BILL ANALYSIS                                                                                                                                                                                                    



                                                                      



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          |SENATE RULES COMMITTEE            |                    SB 77|
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                              UNFINISHED BUSINESS


          Bill No:  SB 77
          Author:   Senate Budget and Fiscal Review Committee
          Amended:  3/15/11
          Vote:     27 - Urgency

           
          PRIOR SENATE VOTES NOT RELEVANT

           ASSEMBLY FLOOR  :  Not available


           SUBJECT  :    Budget Act of 2011:  Redevelopment agencies

           SOURCE  :     Author


           DIGEST  :    This bill eliminates redevelopment agencies 
          (RDAs) and specifies a process for the orderly wind-down of 
          RDA activities, including completion of some mid-phase 
          projects.  This bill directs the property tax otherwise 
          available to the RDAs to instead: continue "pass-through 
          payments" to schools and other local governments; to 
          provide $1.7 billion in grant funds to the state for Trial 
          Court and Medi-Cal costs (in 2011-12 only); to fund 
          outstanding RDA-related debt, costs for enforceable 
          obligations, and successor agency administration costs; and 
          to provide new education and public safety funding to 
          support core local services (about $200 million in 2011-12 
          and about $1.9 billion annually thereafter). 

           Assembly Amendments  delete the prior version of the bill 
          which expressed the intent of the Legislature to enact 
          statutory changes relating to the 2011 Budget Act and 
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          inserts language concerning redevelopment agencies.

           ANALYSIS  :    Specifics of the bill:

           Current Redevelopment Agencies  

            1.  Eliminates redevelopment agencies as of July 1, 2011. 
               As part of the process of reducing RDAs activity prior 
              to their elimination, effective the date of adoption of 
              this legislation, the bill, among other restrictions, 
              prohibits RDAs from:


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


                  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 

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                    public or private source that is conditioned on 
                    the issuance of debt;


                  i.        adopting or amending redevelopment plans 
                    or making new finding with respect to blight;


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


                  aa.       other actions that would result in 
                    ongoing commitments.


            2.  Requires RDAs to continue to make all scheduled 
              payments for enforceable obligations, perform 
              obligations established pursuant to enforceable 
              obligations, set aside required reserves, preserve 
              assets, cooperate with Successor Agencies, and to take 
              all measures to avoid triggering a default under an 
              enforceable obligation.  Also requires the RDAs to 
              prepare a preliminary inventory of enforceable 
              obligation payments and provide this to the county 
              auditor-controller within 60 days of the effective date 
              of this bill, which inventory would be reviewed by the 
              State Controller's Office 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.  Extends the time period allowed for challenges to the 
              validity of RDAs' bonds or other obligations or to 
              agency and legislative 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.


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            4.  Requires the county auditor-controller to complete a 
              financial audit of each RDA in the county by November 
              1, 2011, 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 November 15, 2011. 



           Successor Agencies


             5.  Establishes Successor Agencies to the RDAs effective 
              July 1, 2011, that would be, except in certain 
              situations, such as those involving an RDA based on a 
              joint powers authority, 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.


            6.  Requires 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.  Pursuant to this 
              requirement, Successor Agencies would be responsible 
              for preparing on a semi-annual basis a Recognized 
              Obligation Payment Schedule that would set forth a 
              schedule of obligated payments including the date, 
              amount, and source of funds for each payment. 


            7.  Requires the 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's Office and the Department of Finance.  The 
              first Recognized Obligation Payment Schedule would be 
              submitted by December 15, 2011.  The Recognized 

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              Obligation Payment Schedule would be established 
              pursuant to the identification of enforceable 
              obligations, which are obligations entered into by the 
              RDA and are legally enforceable.  These enforceable 
              obligations would include:


                  a.        bonds, including debt Service, reserves, 
                    or other required payments;


                  b.        loans borrowed by the agency for a lawful 
                    purpose;


                  c.        payments required by the federal 
                    government;


                  d.        pre-existing obligations to the state;


                  e.        obligations imposed by state law;


                  f.        legally enforceable payments to RDA 
                    employees, including pension obligations;


                  g.        judgments and Settlements entered into by 
                    a court or arbitration, retaining appeal rights;


                  h.        legally binding contracts that do not 
                    violate the debt limit or public policy;


                  i.        contracts necessary for administration of 
                    the RDA, such as for office space, equipment and 
                    supplies, to the extent permitted.


              Enforceable obligation would not include any 
              agreements, contracts, or arrangements between the 

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              city, county, or city and county that created the RDA 
              and the former RDA.


            8.  Provides that all assets, properties, contracts, 
              books and records, buildings and equipment of the 
              former RDA be conveyed to the Successor Agencies on 
              July 1, 2011.  The Successor Agencies would dispose of 
              RDA assets as directed by the Oversight Board with the 
              proceeds transferred to the county auditor-controller 
              for distribution to taxing Agencies.  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 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.  
              Governmental facilities, such as roads, school 
              buildings, parks, and fire stations may be transferred 
              to the appropriate public jurisdiction.


            9.  Provides that the Successor Agency could:


                  a.        Complete approved development projects, 
                    constituting projects where construction, site 
                    remediation, environmental assessment, or 
                    property acquisition is required pursuant to an 
                    enforceable obligation between the RDA and 
                    parties other than the entity that created the 
                    RDA and either (i) substantial performance under 
                    the agreement has taken place prior to July 1, 
                    2011 or (ii) the Oversight Board, and two of the 
                    three following state officials - the Director of 
                    Finance, the State Treasurer and the State 
                    Controller, determine that it would be beneficial 
                    for the taxing agencies or the communities to 
                    continue the project even if there had not been 
                    substantial performance, based on benefits to the 
                    taxing agencies, special or unique circumstances, 
                    or for the completion of multi-phase projects.

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                  b.        Continue retained development projects, 
                    constituting other projects not involving or 
                    related to an enforceable obligation.  These 
                    would consist of projects planned by the former 
                    RDA prior to dissolution that the city, county, 
                    or city and county, as applicable, wishes to 
                    continue by using its own funds.  Such projects 
                    would in general be projects that the Oversight 
                    Board would otherwise direct the Successor Agency 
                    to terminate because the project does not qualify 
                    as an approved development project.


            1.  Allows the Successor Agency, to the extent necessary, 
              to fulfill an enforceable obligation of a former RDA to 
              provide financing for an approved development project, 
              to pledge all or part of its property tax revenue or 
              enter into an agreement with other taxing Agencies in 
              the RDA territory for the repayment of financing 
              provided by a state conduit issuer.  These actions 
              would be subject to prior written approval by the 
              Oversight Board and two of the three following state 
              officials - the Director of Finance, the State 
              Treasurer, and the State Controller.


            2.  Authorizes the Successor Agency 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 the retained 
              development projects, which must be funded from the 
              Successor Agency's own budget.  The administrative 
              budget for the Successor Agency would be funded from a 
              continued tax increment equal to the greater of 
              $250,000 or 5 percent of the property tax allocated to 
              the Successor Agency for the 2011-12 fiscal year.  This 
              would decline to 3 percent for each fiscal year 
              thereafter.  The Successor Agency can employ staff and 
              officers of the RDA provided the total compensation 
              does not exceed the amount paid in 2010 unless approved 
              by the Oversight Board.  

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           Oversight Boards


             3.  Establishes 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 schools; (v) one member appointed by 
              the Chancellor of the California Community Colleges; 
              (vi) one member appointed by the county board of 
              supervisors to represent the public; (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.


            4.  Requires the Oversight Board to approve the following 
              actions of the Successor Agency: 


                  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;


                  d.        merger of project areas,



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


                  f.        approval to have projects deemed to be 
                    retained development projects;


                  g.        establishment of the Recognized 
                    Obligation Payment Schedule.


                  h.        a request to hold portions of moneys in 
                    the housing fund in order to pay recognized 
                    obligations related to housing;


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


            5.  Requires that the Oversight Board direct the 
              Successor Agencies to:


                  a.        dispose of all assets and properties 
                    except those deemed to be part of approved 
                    development plan 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;


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                  d.        negotiate compensation agreements with 
                    taxing agencies for retained development 
                    projects;


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


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


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


            1.  Establishes that all Oversight Board actions are 
              subject to review 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


             2.  Creates the Public Health and Safety Fund, the 
              Redevelopment Property Tax Retirement Fund, and the 
              Redevelopment Property Tax Trust Fund.  Property tax 
              revenues associated with each former RDA in each county 
              would 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 

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              provided to the Department of Finance semi-annually.


            3.  Requires 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, the 
              taxing Agencies that receive pass-through payments, and 
              the beneficiaries of the Public Health and Safety Fund.


            4.  Requires 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.          During Fiscal Year 2011-12 only, to 
                      the Public Health and Safety Fund an amount not 
                      to exceed $1.7 billion dollars on an aggregate 
                      basis statewide.  A proportional funding amount 
                      is required for each Successor Agency into the 
                      Public Health and Safety Fund in order to 
                      receive approval for new debt financing or 
                      continuation of an Approved Development 
                      Project, where there is not substantial 
                      performance;


                    c.          Successor Agency for payments listed 
                      in the Recognized Obligation Payment Schedule;


                    d.          Successor Agency approved 
                      administrative costs required to be paid from 

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                      former tax increment revenue, with any balance 
                      payable to cities, the county, schools, 
                      community college districts, and non-enterprise 
                      special districts. The State Director of 
                      Finance would determine the amount to be 
                      allocated to the Public Health and Safety Fund 
                      by each agency after needs for enforceable 
                      obligations are taken into account.


           Other Matters


             1.  Allows for the continuation of housing activities by 
              the Successor Agency, 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 the 
              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.  Authorizes a city or a county, or a city and a 
              county, that formerly had an RDA, to borrow available 
              funds up to 2 percent of the total tax increment 
              received by the former RDA, in order to avert 
              bankruptcy, mitigate the impacts of potential reduction 
              in core services, or to meet an urgent need to fund a 
              current project.  Such borrowing may occur upon 
              application to the county auditor-controller and 
              subject to terms mutually agreed upon.


            3.  Expresses the intent of the Legislature to provide 
              local governments with the means and tools to further 
              economic development and employment opportunities in 
              economically distressed areas.  In particular, efforts 
              would focus on areas with significant constraints on 
              development, such as brownfields and former military 
              bases, and endeavor to foster green technology, 
                                                            alternative technology, and low and moderate income 
              housing.

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            4.  Provides that 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 prior to that date. The Successor 
              Agency will become the employer of all employees of the 
              RDA upon its dissolution and will assume all 
              obligations under any memoranda of understanding.


            5.  Specifies 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 
              Prop 98 minimum funding guarantee.  These amounts (as 
              well as amounts going to other taxing agencies) would 
              increase over time as enforceable obligations are paid 
              down.


           FISCAL EFFECT  :    Appropriation:  Yes   Fiscal Com.:  Yes   
          Local:  Yes



          DLW:nl  3/15/11   Senate Floor Analyses 

                       SUPPORT/OPPOSITION:  NONE RECEIVED

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