BILL ANALYSIS                                                                                                                                                                                                    






           SENATE TRANSPORTATION & HOUSING COMMITTEE       BILL NO: sb 654
          SENATOR MARK DESAULNIER, CHAIRMAN              AUTHOR:  steinberg
                                                         VERSION: 1/4/12
          Analysis by:  Mark Stivers                     FISCAL:  YES
          Hearing date:  January 10, 2012



          SUBJECT:

          Redevelopment housing funds

          DESCRIPTION:

          This bill allows the host city or county of a dissolving 
          redevelopment agency to retain the funds on deposit in the 
          agency's housing fund and expands the types of agency loans from 
          the host city or county that are considered enforceable 
          obligations.

          ANALYSIS:

          Historically, the Community Redevelopment Law has allowed a 
          local government to establish a redevelopment area and capture 
          all of the increase in property taxes that is generated within 
          the area (referred to as "tax increment") over a period of 
          decades.  The law requires redevelopment agencies to deposit 20 
          percent of tax increment into a Low and Moderate Income Housing 
          Fund (L&M fund) to be used to increase, improve, and preserve 
          the community's supply of low and moderate income housing 
          available at an affordable housing cost.  

          In 2011, the Legislature enacted two bills, AB 26X (Blumenfield) 
          and AB 27X (Blumenfield), Chapters 5 and 6, respectively, of the 
          First Extraordinary Session.  AB 26X eliminated redevelopment 
          agencies and established procedures for winding down the 
          agencies, paying off enforceable obligations, and disposing of 
          agency assets.  In defining "enforceable obligations," AB 26X 
          included a loan agreement between an agency and its host city or 
          county that was executed within two years of the date of 
          creation of the redevelopment agency.  AB 26X also included 
          provisions allowing the host city or county of a dissolving 
          redevelopment agency to retain the housing assets and functions 
          previously performed by the agency, except for funds on deposit 
          in the agency's L&M fund.  If the host city or county chooses 
          not to retain these assets and functions, a local housing 




          SB 654 (STEINBERG)                                     Page 2

                                                                       


          authority or the state's Department of Housing and Community 
          Development (HCD) may assume them. 

          AB 27X allowed redevelopment agencies to avoid elimination if 
          they made payments to schools in the current budget year and in 
          future years.  In December, the California Supreme Court in 
          California Redevelopment Association v. Matosantos upheld AB 26X 
          and overturned AB 27X.  As a result, all of the state's roughly 
          400 redevelopment agencies will dissolve on February 1, 2012.

           This bill  makes the following changes to AB 26X, the 
          redevelopment agency elimination bill:

           Allows a host city or county of a dissolving agency to retain 
            the funds on deposit in the agency's L&M fund and requires the 
            city or county to expend those funds in compliance with the 
            housing provisions of the Community Redevelopment Law.  If the 
            city or county chooses not to retain these funds, the local 
            housing authority or HCD may do so.
           Requires, rather than permits, an entity assuming the housing 
            functions of an agency to enforce affordability covenants on 
            affordable housing properties.  
           Expands the definition of an "enforceable obligation" to 
            include two additional types of loan agreements between an 
            agency and its host city or county: 1) a loan that was 
            executed within two years of the date of creation of a project 
            area, if the loan is specific to that project area; and 2) a 
            loan to fund the agency's 2009-10 SERAF payment to schools.  
          
          COMMENTS:

           1.Purpose of the bill  .  According to the author, this bill is 
            intended to preserve for affordable housing the roughly $2 
            billion in outstanding balances in the L&M funds maintained by 
            redevelopment agencies throughout the state.  In the absence 
            of this legislation, those funds will be liquidated and 
            distributed as property tax revenues to local agencies, as 
            prescribed in AB 26X.  Late last year, the Legislature 
            supported these same changes in SB 8X (Budget and Fiscal 
            Review), but Governor Brown vetoed that bill, stating that it 
            was "premature" in light of the then-pending litigation.

           2.Undoing a last minute change  .  The Controller's Community 
            Redevelopment Agencies Annual Report for the fiscal year ended 
            June 30, 2010 shows a statewide aggregate "unreserved 
            designated" balance of $967 million and an "unreserved 




          SB 654 (STEINBERG)                                     Page 3

                                                                       


            undesignated" balance of $391 million in agency L&M funds.  
            The language of Governor Brown's initial proposal to eliminate 
            redevelopment agencies would have allowed host cities and 
            counties to retain the L&M fund balances of a dissolving 
            agency.  The bill that the Legislature ultimately enacted, 
            however, reversed this authority.  At the time, staff stated 
            that the change was made out of a concern that allowing 
            retention of L&M fund balances potentially could be viewed as 
            a reallocation of property tax and thus trigger a 2/3 vote 
            requirement for all of AB 26X.  Legislative Counsel has since 
            settled on the view that L&M funds are assets of the 
            redevelopment agencies under Article XVI, Section 16 of the 
            State Constitution and not property taxes under Section 1 of 
            Article XIII A.  This view is reflected in the majority vote 
            key for this bill.  This bill restores the governor's original 
            proposal to allow cities and counties to keep L&M fund 
            balances and continue to use them to develop affordable 
            housing.

           3.Start-up loans  .  Because it often takes years after the 
            adoption of a project area for a redevelopment agency to begin 
            receiving sufficient tax increment to issue bonds, most host 
            cities and counties jump-start work in project areas by making 
            loans to the agency to be repaid with future tax increment.  
            AB 26X only recognizes as "enforceable obligations" loans made 
            within two years of the creation of the agency, which 
            practically only affects an agency's first project area.  Many 
            agencies have multiple project areas.  This bill adds to the 
            definition of "enforceable obligations" loans made within the 
            first two years of the adoption of a project area, provided 
            that the loan is specific to that project area.  The bill does 
            not recognize loans made at a later date, in which case the 
            host city or county may not receive repayment of those later 
            loans.  

           4.Urgency needed .  Given that, under the recent Supreme Court 
            decision, redevelopment agencies will be winding down and 
            transferring assets during 2012, this bill needs an urgency 
            clause to ensure that a host city or county may elect to 
            retain L&M fund balances before the balances are 
            redistributed.
          
          POSITIONS:  (Communicated to the committee before noon on 
          Wednesday,                                             January 
          4, 2012)





          SB 654 (STEINBERG)                                     Page 4

                                                                       


               SUPPORT:  None received.

          
               OPPOSED:  None received.