but it is a decision to be considered carefully. AB 2145 (Bradford) raised significant concerns because its provisions would essentially block local agencies from exercising this option in the future. The League joined environmental and local activist groups in a major opposition effort that led to the author taking major amendments in the Senate that removed concerns. The bill ultimately stalled on the Senate floor.
Employee Relations Bills. Because local employee relations bills do not have a major state impact, such bills often avoid a rigorous legislative cost analysis and move through the Capitol as a policy issue. The League opposed several bills that were sent to the governor’s desk in 2014 because the proposed legislation increased costs or undercut local authority. The League appreciates that Gov. Brown recognized the severe fiscal challenges cities face from increased pension costs and lagging revenues, reflected in his vetoes of these bills:
- AB 2126 (Bonta) would have shifted many employee relations disputes into a costly and time-consuming state fact-finding process;
- AB 2378 (Perea) would have expanded temporary workers’ compensation benefits for up to three years for public safety employees instead of the two years applicable to all other employees;
- AB 2052 (Gonzalez) would have made more employees eligible for the generous workers’ compensation benefits provided to peace officers; and
- SB 388 (Lieu) would have undermined the confidential nature of witness interviews in internal investigations.
The League thanks Gov. Brown for vetoing these bills and encourages legislators to carefully examine the impacts on local government of future legislation because cities are already struggling to provide services amid rising pension and benefit costs.
The Governor’s Actions
Every Legislative Session concludes with the governor’s actions. For local governments concerned about preserving local authority, the governor’s desk is the last stop before a harmful or costly legislative proposal becomes law. In 2014, the result was mixed but overall beneficial for local control. Gov. Brown deserves thanks for vetoing the highest priority bills opposed by cities. Of the 26 bills for which the League requested a signature, Gov. Brown signed 15 and vetoed 11. He signed bills authorizing a return of tax increment authority for infrastructure and restoring local control over massage establishments. His more disappointing vetoes included legislation intended to help recently incorporated cities and cities whose land annexations relied on augmented shares of vehicle license fees that the state swept away in 2011.
The Outlook for 2015
The coming year holds potential and promise for new beginnings. The governor is entering his final four-year term, one presumably not dominated by state fiscal distress. In January the governor’s budget and State of the State address will provide additional clarity on his goals. The Senate and Assembly will be under new leadership, and the ranks of legislators eligible to serve for up to 12 years have expanded in the Capitol.
Whatever 2015 brings, the League will continue to seek opportunities for improved partnerships with legislators, administration officials and other organizations while advocating for tools and resources that allow cities to improve their communities, expand economic development and address emerging issues in ways that preserve local control and flexibility. As always, the active engagement of city officials remains essential to shaping the future of our state and enhancing the quality of life for all Californians.
Progress on League Strategic Priorities
For a summary of the 2014 strategic priorities and League activities undertaken to support those priorities, see “League Sets 2015 Strategic Direction in Leadership Workshop” in this issue.
Photo credits: SergeyIT/Shutterstock.com; TaMaNKunG/Shutterstock.com; Yoshi0511/Shutterstock.com; Makieni/Shutterstock.com; Lorenzo Patoia/Shutterstock.com