BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair AB 471 (Atkins) - Redevelopment successor agencies. Amended: January 17, 2014 Policy Vote: G&F 6-0 Urgency: Yes Mandate: Yes Hearing Date: January 23, 2014 Consultant: Mark McKenzie SUSPENSE FILE. Bill Summary: AB 471, an urgency measure, would allow an infrastructure financing district (IFD) to include portions of former redevelopment project areas, and make several changes to the laws governing the dissolution of redevelopment agencies (RDAs). Fiscal Impact: Unknown General Fund impact, likely in the range of $750,000 annually for five years. This figure is based on the assumption that approximately 10 successor housing agencies would be eligible for at least $150,000 annually in allocations from the Redevelopment Property Tax Trust Fund through 2018, prior to distribution of residual revenues to local agencies and school entities. As such, the bill would reduce the amount of residual property tax revenues subject to general distribution by at least $1.5 million annually through 2018, about half of which would accrue to K-14 schools. In general, any property tax proceeds diverted from schools results in an equivalent General Fund cost, pursuant to Proposition 98's minimum funding guarantees. Background: Historically, the Community Redevelopment Law has allowed a local government to establish redevelopment agencies (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 in the form of tax allocation bonds, to address issues of blight, construct affordable housing, rehabilitate existing buildings, and finance development and infrastructure projects. AB 471 (Atkins) Page 1 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, and has the authority to disallow any payments that do not meet those criteria. Successor agencies cannot enter into new enforceable obligations. Existing law, AB 1484 (Budget Committee), Chap 26/2012, requires DOF to provide a successor agency with a "finding of completion" after the agency remits specified RDA property tax allocations and unencumbered cash assets to the county auditor-controller through a due diligence process. Once the successor agency receives a finding of completion, the agency is authorized to: Transfer former RDA properties to the city or county, or otherwise dispose of the property in accordance with a DOF-approved long-range property management plan. Repay loans made by the city or county to the RDA, if the loan is deemed to have been made for legitimate redevelopment purposes, as specified. Expend bond proceeds in excess of the amounts needed to satisfy approved enforceable obligations in a manner consistent with the original bond covenants. Proposed Law: AB 471 would allow an IFD to include portions of former RDA project areas, and make several changes to the laws governing the dissolution of RDAs. Specifically, this bill would: Authorize an IFD to finance a project located at least partially in a former RDA project area, as long as DOF has issued a certificate of completion to the successor agency. Any IFD debts would be subordinate to enforceable obligations. Clarify that properties in an approved RDA plan include properties listed in a community plan or five-year implementation plan, with respect to property transfers to a city or county pursuant to an approved long-range property management plan. Authorize a successor agency to schedule ROPS payments beyond AB 471 (Atkins) Page 2 the existing six-month ROPS cycle upon a showing that a lender requires cash on hand beyond the ROPS cycle. Authorize a successor agency to utilize reasonable 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 DOF. Specify 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 bonds to pay for project expenditures. Authorize a successor agency to amend an existing contract or agreement related to long-term enforceable obligations, or enter into a new contract or agreement in furtherance of an existing contract or agreement, for the purpose of administering projects in connection with a long-term enforceable obligation, if the existing contract or agreement has been recognized by DOF as an enforceable obligation on a ROPS and has received a "final and conclusive" determination. Any such amended or new contracts must not adversely impact the flow of property tax payments or payments to taxing entities, as specified. Require the county auditor-controller, prior to distributing residual revenues to taxing entities, to allocate moneys from the Redevelopment Property Tax Trust Fund to an entity that has assumed the housing duties of a former RDA. The allocations would occur on March 1, 2014, and each January 2 and June 1 thereafter until June 1, 2018. Specify that this "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. Specify that the loan repayment schedule excludes amounts paid to taxing entities from the Redevelopment Property Tax Trust Fund pursuant to the due diligence review process during the 2012-13 base year. Related Legislation: This bill is substantially similar to AB 662 (Atkins), which was vetoed by the Governor last year with the following message: This measure would provide flexibility to cities and successor agencies around the state currently winding down their redevelopment affairs. More importantly, this bill would authorize cities to create Infrastructure Financing AB 471 (Atkins) Page 3 Districts within the boundaries of former redevelopment project areas, as well as provide additional property taxes for administrative costs to the local housing authorities currently managing stranded housing assets. Unfortunately, as currently written, the language to authorize new or amended contracts for existing enforceable obligations could result in unintended costs to the General Fund. I applaud the author for her efforts to improve the dissolution process. Therefore, I am directing my administration to work with the author's office to make changes to the bill's language in a manner that avoids those costs. When the changes are made, I look forward to seeing the measure return to my desk for signature. In addition to several minor and technical changes, AB 471 contains revisions to Section 34191.4 of the Health and Safety Code that are intended to address the Governor's concerns. Staff Comments: Upon dissolution of an RDA, a local agency had the option to retain the housing functions and housing assets of the former RDA, or transfer those functions to a local housing authority. A local agency that retains the RDA housing functions is eligible for an additional allocation of former RDA revenues for administrative costs associated with that function. However, there is no allowance in the dissolution statutes that provide for the transfer of administrative funding if the housing functions are transferred to a local housing authority. AB 471 requires a "housing entity administrative cost allowance" from January 2, 2014 through June 1, 2018 of up to 1 percent, but no less than $150,000, of the property tax to be allocated to the Redevelopment Obligation Retirement Fund on behalf of the successor agency each fiscal year. This allocation diverts former RDA revenues to housing successors prior to the general distribution of residual revenues to local taxing entities by the county auditor-controller. Since approximately 10 local housing authorities are acting as housing successors, this bill would divert at least $1.5 million annually from general distribution. About half of this amount would represent a loss of property tax revenues to schools, which must be backfilled by the General Fund. The fiscal impacts of the remaining provisions of this bill are not expected to be significant. AB 471 (Atkins) Page 4