BILL ANALYSIS                                                                                                                                                                                                    



                                                                      



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          |SENATE RULES COMMITTEE            |                   AB 345|
          |Office of Senate Floor Analyses   |                         |
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                                 THIRD READING


          Bill No:  AB 345
          Author:   Torres (D), et al.
          Amended:  8/21/12 in Senate
          Vote:     21

           
          PRIOR VOTES NOT RELEVANT


           SUBJECT  :    Redevelopment

           SOURCE  :     Author


           DIGEST  :    This bill reforms , beginning January 1, 2018, 
          how redevelopment agencies spend their Low and Moderate 
          Income Housing Funds.

           Senate Floor Amendments  of 8/21/12 delete the prior version 
          of the bill, which dealt with traffic control devices, and 
          instead add the current language.  

          Note:This bill is nearly identical to SB 450 (Lowenthal) 
               which passed the Senate (39-0) on June 2, 2011, and 
               again when Assembly amendments were concurred with on 
               September 8, 2011, by a 40-0 vote.  SB 450 was vetoed.

           ANALYSIS  :    The Community Redevelopment Law (CRL) requires 
          that each redevelopment agency submit the final report of 
          any audit undertaken by any other local, state, or federal 
          government entity to its legislative body and to 
          additionally present an annual report to the legislative 
          body containing specified information.
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          Existing law requires that funds used for purposes of 
          increasing, improving, and preserving a community's supply 
          of low- and moderate-income housing be held in a separate 
          Low and Moderate Income Housing Fund (L&M fund) until used. 
           Existing law limits the planning and general 
          administrative costs which may be paid with moneys from the 
          L&M fund.

          Existing law requires, except as specified, each agency to 
          expend over each 10-year period of the implementation plan, 
          the moneys in the L&M fund to assist housing for persons of 
          moderate, low, and very low income according to specified 
          calculations.

          Existing law requires an agency that has failed to expend 
          or encumber excess surplus in the L&M fund within one year 
          to disburse the surplus voluntarily to the appropriate 
          county housing authority or another public agency or to 
          expend or encumber the surplus within two additional years.

          Whenever low- or moderate-income housing dwelling units are 
          destroyed or removed from the low- and moderate-income 
          housing market as part of a redevelopment that is subject 
          to a written agreement with the agency, or where financial 
          assistance has been provided by the agency, the agency is 
          required to provide replacement housing within four years 
          of the destruction or removal.

          This bill: 

          1. Requires redevelopment agencies (RDAs) to post a copy of 
             their annual report on the agency's or the community's 
             Internet Web site. 

          2. Requires RDAs to include the following information as 
             part of the annual report: 

             A.    The percentage of funds from the L&M fund used for 
                planning and general administration costs; 

             B.    An itemized list of planning and general 
                administration expenditures from the L&M fund and an 
                explicit description of how the expenditures are 

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                necessary for the production, improvement or 
                preservation of low- and moderate-income housing; 

             C.    Information describing the employees that are paid 
                from the L&M fund including the title, salary, wages, 
                benefits, and the nature of the employee's activities 
                eligible to be paid out of the L&M fund; 

             D.    A list of the overhead costs that are paid 
                directly or indirectly from the L&M fund; 

             E.    A statement of the amount and percentage of funds 
                deposited into the L&M fund exclusive of debt 
                proceeds expended for planning and administration in 
                each of the preceding five fiscal years that begin 
                after December 31, 2011; 

             F.    A list of all the properties owned by a RDA 
                purchased with L&M funds, the date of acquisition for 
                each property, a RDA's intended purpose for the 
                property, and the amount if any of L&M funds used to 
                acquire and maintain the property; 

             G.    For each fiscal year since the agency's last 
                adopted implementation plan, a list of the 
                replacement housing obligations of the RDA including 
                the number of units that must be replaced, location, 
                and status of the replacement and production units; 
                and, 

             H.    For each housing projects for which a RDA 
                designates encumbered funds, or amends an existing 
                designation or encumbrance during the fiscal year and 
                where the RDA's financing constitutes more than 50 
                percent of the total cost of the housing project 
                provide the project name, location, number of 
                affordable units, affordability level, amount of 
                agency financing and total cost of the low- and 
                moderate-income units. 

          3. Provides an agency that has deposited less than $100,000 
             in the L&M fund is exempt from providing the information 
             required by (A) through (H) above. 


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          4. Requires the legislative body to adopt a separate 
             written resolution finding that based on the annual 
             report the actual planning and general administrative 
             expenses do not exceed the limits allowed. 

          5. Requires the Controller, on or before April 1 of each 
             year, to post of its Web site a list of RDA's with major 
             audit violations. 

          6. Allows the Controller to consult with locally affected 
             community groups as part of determining if an agency has 
             corrected a major audit violation. 

          7. Allows a RDA that is subject to a court order as a 
             result of a major audit violation to continue to issue, 
             sell, or deliver bonds or incur debt to increase, 
             improve, preserve, or assist in the construction, or 
             rehabilitation of housing units for extremely low, very 
             low, low, or moderate income housing. 

          8. In the 60 day window between a court's initial finding 
             of a major audit violation and a final ruling, allows an 
             RDA to pay the budgeted operation and administration of 
             the agency, as opposed to only 75 percent of the 
             budgeted amount. 

          9. Prohibits a RDA that is subject to a court order as 
             result of a major audit violation to exercise the power 
             of eminent domain. 

          10.Removes the statutory caps on the amount of a monetary 
             sanction that a court can order a RDA to pay for a major 
             audit violation and permits the court to determine a 
             sanction that is commensurate with the violation. 

          11.Prohibits a RDA from paying a court sanction from the 
             L&M fund or any other special fund related to housing. 

          12.Provides that an action filed by a court to compel an 
             RDA to correct a major audit violation does not preclude 
             an action by any other interested party or a resident of 
             the jurisdiction. 

          13.Makes failure to comply with the restrictions regarding 

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             eligible expenditures for planning and general 
             administration from the L&M fund a "major audit 
             violation." 

          14.Requires the Department of Housing and Community 
             Development (HCD) to conduct audits of RDAs to ensure 
             compliance with the housing provisions of the CRL. 

          15.Requires HCD to review all of the following in audits of 
             RDAs: 

             A.    Agency compliance with production and replacement 
                of housing obligations; 

             B.    Recording and monitoring of affordability 
                covenants; 

             C.    Provision of relocation assistance; 

             D.    Propriety of deposits to and expenditures from the 
                L&M fund; 

             E.    Compliance with the debt limit of the agency; 

             F.    Adoption of a legally sufficient implementation 
                plan; 

             G.    Major audit violations as defined in the Health 
                and Safety Code Section 33080.8; and, 

             H.    Accounting practice or provision of the CRL in the 
                discretion of the department. 

          16.Requires RDAs to annually remit .05 percent of the L&M 
             tax increment to HCD to conduct redevelopment audits. 

          17.Requires HCD to determine, on or before April 1 of each 
             year, whether an audit or investigation from the 
             previous year, contains a major audit violation and post 
             those on the HCD Internet Web site. 

          18.Requires on or before June 1 of each year, HCD to 
             determine if a major audit violation has been corrected 
             by consulting with each affected agency and locally 

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             affected community groups. 

          19.Requires HCD to direct RDAs to take action to correct 
             audit violations. 

          20.Provides that if HCD determines that an RDA has not 
             taken action within 180 days to correct an audit 
             violation, it must forward all relevant documents to the 
             Attorney General (AG) for action. 

          21.Requires HCD to forward a copy of any audit or 
             investigation of a RDA to the AG and the Controller. 

          22.Requires HCD to notify an RDA and its legislative body 
             when it sends an audit violation to the AG. 

          23.Prohibits HCD from initiating or settling any litigation 
             or to resolve any audit or investigation in a manner 
             contrary to law. 

          24.Allows the Controller to conduct quality control reviews 
             of RDA audits to the extent feasible within existing 
             resources and to communicate the results of the review 
             to the RDA and the independent auditor. 

          25.Requires that if the Controller finds that an audit was 
             conducted in an unprofessional manner, to refer the case 
             to the California Board of Accountancy (Board). 

          26.Provides that if the Board determines that the 
             independent auditor conducted the audit in an 
             unprofessional manner then the auditor is prohibited 
             from performing any RDA audits for three years and the 
             Board may impose additional penalties. 

          27.Provides that whenever the Controller determines through 
             two consecutive quality control reviews that an audit 
             was not performed in substantial conformity with 
             guidelines in state law, the Controller will notify the 
             auditor and the Board in writing. 

          28.Gives the auditor 30 days after receiving the 
             Controller's notice to file an appeal or the 
             Controller's determination is final. 

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          29.Provides that if the auditor files an appeal, the Board 
             will investigate and may find that the Controller's 
             determination will not be upheld and has no effect or 
             schedule an appeal for hearing. 

          30.Provides that if the Controller's determination becomes 
             final, the auditor is prohibited from conducting audits 
             for three years and is subject to any additional 
             conditions ordered by the Board. 

          31.Provides that no later than March 1, following the date 
             at which the Controller's determination becomes final, 
             the Controller will notify each RDA of the auditors that 
             are ineligible as a result of misconduct. 

          32.Allows the Board to take any disciplinary action against 
             an auditor that it deems appropriate under the law. 

          33.Requires a RDA that is found to have deposited less into 
             the L&M fund then required by law or to have spent money 
             from the L&M fund for purposes other than increasing, 
             improving, and preserving the community's supply of 
             affordable housing, to repay the funds with interest, 
             plus an additional 50 percent of that amount and 
             interest. 

          34.Applies the 10-year statute of limitations for failure 
             to deposit or expend L&M funds correctly to merged 
             redevelopment project areas and to any other moneys that 
             any agency must deposit in the L&M fund in addition to 
             tax increment. 

          35.Prohibits repayment of any L&M funds required to meet 
             the set-a-side requirements to come from any other funds 
             designated for affordable housing. 

          36.Establishes a double cap on the amount of L&M funds that 
             an RDA can spend on planning and general administrative 
             costs. 

          37.Places a 10 percent cap on the amount of L&M funds that 
             a RDA can spend on general administrative costs 
             including: 

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             A.    Employee compensation costs and related 
                non-personnel costs, such as travel and training, 
                paid to or on behalf of any agency, city, or county 
                employee whose duties include permissible L&M housing 
                activities other than direct program and project 
                administration (i.e., line staff); 

             B.    Employee compensation costs and related 
                non-personnel costs paid to or on behalf of any 
                agency, city, or county employee who supervises or 
                manages line staff or who provides general 
                administrative services, such as finance, legal, and 
                human resources that indirectly support permissible 
                L&M housing activities; 

             C.    Overhead costs, such as rent, equipment, and 
                supplies; and, 

             D.    The total value of any contracts for agency 
                planning or administrative services that are related 
                to permissible housing activities and that are not 
                associated with a specific development project. 

          38.Places a 10 percent cap on the amount of L&M funds that 
             a RDA can spend on program and project staff costs, 
             including employee compensation costs and related 
             non-personnel costs that are directly and necessarily 
             associated with development of a specific housing 
             development project including, negotiation and project 
             management of disposition and development agreements, 
             land leases, loan agreements and similar affordable 
             housing agreements, redevelopment agency work on 
             entitlements for eligible affordable housing 
             developments, loan processing, and servicing, inspection 
             for new rehabilitation units, construction monitory and 
             monitoring affordable housing units. 

          39.Allows a RDA to spend up to two percent of their L&M 
             fund on code enforcement provided that the RDA complies 
             with relocation and replacement rules if tenants are 
             displaced or homes destroyed as a result of code 
             enforcement activities. 


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          40.Allows a RDA to spend any difference between the cap on 
             "general administrative and planning" (employee 
             compensation for executive management cost and overhead 
             costs) and actual administrative expenditures on 
             "program and project staff costs." 

          41.Requires employee compensation for executive and 
             management staff, to be justified by an independent cost 
             allocation study that is no more than six years old and 
             not represent a greater proportion of the employees 
             total compensation than the proportion of employees 
             working directly and exclusively on activities required 
             for the L&M fund in comparison to the total number of 
             employees supervised, managed and directly supported by 
             the employee 

          42.Provides that the limitations planning and 
             administrative costs do not apply to a specific project 
             area during the first five years. 

          43.Provides that the planning and administrative costs 
             apply to project areas where the project area is amended 
             or if the tax increment of a new or amended project area 
             is deposited into an L&M fund covering more than one 
             project area. 

          44.Prohibits an RDA from spending L&M funds on any of the 
             following: 

             A.    Code enforcement; 

             B.    Land use planning or development of or revision of 
                the housing element except for the payment of normal 
                project-related planning fees that is applicable to 
                similar development projects, except that an RDA may 
                spend L&M funds on the cost of staff participation in 
                the development of the housing element provided that 
                those costs are counted toward the 10 percent cap on 
                planning and administration costs; 

             C.    Lobbying; and, 

             D.    Administration of non-redevelopment activities 
                that are not related to the activities required under 

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                the L&M fund. 

          45.Provides that the completion of the current 10-year 
             implementation plan for a RDA (provided the 10-year 
             period began before January 1, 2010), the 
             proportionality requirements dictated by regional 
             housing needs assessment no longer apply, and funds must 
             be expended from the L&M fund as follows: 

             A.    Requires at least 75 percent of each RDA's 
                expenditures from the L&M fund shall directly assist 
                the new construction, acquisition, and substantial 
                rehabilitation or preservation of housing for persons 
                of extremely low, very low, or low income; 

             B.    Requires at least 50 percent of each RDA's 
                expenditures from the L&M fund shall directly assist 
                the new construction, acquisition, and substantial 
                rehabilitation or preservation of housing for persons 
                of extremely low or very low income; and, 

             C.    Requires that at least 25 percent of each RDA's 
                expenditures from the L&M fund shall directly assist 
                the new construction, acquisition, and substantial 
                rehabilitation or preservation of housing for persons 
                of extremely low income. 

          46.Allows an RDA to count expenditures for extremely 
             low-income housing toward the percentages required for 
             very low-income and to count expenditures for extremely 
             low- and very low-income toward the percentages required 
             for low-income. 

          47.Deletes the ability of an agency to adjust the 
             proportionality requirement for units constructed with 
             non-redevelopment funds. 

          48.Requires a RDA to demonstrate in each implementation 
             plan at the end of five years that the agency's 
             aggregate expenditures from the L&M fund exclusive of 
             debt service payments from the onset of the new 
             proportionality requirements satisfy the requirements. 

          49.Defines "preservation" as preserving affordability of an 

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             assisted housing development that is eligible for 
             prepayment for termination or the rental restrictions 
             may expire within five years. 

          50.Defines "housing for persons of extremely low income" as 
             housing that is available at a rent or housing cost that 
             is affordable to households earning 30 percent of the 
             area median income or 30 percent of the statewide median 
             income, whichever is greater. 

          51.Provides that if a RDA has deposited less than $2 
             million in the L&M fund in the first five years after 
             the onset of the new proportionality requirements, the 
             RDA has 10 years to fulfill the requirements to spend 
             the L&M funds in the percentages described above for 
             extremely low, low and very-low income housing for the 
             first time. 

          52.Allows, for purposes of the proportionality 
             requirements, an agency to count contractually obligated 
             funds as expended funds, provided that the contract is 
             with an entity that is independent of the agency or the 
             community for the development for a specific eligible 
             housing development. 

          53.Provides that if a contract to expend funds from the L&M 
             fund for a specific eligible housing development is 
             terminated, the funds may no longer be counted towards 
             meeting the proportionality requirements. 

          54.Provides that if an RDA fails to meet the 
             proportionality requirements, they may not expend any 
             money from the L&M fund for households whose incomes 
             exceed 50 percent of median income until they have 
             expended funds for extremely low, very low and 
             low-income housing that should have been spent in 
             previous implementation plan periods. 

          55.Provides that if an RDA fails to spend L&M funds in same 
             proportion as the number of persons in all age groups, 
             they may not expend any money from the L&M fund for 
             senior households until they have expended funds for 
             all-age housing that should have been spent in previous 
             implementation plan periods. 

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          56.Deletes the authority of an agency to disburse excess 
             surplus funds to the local housing authority. 

          57.Requires for each interest in real property acquired 
                                                     using money from the L&M fund, an RDA within five years 
             of acquiring the property, must do one of the following: 


             A.    Enter into a disposition and development agreement 
                or a land lease with a third party for the 
                development of housing affordable to persons and 
                families of low and moderate income; 

             B.    Obtain final land use entitlements and secure full 
                financing for agency development for housing that is 
                affordable to persons and families of low and 
                moderate income housing; and, 

             C.    Submit a remedial action plan for the property to 
                the appropriate oversight agency including, but not 
                limited to, the Department of Toxic Substances 
                Control, the Regional Water Quality Control Board or 
                the Office of Human Health Risk Assessment for the 
                cleanup of contamination. 

          58.Provides that if a RDA has not completed one of the 
             above within five years, or if less than 10 percent of 
             the dwelling units or floor area of a project is 
             developed within 10 years from the date the agency 
             originally acquired the property, the agency must 
             reimburse the L&M fund 150 percent of the amount 
             expended to acquire and maintain the property or 150 
             percent the current fair market value of the property 
             whichever is more. 

          59.Provides that if a RDA owns two or more adjacent 
             properties that make up a single redevelopment project 
             the date of acquisition will be the date of acquisition 
             for the last acquired property provided that the date is 
             not later than five years after the acquisition of the 
             last property. 

          60.Provides that a RDA may adopt a resolution to petition 

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             HCD for an extension of the five year deadline and HCD 
             may grant a single extension of up to five years if the 
             department makes a finding that the failure to complete 
             the required activities is beyond the agency's control 
             and that the agency has a feasible plan for development. 


          61.Requires HCD to solicit comments from known or expected 
             parties interested in an extension petition. 

          62.Requires HCD to establish a schedule of fees to cover 
             the cost of reviewing the petition and to charge the RDA 
             from funds other than those designated for affordable 
             housing. 

          63.Provides that a RDA must deposit 150 percent of the fair 
             market value of the property at the time it is sold or 
             transferred or if the property is not sold or 
             transferred of the fair market value of the land at the 
             time a building permits is issued for the property if 
             either of the following conditions exist: 

             A.    A property acquired using moneys from the L&M fund 
                is sold or transferred for purpose other than housing 
                that is affordable to persons and families of low and 
                moderate income; or,

             B.    A property that is acquired using money from the 
                L&M fund is developed such that less than 50 percent 
                of the floor area or a percentage of the floor area 
                equal to the amount of L&M moneys that were used to 
                acquire the property whichever is less, is housing 
                for persons and families of low and moderate income. 

          64.Requires that for units destroyed within the project 
             area on or after January 1, 2012, an RDA is required to 
             replace vacant units such that the replacement units are 
             available at affordable housing costs and occupied by 
             persons and families in the same or lower income 
             category in the same proportion as the units occupied or 
             last occupied by low and moderate income households in 
             the property. 

          65. Requires generally an RDA to replace destroyed units 

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             with new construction. 

          66.Provides that up to 25 percent of the replacement 
             obligation incurred during a five-year implementation 
             plan may be fulfilled by either of the following: 

             A.    With units that have been rehabilitated such that 
                the after-rehabilitation values increased by 50 
                percent or more of the pre-rehabilitation value and 
                the units being replaced were either: 

                (1)      At risk of demolition or closure due to 
                   substandard conditions and occupied by extremely 
                   low or very low income households; and, 

                (2)      Vacant due to substandard conditions. 

             B.    With substantially rehabilitated multi-family 
                units that the agency has substantially rehabilitated 
                with in the project area, two units for each unit the 
                agency is obligated to replace, or outside the 
                project area three units for each unit the agency is 
                obligated to replace. 

          67.Requires a RDA to adopt a separate written resolution 
             after a public hearing that based on substantial 
             evidence that the rehabilitation of the replacement 
             dwelling units complies with the replacement unit 
             requirements. 

          68.Provides that if a court finds that an RDA has failed to 
             comply with replacement housing requirements, the court 
             shall prohibit the agency from issuing any debt for any 
             project areas except debt from which all proceeds will 
             be deposited in the L&M fund until the court determines 
             that the RDA has complied with this section. 

          69.Adds the following to the information a RDA is required 
             to include in a replacement housing plan: 

             A.    A description of the occupancy and affordability 
                restrictions to be imposed on replacement dwelling 
                units; 


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             B.    Substantial evidence supporting a finding that the 
                replacement dwelling units will meet the needs of 
                households in the income categories of the households 
                displaced from the dwelling units that the 
                replacement units are intended to replace; and, 

             C.    A declaration of whether the RDA intends to 
                rehabilitate existing dwelling units. 

          70.Provides that if an RDA ceases its activities prior to 
             the end of an affordability covenant, then it will 
             designate a successor agency that will monitor and 
             enforce the covenants for the remaining period of the 
             covenant. 

          71.Provides that if no successor agency is designated at 
             the time a RDA ceases its activities then the community 
             must monitor and enforce the covenants for the remaining 
             period of the covenant. 

          72.Includes intent language regarding the need for greater 
             accountability and more auditing of RDAs. 

          73.Deletes the authority given to RDAs to offer money in 
             the L&M fund of a merged project area to the housing 
             authority for the purpose of constructing or 
             rehabilitating affordable housing if the funds have been 
             deposited in the L&M fund for six years but have not 
             been spent. 

          74.Adds the following to the list of required information 
             the implementation plan for an RDA must include: 

             A.    The proposed amount of expenditure for the L&M 
                fund for new construction, acquisition and 
                substantial rehabilitation or preservation for 
                housing for persons of extremely low, very low or low 
                income during each year of the implementation plan; 

             B.    The replacement units that satisfy each 
                replacement housing obligation; 

             C.    In the case when replacement units have been 
                destroyed or removed, but units are not yet complete, 

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                the proposed location of the replacement units that 
                are not yet complete; and, 

             D.    A complete accounting for compliance with the 
                RDA's affordable housing obligation over the life of 
                the plan including the total number of units the RDA 
                is obligated to replace and the total number of units 
                required to be construct before the end for the 
                project area life. 

          75.Includes the following information for all affordable 
             housing units that are replaced, constructed, 
             rehabilitated or have covenants attached to them and are 
             included in the database required by existing law: 

             A.    The street address and assessor's parcel number of 
                the property and for properties that are listed as a 
                group the number of units; 

             B.    The size of each unit based on the number of 
                bedrooms; 

             C.    The affordability level of each unit; 

             D.    The year in which the construction or substantial 
                rehabilitation of the unit was complete; 

             E.    The date of recordation and document number of the 
                affordability covenants or restrictions; 

             F.    The date on which the covenants or restrictions 
                expire; 

             G.    For projects developed prior to January 1, 2002, a 
                statement of the effective period of the land use 
                controls established in the plan at the time the unit 
                was developed; 

             H.    For owner-occupied units that have changed 
                ownership during the previous implementation plan 
                period the date and document number of the new 
                affordability covenants or other document recorded to 
                ensure that the affordability restrictions run with 
                the land; and, 

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             I.    Whether units count toward replacement units and 
                the units they are replacing; 

          76.Requires the following information as part of the 
             implementation plan for owner-occupied and rental units 
             that are required to replace units, are counted toward 
             the RDA's housing obligation and are not included in the 
             database required by existing law: 

             A.    The streets address and if available assessor's 
                parcel number of the property; 

             B.    For properties where units are listed as a group, 
                the number of units; 

             C.    The affordability level of each unit; 

             D.    The date of recordation and document number or 
                restrictions; and, 

             E.    Whether the units count toward the replacement 
                obligation and reference the destroyed units they are 
                replacing. 

          77.Permits the implementation plan to omit any property 
             that is used to confidentially house victims of domestic 
             violence 

          78.Provides that failure to meet any of the following 
             obligations will be an ongoing violation until the RDA 
             has fulfilled the obligation: 

             A.    The deposit and expenditure requirements for the 
                L&M fund; 

             B.    The obligation to eliminate project deficits to 
                the L&M fund; 

             C.    The obligation to expend or encumber excess 
                surplus funds; 

             D.    The obligation to provide relocation assistance; 


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             E.    Replacement and production housing obligations; 

             F.    The obligation to monitor and enforce 
                affordability covenants; and, 

             G.    The obligation to continue the project past the 
                effectiveness date of the redevelopment plan in order 
                to meet unfulfilled housing requirements.

          79.Provides this bill becomes operative January 1, 2018.

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


          JJA:n  8/22/12   Senate Floor Analyses 

                       SUPPORT/OPPOSITION:  NONE RECEIVED

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