BILL ANALYSIS Ó SB 77 Page 1 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; SB 77 Page 2 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. SB 77 Page 3 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; SB 77 Page 4 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 SB 77 Page 5 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. SB 77 Page 6 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; SB 77 Page 7 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 SB 77 Page 8 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 SB 77 Page 9 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 SB 77 Page 10 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