Existing law establishes the Office of Land Use and Climate Innovation in the Governors office for the purpose of serving the Governor and the Governors cabinet as staff for long-range planning and research and constituting the comprehensive state planning agency. Existing law authorizes a local agency to finance infrastructure projects through various means, including by authorizing a city or county to establish an enhanced infrastructure financing district to finance public capital facilities or other specified projects of communitywide significance that provide significant benefits to the district or the surrounding community.

This bill would require the office, upon appropriation by the Legislature, to establish the Infrastructure Gap-Fund Program to provide grants to local agencies to develop for the development and construct construction of infrastructure projects, as defined. defined, facing unforeseen costs after starting construction. The bill would authorize the office to provide funding for up to 20% of a projects additional projected cost, as defined, after the project has started construction, subject to specified conditions, including, among other things, that the local agency has allocated existing local tax revenue to for at least 45% of the initial infrastructures projects total cost. initially budgeted total cost of the infrastructure project. When applying to the program, the bill would require the local agency to demonstrate challenges with completing the project on time and on budget and how the infrastructure project helps meet state and local goals, as specified. The bill would require the office to develop guidelines to implement the program that establish the criteria by which grant applications will be evaluated and funded. The bill would make these provisions operative on January 1, 2030.

Existing law establishes the Office of Land Use and Climate Innovation in the Governors office for the purpose of serving the Governor and the Governors cabinet as staff for long-range planning and research and constituting the comprehensive state planning agency. Existing law authorizes a local agency to finance infrastructure projects through various means, including by authorizing a city or county to establish an enhanced infrastructure financing district to finance public capital facilities or other specified projects of communitywide significance that provide significant benefits to the district or the surrounding community.

This bill would require the office, upon appropriation by the Legislature, to establish the Infrastructure Gap-Fund Program to provide grants to local agencies to develop and construct infrastructure projects, as defined. The bill would authorize the office to provide funding for up to 20% of a projects total additional projected cost, as defined, after the project has started construction, subject to specified requirements, conditions, including, among other things, that the local agency provides funding that has been raised through has allocated existing local taxes for at least 10% of the infrastructure projects total cost. tax revenue to the initial infrastructures projects total cost. When applying to the program, the bill would require the local agency to demonstrate challenges with completing the project on time and on budget and how the infrastructure project helps meet state and local goals, as specified. The bill would require the office to develop guidelines to implement the program that establish the criteria by which grant applications will be evaluated and funded. The bill would make these provisions operative on January 1, 2030.

Existing law establishes the Office of Land Use and Climate Innovation in the Governors office for the purpose of serving the Governor and the Governors cabinet as staff for long-range planning and research and constituting the comprehensive state planning agency. Existing law authorizes a local agency to finance infrastructure projects through various means, including by establishing authorizing a city or county to establish an enhanced infrastructure financing district to finance public capital facilities or other specified projects of communitywide significance that provide significant benefits to the district or the surrounding community.

This bill would require the office, upon appropriation by the Legislature, to establish the Infrastructure Gap-Fund Program to provide grants to local agencies to develop and construct infrastructure projects, as defined. The bill would authorize the office to provide funding for up to 20% of a projects total cost, subject to specified requirements, including, among other things, that the local agency provides funding that has been raised through local taxes for at least 10% of the infrastructure projects total cost. The bill would require the office to develop guidelines to implement the program that establish the criteria by which grant applications will be evaluated and funded. The bill would make these provisions operative on January 1, 2030.

Existing law establishes the Office of Land Use and Climate Innovation in the Governors office for the purpose of serving the Governor and the Governors cabinet as staff for long-range planning and research and constituting the comprehensive state planning agency. Existing law authorizes a local agency to finance infrastructure projects through various means, including by establishing an enhanced infrastructure financing district to finance public capital facilities or other specified projects of communitywide significance that provide significant benefits to the district or the surrounding community.

This bill would require the office, upon appropriation by the Legislature, to establish the Infrastructure Gap-Fund Program to provide grants to local agencies to develop and construct infrastructure projects, as defined. The bill would authorize the office to provide funding for up to 20% of a projects total cost, subject to specified requirements, including, among other things, that the local agency provides funding that has been raised through local taxes for at least 10% of the infrastructure projects total cost. The bill would require the office to develop guidelines to implement the program that establish the criteria by which grant applications will be evaluated and funded. The bill would make these provisions operative on January 1, 2030.

Date of Hearing: June 18, 2025

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Juan Carrillo, Chair

SBPCA Bill Id:SB 74

Author:(Seyarto) – As Amended Ver:April 7, 2025

SENATE VOTE: 38-0

SUBJECT: Office of Land Use and Climate Innovation: Infrastructure Gap-Fund Program.

SUMMARY: Requires the Office of Land Use and Climate Innovation (LCI) to establish the Infrastructure Gap-Fund Program (Program). Specifically, this bill:

1. Defines the following terms:
   1. “Additional projected costs” to mean costs beyond the initial budgeted costs for the infrastructure project, including, but not limited to, costs related to labor, materials, and additional permits.
   2. “Infrastructure project” to mean a broadband, fire station, school, health and safety improvement, or road project.
   3. “Local agency” to mean a county, city, city and county, or special district.
   4. “Local taxes” to mean any tax imposed by a local agency by ordinance or pursuant to the California Constitution.
   5. “Road project” to mean a project that decreases vehicle miles traveled on roads and improves the public health, safety, and welfare.
2. Specifies that, upon appropriation by the Legislature, LCI shall establish the Program to provide a grant to a local agency for the development and construction of an infrastructure project facing unforeseen costs after starting construction.
3. Allows LCI to award a grant that provides funding for up to 20% of an infrastructure project’s additional projected cost after the project has started construction. LCI shall only grant awards for projects that meet all of the following conditions:
   1. The infrastructure project has started construction.
   2. The local agency has identified additional projected costs.
   3. The local agency has allocated existing local tax revenue for at least 45% of the initially budgeted total cost of the infrastructure project.
4. Requires the local agency when applying to the Program to demonstrate both of the following:
   1. Challenges with completing the project on time and on budget by providing an analysis of the additional costs not foreseen when the project started construction.
   2. How the infrastructure project helps meets state and local goals by the construction of the infrastructure project.
5. Specifies that LCI shall develop guidelines to implement the program consistent with the requirements of this bill that establish the criteria by which grant application will be evaluated and funded.
6. Provides that this bill shall become operative on January 1, 2030.

FISCAL EFFECT: According to the Senate Appropriations Committee:

1. Unknown ongoing LCI costs in a future fiscal year, at least the high hundreds of thousands, and potentially in excess of $1 million annually, for dedicated staff to develop and administer the IGF Program. Specific duties include coordination with local agency stakeholders, developing and adopting guidelines and regulations, issuing requests for funding proposals, providing technical assistance, reviewing applications, awarding funds, and conducting ongoing monitoring activities. Staff notes that these costs would only be incurred to the extent funding is appropriated for the program after January 1, 2030, and the ultimate ongoing staffing needs would be partially dependent upon the amount of funding provided for the program. See Staff Comments. (General Fund)
   
2. Ongoing General Fund cost pressures, at least in the tens of millions annually beginning in the 2030-31 fiscal year, to provide funding for the IGF Program.
   

COMMENTS:

1. Local Infrastructure Financing. Funding and financing local government infrastructure is a core responsibility for local governments. The ways in which local governments have addressed these responsibilities has changed over time. Until voters passed Proposition 13 in 1978, cities, counties, and special districts could generally set property tax rates on property within its jurisdiction without an aggregate cap. Local governments received property tax revenue resulting from the appropriate property tax rate fixed by the local governments, and could use that revenue to build infrastructure projects and meet other needs. If a local government wanted to pay to build infrastructure in an area it planned to develop, it could increase its property tax rates to pay for those projects. Local governments could also enact taxes by ordinance. Proposition 13 both limited the maximum amount of any ad valorem tax on real property at 1% of full cash value, and imposed voter approval requirements for local taxes. Despite the notable benefits to property owners, these changes hampered local governments’ ability to address infrastructure needs related to new development.

In response to Proposition 13, the Legislature enacted the Mello-Roos Community Facilities Act of 1982, which allows counties, cities, special districts, and school districts to levy special taxes (parcel taxes) to finance a wide variety of public works, including parks, recreation centers, schools, libraries, child care facilities, and utility infrastructure. A Mello-Roos Community Facilities District (CFD) issues bonds against these special taxes to finance the public works projects. Like all special taxes, Mello-Roos Act special taxes require 2/3-voter approval. If there are fewer than 12 registered voters, the affected landowners vote.

Many local governments also began requiring new developments to pay for the impacts they have on the community and the burden they impose on public services. When approving development projects, counties and cities can require the applicants to mitigate the project’s effects by paying mitigation fees, impact fees, or developer fees to fund sidewalks, parks, schools, and fire stations, among others.

Finally, some local governments used redevelopment agencies (RDAs) to finance infrastructure until their dissolution in 2011. Under the Community Redevelopment Law, RDAs used property tax increment financing to pay for economic development projects in blighted areas. Generally, property tax increment financing (TIF) involves a local government forming a TIF district to issue bonds and use the bond proceeds to pay project costs within the boundaries of a specified project area. To repay the bonds, the district captures increased property tax revenues that are generated when projects financed by the bonds increase assessed property values within the project area. To calculate the increased property tax revenues the district captures, the amount of property tax revenues received by any local agency participating in the district is “frozen” at the amount it received from property within a project area prior to the project area’s formation. In future years, as the project area's assessed valuation grows above the frozen base, the resulting additional property tax revenues, the so-called property tax “increment” revenues, flow to the TIF district instead of other local agencies. Generally, after the TIF district repays the bonds using the incremental property tax revenues, the district is dissolved, ending the diversion of tax increment revenues from participating local agencies. The most common type of TIF district is called an enhanced infrastructure financing district (EIFD), but other types exist, including climate resilience districts (CRDs) and community revitalization and investment authorities (CRIAs).

1. Office of Land Use and Climate Innovation. Existing law establishes LCI (formerly the Governor’s Office of Planning and Research, or OPR) as the state’s chief planning agency and requires LCI to advise local governments in their planning responsibilities and provides guidance on the California Environmental Quality Act (CEQA). Existing law establishes the position of federal grant administrator within the State Clearinghouse at LCI to serve as the state’s primary point of contact for information on federal grants. Among other things, the federal grant administrator is authorized to work with state and local government officials, nonprofits, foundations, higher education institutions, and other interested parties on applying for and managing federal grants, and to provide training to encourage and improve the ability to pursue and manage federal grants.
   
2. Bill Summary. This bill requires LCI to establish the Program, upon appropriation by the Legislature, to provide grants to local agencies for the development and construction of infrastructure projects facing unforeseen costs after starting construction. Grants may be awarded to fund up to 20% of a project’s additional projected cost after the project has started construction, and projects must meet certain conditions to receive the grant funding. This bill also requires LCI to develop guidelines to implement the Program. This bill becomes operative on January 1, 2030. This bill is sponsored by the Author.
   
3. Author’s Statement. According to the Author, “Many critical infrastructure projects in California have been delayed for years due to escalating costs, chronic underfunding, and rising inflation. SB 74 creates the Infrastructure Gap Fund to provide grants covering up to 20% of additional costs that have accrued on top of original costs since starting construction for infrastructure projects, including but not limited to roads, schools, and broadband. Projects like the I-215 Keller Road interchange, where costs skyrocketed from $12 million in 2013 to $40 million in 2024, is just one instance of the urgent need for financial support to complete these chronically delayed projects. SB 74 will provide our local agencies and special districts with a resource to complete funding for critical infrastructure projects that help meet state and local goals, have already started construction, and can demonstrate financial challenges.”
4. Previous Legislation. SB 955 (Seyarto) of 2024 would have required OPR to establish an IGF Program, upon appropriation by the Legislature after January 1, 2027, to provide grants to local agencies to develop and construct specified infrastructure projects. The program that would have been established in SB 955 was similar to the Program established by this bill, but the eligibility criteria and conditions were different. SB 955 was held on the Senate Appropriations Committee Suspense File.
   

AB 444 (Addis) of 2023 would have required OPR, upon appropriation of funds by the Legislature, to develop and implement the California Defense Community Infrastructure Program to provide grants and technical assistance to local agencies for matching funds and other costs related to community improvements supportive of a military institution, as specified. AB 444 was held on the Senate Appropriations Committee Suspense File.

AB 972 (Maienschein) of 2023 would have required OPR to convene a specified statewide, cross-agency Local Assistance and Grant Program Streamlining Workgroup by January 1, 2025 to centralize local assistance and develop a coordinated system to manage available state and federal funding, as specified. AB 972 was held on the Senate Appropriations Committee Suspense File.

1. Arguments in Support. According to the Rural County Representatives of California (RCRC), “Rural counties have strained under the challenges of aging infrastructure, increasing costs for labor and materials associated with inflation, and growing complexities in funding infrastructure projects. These issues are further complicated by increasing staff workloads, state and federal mandates, and grant competitiveness and cost, leaving the smallest and most disadvantaged communities sometimes with the largest burdens. Many state and federal grants require a high bar to entry, often requiring expert consultants to prepare applications, which is costly and does not guarantee success. Furthermore, some funding sources are reimbursement-based, which can cause cashflow issues in smaller communities, depending on the size of the funds in comparison to the county budget.
   

“Despite these major hurtles, rural counties are nimble and have developed pathways to serve their communities, often stacking multiple funding sources to conduct studies and complete infrastructure projects or banding together and allocating regional resources, when appropriate. In some cases, formalized regions arranged under Joint Powers Authorities (JPAs) allow individual communities to overcome infrastructure hurdles by joining together staff, funding, and relationships with neighboring communities. JPAs are currently funding and building infrastructure across the state, including broadband, housing, roads, schools, water systems, and solid waste facilities.

“These methods, while an option for many California communities, sometimes fall short when a project cost or duration balloons due to external factors and existing funding sources have been exhausted. SB 74 may enhance financing across the state, especially in rural communities, where gap funding can help mitigate challenges due to weather, permitting, staffing, and changes to local law and statute - all of which may increase the cost of the project after construction has begun and budgets have been established.”

1. Arguments in Opposition. None on file.
   

REGISTERED SUPPORT / OPPOSITION:

Support

Associated General Contractors, California Chapters

Association of California Cities – Orange County

California Special Districts Association

California State Association of Counties

Chino Valley Chamber of Commerce

City of Agoura Hills

City of Anderson

City of Buena Park

City of Garden Grove

City of La Mirada

City of Laguna Beach

City of Lakewood

City of Lathrop

City of Los Alamitos

City of Manteca

City of Murrieta

City of Ontario

City of Paramount

City of Rocklin

City of Shasta Lake

City of Suisun City

City of Thousand Oaks

League of California Cities

Livable California

Mission Street Neighbors

Monterey County

Office of Riverside County Superintendent of Schools

Orange County Council of Governments

Rural County Representatives of California

Southern California Contractors Association

Southwest California Legislative Council

Streets for All

Opposition

None on file

Analysis Prepared by: Jimmy MacDonald / L. GOV. / (916) 319-3958

 THIRD READING  

Bill No: SB 74

Author: Seyarto (R), et al.

Amended: 4/7/25

Vote: 21

SENATE LOCAL GOVERNMENT COMMITTEE: 7-0, 4/2/25

AYES: Durazo, Choi, Arreguín, Cabaldon, Laird, Seyarto, Wiener

SENATE APPROPRIATIONS COMMITTEE: 6-0, 5/23/25

AYES: Caballero, Seyarto, Cabaldon, Grayson, Richardson, Wahab

NO VOTE RECORDED: Dahle

SUBJECT: Office of Land Use and Climate Innovation: Infrastructure Gap-Fund Program

SOURCE: Author

DIGEST:

This bill requires the Governor’s Office of Land Use and Climate Innovation to establish the Infrastructure Gap-Fund program to provide grants to cities, counties, and special districts.

ANALYSIS:

Existing law:

1. Establishes the Governor's office of Land Use and Climate Innovation (LCI)
2. Authorizes a local agency to finance infrastructure projects through various means, including an enhanced infrastructure financing district

This bill:

1. Requires the Governor’s Office of Land Use and Climate Innovation to establish the Infrastructure Gap-Fund Program, after receiving funding from the Legislature, no sooner than January 1, 2030.
2. Requires LCI to provide grants to help local agencies for the development and construction of an infrastructure project facing unforeseen costs after starting construction
3. Those projects include:
   1. Broadband projects;
   2. Fire stations;
   3. Schools;
   4. Road projects that decreases vehicle miles traveled on roads and improve the public health, safety, and welfare; and
   5. Other health or safety improvements.
4. Provides funding to local agencies for up to 20% of an infrastructure project’s additional projected cost after the project has started construction
   1. These costs can include, but are not limited to, costs related to labor, materials, and additional permits
5. Provides local agencies grant money to a project that meets all the following conditions:
   1. The project has started construction;
   2. The local agency applying for grant funds has identified additional projected costs; and
   3. The local agency has allocated existing local tax revenue for at least 45% of the initially budgeted total cost of the infrastructure project
6. Requires the local agency applying for grant funds to demonstrate:
   1. Challenges with completing the infrastructure project on time and on budget by providing an analysis of the additional costs not foreseen when project started constructions; and
   2. How the infrastructure project helps meet state and local goals.
7. Requires LCI to develop guidelines to implement the program consistent with this bill.

Background

Local government infrastructure. One of the main responsibilities local governments have is funding and financing local infrastructure projects. The tools that local governments can use have changed over time, in response to voter initiatives and state laws. From the time that California became a state until the passage of Proposition 13 in 1978, cities, counties, and special districts could generally set property tax rates on property within their jurisdictions without an aggregate cap. Local governments could use that money to build infrastructure projects and meet other needs. If a local government wanted to pay to build infrastructure in an area it planned to develop, it could increase its property tax rates to pay for those projects. Local governments could also enact taxes by ordinance.

Proposition 13 (1978) capped property tax rates at 1 percent of assessed value (which only changes upon new construction or when ownership changes), required 2/3 voter approval for special taxes, and limited the types of bonds secured by ad valorem property taxes that local agencies can issue. Since Proposition 13 limited local agencies’ ability to raise property taxes to finance infrastructure projects, local agencies turned to other tools to finance these projects. The Legislature subsequently enacted the Mello-Roos Community Facilities Act of 1982, which allows counties, cities, special districts, and school districts to levy special taxes (specifically, parcel taxes) to finance a wide variety of public works, including parks, recreation centers, schools, libraries, child care facilities, and utility infrastructure. A Mello-Roos Community Facilities District (CFD) issues bonds secured by the revenue from these special taxes to finance its projects. Many local governments also began requiring new developments to pay for the impacts they have on the community and the burden they impose on public services. When approving development projects, counties and cities can require the applicants to mitigate the project’s effects by paying mitigation fees, impact fees, or developer fees to fund sidewalks, parks, schools, fire stations, and much more.

Some local governments used redevelopment agencies (RDAs) to finance infrastructure until RDAs were dissolved in 2011. RDAs used property tax increment financing (TIF) to pay for economic development projects in blighted areas. Generally, TIF involves a local government forming a district to issue bonds and uses the bond proceeds to pay project costs within the boundaries of a specified project area. To repay the bonds, the district captures the increased property tax revenues generated when the assessed property values increase within the project area.

After RDAs were dissolved, the Legislature created other TIF tools in their place, including enhanced infrastructure financing districts (EIFDs), among others. Similar to RDAs, EIFDs can use a portion of the property tax increment, if the local governments approve. An EIFD may also receive the local share of sales and use taxes (SUT) and transactions and use taxes (TUTs). Like RDAs, EIFDs may issue bonds backed by these taxes to pay for projects without voter approval. Unlike RDAs, EIFDs do not have access to the school’s share of property tax revenue, and cannot require other taxing entities to participate, which means they do not have the same revenue-generating potential as RDAs.

A more in-depth discussion of the types of infrastructure funds available to local governments can be found in the former Senate Governance & Finance Committee March 15, 2023 informational hearing background paper.

Office of Land Use and Climate Innovation. The Governor’s Office of Land Use and Climate Innovation (LCI), previously the Office of Planning and Research, is the state’s chief planning agency and advises local governments on their planning responsibilities. It serves as a resource for land use planning and provides guidance on the California Environmental Quality Act.

Comments

1. Purpose of this bill. According to the author, “Many critical infrastructure projects in California have been delayed for years due to escalating costs, chronic underfunding, and rising inflation. SB 74 creates the Infrastructure Gap Fund to provide grants covering up to 20% of additional costs that have accrued on top of original costs since starting construction for infrastructure projects, including but not limited to roads, schools, and broadband. Projects like the I-215 Keller Road interchange, where costs skyrocketed from $12 million in 2013 to $40 million in 2024, is just one instance of the urgent need for financial support to complete these chronically delayed projects. SB 74 will provide our local agencies and special districts with a resource to complete funding for critical infrastructure projects that help meet state and local goals, have already started construction, and can demonstrate financial challenges.”
2. More money, no money. According to a report submitted by the Legislative Analyst Office (LAO) to the former Senate Governance and Finance Committee in 2023, most state funding for infrastructure pays for local infrastructure. In recent years, there have been numerous state and federal programs that provide funding to begin construction on infrastructure projects, including the types of projects that would be eligible for additional funding under the program established by SB 74. For example:
   1. The California Public Utilities Commission has $36 million in its California Advances Services Fund Broadband Adoption Account to help local governments fund programs and projects that increase publicly available and after-school broadband access and digital inclusion;
   2. The Governor’s Office of Emergency Services has $210 million in its Hazard Mitigation Grant Program to help local governments fund plans and projects that reduce the effects of future natural disasters, which can include wildfires; and
   3. The California Department of Transportation has a specific Local Assistance Program that makes more than $1 billion available to cities, counties, and regional agencies every year for road projects. Caltrans estimates over 1,200 new projects are authorized through the program.
   4. SB 74 creates a new grant program to direct more funds to local governments. Given the number of existing programs for local infrastructure projects, should the state fund another grant program or review existing programs?
3. Never-ending story. When Proposition 13 limited property taxes, local governments turned to other tools, such as CFDs, RDAs, and developer fees. The Legislature also tried to provide additional tools to raise avenues to support local infrastructure. For example, when the Legislature dissolved RDAs, it allowed for local governments to create other TIF tools, but without state funding. These tools have been insufficient in raising revenue to fund infrastructure projects. Most recently, the Legislature placed on the 2024 ballot Proposition 5 that would have allowed local governments to fund infrastructure projects with a 55% approval requirement for local bonds, rather than the current requirement of 2/3rds voter approval. The proposition failed, leaving local governments with the same set of constrained fiscal tools. SB 74 proposes an alternative mean to finance and complete infrastructure projects, but it doesn’t include any dedicated funding or ease the process in which local agencies can raise additional revenue. The Legislature may wish to consider whether the program created by this bill is necessary and instead focus efforts on helping local agencies raise revenue for infrastructure projects.

Related/Prior legislation

SB 955 (Seyarto, Chapter 870, Statutes of 2024) required the Governor’s Office of Planning & Research to establish the Infrastructure Gap-Fund Program to provide grants to cities, counties, or a city and county limited to a maximum of 20% of a project’s total cost. The measure was held in the Senate Appropriations Committee.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee there are unknown ongoing LCI costs in a future fiscal year, at least the high hundreds of thousands, and potentially in excess of $1 million annually, for dedicated staff to develop and administer the IGF Program. Specific duties include coordination with local agency stakeholders, developing and adopting guidelines and regulations, issuing requests for funding proposals, providing technical assistance, reviewing applications, awarding funds, and conducting ongoing monitoring activities. Staff notes that these costs would only be incurred to the extent funding is appropriated for the program after January 1, 2030, and the ultimate ongoing staffing needs would be partially dependent upon the amount of funding provided for the program. See Staff Comments. (General Fund)

Ongoing General Fund cost pressures, at least in the tens of millions annually beginning in the 2030-31 fiscal year, to provide funding for the IGF Program.

SUPPORT: (Verified 5/23/25)

Association of California Cities - Orange County
California Special Districts Association
Chino Valley Chamber of Commerce
City of Agoura Hills
City of Buena Park
City of La Mirada
City of Laguna Beach
City of Lakewood CA
City of Lathrop
City of Los Alamitos
City of Manteca
City of Murrieta
City of Ontario
City of Paramount
City of Rocklin
City of Shasta Lake
City of Thousand Oaks
County of Monterey
Csac
League of California Cities
Mission Street Neighbors
New Livable California Dba Livable California
Office of The Riverside County Superintendent of Schools
Rural County Representatives of California (RCRC)
Southwest California Legislative Council
Streets for All

OPPOSITION: (Verified 5/23/25)

None received

Prepared by: Itzel Vargas / L. GOV. / (916) 651-4119

5/25/25 13:11:59

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anna Caballero, Chair

2025 - 2026 Regular Session

SB 74 (Seyarto) - Office of Land Use and Climate Innovation: Infrastructure Gap-Fund Program

Bill Summary:

SB 74 would require the Governor’s Office of Land Use and Climate Innovation (LCI) to establish the Infrastructure Gap-Fund (IGF) Program, upon appropriation by the Legislature after January 1, 2030, to provide grants to local agencies to develop and construct specified infrastructure projects.

Fiscal Impact:

• Unknown ongoing LCI costs in a future fiscal year, at least the high hundreds of thousands, and potentially in excess of $1 million annually, for dedicated staff to develop and administer the IGF Program. Specific duties include coordination with local agency stakeholders, developing and adopting guidelines and regulations, issuing requests for funding proposals, providing technical assistance, reviewing applications, awarding funds, and conducting ongoing monitoring activities. Staff notes that these costs would only be incurred to the extent funding is appropriated for the program after January 1, 2030, and the ultimate ongoing staffing needs would be partially dependent upon the amount of funding provided for the program. See Staff Comments. (General Fund)
  
• Ongoing General Fund cost pressures, at least in the tens of millions annually beginning in the 2030-31 fiscal year, to provide funding for the IGF Program.

Background:

Existing law establishes LCI (formerly the Governor’s Office of Planning and Research, or OPR) as the state’s chief planning agency and requires LCI to advise local governments in their planning responsibilities. Existing law establishes the position of federal grant administrator within the State Clearinghouse at LCI to serve as the state’s primary point of contact for information on federal grants. Among other things, the federal grant administrator is authorized to work with state and local government officials, nonprofits, foundations, higher education institutions, and other interested parties on applying for and managing federal grants, and to provide training to encourage and improve the ability to pursue and manage federal grants.

Existing law, as enacted by AB 2252 (Limón), Chap. 318/2018, requires the California State Library (CSL) to create a centralized location where entities seeking state grants could find information on all state-related grant programs. The law requires the CSL to create an interactive website identifying every grant administered by the state, and requires state agencies to register every grant they administer with the CSL before opening a solicitation or award process for distribution of the grant. The CSL subsequently established the California Grants Portal.

Proposed Law:

SB 74 would require LCI to establish the IGF Program, upon appropriation of funding by the Legislature, to provide grants to local agencies to develop and construct infrastructure projects. Specifically, this bill would:

• Specify that its provisions become operative on January 1, 2030.
• Define “infrastructure project” as a broadband, fire station, school, health and safety improvement, or road project. The bill further defines “road project” as a project that decreases vehicle miles traveled on roads and improves public health, safety, and welfare.
• Require LCI to develop guidelines to implement the program and establish criteria for evaluating and funding grant applications.
• Require local agencies to demonstrate both of the following when applying to the program:
  • Challenges with completing the project on time and on budget by providing an analysis of the additional costs not foreseen when the project started construction.
  • How the infrastructure project helps meet state and local goals.
• Authorize LCI to award a grant that provides funding for up to 20% of a project’s additional projected cost after the project has started construction, as specified, for projects that meet all of the following conditions:
  • The infrastructure project has started construction.
  • The local agency has identified additional projected costs the beyond initial budgeted costs, as specified.
  • The local agency has allocated existing local tax revenue to the initial infrastructure project’s total cost.

Related Legislation:

SB 955 (Seyarto), which was held on this Committee’s Suspense File last year, would have required OPR to establish an IGF Program, upon appropriation by the Legislature after January 1, 2027, to provide grants to local agencies to develop and construct specified infrastructure projects. The program that would have been established in SB 955 is similar to the IGF Program established by this bill, but the eligibility criteria and conditions were different.

AB 444 (Addis), which was held on this Committee’s Suspense File in 2023, would have required OPR, upon appropriation of funds by the Legislature, to develop and implement the California Defense Community Infrastructure Program to provide grants and technical assistance to local agencies for matching funds and other costs related to community improvements supportive of a military institution, as specified.

AB 972 (Maienschein), which was held on this Committee’s Suspense File in 2023, would have required OPR to convene a specified statewide, cross-agency Local Assistance and Grant Program Streamlining Workgroup by January 1, 2025 to centralize local assistance and develop a coordinated system to manage available state and federal funding, as specified.

Staff Comments:

The fiscal impacts of this bill would be largely dependent upon the amount of funding that would ultimately be appropriated by the Legislature for this program in the future. As an illustrative scenario, LCI estimates administrative costs of approximately $909,000 annually over seven years and the need for 4.5 PY of new staff, if the Legislature appropriated $20 million for the IGF Program. If the Legislature envisioned a much larger program and appropriated $200 million, LCI estimates administrative costs of approximately $1.3 million annually over seven years and the need for 7.0 PY of new staff.

According to the Legislative Analyst’s Office’s (LAO) 2025-26 Fiscal Outlook, the Governor’s proposed budget is roughly balanced in the upcoming fiscal year, but the state faces an operating structural deficit in the tens of billions of dollars over the next several fiscal years. The LAO report concludes that, without other changes to spending or revenues, the state does not have capacity for new commitments. In light of the current budget challenges related to funding a new program, the author has included a delayed operative date of January 1, 2030.

-- END --

SENATE COMMITTEE ON LOCAL GOVERNMENT

Senator María Elena Durazo, Chair

2025 - 2026 Regular

Office of Land Use and Climate Innovation: Infrastructure Gap-Fund Program

Requires the Governor’s Office of Land Use and Climate Innovation to establish the Infrastructure Gap-Fund program to provide grants to cities, counties, and special districts.

Background

Local government infrastructure. One of the main responsibilities local governments have is funding and financing local infrastructure projects. The tools that local governments can use have changed over time, in response to voter initiatives and state laws. From the time that California became a state until the passage of Proposition 13 in 1978, cities, counties, and special districts could generally set property tax rates on property within their jurisdictions without an aggregate cap. Local governments could use that money to build infrastructure projects and meet other needs. If a local government wanted to pay to build infrastructure in an area it planned to develop, it could increase its property tax rates to pay for those projects. Local governments could also enact taxes by ordinance.

Proposition 13 (1978) capped property tax rates at 1 percent of assessed value (which only changes upon new construction or when ownership changes), required 2/3 voter approval for special taxes, and limited the types of bonds secured by ad valorem property taxes that local agencies can issue. Since Proposition 13 limited local agencies’ ability to raise property taxes to finance infrastructure projects, local agencies turned to other tools to finance these projects. The Legislature subsequently enacted the Mello-Roos Community Facilities Act of 1982, which allows counties, cities, special districts, and school districts to levy special taxes (specifically, parcel taxes) to finance a wide variety of public works, including parks, recreation centers, schools, libraries, child care facilities, and utility infrastructure. A Mello-Roos Community Facilities District (CFD) issues bonds secured by the revenue from these special taxes to finance its projects. Many local governments also began requiring new developments to pay for the impacts they have on the community and the burden they impose on public services. When approving development projects, counties and cities can require the applicants to mitigate the project’s effects by paying mitigation fees, impact fees, or developer fees to fund sidewalks, parks, schools, fire stations, and much more.

Some local governments used redevelopment agencies (RDAs) to finance infrastructure until RDAs were dissolved in 2011. RDAs used property tax increment financing (TIF) to pay for economic development projects in blighted areas. Generally, TIF involves a local government forming a district to issue bonds and uses the bond proceeds to pay project costs within the boundaries of a specified project area. To repay the bonds, the district captures the increased property tax revenues generated when the assessed property values increase within the project area.

After RDAs were dissolved, the Legislature created other TIF tools in their place, including enhanced infrastructure financing districts (EIFDs), among others. Similar to RDAs, EIFDs can use a portion of the property tax increment, if the local governments approve. An EIFD may also receive the local share of sales and use taxes (SUT) and transactions and use taxes (TUTs). Like RDAs, EIFDs may issue bonds backed by these taxes to pay for projects without voter approval. Unlike RDAs, EIFDs do not have access to the school’s share of property tax revenue, and cannot require other taxing entities to participate, which means they do not have the same revenue-generating potential as RDAs.

A more in-depth discussion of the types of infrastructure funds available to local governments can be found in the former Senate Governance & Finance Committee March 15, 2023 informational hearing background paper.

Office of Land Use and Climate Innovation. The Governor’s Office of Land Use and Climate Innovation (LCI), previously the Office of Planning and Research, is the state’s chief planning agency and advises local governments on their planning responsibilities. It serves as a resource for land use planning and provides guidance on the California Environmental Quality Act.

The author wants to help local agencies complete infrastructure projects by providing additional state funds through a grant program.

Proposed Law

Senate Bill 74 requires LCI to establish the Infrastructure Gap-Fund Program, after receiving funding from the Legislature, no sooner than January 1, 2030.

The bill requires LCI to provide grants to help local agencies complete infrastructure projects, including:

• Broadband projects;
• Fire stations;
• Schools;
• Road projects that decreases vehicle miles traveled on roads and improve the public health, safety, and welfare; and
• Other health or safety improvements.

LCI can award grants up to 20% of the infrastructure project’s additional projected cost, meaning costs beyond the initial budgeted costs. These costs can include, but are not limited to, costs related to labor, materials, and additional permits. LCI must grant money to a project that meets all the following conditions:

• The project has started construction;
• The local agency applying for grant funds has identified additional projected costs; and
• The local agency has allocated existing local tax revenue to the initial infrastructure project’s total cost.

The bill also requires the local agency applying for grant funds to demonstrate:

• Challenges with completing the infrastructure project on time and on budget by providing an analysis of the additional costs not foreseen when project started constructions; and
• How the infrastructure project helps meet state and local goals.

The office must also develop guidelines to implement the program consistent with the bill.

Comments

1. Purpose of the bill. According to the author, “Many critical infrastructure projects in California have been delayed for years due to escalating costs, chronic underfunding, and rising inflation. SB 74 creates the Infrastructure Gap Fund to provide grants covering up to 20% of additional costs that have accrued on top of original costs since starting construction for infrastructure projects, including but not limited to roads, schools, and broadband. Projects like the I-215 Keller Road interchange, where costs skyrocketed from $12 million in 2013 to $40 million in 2024, is just one instance of the urgent need for financial support to complete these chronically delayed projects. SB 74 will provide our local agencies and special districts with a resource to complete funding for critical infrastructure projects that help meet state and local goals, have already started construction, and can demonstrate financial challenges.”

2. More money, no money. According to a report submitted by the Legislative Analyst Office (LAO) to the former Senate Governance and Finance Committee in 2023, most state funding for infrastructure pays for local infrastructure. In recent years, there have been numerous state and federal programs that provide funding to begin construction on infrastructure projects, including the types of projects that would be eligible for additional funding under the program established by SB 74. For example:

• The California Public Utilities Commission has $36 million in its California Advances Services Fund Broadband Adoption Account to help local governments fund programs and projects that increase publicly available and after-school broadband access and digital inclusion;
• The Governor’s Office of Emergency Services has $210 million in its Hazard Mitigation Grant Program to help local governments fund plans and projects that reduce the effects of future natural disasters, which can include wildfires; and
• The California Department of Transportation has a specific Local Assistance Program that makes more than $1 billion available to cities, counties, and regional agencies every year for road projects. Caltrans estimates over 1,200 new projects are authorized through the program.

SB 74 creates a new grant program to direct more funds to local governments. Given the number of existing programs for local infrastructure projects, should the state fund another grant program or review existing programs?

3. Are you in? When a project receives funding from multiple sources, such as the state and the local community, one consideration is how to equitably distribute costs among those sources. As SB 74 is currently written, a local agency can currently allocate as little as one cent towards the initial cost of the infrastructure project. This means that a project could be almost entirely funded by state or federal grants. Should the state give additional funds to the project if the local agency didn’t contribute significantly to its initial cost? To ensure that the local agency has contributed its fair share to these projects, the Committee may wish to consider amending SB 74 to specify the share of project costs that must come from locally-derived revenue sources.

4. Neverending story. When Proposition 13 limited property taxes, local governments turned to other tools, such as CFDs, RDAs, and developer fees. The Legislature also tried to provide additional tools to raise avenues to support local infrastructure. For example, when the Legislature dissolved RDAs, it allowed for local governments to create other TIF tools, but without state funding. These tools have been insufficient in raising revenue to fund infrastructure projects. Most recently, the Legislature placed on the 2024 ballot Proposition 5 that would have allowed local governments to fund infrastructure projects with a 55% approval requirement for local bonds, rather than the current requirement of 2/3rds voter approval. The proposition failed, leaving local governments with the same set of constrained fiscal tools. SB 74 proposes an alternative mean to finance and complete infrastructure projects, but it doesn’t include any dedicated funding or ease the process in which local agencies can raise additional revenue. The Committee may wish to consider whether the program created by this bill is necessary and instead focus efforts on helping local agencies raise revenue for infrastructure projects.

5. Let’s be clear. Committee staff have identified the following technical amendments:

• The bill references the previous goal of the grant program. Bill should reflect the new goal by stating grant program is for after a project has started construction and has unforeseen costs.
• The bill mistakenly says that LCI needs to fund all projects that meet specified conditions, so adding “only” to read that LCI shall only grant awards for projects that meet all of the following conditions.
• The bill sites “initial infrastructure project” when it meant to say “initially budgeted total cost of the infrastructure project.”

Support and Opposition

(3/28/2025)

Support: California Special Districts Association
California State Association of Counties
Chino Valley Chamber of Commerce
City of Agoura Hills
City of Buena Park
City of La Mirada
City of Laguna Beach
City of Lakewood CA
City of Lathrop
City of Los Alamitos
City of Murrieta
City of Ontario
City of Paramount
City of Shasta Lake
County of Monterey
League of California Cities
Office of The Riverside County Superintendent of Schools
Rural County Representatives of California (RCRC)
Southwest California Legislative Council
Streets for All

Opposition: None Submitted

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