BILL ANALYSIS                                                                                                                                                                                                    



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          CONCURRENCE IN SENATE AMENDMENTS
          AB 26 X1 (Budget Committee)
          As Amended  June 15, 2011
          Majority vote.  Budget Bill Appropriation Takes Effect Immediately
           
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          |ASSEMBLY:  |     |(June 3, 2011)  |SENATE: |21-15|(June 15,      |
          |           |     |                |        |     |2011)          |
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                    (vote not relevant)                

           SUMMARY  :  Makes various changes to state laws to implement 
          provisions relating to redevelopment in the 2011-12 budget 
          agreement and is the first of two budget trailer bills that 
          address redevelopment agencies (RDAs).  This bill eliminates 
          redevelopment agencies and directs the resolution of their 
          activities.  The second bill, SB 15 X1 or AB 27 X1, creates an 
          alternative voluntary redevelopment program. This bill would not 
          become effective unless the second bill also becomes effective.  
          The requirements of this bill would affect RDAs that elect not to 
          participate in the alternative voluntary redevelopment program. 

           The Senate amendments  delete the Assembly version of this bill, 
          and instead:

          Addresses the suspension of RDA activities; dissolution of 
          existing RDAs; establishment and duties of Successor Agencies; 
          establishment and duties of Oversight Boards; use of property tax 
          revenues that would otherwise have gone to RDAs and other matters 
          described below.

          Existing Redevelopment Agencies:

          RDAs would no longer exist under the provisions of the bill as of 
          October 1, 2011 and would be dissolved as of that date.  In 
          addition, as of the effective date of the adoption of this 
          legislation, activities of RDAs would be curtailed, and an orderly 
          wind-down process instituted for redevelopment activities.  
          Specifically:

          1)Prohibit, as part of the process of reducing RDAs activity prior 
            to their elimination, an RDA from:

             a)   issuing new or expanded debt of any type (except emergency 
               refunding bonds, under certain conditions);








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             b)   making loans or advances or grants or entering into 
               agreements to provide funds or financial assistance;

             c)   executing new or additional contracts, obligations or 
               commitments;

             d)   amending existing agreements or commitments;

             e)   selling or otherwise disposing of existing assets;

             f)   acquiring real property for any purpose by any means;

             g)   transferring or assigning any assets, rights or powers to 
               any entity;

             h)   accepting financial assistance from any public or private 
               source that is contingent on the issuance of debt;

             i)   adopting or amending redevelopment plans or making new 
               findings with respect to blight;

             j)   entering into new partnerships, imposing new assessments, 
               or increasing staff or compensation; and,

             aa)  other actions that would result in ongoing commitments or 
               a depletion of assets.

          2)Require RDAs to continue to make all scheduled payments for 
            enforceable obligations (described below), perform obligations 
            established pursuant to enforceable obligations, set aside 
            required reserves, preserve assets, cooperate with Successor 
            Agencies (described below), and to take all measures to avoid 
            triggering a default under an enforceable obligation.  Would 
            also require the RDAs to prepare an enforceable obligation 
            payments schedule, containing all payments obligated to be made 
            and provide this to the county auditor-controller within 60 days 
            of the effective date of this bill.  This schedule would be 
            reviewed by the county auditor-controller, the State Controller 
            and the Department of Finance.  The bill would require that 
            unencumbered RDA funds be conveyed to the county 
            auditor-controller for distribution to the taxing entities in 
            the county, including cities, counties, a city and a county, 
            school districts and special districts.

          3)Extend the time period allowed for challenges to the validity of 
            an RDA's bonds or other obligations or to agency and legislative 







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            body determinations and findings issued or adopted after January 
            1, 2011.  These challenges could be brought two years following 
            approval of the action, as opposed to the current 60 day and 90 
            day review periods.

          4)Require the county auditor-controller to complete a financial 
            audit of each RDA in the county by March 1, 2012, in order to 
            establish each agency's assets, liabilities, pass-through 
            payment obligations to other taxing entities, the amount and 
            terms of indebtedness, and to certify the initial Recognized 
            Obligation Payment Schedule (defined below).  The audits are to 
            be submitted to the State Controller by March 15, 2012.

          Successor Agencies:

          Successor Agencies would be established under the bill and would 
          typically be the city, county, or city and county that established 
          the RDA.  Each Successor Agency would be responsible for 
          maintaining payments on enforceable obligations.  Specifically:

          1)Establish Successor Agencies to the RDAs that would, except in 
            certain situations, such as those involving an RDA based on a 
            joint powers authority, be the entity that created the 
            redevelopment agency.  If no local agency elects to be the 
            Successor Agency, a designated local authority would be formed, 
            whose three members would be appointed by the Governor.

          2)Require Successor Agencies to make payments on legally 
            enforceable obligations using property tax revenues when no 
            other funding source is available or when payment from property 
            tax revenues is required by an enforceable obligation.  
            Successor Agencies would be responsible for preparing on a 
            semi-annual basis the Recognized Obligation Payment Schedule 
            that would set forth a schedule of obligated payments including 
            the date, amount, and source of funds for each payment. 

          3)Require the Successor Agencies' Recognized Obligation Payment 
            Schedule to be certified by an external auditor approved by the 
            county auditor-controller, and approved by the Oversight Board 
            (as described below), the State Controller and the Department of 
            Finance. The first Recognized Obligation Payment Schedule would 
            be submitted by December 15, 2011, with a draft of the schedule 
            due November 1, 2011. The Recognized Obligation Payment Schedule 
            would be established pursuant to the identification of 
            enforceable obligations, which are obligations that were entered 
            into by the RDA and are legally enforceable.







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          4)Define enforceable obligations for Successor Agencies to 
            include, but not limited to:

             a)   bonds, including debt service, reserves, or other required 
               payments;

             b)   loans borrowed by the agency for a lawful purpose 
               including loans from the Low and Moderate Income Housing 
               Fund;

             c)   payments required by the federal government;

             d)   pre-existing obligations to the state or obligations 
               imposed by state law;

             e)   legally enforceable payments to agencies' employees, 
               including pension obligations and other obligations conferred 
               through a collective bargaining agreement;

             f)   judgments and settlements entered into by a court or 
               arbitration, retaining appeal rights;

             g)   legally binding contracts that do not violate the debt 
               limit or public policy; and,

             h)   contracts necessary for administration of the agency, such 
               as for office space, equipment and supplies, to the extent 
               permitted.

            Enforceable obligations would not include any agreements, 
            contracts, or arrangements between the city, county, or city and 
            county that created the RDA and the former RDA.

          5)Require Successor Agencies to take control of all assets, 
            properties, contracts, books and records, buildings and 
            equipment of the RDAs on October 1, 2011.  Successor Agencies 
            are to dispose of RDAs' assets as directed by the Oversight 
            Board with the proceeds transferred to the county 
            auditor-controller for distribution to taxing agencies within 
            the county. Governmental facilities, such as roads, school 
            buildings, and fire or police stations would be conveyed to the 
            appropriate public jurisdiction.  The bill would require the 
            Successor Agencies to compensate the taxing agencies for the 
            value of property and assets retained by the Successor Agencies 
            in an amount proportional to the taxing agencies' share of the 







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            property tax.  The value of any assets retained by the Successor 
            Agencies would be at market value as determined by the county 
            assessor for the 2011 property tax lien date, unless some other 
            agreement is reached between the parties.

          6)Authorize the Successor Agencies to prepare for the Oversight 
            Board a proposed administrative budget that includes estimated 
            administrative expenses, proposed sources of payment and 
            proposals for services to be provided, but does not include 
            funding for retained development projects, which must be funded 
            from the Successor Agency's own budget.

          Oversight Boards:

          Oversight Boards established under the bill would be required to 
          approve various actions by the Successor Agencies, including the 
          Recognized Obligation Payment Schedule and various other 
          activities outlined below. Specifically:

          1)Establish a seven-member Oversight Board for each Successor 
            Agency that would generally consist of the following 
            representatives:  i) one member appointed by the County Board of 
            Supervisors; ii) one member appointed by the mayor of the city 
            that formed the RDA; iii) one member appointed by the largest 
            special district; iv) one member appointed by the county 
            superintendent of education; v) one member appointed by the 
            Chancellor of the California Community Colleges; vi) one member 
            of the public appointed by the county board of supervisors; and, 
            vii) one member appointed by the mayor or the chair of the board 
            of supervisors from the largest representative employee 
            organization of the former RDA. Special appointment rules would 
            apply if a county, county and city, or joint powers authority 
            formed the RDA.  Beginning July 1, 2016, one Oversight Board 
            will be formed in each county.

          2)Require Oversight Boards to approve the following actions of the 
            Successor Agencies:

             a)   establishment of new repayment terms for outstanding loans 
               where such terms have not been established prior to July 1, 
               2011;

             b)   issuance of refunding bonds;

             c)   set-aside of reserves as required by bond indentures;








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             d)   merger of project areas;

             e)   acceptance of federal or state grants that are conditioned 
               upon the provision of matching funds in an amount greater 
               than 5%;

             f)   retention of RDA properties by city, county or city and 
               county;

             g)   establishment of the Recognized Obligation Payment 
               Schedule;

             h)   requests to hold portions of moneys in the housing fund in 
               order to pay recognized obligations related to housing; and,

             i)   requests to pledge or enter into an agreement for the 
               pledge of property tax revenues to provide financing for an 
               approved development project.

          3)Require that the Oversight Boards direct the Successor Agencies 
            to:

             a)   dispose of all assets and properties except expeditiously 
               and in a manner aimed at maximizing value;

             b)   cease performance in connection with and terminate all 
               existing agreements that do not qualify as enforceable 
               obligations;

             c)   transfer housing obligations and low and moderate 
               set-aside funds to the applicable entity;

             d)   terminate any agreement between the former RDA and any 
               public entity in the county which obligates the former RDA to 
               provide funding for debt service or other payments if in the 
               best interest of the taxing entities;

             e)   determine whether any contract, payments or agreements 
               between the former RDA and private parties should be 
               dissolved or renegotiated based on taxing entities best 
               interests; and,

             f)   submit repayment schedules for repayment of amounts 
               borrowed from the housing fund.

          4)Establish that all Oversight Board actions are subject to review 







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            by the Department of Finance.  The Department of Finance will 
            notify the Oversight Board within 72 hours of the action that it 
            wishes to review the decision.  In the event the Department of 
            Finance decides to review the action, it will have 10 days to 
            either approve the action or return it to the Oversight Board 
            for reconsideration.

          Property Tax Revenues:

          Property Tax Revenues that went to former RDAs would be used for 
          the following purposes: continue pass-through payments to schools 
          and local governments; fund outstanding former RDA debt and other 
          enforceable obligations; and, provide funding for education and 
          local governments.  Specifically:

          1)Create the Redevelopment Obligation Retirement Fund and the 
            Redevelopment Property Tax Trust Fund.  Property tax revenues 
            associated with each former RDA in each county will be deposited 
            in the Redevelopment Property Tax Trust Fund which will be 
            administered by the county auditor-controller.  Estimates of the 
            amounts to be allocated and distributed from this account will 
            be provided to the Department of Finance semi-annually.

          2)Require the county auditor-controller to determine the amount of 
            property tax increment that would have been allocated to each 
            RDA and to deposit that amount in a Redevelopment Property Tax 
            Trust Fund. The county auditor-controller is charged with 
            administering this fund for the benefit of holders of agency 
            debt and the taxing agencies that receive pass-through payments.

          3)Require the county auditor-controller to allocate funds from the 
            Redevelopment Property Tax Fund in the following order:

             a)   Local agencies, school districts and community college 
               districts in the amount that would have been received by such 
               agencies as their share of the property tax base and that 
               would have been paid pursuant to statutory and contractual 
               pass-through agreements;

             b)   Redevelopment Obligation Retirement Fund for Successor 
               Agencies' payments listed in the Recognized Obligation 
               Payment Schedule and administration; and, 

             c)   Cities, the county, schools, community college districts, 
               and non-enterprise special districts in the proportional 
               shares of what would have been received absent redevelopment 







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               and adjusted for pass-through agreements.  

           Other Matters:

          1)Allow for the continuation of housing activities by Successor 
            Agencies, which would be permitted to assume responsibility for 
            housing obligations and to use the existing balance in the Low 
            and Moderate Income Housing Fund set-aside for these purposes.  
            If a Successor Agency chooses not to assume the housing activity 
            responsibilities, the funds would be transferred to the local 
            housing authority or to the Department of Housing and Community 
            Development.

          2)Provide that the terms of existing memoranda of understanding 
            with employee organizations representing former RDA employees 
            would remain in force, unless a new agreement is reached.  The 
            Successor Agency will become the employer of all employees of 
            the former RDA upon its dissolution and will assume all 
            obligations under any existing memoranda of understanding then 
            in force.

          3)Specify that beginning for fiscal years 2012-13, the amounts of 
            additional property tax received by school districts, county 
            offices of education, charter schools and community college 
            districts, as a result of the elimination of RDAs, would be in 
            addition to the Proposition 98 minimum funding guarantee.  These 
            amounts (as well as amounts going to other taxing agencies) 
            would increase over time as enforceable obligations expire.

          4)Establish that if a community elects to participate in the 
            alternative voluntary alternative redevelopment program 
            established in SB 15 X1 or AB 27 X1, and later fails to comply 
            with the provisions established in that bill governing the 
            program, then the provisions of this bill apply with conforming 
            changes to implementation and reporting dates.

          5)Appropriate $500,000 to the Department of Finance for costs of 
            administration under the legislation.

          6)Adds an appropriation allowing this bill to take effect 
            immediately upon enactment. 

           AS PASSED BYTHE ASSEMBLY  , this bill expresses the intent of the 
          Legislature to enact statutory changes relating to the 2011 Budget 
          Act.








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           FISCAL EFFECT  :  This legislation, together with SB 15 X1 or AB 27 
          X1, will result in $1.7 billion in additional funding as part of 
          the 2011-12 Budget.

           COMMENTS  : It is anticipated that cities and counties with RDAs 
          would choose to participate in an alternative voluntary 
          redevelopment program as set forth in SB 15 X1 and AB 27 X1.  This 
          alternative program would allow RDAs to continue but require that 
          cities or counties within which RDAs are located to provide 
          voluntary payments that would partially offset the use of property 
          tax increment for RDA purposes.


           Analysis Prepared by :    Mark Ibele / BUDGET / (916) 319-2099FN: 
          0001298