BILL ANALYSIS Ó
AB 1585
Page 1
( Without Reference to File )
ASSEMBLY THIRD READING
AB 1585 (John A. Pérez, et al.)
As Amended March 21, 2012
2/3 vote. Urgency
HOUSING 5-0 LOCAL GOVERNMENT 7-1
-----------------------------------------------------------------
|Ayes:|Torres, Atkins , |Ayes:|Smyth, Alejo, Bradford, |
| |Bradford, Cedillo, Hueso | |Campos, Davis, Gordon, |
| | | |Hueso |
|-----+--------------------------+-----+--------------------------|
| | |Nays:|Norby |
| | | | |
-----------------------------------------------------------------
APPROPRIATIONS 11-3
-----------------------------------------------------------------
|Ayes:|Fuentes, Blumenfield, | | |
| |Bradford, Charles | | |
| |Calderon, Campos, Davis, | | |
| |Gatto, Hill, Lara, | | |
| |Mitchell, Solorio | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Donnelly, Nielsen, Norby | | |
| | | | |
-----------------------------------------------------------------
SUMMARY : Makes changes to the process of dissolving
redevelopment agencies (RDAs), including requiring the funds on
deposit in the Low-and Moderate-Income Housing Fund (L&M Fund)
of the former RDA to remain with the entity that assumes the
housing functions rather than being distributed as property tax
revenue. Specifically, this bill :
1)Clarifies that the "administrative cost allowance" is 5% of
the property tax, including property tax that was allocated to
the former RDA and the successor agency for the 2011-2012
fiscal year.
AB 1585
Page 2
2)Specifies that employee costs associated with work on specific
project implementation activities, including, but not limited
to, construction inspection, project management, or actual
construction, are not subject to the administrative cost
allowance cap.
3)Specifies that costs incurred to fulfill collective bargaining
agreements for layoffs or terminations of city employees who
performed work for the former RDA are enforceable obligations
payable from property tax funds.
4)Provides that obligations to employees that are transferred
from the former RDA or successor agency to the entity assuming
the housing functions are enforceable obligations payable from
property tax funds.
5)Requires the successor agency or designated local authority to
enter into an agreement with the entity assuming the housing
functions and to reimburse it for any costs of the employee
obligations if an employee is transferred to the housing
successor entity.
6)Adds the following categories of enforceable obligations and
requires their approval by the oversight board:
a) Loans made by the former city, county, or city and
county that created the RDA to the RDA if the loan was made
within two years of the date of the creation of a project
area, if the loan was for the project area; and,
b) Loans made from the city or county to the former RDA to
make a payment to the state's Supplemental Educational
Revenue Augmentation Fund (SERAF).
1)Clarifies that repayment of SERAF loans made from the L&M Fund
to the former RDA must be deposited into the L&M Fund
maintained by the entity that assumes the housing functions.
2)Requires the oversight board to do the following in order to
deem other loan agreements from the city, county, or city and
county to the former RDA an enforceable obligation:
a) Make a finding that the loan was for legitimate
redevelopment purposes; and,
AB 1585
Page 3
b) Condition its approval on the loan being repaid to the
city, county, or city and county based on a defined
schedule over a reasonable term, at an interest rate not to
exceed the interest rate earned by funds deposited into the
Local Agency Investment Fund.
1)Provides that when listing the payment dates for enforceable
obligations on the Recognized Obligation Payment Schedule
(ROPS), the successor agency may list payments on an annual
basis.
2)Specifies that the successor agency is a public entity that is
separate from the entity or entities that authorized the
creation of the redevelopment agency, that acts by resolution,
can sue and be sued, and can have additional powers that may
be conferred upon it.
3)Clarifies that successor agencies are subject to the Ralph M.
Brown Act.
4)Allows a city, county, or city and county, or joint powers
authority that authorized the creation of the former RDA and
elected not to be the successor agency to subsequently reverse
that decision and serve as the successor agency.
5)Provides the reversal of decision does not take effect until
60 days after the notice is given to the current successor
agency and oversight board.
6)Provides that the city, county, or city and county or joint
powers authority that reverses its decision and elects to
become the successor agency cannot invalidate any actions of
the current successor agency or oversight board prior to the
transfer of responsibility.
7)Requires any amounts on deposit in the L&M Fund of a former
RDA to be transferred to the city, county, or city and county
that elected to retain the responsibility for performing the
housing functions of the former agency.
8)Requires any amounts on deposit in the L&M Fund that are
transferred to the L&M Fund of the succeeding housing entity
must be maintained in a separate account and used for the
AB 1585
Page 4
purposes defined in the Community Redevelopment Law relating
to authorized uses of the L&M Fund.
9)Requires the entity that assumes the housing functions of the
former RDA to enforce affordability covenants and other
related activities as defined in Community Redevelopment Law.
10)Requires, where there is no local housing authority that
elected to accept authority for performing the housing
functions, that any amounts on deposit in the L&M Fund be
deposited in the State Low-and Moderate Income Housing Trust
Fund (State Trust Fund), created by this measure, administered
by the Department of Housing and Community Development (HCD),
to be awarded on a competitive basis to projects within the
counties in which it was collected.
11)Requires, when awarding funds out of the State Trust Fund,
that priority must be given to eligible projects that serve
extremely low-, very low-, and low-income families and
individuals.
12)Defines "succeeding housing entity" as the entity that
assumes responsibility for retaining the housing assets and
functions previously performed by the RDA.
13)Requires the succeeding housing entity to contract to expend
at least 80% of the monies in the L&M Fund within two years of
the date of receipt of those monies.
14)Specifies that if within four years of the date of receipt of
the L&M Fund monies the succeeding housing entity has not
spent the monies, then the excess amount, minus the amount
necessarily reserved for the ongoing monitoring and
maintenance of affordable housing projects shall be
transferred to the State Trust Fund for expenditure by HCD.
15)Prohibits excess funds from being transferred to HCD if the
succeeding housing entity applies for, and receives, a time
extension waiver from HCD.
16)Specifies if the waiver is granted the funds shall remain
with the succeeding housing entity for an additional two
years.
AB 1585
Page 5
17)Requires HCD in approving a waiver to consider, among other
factors, all of the following:
a) Whether the succeeding housing entity has a site
specific project plan with local approvals, including the
issuance of building permits;
b) Whether the project has secured financing; and,
c) Evidence that some funds have been expended from the L&M
Fund.
18)Authorizes a succeeding housing entity to reapply at the end
of the two-year period for a renewal of the previously granted
waiver.
19)Authorizes a succeeding housing entity to transfer all or a
portion of the monies in the L&M Fund to another succeeding
housing entity within the same county, to be spent on
affordable housing if all of the following conditions are met:
a) The funds will be spent on projects that primarily
benefit low-income families or families that are below low
income;
b) Both succeeding housing entities involved in the
transfer adopt a resolution detailing the need for the
transfer of funds and the intended use of the funds by the
receiving jurisdiction; and,
c) The funds will be spent in compliance with the
requirements outlined in 18) through 21) above.
1)Requires the succeeding housing entity, within 45 days of the
date this measure is enacted, or 45 days from the receipt of
moneys from the L&M Fund, whichever is later, to notify HCD of
the amount of money on deposit in the L&M Fund and the
entity's plan for spending it.
2)Requires, within two years from the date of notification to
HCD, the succeeding housing entity to report to HCD the
percentage of funds that it has entered into contract to
spend.
AB 1585
Page 6
3)Requires at the end of four years the succeeding housing
entity to report to HCD if there are any remaining moneys in
the L&M Fund and to notify HCD if it will be applying for a
waiver or transferring the excess funds to HCD.
4)Requires that assets and properties of the former RDA, under
the direction of the oversight board, be disposed of in an
expeditious but orderly manner that preserves the value of the
assets.
5)Provides that the first ROPS for the period of January 1,
2012, through June 20, 2012, may, if necessary, include the
following:
a) The total amount of payments required for enforceable
obligations over the next two six-month periods; and,
b) In the case of debt obligations, the amount of the
annual debt service reserve set-asides and any other
amounts required under indenture or similar documents.
1)Clarifies that the member of the oversight board representing
special districts should represent the special district having
the largest property tax share within the redevelopment
project areas of the former RDA.
2)Provides that when appointing a member of the oversight board
from the employees of the former RDA, if the majority of the
employees were city or county employees, then the appointment
should be made from the organization that represents those
employees.
3)Provides that if there is no employee organization that
represents the employees of the former RDA, city, or county,
then the appointment should be made from among the employees
of the successor agency.
4)Provides that an employee that is appointed to the oversight
board is deemed not to have a conflict of interest, solely due
to his or her employment, in voting to approve a contract as
an enforceable obligation.
5)Requires all actions taken by an oversight board to be adopted
by resolution.
AB 1585
Page 7
6)Allows the successor agency, subject to approval of the
oversight board, to enter into a financing agreement,
including issuing bonds, to fund required payments under an
enforceable obligation that exceed the property tax revenue
available to the successor agency when the payment is due.
7)Provides that a successor agency is not permitted to create
additional enforceable obligations except when necessary to
pay the financing costs of existing enforceable obligations.
8)Allows the successor agency, subject to oversight board
approval, to temporarily increase the administrative cost
allowance to carry out the requirements of an enforceable
obligation, to cover litigation costs, or to maintain and
preserve the value of assets while in the possession of the
successor agency.
9)Requires the oversight board to direct the successor agency to
do the following:
a) Compile a complete inventory of existing real property
assets of the former RDA by project area; and,
b) Include in the inventory the general categories of real
property assets, the purpose for which the assets were
originally acquired, the original purchase price of each
asset, and the estimated current market value.
1)Requires the oversight board, prior to disposing of any
assets, to receive and review the inventory of assets prepared
by the successor agency and adopt a policy or strategy for
disposal or transfer of such assets that ensures it is done in
an expeditious but orderly manner that preserves the value of
the asset.
2)Provides that in disposing of assets and properties, the
oversight board may direct the successor agency to transfer
ownership of assets that were constructed or used for a
purpose integral to the operation of a governmental purpose,
like parking facilities, to the appropriate public
jurisdiction.
3)Requires the auditor-controller to deposit the unitary and
AB 1585
Page 8
supplemental tax increment due to the former RDA into the
Redevelopment Property Tax Trust Fund (Property Tax Trust
Fund).
4)Requires the auditor-controller, in making the first annual
distribution from the Property Tax Trust Fund, to reserve any
funds necessary to cover payments made in the second half of
the calendar year, as described in the ROPS, that are in
excess of the amount that is anticipated to be deposited in
the Property Tax Trust Fund from the May or June allocation.
5)Provides that in distributing property tax revenues associated
with the payment of a retired recognized obligation, the
auditor-controller should only distribute property tax to the
extent that it is not currently required for the payments of
other recognized obligations.
6)Requires the successor agency to cause to be completed an
audit of its financial transactions and records, annually, by
a certified accountant.
7)Clarifies that enforceable obligations of the successor agency
do not become obligations of the succeeding housing entity.
8)Deletes the requirement that the California Law Revision
Commission draft a Community Redevelopment Law clean-up bill
by January 1, 2013.
9)Includes an urgency clause.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
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
AB 1585
Page 9
to K-14 schools, absent this bill. The $1.4 billion is based
on information that RDAs reported to the State 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.
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 : In 2011, the Legislature approved and the Governor
signed two measures, AB 26 X1 (Blumenfield), Chapter 5, Statutes
of 2011-12 First Extraordinary Session and AB 27 X1
(Blumenfield), Chapter 6, Statutes of 2011-12 First
Extraordinary Session, that would together dissolve
redevelopment agencies as they existed at the time and create a
voluntary redevelopment program on a smaller scale. In
response, the California Redevelopment Association (CRA) and the
League of California Cities, along with other parties filed suit
challenging the two measures. The Supreme Court denied the
petition for peremptory writ of mandate with respect to AB 26
X1. However, the Court did grant CRA's petition with respect to
AB 27 X1. As a result, all redevelopment agencies were required
to dissolve as of February 1, 2012.
AB 1585
Page 10
When the Legislature voted on AB 26 X1 and AB 27 X1, it
envisioned that a majority of redevelopment agencies would
likely choose to opt-in to the voluntary program leaving the
state to oversee the dissolution of only a handful of agencies.
Because of the subsequent lawsuits and the Court's ruling, over
400 RDAs are now required to dissolve. The dissolution process
has raised some questions and concerns regarding the
implementation of AB 26 X1. AB 1585 (John A. Pérez, et al.) is
a response to those concerns and attempts to facilitate a smooth
wind-down of redevelopment agencies. This bill makes a variety
of technical changes that are intended to ease the process of
dissolution and provide greater direction to the successor
agencies, oversight boards, and successor housing entities that
are integral to the dissolution process. It also requires that
the L&M funds that have been deposited by former RDAs continue
to be used for affordable housing in the county in which they
were collected.
Low-and Moderate-Income Housing Funds: 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. In spending these funds, RDAs were required
to meet the housing needs as outlined in their housing element.
The extent to which RDAs spent the L&M funds varied across
redevelopment agencies. Based on 2009-10 reports made to the
State Controller's Office, RDAs reported having in excess of
$1.4 billion in their L&M Funds. The Controller's Community
Redevelopment Agencies Annual Report for the fiscal year ending
June 30, 2010, shows a statewide aggregate "unreserved
designated" balance of $967 million and an "unreserved
undesignated" balance of $391 million in agencies L&M Funds.
The State Controller's Office is in the process of auditing the
redevelopment agencies for the 2010-11 fiscal year and is
required to submit the audit to the Legislature at the end of
April.
AB 1585 makes several significant changes to the provisions in
AB 26 X1 regarding L&M funds:
1)Keeps the money on deposit in an L&M Fund with the succeeding
housing entity to be spent on activities allowed under the
housing provisions in the Community Redevelopment Law or, if
there is no succeeding housing entity, requires the funds to
be transferred to HCD.
AB 1585
Page 11
2)Requires the succeeding housing entity to expend or encumber
80% of the funds within four years but gives it the option to
petition HCD for more time to spend the funds.
3)Designates the types of affordable housing projects that HCD
can fund from monies that are transferred to the department
from jurisdictions that decide not to keep the housing
functions of the former RDA.
4)Authorizes the transfer of the L&M Funds between jurisdictions
within the county if certain conditions are met.
AB 26 X1 specifies that, except for loan agreements made within
the first two years of the life of the agency, or loans that
relate to issued securities, it does not recognize other inter
agency loans to be enforceable obligations. Instead, it
effectively treats them as contributions of funds. AB 1585 adds
the following to what can be considered an enforceable
obligation: 1) loan agreements between the former RDA and the
city, county, or city and county that created it, made within
two years of the date of the creation of a project area, if the
loan was for the project area; 2) loans made from the city or
county to the former RDA to make a payment to SERAF; and, 3)
other loans subject to oversight board finding.
AB 26 X1 provides that the liability of the successor agency
only extends as far as the money available from tax increment
and former assets of the agency will fund. AB 1585 further
clarifies that the successor agency is a public entity that is
separate from the entity or entities that authorized the
creation of the redevelopment agency, that acts by resolution,
can sue and be sued, and can have additional powers that may be
conferred upon it.
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
RDAs. This bill is currently in the Assembly Rules Committee.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085
AB 1585
Page 12
FN: 0003173