BILL ANALYSIS Ó
SENATE COMMITTEE ON BUDGET AND FISCAL REVIEW
Mark Leno, Chair
Bill No: AB 1484
Author: Committee on Budget
As Amended: June 26, 2012
Consultant: Mark Ibele
Fiscal: Yes
Hearing Date: June 26, 2012
Subject: Budget Act of 2012: Redevelopment
Summary: This bill addresses numerous issues related to
the dissolution of redevelopment agencies (RDAs) and
related matters necessary for the implementation of the
Budget Act of 2012. The bill contains measures necessary
to achieve GF solutions of approximately $3.1 billion in
the budget year.
Background: As part of the 2011-12 budget agreement, the
Legislature took action to eliminate RDAs in AB 26 X1,
Statutes of 2011 (Blumenfield) and institute a new
alternative voluntary redevelopment program in AB 27 X1,
Statutes of 2011 (Blumenfield). By virtue of AB 27X1, RDAs
could avoid elimination if the communities that formed them
agreed to participate in the alternative voluntary
redevelopment program that called for them to remit annual
payments to K-12 education. The California Redevelopment
Association challenged the constitutionality of both pieces
of legislation. After an expedited review, the California
Supreme Court released its ruling December 29, 2011,
holding that both AB 26 X1 and AB 27 X1 were invalid. As a
result, RDAs were dissolved as of February 1, 2012, with
their affairs to be resolved by successor agencies (SAs),
including the disposal of former RDA assets. Under current
law, the elimination of RDAs will result in property tax
revenues being used to pay required payments on existing
bonds and other obligations, make pass-through payments to
local governments, with remaining property tax revenues to
be allocated to cities, counties, special districts and
school and community college districts. The budget assumes
that approximately $1.7 billion will be received by K-14
education and serve to offset the state's Prop 98 General
Fund obligation, with an additional $1.4 billion to be
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received from freed-up former RDA cash and cash-equivalent
assets during the budget year.
Proposed Law: This bill is the redevelopment trailer bill
for the 2012-13 Budget. It clarifies certain matters
associated with the dissolution of RDAs and addresses
substantive issues related to administrative processes,
affordable housing activities, repayment of loans from
communities, use of existing bond proceeds, and the
disposition or retention of former RDA assets. In
addition, the bill includes a variety of measures designed
to enhance compliance with current law. The bill contains
the following provisions:
1. Property Assets, Loans and Bond Proceeds. The
legislation allows SAs that have received a "finding
of completion" (FOC) from the Department of Finance
(DOF) additional discretion regarding former RDA real
property assets, loan repayments to the local
government community that formed the RDA (RDA
communities) and use of proceeds from bonds issued by
the former RDA. The FOC requires that amounts due
with respect to cash and cash-equivalent assets,
property tax allocations and pass-through payment
amounts are paid, as discussed below. The FOC is an
indication that all amounts determined to be due from
the former RDA or the SA have been paid and satisfied.
SAs in receipt of a FOC will be allowed to:
a. Retain non-governmental physical assets
in a separate trust until DOF has approved a
long-range property management plan. The plan
must be submitted to the oversight board (OB) and
DOF no more than six months after the FOC has
been issued and be based on an inventory of
assets including: purpose of acquisition; legal
description; estimate of current value; estimate
of derived annual income; environmental history;
potential transit-related use; and history of
development proposals. The plan must also address
the use or disposition of all the properties in
the trust, including: retention for future
development; sale of property; or use of property
to fulfill an enforceable obligation (EO).
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b. Include as EOs legitimate loans between
the former RDA and the RDA community, subject to
approval of the OB. Interest on the loan would be
calculated at the Local Agency Investment rate,
repaid beginning 2013-14 over a reasonable number
of years, with repayment limited to amount equal
to half the growth over the 2012-13 property tax
allocated to local governments. These repayments
would be subordinated to loan repayments to the
Low and Moderate Income Housing Fund (LMIHF) and
subject to a 20 percent set-aside for affordable
housing.
c. Use certain existing proceeds stemming
from bonds issued by the former RDA on or before
December 31, 2010 for purposes for which the
bonds were sold. If remaining bond proceeds
cannot be spent in a manner consistent with the
bond covenant, the proceeds would be used to
defease the bond.
2. Bond Issuance. The legislation refines the
circumstances under which refunding or other types of
refinancing bonds to be issued by the SA would be
allowed. These refinements include limitations and
restrictions regarding: principal amount of debt;
payment acceleration or restructuring; total interest
costs; and amount of property taxes pledged as
security. The bill states that certain bond issuances
may be subject to local government approval or
agreements regarding subordination and are subject to
OB approval and review by DOF. Under the legislation,
SAs may seek a waiver from DOF of the two-year statute
of limitations that would generally apply.
3. Housing Successor Assets. The bill requires that a
listing of housing assets be submitted to DOF by
August 1, 2012, with such assets to include those
transferred between February 1, 2012 and the
submission date of the listing. The bill requires
that DOF review and object to any asset or transfer,
with any objections potentially subject to a meet and
confer resolution process. Assets transferred to the
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housing successor entity are to be used for affordable
housing activities, while disallowed assets would go
to the SA for disposal or retention pursuant to an
approved property management plan. The bill indicates
that housing assets includes:
a. Real and personal property acquired for
low and moderate income housing with any source
of funds.
b. Funds encumbered by an enforceable
obligation to build or acquire low and moderate
income housing.
c. Loans or grant receivables funded from
the LMIHF from homebuyers, homeowners,
developers, or other parties.
d. Funds derived from rents or operation of
properties acquired for low and moderate income
housing purposes by other parties financed with
any source of funds.
e. Streams of rents or other payments from
low and moderate income housing financed with any
source of funds.
f. Repayments of loans or deferrals owed to
the LMIHF.
g. Certain other properties deemed at the
OBs discretion to be housing assets, such as
mixed use developments that contribute to
community value or benefit local governments.
4. Housing Fund Loans and Bonds. The bill allows
repayment of loans made from the LMIHF, which
repayments could begin in 2013-14, but would be
limited to one-half of the annual growth over the
2012-13 level in property taxes distributed to local
governments. These repayments would take priority
over loan repayments to RDA communities (20 percent of
those latter loan repayments are to be set aside for
affordable housing activities). The housing successor
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may use certain bond proceeds derived from bonds
issued before January 1, 2011, and secured by the
LMIHF, for affordable housing projects.
5. Validation Actions. Under the legislation, the
two-year time limit for validation actions related to
findings determinations of a former RDA, redevelopment
bonds and similar financings, and various related
redevelopment plans and efforts, would be tolled until
DOF has issued a FOC. The two-year limit would not
apply once the FOC has been issued by DOF.
6. Assets and Transfers. The legislation directs the
Controller to examine asset transfers that occurred
after January 31, 2012. The bill directs each SA to
retain a licensed accountant to conduct a due
diligence review (DDR), or arrange for an audit by the
county-auditor controller, of unobligated cash or cash
equivalent balances that would be available for
transfer to local governments. The review must
include value of assets previously transferred from
either the former RDA or the SA and the entity to
which such assets were transferred. DOF may adjust
amounts available for distribution to local
governments and must provide an explanation for any
adjustment. The SA may request a meet and confer
resolution process for any disputed amounts. The SA
is required to transfer determined amounts to the
county auditor-controller and report such amounts to
DOF. Assets identified for transfer but not
transferred could be subject to offset in an amount
equivalent to asset value (as discussed further
below). The DDR must:
a. Reconcile assets, balances and
liabilities of the SA with amounts previously
reported to the Controller.
b. Specify total funds, including the LMIHF,
identified for distribution to local governments
after subtracting restricted amounts and non-cash
items.
c. Indicate the asset sum available for
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distribution to local governments.
d. Be submitted to the OB, the county
auditor-controller and DOF for review.
7. Property Tax Allocations. The bill specifies that
if the former RDA or SA did not pay property tax or
certain pass-through payments due to local governments
for the 2011-12 fiscal year, or these amounts were not
remitted by the county auditor controller, such
amounts will be offset (as discussed further below)
through future reductions in property tax allocations,
from available SA reserves or other funds, by
reductions in sales taxes allocable to the county, or
by other means as appropriate. The bill requires the
county auditor-controller to provide a report to DOF
for each SA regarding the distribution that includes
the total funds available for allocation, the
pass-through amounts, the amounts distributed to SAs,
and the amounts distributed to local governments. The
bill makes no changes in the current treatment of
pass-through amounts, and expresses the intent that
full payment of pass-through amounts are to be made.
8. Offsets for Unpaid Amounts. Under the bill, if
amounts due to local governments pursuant to the DDR,
prior property tax allocations, and pass-through
payments are not remitted, these amounts may be
recovered, as appropriate, by actions directed to the
entity to which the funds were transferred, the RDA
community or the SA. These actions could include an
offset of either sales and use tax or property tax
allocations, or legal actions against any third party
in receipt of the funds. Offsets amounts found to be
unwarranted by a court would result in a reimbursement
of that amount or a reversal of the offset, and a
penalty imposed on the state.
9. Successor Agencies. The bill clarifies that SAs
are local public entities separate from the RDA
community, and which succeed to the organizational
status of the former RDA but without redevelopment
powers except those related to and necessary for the
payment of EOs. Under the bill, SAs are required to
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provide an annual post-audit of SA financial
transactions, and when all RDA debt is retired,
dispose of all assets, end pass-through payments and
terminate. For SAs that do not have a FOC from DOF,
assets are to be disposed of with proceeds benefiting
local governments.
10. Oversight Boards. The bill clarifies OB membership
qualifications of the representative of the former
employees of the RDA. It provides that OB members are
protected by the immunities applicable to public
entities and actions are to be taken by resolution.
The bill allows OBs to contract for administrative
support and specifies that OBs cannot reestablish loan
agreements between the SA and community.
11. Polanco Act Provisions. The legislation provides
that existing clean-up plans and liability limits
authorized under the Polanco Redevelopment Act shall
be transferred to the SA and may be transferred to the
successor housing entity at the respective entity's
request.
12. RDA Communities. The bill would allow RDA
communities that elected not to be the SA to opt back
in at a later date. It allows RDA communities to
grant loans to the SA for certain costs and be repaid
out of administrative costs or the property tax
increment, upon approval of the OB. In addition, the
bill provides that RDA communities may use the land
use plans and functions of the RDA, provided that no
new project areas or expanded boundaries of project
areas are created or increase the amount of obligated
property tax results.
13. Administrative Costs. The bill clarifies that the
five percent limit on administrative costs is based
initially on the property tax allocated for the
Recognized Obligation Payment Schedule (ROPS) and
allows the OB to reduce this amount upon SA approval.
In addition, administrative costs would exclude
certain litigation expenses and expenses related to
employees costs associated with project specific
activities.
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14. Enforceable Obligations. The bill allows for
required bond reserves to be included as EOs, along
with costs associated with collective bargaining
agreements for layoffs or terminations, the transfer
of employees to the housing successor entity, and
repayments of loans from the LMIHF. It also specifies
that once funding for an EO is deleted or reduced by
DOF, the funding may not be restored except as agreed
to through the meet and confer resolution process or
pursuant to court order. The bill allows SAs to
petition DOF to provide written confirmation that its
determination regarding an enforceable obligation is
final and conclusive.
15. ROPS Timing and Reporting Issues. The bill
provides for certain changes regarding filing and
reporting requirements for ROPs, including: allowing
SAs to amend the initial Enforceable Obligation
Payment Schedule (EOPS) to provide for continued
payment of EOs until the ROPS is approved by the OB
and DOF; requiring the submission by SAs of each ROPS
to the county administrative officer, county
auditor-controller, and DOF at the same time it is
submitted to the OB; specifying ROPS for the January
1, 2012 through June 30, 2012 period are to include
payments made or to be made by the former RDA and SA
from January 1 2012 and June 30, 2012; and directing
SAs to submit ROPS for the January 1, 2013 through
June 30, 2013 period by September 1, 2012, and to
submit the OB-approved ROPS for the July 1, 2013
through December 31, 2013 to DOF and county
auditor-controller 90 days before the property tax
distribution. Under the bill, DOF is provided 45 days
to make its determination of the EOs on the ROPS and
SAs are given the ability to request additional review
and a meet and confer resolution process with five
days.
16. Other ROPS Issues. The bill specifies, if an SA
that does not submit ROPS by the deadlines, it may be
fined or have its administrative cost allowance
reduced and DOF may direct the county-auditor
controller withhold amounts for payments on EOs. SAs
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must submit a copy of the ROPS to DOF in a manner
provided by DOF. The bill indicates that if DOF
reviews and eliminates or modifies any item approved
by the OB, DOF shall provide notice to the SA and the
county auditor-controller as to the reasons for the
action.
17. Severability. The bill states that if any
provision of the act is held invalid, the invalidity
shall not affect other provisions of the act which can
be given effect without the invalid provision. Thus,
provisions of the act are severable.
18. Appropriation. The bill appropriates $22 million
from the General Fund for allocation by the Director
of Finance, including an amount of up to $2 million
for allocation by the Administrative Office of the
Courts to the Superior Court of California,
Sacramento. Allocation of funds by the Director of
Finance shall be effective no sooner than 30 days
following after the director notifies the Joint
Legislative Budget Committee.
Fiscal Effect: Provisions of the bill are estimated to
ensure the receipt of additional property tax revenues by
local governments, $3.2 billion of which would be received
by local school districts and provide corresponding General
Fund relief. There would also be receipt of additional
funds and assets by local governments beginning in 2013-14,
relative to current law.
Support: Unknown
Opposed: Unknown
Comments: The legislation recognizes that the RDA
dissolution actions adopted as part of the 2011-12 budget
resulted in significant changes in and disruption to local
governments' redevelopment activities. In addition,
subsequent court actions and decisions have had unintended
impacts on timing of various payments and reporting
requirements and the ability of local governments to comply
with the new law. The bill also acknowledges that there
has been evidence of noncompliance with the law by some
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entities, particularly with respect to the scheduling of
enforceable obligations to be made from property tax
revenues and the transfer of former RDA assets. In view of
this situation and these events, the legislation is
intended to clarify ambiguities, fill in areas of
incompleteness, and reconcile various deadlines that have
resulted from the 2011 legislation or are due to subsequent
legal events. In addition to providing a mechanism for
helping to ensure compliance with current law, the bill
creates significant opportunities for local governments to
be repaid for past financial commitments to redevelopment,
complete various projects, and lay out future development
plans using the substantial amount of real property and
other assets acquired by the former RDA.
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