BILL ANALYSIS Ó
SB 77
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SENATE THIRD READING
SB 77 (Budget and Fiscal Review Committee)
As Amended March 15, 2011
2/3 vote. Appropriation
SENATE VOTE :Vote not relevant
SUMMARY : Makes various changes to state laws to implement
provisions relating to redevelopment in the 2011-12 Budget
agreement. Specifically, this bill :
Addresses the elimination of redevelopment agencies (RDAs);
establishment and duties Successor Agencies; establishment and
duties of Oversight Boards; use of property tax revenues that would
otherwise have gone to RDAs and other matters described below.
Redevelopment Agencies:
RDAs would no longer exist under the provisions of the bill as of
July 1, 2011. In addition, as of the effective date of the adoption
of the legislation, activities of RDAs would be curtailed and an
orderly "wind-down" process initiated. Specifically:
1)As part of the process of reducing RDAs activity prior to their
elimination, the bill would, among other restrictions, prohibit an
RDA from:
a) issuing new or expanded debt of any type (except emergency
refunding bonds, under certain conditions);
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;
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h) accepting financial assistance from any public or private
source that is conditioned on the issuance of debt;
i) adopting or amending redevelopment plans or making new
findings with respect to blight;
j) entering into new partnerships, imposing new assessments, or
increasing staff or compensation; and,
aa) other actions that would result in ongoing commitments.
2)Requires RDAs to continue to make all scheduled payments for
enforceable obligations (generally obligations with the force of
law, defined further below), perform obligations established
pursuant to enforceable obligations, set aside required reserves,
preserve assets, cooperate with Successor Agencies (agencies
established to take over certain RDA duties, defined further
below), and to take all measures to avoid triggering a default
under an enforceable obligation. Would also require the RDAs to
prepare a preliminary enforceable obligation payments schedule,
containing all payments obligated to be made through December
2011, and provide this to the county auditor-controller within 60
days of the effective date of this bill. This schedule would be
reviewed by the county auditor-controller, the State Controller
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 specified special districts.
3)Extends the time period allowed for challenges to the validity of
an RDA's 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.
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.
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Successor Agencies:
Successor Agencies would be established under the bill as of July 1,
2011, and would typically be the city, county, or city and county
that established the RDA. Each Successor Agency would be
responsible for maintaining payments on enforceable obligations and
could, under certain and specific circumstances, continue or
complete certain projects. Specifically:
1)Establishes Successor Agencies to the RDAs effective July 1, 2011,
that would, except in certain situations, such as those involving
an RDA based on a joint powers authority, be 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.
2)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. Successor
Agencies would be responsible for preparing on a semi-annual basis
the Recognized Obligation Payment Schedule that would set forth a
schedule of obligated payments including the date, amount, and
source of funds for each payment.
3)Requires the Successor Agencies' 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 and the Department of
Finance. The first Recognized Obligation Payment Schedule would be
submitted by December 15, 2011. The Recognized Obligation Payment
Schedule would be established pursuant to the identification of
enforceable obligations, which are obligations that were entered
into by the RDA and are legally enforceable.
4)Defines enforceable obligations for Successor Agencies to include,
but not limited to:
a) bonds, including debt service, reserves, or other required
payments;
b) loans borrowed by the agency for a lawful purpose including
loans from the Low and Moderate Income Housing Fund;
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c) payments required by the federal government;
d) pre-existing obligations to the state or obligations imposed
by state law;
e) legally enforceable payments to agencies' employees,
including pension obligations and other obligations conferred
through a collective bargaining agreement;
f) judgments and settlements entered into by a court or
arbitration, retaining appeal rights;
g) legally binding contracts that do not violate the debt limit
or public policy; and,
h) contracts necessary for administration of the agency, such
as for office space, equipment and supplies, to the extent
permitted.
Enforceable obligations would not include any agreements,
contracts, or arrangements between the city, county, or city and
county that created the RDA and the former RDA.
5)Requires Successor Agencies to take control of all assets,
properties, contracts, books and records, buildings and equipment
of the RDAs on July 1, 2011. Successor Agencies are to dispose of
RDAs' assets as directed by the Oversight Board with the proceeds
transferred to the county auditor-controller for distribution to
taxing agencies within the county. Governmental facilities, such
as roads, school buildings, and fire or police stations would be
conveyed to the appropriate public jurisdiction. 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.
6)Authorizes Successor Agencies to:
a) Complete approved development projects , constituting
projects where construction, site remediation, environmental
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assessment, or property acquisition is required pursuant to an
enforceable obligation between the former RDA and parties other
than the entity that created the RDA and either 1) substantial
performance under the agreement has taken place prior to July
1, 2011, or 2) the Oversight Board, and two of three of i)
Department of Finance; ii) State Treasurer; iii) State
Controller, determine that it would be beneficial 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 multiphase projects.
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 its dissolution that the Successor Agency (city,
county or city and county) wishes to continue by using its own
funds. Such projects would, in general, constitute projects
that the Oversight Board would otherwise direct the Successor
Agency to terminate because the project does not qualify as an
approved development project.
7)Allows Successor Agencies, to the extent necessary to fulfill an
enforceable obligation of a former RDA to provide financing for an
approved development project, to pledge 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 that is authorized to provide such outside
financing. These actions would be subject to prior written
approval by the Oversight Board, and two of three of i) Department
of Finance; ii) State Treasurer; iii) State Controller.
8)Authorizes the Successor Agencies 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 a
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% of the property tax
allocated to the Successor Agency for the 2011-12 fiscal year.
This would decline to 3% 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:
Oversight Boards established under the bill would be required to
approve various actions by the Successor Agencies, including the
Recognized Obligation Payment Schedule, various approved or retained
development projects, and any pledge of property taxes.
Specifically:
1)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 education; v) one member appointed by the
Chancellor of the California Community Colleges; vi) one member of
the public appointed by the county board of supervisors; 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.
2)Requires Oversight Boards to approve the following actions of the
Successor Agencies:
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;
e) acceptance of federal or state grants that are conditioned
upon the provision of matching funds in an amount greater than
5%;
f) approval to have projects deemed to be approved or retained
development projects;
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g) establishment of the Recognized Obligation Payment Schedule;
h) requests to hold portions of moneys in the housing fund in
order to pay recognized obligations related to housing; and,
i) requests to pledge or enter into an agreement for the pledge
of property tax revenues to provide financing for an approved
development project.
3)Requires that the Oversight Boards 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;
d) negotiate compensation agreements with taxing agencies for
retained development projects;
e) terminate any agreement between the former RDA and any
public entity in the county which obligates the former 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 former RDA and private parties should be dissolved
or renegotiated based on taxing entities best interests; and,
g) submit repayment schedules for repayment of amounts borrowed
from the housing fund.
4)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
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either approve the action or return it to the Oversight Board for
reconsideration.
Property Tax Revenues:
Property Tax Revenues that went to former RDAs would be used for the
following purposes: continue pass-through payments to schools and
local governments; provide $1.7 billion in resources for program
realignment in 2011-12; fund outstanding former RDA debt and other
enforceable obligations; provide for Successor Agencies'
administrative costs; and provide funding for education and local
governments of about $200 million in the budget year and $1.9
billion annually thereafter. Specifically:
1)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 will 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 provided to the Department
of Finance semi-annually.
2)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.
3)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. Proportional funding of deposits to
the Public Health and Safety Fund from each Successor Agency is
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required for i) continuation of an approved development project
where there has not been substantial performance or ii) new
debt financing;
c) Successor Agencies for payments listed in the Recognized
Obligation Payment Schedule;
d) Successor Agencies approved administrative costs required to
be paid from former RDA tax increment revenue; and,
e) Cities, the county, schools, community college districts,
and non-enterprise special districts.
Other Matters:
Other matters addressed in this bill include legislative intent
regarding future local economic development activities, hardship
borrowing by Successor Agencies, consideration of existing labor
contracts, continuation of housing activities, and treatment of
additional funding for K-12 education. Specifically:
1)Allows for the continuation of housing activities by Successor
Agencies, 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 a
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% of the total tax
increment received by the former RDA, in order to avert
bankruptcy, mitigate the impacts of potential reduction in core
services (such as police and fire), or to meet an urgent need to
fund a current project. Such borrowing may occur upon application
to the county auditor-controller and is subject to various 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
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former military bases, and endeavor to foster green technology,
alternative technology, and low and moderate income housing.
4)Provides that the terms of existing memoranda of understanding
with employee organizations representing former RDA employees
would remain in force until June 30, 2011, unless a new agreement
is reached. The Successor Agency will become the employer of all
employees of the former RDA upon its dissolution and will assume
all obligations under any existing memoranda of understanding then
in force.
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 Proposition 98 minimum funding guarantee. These
amounts (as well as amounts going to other taxing agencies) would
increase over time as enforceable obligations expire. Expands the
use of pass-through revenues that can be used for educational
facilities to also include expenditures for land acquisition,
facility construction, remodeling, maintenance or deferred
maintenance.
Urgency Clause:
1)Specifies that this bill will take effect immediately upon
enactment.
FISCAL EFFECT : This legislation will result in $1.7 billion in
additional funding as part of the 2011-12 Budget.
Analysis Prepared by : Mark Ibele / BUDGET / (916) 319-2099
FN: 0000063