BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 423 (Torres) - Multiphase affordable housing projects:
enforceable obligations.
Amended: August 21, 2013 Policy Vote: T&H 7-1
Urgency: Yes Mandate: No
Hearing Date: August 30, 2013
Consultant: Mark McKenzie
SUSPENSE FILE.
Bill Summary: AB 423, an urgency measure, would authorize the
successor agency of a former redevelopment agency (RDA) in
specified larger communities to enter into a new enforceable
obligation and divert property tax increment revenues to
complete a qualifying future phase of an affordable housing
project, as specified.
Fiscal Impact: Unknown General Fund impact of at least $9.3
million in 2013-14. This figure represents the impacts related
to a single qualifying project in the City of Ontario. In that
particular case, the bill would allow Ontario to retain over
$21.6 million in tax increment revenues to complete a future
phase of an affordable housing project that does not qualify as
an enforceable obligation under current law. Since
approximately 43 percent of property tax revenues in San
Bernardino County accrue to K-14 schools, this bill would reduce
the amount of property tax revenues allocated to schools in that
county by $9.3 million. In general, any property tax proceeds
diverted from schools results in an equivalent General Fund
cost, pursuant to Proposition 98's minimum funding guarantees.
The actual impacts to the General Fund could be higher if other
projects qualify as enforceable obligations pursuant to the
criteria in the bill.
Background: Historically, the Community Redevelopment Law (CRL)
has allowed a local government to establish RDAs and capture all
of the increase in property taxes that is generated within the
project area beyond the base year value (referred to as "tax
increment") over a period of decades. Prior to their
dissolution pursuant to ABx1 26 (Blumenfield) Chap 5/2011, RDAs
used tax increment financing, oftentimes issuing long-term debt
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in the form of tax allocation bonds, to address issues of
blight, construct affordable housing, rehabilitate existing
buildings, and finance development and infrastructure projects.
The CRL required 20 percent of tax increment revenues to be
deposited into a Low and Moderate Income Housing (LMIH) Fund to
increase, improve, and preserve the supply of low- and
moderate-income housing available at an affordable cost.
Existing law establishes procedures for winding down RDA
activity, including a requirement that successor agencies
dispose of former RDAs' assets under direction of an oversight
board. Successor agencies are required to make any payments
related to enforceable obligations, as specified in an adopted
biannual recognized obligation payment schedule (ROPS), and
remit unencumbered balances of RDA funds to the county
auditor-controller for distribution to local taxing entities in
the county. The Department of Finance (DOF) reviews each ROPS
to determine if the listed payments meet the statutory criteria
for repayment as enforceable obligations, and has the authority
to disallow any payments that do not meet those criteria.
Existing law generally defines enforceable obligations as
specified debts, required payments, obligations, judgments, or
contracts of a former RDA. Successor agencies cannot enter into
new enforceable obligations or begin new redevelopment work,
except in compliance with an enforceable obligation that existed
prior to June 28, 2011. If a successor agency fails to remit
amounts determined to be subject to distribution to local taxing
entities after a specified audit and due diligence review
process, funds owed can be recovered through an offset of sales
and use taxes or property tax allocations that would otherwise
be owed to the local agency.
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. The first phase of
the project was completed in 2010 and includes 376 affordable
housing units for moderate-, very low-, and extremely low-income
households. On January 30, 2012, following the dissolution of
RDAs, the City of Ontario approved an agreement for the last
phase of the Town Square Project, known as the C-1 Block, which
is planned to include up to 153 affordable housing units and
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32,743 square feet of retail space. This agreement relies on
over $21.6 million in funds that were transferred to the City
from the former RDA's LMIH Fund. Since the agreement was signed
over 7 months past the date specified in existing law to meet
the definition of an enforceable obligation, DOF has demanded
that the City remit the funds to the county auditor-controller
for distribution to local taxing entities. DOF indicates that
since the City has refused to remit the funds, it has recently
exercised its authority under existing law to withhold a
corresponding amount of sales and use tax revenues from the
City, beginning in September of 2013.
Proposed Law: AB 423, an urgency measure, would expand the
definition of enforceable obligation to include any agreement
necessary to complete the design and construction of a
qualifying future phase of a project. Specifically, this bill
would:
Authorize a successor agency that completed construction of
portions of a multiphase affordable housing project in a
county with a population over 1.7 million or in a city with a
population over 160,000 to enter into an enforceable
obligation to complete a qualifying future phase of the
project.
Define "qualifying future phase" as a phase of a planned and
partially completed project where previously planned phases
have received a certificate of occupancy prior to February 1,
2012, but construction contracts for the final phase had not
been entered into by that date. The project must also meet
the following criteria:
o 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.
o The project is primarily for the creation of
housing affordable to low- or moderate-income households,
though the project may include first floor commercial or
retail space.
o All public infrastructure is currently in place for
the future phase.
o The affordable housing units will be subject to
recorded affordability restrictions that comply with the
Community Redevelopment Law.
The bill would also require the successor agency's oversight
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board to approve the new enforceable obligation. If approved,
the bill further directs any remaining funds in the former RDA's
LMIH 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.
Staff Comments: AB 423 seeks to provide an exception to the
requirements in current law for winding down redevelopment
activities by deeming certain multiphase affordable housing
projects as enforceable obligations, even though agreements for
funding those projects with former RDA assets were entered into
well past the dates specified in law. This bill has been
drafted to specifically apply to the Town Square Project in the
City of Ontario, but may apply to other projects meeting the
criteria specified in the bill. Staff notes, however, that only
13 projects statewide were awarded state assistance as Catalyst
Projects under HCD's California Sustainable Strategies Pilot
Program, so the universe of potential qualifying projects under
this bill would be limited. As noted above, the state General
Fund impact of the bill, as applicable to the Town Square
Project alone, would be approximately $9.3 million. The actual
impact could be higher if other projects meet the bill's
criteria.
There are currently over 100 active lawsuits related to the
dissolution of RDAs. This bill could set a precedent of
allowing an exception to the RDA dissolution statutes that would
likely result in future legislation seeking similar relief. Any
expansion of the definition of enforceable obligation would
result in additional General Fund impacts.