BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: AB 1422
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: bass
VERSION:
5/21/2009
Analysis by: Carrie Cornwell FISCAL: No
Hearing date: June 23, 2009
SUBJECT:
Redevelopment
DESCRIPTION:
This bill allows a redevelopment agency until 2013 to use its
economic development funds to address the mortgage crisis.
ANALYSIS:
The Community Redevelopment Law allows local governments to
establish redevelopment areas and capture all of the increase in
property taxes that is generated within the area (referred to as
"tax increment"). The law requires redevelopment agencies to
deposit 20 percent of tax increment funds into a Low & Moderate
Income Housing Fund (L&M Fund) to be used to increase, improve,
and preserve the community's supply of low and moderate income
housing at affordable housing cost. The other 80 percent of tax
increment funds, known as economic development funds, are to be
used to eradicate blight.
Existing law sets income limits for persons and families
(adjusted for family size) of low and moderate-income based on
countywide median incomes:
Moderate income < 120%
Low income < 80%
Very low income < 50%
Extremely low income< 30%
All of these income groups are eligible for housing assistance
financed through the L&M Fund, but a redevelopment agency must
spend its L&M funds for housing for low- and very low-income
households in at least the same proportion as these households'
AB 1422 (BASS) Page 2
needs bear to the total housing needs for moderate-, low- and
very-low-income households, as determined through the
community's housing element of its general plan.
L&M funds can be spent on housing anywhere in the jurisdiction
upon the agency making a general finding of benefit to the
project areas within that jurisdiction. Economic development
funds, however, must be spent within a project area, unless a
redevelopment agency makes a specific finding of benefit from
spending specific funds outside of a project area.
This bill :
1)Makes findings about the mortgage crisis and declares that
redevelopment agencies should be given greater flexibility on
a temporary basis to respond to the crisis through acquiring
or refinancing mortgages or acquiring homes.
2)Defines "eligible homeowner" as the borrower of a subprime or
nontraditional mortgage who occupies the home as his or her
principal place of residence and who has a mortgage payment
that is 30 days or more past due with either a scheduled
interest rate increase that will create a financial hardship
likely to produce a default or has had a default notice
recorded against the home.
3)Permits an agency to expend money from the non-housing portion
(i.e., the 80% for economic development) of its tax increment
revenues anywhere within its jurisdiction to purchase, assume,
or refinance or to assist lenders or developers to purchase,
assume, or refinance mortgages on homes owned by eligible
homeowners with household incomes of up to 150% of area
median.
4)Limits the amount an agency may expend per home for mortgage
assistance to the current market value of the home less any
Federal Housing Administration required down payment amount.
5)Permits an agency to expend funds from the non-housing portion
of its tax increment revenues anywhere in its jurisdiction to
purchase or assist lenders or developers in purchasing homes
that have been foreclosed and are vacant for sale to any
purchaser regardless of income. These homes may be managed,
maintained, and rented prior to resale, but the amount an
agency spends per home is not limited to market value less
AB 1422 (BASS) Page 3
down payment.
6)Allows an agency to spend funds from the non-housing portion
of its tax increment revenues to provide credit counseling
services to existing or prospective homebuyers with household
incomes of up to 150% of area median.
7)Provides that, where there is a conflict, its provisions
supersede existing redevelopment law.
8)Sunsets on January 1, 2013.
COMMENTS:
1.Purpose . The author notes that the current foreclosure crisis
can be largely attributed to the defaults in sub-prime and
non-traditional mortgages that have reset to unaffordable
levels. In March 2009, the UC Santa Barbara Economic Forecast
Project indicated that California has had 236,572 homes
foreclosed upon during the current crisis. This totals about
two percent of the housing stock in the state. Many more
sub-prime and non-traditional mortgages are due to reset later
this year and in coming years.
The author points out that home foreclosure negatively impacts
a homeowner as well as neighboring homeowners, local
governments, and California's greater economy. These damaging
effects, according to the author, include increases in
abandonment and vandalism, an estimated $100 billion loss in
property value, and an estimated $4 billion loss of property
and sales tax revenues for local governments.
The author introduced this bill to allow redevelopment
agencies to use tax increment funds, not held in an agency's
L&M Fund, to acquire, assume, or refinance loans to eligible
homeowners with subprime or nontraditional mortgages in
default or at risk of default, so that the state can more
quickly recover from the home foreclosure crisis.
2.Bailing out banks ? A bank forecloses on a home after the
homeowner stops making mortgage payments. In some instances,
this can occur because of bad luck. With the current
foreclosure crisis, however, there is ample evidence that it
is occurring in part because banks made overly risky loans,
including many mortgages in which borrowers were unlikely to
be able to afford the mortgage payments when they adjusted
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under variable interest rates. This bill gives redevelopment
agencies a tool to purchase, refinance, or assume the
mortgages on these homes, thus using property tax dollars to
save banks from the consequences of their earlier bad
decisions.
3.Curing blight ? The California Constitution allows
redevelopment agencies to collect tax increment to cure blight
within a project area, and state statute requires an area to
be blighted in order to become a redevelopment project area.
Via statute, the Legislature has deemed housing fund
expenditures outside a project area but within the
jurisdiction to be a benefit to the project area. In addition,
redevelopment law permits an agency to use non-housing funds
outside of a project area only when the local agency makes a
finding of benefit to the project area. With the expansion of
statutorily authorized expenditures of tax increment funds
outside of project areas, the constitutionality of such
expenditures becomes more suspect. This bill allows an agency
to use its 80 percent money, or non-L&M fund tax increment
funds, outside of a project area to buy vacant homes and to
assist homeowners in danger of losing their homes to
foreclosure. Thus, it breaks the link between the area
generating the property tax increment revenues and where those
revenues may be spent.
4.Previous legislation . Last year the Legislature passed AB 2594
(Mullin), which as it was amended in this committee, was
identical to this bill. AB 2594 passed this committee on an 8
- 0 vote on June 24, 2008. The governor vetoed that bill, and
his veto message read in part:
If this bill was signed into law, it would be in conflict
with the recently enacted budget trailer legislation. By
allowing redevelopment agencies to use tax increment
revenue to purchase, assume, or refinance nontraditional
and subprime mortgages, the bill would reduce the tax
increment available for transfer to the Educational Revenue
Augmentation Funds, as the budget trailer legislation
requires.
For this reason, I am returning this bill without my
signature.
On April 30, 2009, the Superior Court ruled in the case of
California Redevelopment Association v. California Department
AB 1422 (BASS) Page 5
of Finance that the transfer of $350 million from
redevelopment agencies to the state in the 2008-09 budget was
unconstitutional. The state is appealing this decision, but at
this point, the funds are available for the activities
authorized by this bill.
Assembly Votes:
Floor: 54 - 25
H&CD: 4 - 1
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
June 17, 2009)
SUPPORT: California Redevelopment Association (sponsor)
California Association of Realtors
California Bankers Association
California State Association of Counties
CRLA Foundation
League of California Cities
Western Center on Law and Poverty
OPPOSED: None received.