BILL ANALYSIS SENATE LOCAL GOVERNMENT COMMITTEE Senator Patricia Wiggins, Chair BILL NO: SB 530 HEARING: 5/6/09 AUTHOR: Dutton FISCAL: No VERSION: 4/28/09 CONSULTANT: Weinberger REDEVELOPMENT AGENCIES' PROPERTY TAX INCREMENT REVENUES Background and Existing Law State law lets redevelopment agencies divert other local governments' property tax increment revenues so that they can fight physical and economic blight. To alleviate the financial burden and detriment that these other taxing entities may incur as a result of the adoption of a redevelopment plan, redevelopment officials must return a portion of their tax revenues from redevelopment projects adopted or amended after January 1, 1994 to other local taxing entities in the form of mandatory "pass-through" payments (AB 1290, Isenberg, 1993). After reviewing the practices employed by school districts, community colleges, and redevelopment agencies related to the distribution and reporting of these pass-through revenues, the California State Controller's Office issued a report in May 2008 which found that: Many school districts and community colleges understated the amount of pass-through payments they receive from redevelopment agencies. Some redevelopment agencies failed to make their mandatory pass-through payments. Redevelopment agencies made numerous reporting errors which resulted in an understatement of pass-through payments made to schools. The State Controller estimated that the cumulative effect of these problems resulted in an excess State General Fund obligation to schools of $33.8 million in 2005-06 and $29.4 million in 2006-07. In response to the Controller's report, a State Budget trailer bill enacted procedures to identify and recover pass-through payments that redevelopment agencies failed to make to K-14 education agencies for fiscal years 2003-04 through 2007-08 and ensure proper payments in 2008-09 (AB 1389, Assembly Budget Committee, 2008). SB 530 -- 4/28/09 -- Page 2 Redevelopment officials want the Legislature to fix problems that they have identified as their agencies try to comply with the new procedures. Proposed Law Senate Bill 530 applies the redevelopment pass-through reporting and repayment requirements enacted by last year's State Budget to redevelopment project areas that were formed before January 1, 1994 and amended after January 1, 1994 to: Increase the limitation on the number of dollars to be allocated to the agency, or Increase, or eliminate the time limit on the establishing of loans, advances, and indebtedness, pursuant to specified statutes, or Lengthen the period during which the redevelopment plan is effective if the redevelopment plan being amended contains specified provisions. Comments 1. A consensus correction . There is consensus among redevelopment officials, county officials, and the State Controller's Office staff that pre-1994 project areas that have been amended since 1994 were inadvertently omitted from the redevelopment language in AB 1389, last year's budget trailer bill. SB 530 corrects that error. However, significant disagreements over the implementation and interpretation of last year's redevelopment pass-through reporting and repayment requirements remain unresolved. Discussions continue on how to reconcile redevelopment agencies' last five years of pass-through payments. Legislators should expect additional amendments to SB 530 once the stakeholders reach agreements on some of these remaining disputes. 2. Double referral . The Legislature's fiscal committees review bills that appropriate money, change state SB 530 -- 4/28/09 -- Page 3 departments' duties, affect state revenues and spending, and create new state mandated local programs. Although the Legislative Counsel's Digest does not identify SB 530 as a fiscal bill, the Senate Rules Committee has nevertheless ordered a double-referral; first to the Senate Local Government Committee for a policy review and then to the Senate Appropriations Committee. Because the pass-through payments that redevelopment agencies make to school districts offset State General Fund spending, SB 530's changes to redevelopment agencies' pass-through payments may result in costs to the State General Fund. Support and Opposition (4/30/09) Support : California Redevelopment Association. Opposition : Association of California School Administrators, California Association of School Business Officials.