BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 471| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 471 Author: Atkins (D), et al. Amended: 1/29/14 in Senate Vote: 27 - Urgency PRIOR VOTES NOT RELEVANT SENATE GOVERNANCE & FINANCE COMMITTEE : 6-0, 1/15/14 AYES: Wolk, Knight, Beall, DeSaulnier, Hernandez, Liu NO VOTE RECORDED: Vacancy SENATE APPROPRIATIONS COMMITTEE : 6-0, 1/23/14 AYES: De León, Gaines, Hill, Lara, Padilla, Steinberg NO VOTE RECORDED: Walters SUBJECT : Local government: redevelopment: successor agencies to redevelopment SOURCE : Author DIGEST : This bill allows infrastructure financing districts to include portions of former redevelopment project areas and amends several statutes governing redevelopment agencies (RDAs) dissolution. Senate Floor Amendments of 1/29/14 delete the provisions of the bill relating to long-range property management plan and long-term enforceable obligations and change the effective date for the definition of the term "housing entity cost allowance" CONTINUED AB 471 Page 2 from January 2, 2014 to July 1, 2014; and make additional technical and conforming changes. ANALYSIS : Until 2011, the Community Redevelopment Law allowed local officials to set up 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 26 X1 (Blumenfield, Chapter 5, Statutes of 2011, First Extraordinary Session) dissolved all RDAs. The California Supreme Court's 2011 ruling in California Redevelopment Association v. Matosantos upheld AB 26 X1, but invalidated AB 27 X1 (Blumenfield, Chapter 6, Statutes of 2011, First Extraordinary Session), which would have allowed most RDAs to avoid dissolution. RDAs' elimination created substantial policy challenges for local officials who must manage the complex process of dissolving former RDA and identify new tools for financing local economic development. Some local officials want the Legislature to clarify statutes that 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). Unwinding former RDAs' affairs . AB 26 X1 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. CONTINUED AB 471 Page 3 One of the successor agencies' primary responsibilities is to make payments for enforceable obligations entered into by former RDA. 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. This bill: 1.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. 2.Allows 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 the DOF and the county auditor-controller. 3.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. CONTINUED AB 471 Page 4 This bill: 1. Requires that a successor agency must remit, to an entity that has assumed a former RDA's housing duties, the amount of a housing entity administrative cost allowance that is listed on the successor agency's ROPS. 2. From July 1, 2014 to July 1, 2018, specifies that the housing entity administrative cost allowance shall be 1%, but not less than $150,000 annually, of the property tax allocated to the Redevelopment Obligation Retirement Fund each fiscal year. 3. If a local housing authority assumed the housing functions of the former redevelopment agency, as specified, then the housing entity administrative cost allowance shall be listed by the successor agency on the ROPS. Requires the successor agency to make the housing entity administrative cost allocations on each January 2 and July 1. 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, Chapter 26, Statutes of 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 RPTTF in the current fiscal year over the amount distributed in the 2012-13 base year. This bill requires that calculation of the maximum loan repayment amount must exclude amounts paid to taxing entities during the 2012-13 base year from the RPTTF pursuant to the "due diligence review" process. This bill specifies that the phrase "identified in an approved redevelopment plan" includes properties listed in a community CONTINUED AB 471 Page 5 plan or a five-year implementation plan. IFDs . Cities and counties can create 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. State law prohibits an IFD's territory from including any portion of a redevelopment project area. This bill: 1. Repeals this prohibition, allowing IFDs to use tax increment revenues to finance public works in former RDA project areas. 2. 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. 3. 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 RPTTF. 4. Allows a city or county forming an IFD to dedicate any portion of its "net available revenue" to the IFD. Defines "net available revenue" as periodic distributions to the city or county from the RPTTF that are available to the city or county after all preexisting legal commitments and statutory obligations funded from that revenue are made pursuant to state law. Excludes funds payable to school entities pursuant to a specified statute from the definition of "net available revenue." 5. Makes additional technical and conforming changes to current law. Comments According to the Senate Governance and Finance Committee CONTINUED AB 471 Page 6 analysis, local officials and developers have identified ambiguities and obstacles in current law which prevent them from completing vital economic development projects that began before RDAs 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. Previous Legislation AB 471 is similar to AB 662 (Atkins, 2013), which Governor Brown vetoed 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." FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes According to the Senate Appropriations Committee, 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 will 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, this bill reduces the amount of residual property tax revenues subject to general distribution by at least $1.5 million annually through 2018, about half of which accrues 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. SUPPORT : (Verified 1/30/14) BRIDGE Housing CONTINUED AB 471 Page 7 California Infill Builders Federation City of West Sacramento Mission Bay Development Group Strada Investment Group AB:d 1/31/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED