BILL ANALYSIS Ó
AB 1585
Page 1
Date of Hearing: March 22, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 1585 (John A. Pérez) - As Amended: March 21, 2012
Policy Committee: Housing and
Community Development Vote: 5-0
Local Government 7-1
Urgency: Yes State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill changes the process for managing and using the assets
of redevelopment agencies (RDAs), which were eliminated February
1, 2012. Specifically, this bill:
1)Retains the funds in a low and moderate income housing fund
for use by the successor housing agency or, if there is no
entity, requires the funds to be transferred to the State
Department of Housing and Community Development (HCD). The
funds can only be spent on specified affordable housing
functions. Successor agencies are entities that volunteer to
take over some or all of the housing responsibilities of the
dissolved RDAs.
2)Requires the successor housing entity to contract to expend
80% of the funds within two years and spend these funds within
four years but gives the entity the option to petition HCD for
more time to spend the funds. Otherwise, after four years,
the funds and responsibilities are transferred to HCD for use
on low-income housing programs within the same county, as
specified.
3)Grants oversight boards, created to oversee the process of
winding down the business of the RDAs, more flexibility to
allow local governments to retain RDA assets that serve a
governmental purpose, such as police stations and parks, and
to approve the repayment, subject to an interest rate cap, of
legitimate loans that cities or counties made to their RDAs.
4)Require inventories of RDA properties and adoption of a policy
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and orderly process for disposal to preserve the value of the
properties.
5)Clarify that bonds can be issued if necessary to finance
required payments of enforceable obligations, which are the
legitimate debts and commitments made by RDAs.
6)States specifically those employee obligations are enforceable
obligations whether employees performing RDA functions were
employed by the former RDA or by the city or county that
created the RDA and that those obligations also apply with
respect to employees transferred to the entity assuming the
housing responsibilities of the former RDA.
7)Enacts a narrow conflict-of-interest exemption to enable the
designated labor representative to participate on oversight
boards.
8)Grants oversight boards flexibility to approve temporary
increases in successor agency administrative cost caps if
necessary, and clarify that the cap does not apply to work on
individual projects.
FISCAL EFFECT
1)In the absence of this bill, approximately $1.4 billion would
be allocated to other units of local government according to
existing law on the distribution of local property tax. To
the extent this bill prevents these revenues from flowing to
school districts, there would be a corresponding cost to the
General Fund as the property tax would otherwise offset
General Fund obligations to schools, pursuant to the
Proposition 98 minimum funding guarantee. The actual impact
to the General Fund is unknown because it will depend on the
number of school districts that are basic aid and the amount
of unreserved housing funds that would otherwise be allocated
to K-14 schools, absent this bill. The $1.4 billion is based
on information that RDAs reported to the Controller for the
fiscal year 2009-2010 and that number counts assets which
would have to be sold and are valued at the actual cost of
acquisition, not market value. However, using the reported
$1.4 billion and assuming approximately 50% of local property
tax revenues are allocated to schools, this bill would result
in a one-time loss to the General fund of as much as $700
million.
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2)The Governor's 2012-2013 budget does not assume that these
funds would flow to schools, so enactment of this legislation
would not result in a widening of the estimated budget
deficit. However, enactment would prevent the state from
gaining additional budget savings from property tax payments
to schools.
3)This bill changes the definitions of allowable costs for
administrative purposes and of enforceable obligations, which
are commitments that RDAs legitimately made prior to their
elimination. Because of these amendments, there are likely to
be greater local costs associated with the affairs of the
dissolved redevelopment agencies, costs that can be reimbursed
or paid for out of assets or funds that would otherwise be
redistributed to other local agencies, including schools.
These costs are unknown and of significantly smaller magnitude
than the retained L&M housing funds, but could reach millions
of dollars.
COMMENTS
1)Rationale. According to the author, AB 1585 retains existing
RDA housing funds for affordable housing and includes
provisions that make the process of redevelopment agency (RDA)
dissolution and the winding up of their affairs more orderly,
flexible and responsible, The author notes that the
governor's original proposal to eliminate redevelopment
agencies would have allowed local jurisdictions to keep the
L&M funds was not included in the two-bill redevelopment
budget legislation, which contemplated that redevelopment
agencies would continue, retain their housing funds and
continue to set-aside additional L&M housing funds annually
after 2011-12.
The author states that this bill discourages communities from
simply sitting on affordable housing funds as the bill
requires that money not obligated after four years will be
transferred to the Department of Housing and Community
Development (HCD) to increase affordable housing within that
community's county-with priority to housing for lower-income
groups. However, to provide some flexibility HCD may grant
2-year extensions.
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The author also points out the Legislature's expectations in
enacting ABX1 26 last year was that few, if any, redevelopment
agencies would be dissolved, instead, they would continue
under the voluntary program created by ABX1 27. However,
litigation led to a California Supreme Court decision, in
California Redevelopment Association v. Matosantos, upholding
ABX1 26 but invalidating ABX1 27. The court ordered all
redevelopment agencies to dissolve as of February 1, 2012.
The author concludes, therefore that implementation of ABX1 26
is an urgent issue that affects hundreds of local governments.
2)Background. ABX1 26 would have dissolved RDAs as of October
1, 2011. Although the date was eventually delayed as a result
of the Supreme Court decision, the other provisions of the
legislation went into in effect. ABX1 26 established
procedures for winding down the business of redevelopment.
Successor agencies were established to wind down RDA affairs.
Successor agencies are required 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. Another important element of ABX1 26 is the
requirement that unencumbered RDA funds be conveyed to the
county auditor-controller for distribution to the taxing
entities in the county, including cities, counties, school
districts, and special districts. The legislation required
RDAs to identify the enforceable obligations, make all
scheduled payments to meet them, perform obligations
established necessary for or established by the enforceable
obligations, set aside required reserves, preserve assets,
cooperate with successor agencies and take all measures to
avoid triggering a default under an enforceable obligation
3)L&M . RDAs were required to set aside 20% of the tax increment
collected in a project area to fund the creation, preservation
or rehabilitation of affordable housing. RDAs were required
to spend these funds to meet the housing needs as outlined in
their housing element. RDAs approached their responsibilities
with varying degrees of vigor. RDAs reported reserves in
excess of $1.4 billion in their L&M funds, as reported in the
Controller's Community Redevelopment Agencies Annual Report
for the fiscal year ending June 30, 2010.
4)Support. Supporters, including the CA Housing Consortium,
argue that AB 1585 would ensure that the L&M Funds that have
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been deposited by former RDAs continue to be used for their
originally intended purpose, affordable housing. They also
argue that to strengthen that purpose, the bill requires that
80% of the funds must be spent within two years, which would
allow the 10,000-19,000 affordable apartments and
single-family homes at various stages of development to be
completed, thereby creating a significant number of jobs in
those communities. The League of California Cities states
that this bill will provide improved clarity and direction for
the bonding community and local agencies grappling with the
massive undertaking of unwinding decades of redevelopment
activity.
5)Opposition. The County of Santa Clara Board of Supervisors
argues "this measure undermines the structure of redevelopment
reforms contained in the enacted Fiscal Year Budget. And
while it seeks to clarify existing law, it would likely result
in greater confusion and delay in the implementation of the
orderly wind-down of redevelopment agencies throughout
California. While we support certain technical provisions of
the bill intended to ensure that existing Affordable Housing
Funds are transferred to appropriate housing agencies, we can
only do so in a bill that does not fundamentally alter the
intended winding-down of redevelopment agencies."
6)Related Legislation. SB 654 (Steinberg) would revise the
definition of enforceable obligation to include amounts on
deposit in the Low-and Moderate-Income Housing Fund of former
redevelopment agencies. This bill is currently in the
Assembly Rules Committee.
7)Previous legislation.
a) ABX1 26 (Blumenfield), Chapter 5, Statutes of 2011,
provides for the dissolution of RDAs.
b) ABX1 27 (Blumenfield), Chapter 6, Statutes of 2011,
established a voluntary alternative redevelopment program
under which RDAs could continue to operate if their city or
county opted to make voluntary annual payments benefiting
schools.
c) SB 8X (Committee on Budget and Fiscal Review), a 2011-12
budget trailer bill, would have shifted the L&M housing
funds to the successor housing entity. The bill was vetoed
by Governor Brown, noting that the Supreme Court had not
yet ruled on California Redevelopment Association v.
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Matosantos.
d) SB 77 (Committee on Budget and Fiscal Review) contained
the Governor's original proposal to eliminate redevelopment
agencies. SB 77 is on the Assembly inactive file.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081