BILL ANALYSIS                                                                                                                                                                                                    



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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



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