BILL ANALYSIS �
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: ab 423
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: torres
VERSION: 8/21/13
Analysis by: Mark Stivers FISCAL: yes
Hearing date: August 27, 2013 URGENCY: YES
SUBJECT:
Redevelopment: enforceable obligations
DESCRIPTION:
This bill allows the City of Ontario, as the successor agency to
the city's former redevelopment agency, to enter into a new
enforceable obligation to complete an affordable housing
development as the final phase of a redevelopment project.
ANALYSIS:
Historically, the Community Redevelopment Law allowed a local
government to establish a redevelopment area and capture all of
the increase in property taxes generated within the area
(referred to as "tax increment") over a period of decades. The
law required 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. AB 27X allowed redevelopment agencies to avoid
elimination if they made specified payments to schools. In
December 2011, 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 dissolved on February 1, 2012, and local
jurisdictions are in the process of implementing AB 26X's
provisions to distribute former redevelopment assets and pay its
remaining obligations.
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AB 26X established successor agencies to manage the process of
unwinding former redevelopment agencies' non-housing affairs and
housing successors to continue former redevelopment agencies'
housing activities. In most cases, the city or county that
created each former redevelopment agency now serves as that
agency's successor agency and housing successor. Each successor
agency has an oversight board that is responsible for
supervising it and approving its actions. The Department of
Finance (DOF) can review and request reconsideration of an
oversight board's decisions.
AB 26X allows successor agencies to receive property taxes that
would historically have gone to the dissolved redevelopment
agency in order to pay "enforceable obligations." In general,
the law defines an enforceable obligation as a debt, obligation,
judgment, or contract that was in force prior to the enactment
of AB 26X on June 28, 2011.
Each successor agency must, every six months, draft a list of
enforceable obligations that are payable during a subsequent
six-month period. The oversight board must adopt this
"Recognized Obligation Payment Schedule" (ROPS), subject to
review by DOF. Obligations listed on a ROPS are payable from a
Redevelopment Property Tax Trust Fund, which contains the
revenues that would have been allocated as tax increment to a
former redevelopment agency.
This bill adds to the definition of enforceable obligation any
agreement necessary to complete the design and construction of a
qualifying future phase of a project. The bill defines a
qualifying future phase of a project as a project for which all
of the following apply:
The project is located in a county with a population over 1.7
million or in a city with a population over 160,000.
The project is a phase of a planned and partially implemented
multiphase affordable housing project where the previously
planned phases have received a certificate of occupancy before
February 1, 2012, but construction contracts had not been
entered into for the final phase of the project before
February 1, 2012.
The Department of Housing and Community Development has
identified at least one phase of the project as a Catalyst
Project under the California Sustainable Strategies Pilot
Program.
The project is primarily for the creation of housing
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affordable to low- or moderate-income households, though the
project may include first floor commercial or retail space.
All public infrastructure is currently in place for the future
phase.
The affordable housing units will be subject to recorded
affordability restrictions that comply with the Community
Redevelopment Law.
The bill requires the successor agency's oversight board to
approve the new enforceable obligation. If approved, the bill
further directs any remaining funds in the former redevelopment
agency's L&M Fund to the successor agency or housing successor
agency to pay for the costs associated with the agreement and,
if there are insufficient funds, includes any remaining costs on
the ROPS as an enforceable obligation to be funded from the
Redevelopment Property Tax Trust Fund.
This bill contains an urgency clause.
COMMENTS:
1.Purpose of the bill . According to the sponsor, this bill will
allow the City of Ontario, as the successor agency to the
city's former redevelopment agency, to retain $21,616,858 in
the L&M Fund to complete the final block of its Town Square
project.
In 2002, Ontario Redevelopment Agency initiated plans and
entered into financing agreements to construct a 15-acre,
master-planned, mixed-use development in Ontario's historic
downtown. The master plan included 637 new affordable housing
units, up to 74,000 square feet of retail space, a new
2.5-acre community plaza, and public improvements. In 2005,
the agency entered into agreements to build the first phase,
and in 2010, the JH Snyder Company and the Related Companies
completed this phase, which includes 376 affordable housing
units for moderate-, very low-, and extremely low-income
households. On January 30, 2012, the City of Ontario approved
an agreement for the last phase of the Town Square Project,
known as the C-1 Block, which will include up to 153
affordable housing units and 32,743 square feet of retail
space. This agreement relies on remaining L&M Funds. DOF,
however, has determined that the agreement does not meet the
definition of an enforceable obligation because it was
untimely. DOF is now demanding that the city pay the funds to
the various taxing entities. The sponsor argues that these
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funds are necessary to complete the C-1 Block and finalize the
Town Square project.
2.Lawsuits and precedent . The redevelopment dissolution process
has generated a large number of disputes. Currently, DOF is
defending approximately 110 lawsuits against determinations it
has made, many if not most of which involve the definition of
an enforceable obligation. In the case of Ontario Town
Square, it seems that a lawsuit would be unlikely to succeed
because the date of the agreement for the C-1 Block clearly
came after the enactment of AB 26X. As a result, the city is
pursuing a legislative fix. If successful, it is easy to
believe that other cities currently pursuing litigation will
also pursue a legislative strategy. This bill could easily
set a precedent for members to pursue numerous, narrow,
district-related changes to the definition of an enforceable
obligation. The committee may wish to consider whether it is
wise to pursue district-specific definitional changes or
preferable to enact more universal revisions to the
definition.
3.General Fund hit . This bill allows Ontario to keep over $21
million in former redevelopment housing funds that would
otherwise flow to property taxing entities. Statewide,
schools receive roughly half of all property taxes, and the
state is obligated to reimburse school districts for any loss
in property tax revenues. As a result, this bill will have a
roughly $10 million hit on the state's General Fund.
4.Urgency . This bill contains an urgency clause.
Previous votes not relevant.
POSITIONS: (Communicated to the committee before noon on
Wednesday, August
21, 2013.)
SUPPORT: City of Ontario (sponsor)
OPPOSED: None received.