BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 471 HEARING: 1/15/14
AUTHOR: Atkins FISCAL: Yes
VERSION: 1/6/14 TAX LEVY: No
CONSULTANT: Weinberger
LOCAL ECONOMIC DEVELOPMENT
Allows infrastructure financing districts to include
portions of former redevelopment project areas and amends
several statutes governing redevelopment agencies'
dissolution.
Background
Until 2011, the Community Redevelopment Law allowed local
officials to set up redevelopment agencies (RDAs), prepare
and adopt redevelopment plans, and finance redevelopment
activities. As a redevelopment project area's assessed
valuation grew above its base-year value, the resulting
property tax revenues - the property tax increment - went
to the RDA instead of going to the underlying local
governments. The RDA kept the property tax increment
revenues generated from increases in property values within
a redevelopment project area.
Citing a significant State General Fund deficit, Governor
Brown's 2011-12 budget proposed eliminating RDAs and
returning billions of dollars of property tax revenues to
schools, cities, and counties to fund core services. Among
the statutory changes that the Legislature adopted to
implement the 2011-12 budget, AB X1 26 (Blumenfield, 2011)
dissolved all RDAs. The California Supreme Court's 2011
ruling in California Redevelopment Association v.
Matosantos upheld AB X1 26, but invalidated AB X1 27
(Blumenfield, 2011), which would have allowed most RDAs to
avoid dissolution.
Redevelopment agencies' elimination created substantial
policy challenges for local officials who must manage the
complex process of dissolving former RDAs and identify new
tools for financing local economic development. Some local
officials want the Legislature to clarify statutes that
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govern the redevelopment dissolution process and amend
state law to make it easier for local agencies to support
economic development using Infrastructure Financing
Districts (IFDs).
Proposed Law
I. Unwinding former RDAs' affairs . AB X1 26 established
successor agencies to manage the process of unwinding
former RDAs' affairs. With the exception of seven cities
that chose not to serve as successor agencies, the city or
county that created each former RDA now serves as that
RDA's successor agency. 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.
One of the successor agencies' primary responsibilities is
to make payments for enforceable obligations entered into
by former RDAs. The statutory definition of an enforceable
obligation includes bonds, specified bond-related payments,
some loans, payments required by the federal government,
obligations to the state, obligations imposed by state law,
legally required payments related to RDA employees,
judgments or settlements, and other legally binding and
enforceable agreements or contracts that are not otherwise
void.
Each successor agency must, every six months, draft a list
of enforceable obligations that are payable during a
subsequent six month period. This recognized obligation
payment schedule (ROPS) must be adopted by the oversight
board and is subject to review by the DOF. Obligations
listed on a ROPS are payable from a Redevelopment Property
Tax Trust Fund (RPTTF), which contains the revenues that
would have been allocated as tax increment to a former RDA.
Assembly Bill 471:
Allows a successor agency to schedule ROPS payments
beyond the existing six-month ROPS cycle upon a
showing that a lender requires cash on hand beyond the
ROPS cycle.
Allows a successor agency to utilize reasonable
AB 471 -- 1/6/14 -- Page 3
estimates and projections to support payment amounts
for enforceable obligations if it submits appropriate
supporting documentation of the basis for the estimate
or projection to the DOF.
Specifies that a ROPS can include appropriation of
moneys from bonds subject to passage during the ROPS
cycle when an enforceable obligation requires the
successor agency to issue the bonds and use the
proceeds to pay for project expenditures.
State law requires a county auditor-controller to make
allocations from the RPTTF to successor agencies to pay for
specified administrative costs. In some communities, an
entity other than the former RDA's successor agency has
assumed a former RDA's housing responsibilities. Assembly
Bill 471 requires a county auditor-controller, before
distributing residual revenues from the RPTTF to taxing
entities, to allocate a "housing entity administrative cost
allowance" to an entity that has assumed a former RDA's
housing duties. Assembly Bill 471 specifies that the
housing entity administrative cost allowance would be 1
percent, but not less than $150,000 annually, of the
property tax allocated to the Redevelopment Obligation
Retirement Fund each fiscal year. The bill requires an
auditor-controller to make the housing entity
administrative cost allocations on March 1, 2014, and each
January 2 and June 1 thereafter until June 1, 2018.
If a successor agency complies with state laws that require
it to remit specified RDA property tax allocations and cash
assets identified through a "due diligence review" process,
it receives a "finding of completion" from the DOF (AB
1484, Assembly Budget Committee, 2012). Close to 300
successor agencies have received a finding of completion.
A successor agency that receives a finding of completion
can repay specified loans made to a former redevelopment
agency by the city or county that created it. State law
requires that a successor agency must repay the loans
according to a schedule that meets specified conditions.
One condition requires that the maximum annual loan
repayment amount cannot exceed 50% of the increase in the
amount of money distributed to taxing entities from the
Redevelopment Property Tax Trust Fund in the current fiscal
year over the amount distributed in the 2012-13 base year.
Assembly Bill 471 requires that calculation of the maximum
loan repayment amount must exclude amounts paid to taxing
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entities during the 2012-13 base year from the
Redevelopment Property Tax Trust Fund pursuant to the "due
diligence review" process.
Current law allows a successor agency that receives a
finding of completion to retain a former RDA's real
property assets in a trust and use those assets subject to
provisions of a long-range property management plan
approved by the agency's oversight board and the DOF.
State law requires that property must transfer from a
successor agency to a city, county, or city and county if,
under an approved long-range management plan, the property
will be used for a project identified in an approved
redevelopment plan. Assembly Bill 471 specifies that the
phrase "identified in an approved redevelopment plan"
includes properties listed in a community plan or a
five-year implementation plan. Assembly Bill 471 also
requires a successor agency to provide notice to its
oversight board at least 10 days before entering into a
contract or agreement for the use or disposition of
properties pursuant to a long-range property management
plan. During the 10-day period, the oversight board may
notify the successor agency that it intends to conduct a
hearing to determine whether the contract or agreement is
consistent with the successor agency's long-range property
management plan. Assembly Bill 471 requires the board to
hold the hearing and issue findings within 30 days after it
notifies the successor agency.
Assembly Bill 471 allows a successor agency that has
received a finding of completion to amend an existing
contract or agreement related to long-term enforceable
obligations, or enter into a new contract or agreement in
furtherance of any existing contract or agreement, if:
The amendment, new contract, or agreement is for
the purpose of administering projects in connection
with long-term enforceable obligations,
The existing contract or agreement has been
approved by the department as an enforceable
obligation on a Recognized Obligation Payment
Schedule, and
The existing contract or agreement has received a
final and conclusive determination.
Assembly Bill 471 prohibits any amendment of an existing
contract or agreement, or any new contract or agreement, if
AB 471 -- 1/6/14 -- Page 5
the amendment, new contract, or new agreement will
adversely affect the flow of property tax revenues or
payments made to taxing entities pursuant to state law.
II. Infrastructure Financing Districts . Cities and
counties can create Infrastructure Financing Districts
(IFDs) and issue bonds to pay for community scale public
works: highways, transit, water systems, sewer projects,
flood control, child care facilities, libraries, parks, and
solid waste facilities. To repay the bonds, IFDs divert
property tax increment revenues from consenting local
governments -- but not schools -- for 30 years (SB 308,
Seymour, 1990).
State law prohibits an IFD's territory from including any
portion of a redevelopment project area. Assembly Bill 471
repeals this prohibition, allowing IFDs to use tax
increment revenues to finance public works in former RDA
project areas.
Assembly Bill 471 prohibits an IFD from financing any
project or portion of a project in a former redevelopment
project area unless the former redevelopment agency's
successor agency has received a finding of completion. The
bill also declares that any IFD debt or obligation is
subordinate to an enforceable obligation of a former
redevelopment agency and prohibits tax increment revenues
allocated to an IFD from including any revenues that state
law requires a county auditor-controller to deposit in a
Redevelopment Property Tax Trust Fund (RPTTF).
Assembly Bill 471 allows a city or county forming an IFD to
dedicate any portion of its "net available revenue" to the
IFD. The bill defines "net available revenue" as periodic
distributions to the city from the Redevelopment Property
Tax Trust Fund that are available to the city after all
preexisting legal commitments and statutory obligations
funded from that revenue are made pursuant to state law.
The bill excludes funds payable to school entities pursuant
to a specified statute from the definition of "net
available revenue."
Assembly Bill 471 makes additional technical and conforming
changes to current law.
State Revenue Impact
AB 471 -- 1/6/14 -- Page 6
No estimate.
Comments
1. Purpose of the bill . Local officials and developers
have identified ambiguities and obstacles in current law
which prevent them from completing vital economic
development projects that began before redevelopment
agencies were dissolved. Because state law doesn't provide
successor agencies any flexibility to adjust contracts for
enforceable obligations in ways that don't affect tax
increment or to schedule ROPS payments beyond a single
six-month ROPS period, many successor agencies may be
unable to finance or complete long-term phased development
projects that are already underway. By eliminating these
ambiguities and obstacles, and eliminating an unnecessary
prohibition against an IFD including any portion of a
redevelopment project area for the purposes of collecting
tax increment, AB 471 will support the completion of
numerous development projects that already have received
millions of dollars of public investments, support state
policy goals, and benefit residents throughout California.
2. Zero-sum game . Allocating former RDAs' property tax
increment revenues is a zero-sum game; every reallocation
creates winners and losers. Administrative cost
allocations to housing successor entities will reduce the
residual property tax revenues that are available to
distribute to taxing entities - including school districts
- from the RPTTF. A successor agency that, under AB 471's
provisions, repays loans under the revised base-year
formula or schedules ROPS payments beyond a current ROPS
cycle will receive larger allocations of former property
tax increment revenues in some fiscal years than it would
under current law. Other local governments will, as a
result, receive smaller allocations than they would under
current law. One fiscal loser will be the State General
Fund, which must backfill the revenues that the schools
won't get.
3. Not just cities . Until this year, the statutes
governing IFDs defined the term "city" to mean both cities
and counties. Legislation passed last year changed that
definition and inserted separate references to counties
throughout the IFD statutes (SB 184, Senate Governance &
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Finance Committee, 2013). Because AB 471's amendments to
IFD law refer only to a "city," they could be interpreted
to exclude county-formed IFDs. To clarify the bill's
intent, the Committee may wish to consider amending AB 471
to add references to a "county" next to references to a
"city" in lines 34 and 38 on page 5 and line 2 on page 6 of
the bill.
4. Take two . AB 471 is similar to AB 662 (Atkins, 2013),
which the Governance & Finance Committee passed on a 7-0
vote last year. Governor Brown vetoed AB 662, citing his
concern that the bill's "language to authorize new or
amended contracts for existing enforceable obligations
could result in unintended costs to the General Fund." AB
471 contains revised language intended to address the
concerns the Governor raised in his veto message.
5. Urgency . Regular statutes take effect on January 1
following their enactment; bills passed in 2014 take effect
on January 1, 2015. The California Constitution allows
bills with urgency clauses to take effect immediately if
they're needed for the public peace, health, and safety. AB
471 contains an urgency clause declaring that it is
necessary for its provisions to go into effect immediately
to facilitate the smooth and effective implementation and
completion of the dissolution of redevelopment agencies.
6. Gut-and-amend . As introduced, AB 471 eliminated a
statutory limit on the number of state contracts with
Program for All Inclusive Care of the Elderly (PACE)
organizations. The Committee never heard that version of
the bill. The January 6 amendments deleted the bill's
contents and inserted the language relating to former
redevelopment agencies and infrastructure financing
districts.
Assembly Actions
Not relevant to the January 6, 2014 version of the bill.
Support and Opposition (1/9/13)
Support : City of West Sacramento; Infill Builder
Federation; BRIDGE Housing; Mission Bay Development Group;
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and Strada Investment.
Opposition : Unknown.