BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 662 HEARING: 6/5/13
AUTHOR: Atkins FISCAL: Yes
VERSION: 5/24/13 TAX LEVY: No
CONSULTANT: Weinberger
LOCAL ECONOMIC DEVELOPMENT
Allows infrastructure financing districts to include
portions of former redevelopment project areas and modifies
the statutes governing redevelopment agencies' dissolution.
Background and Existing Law
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
AB 662 -- 5/24/13 -- Page 2
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 as violating the debt limit or public
policy.
With specified exceptions, state law excludes from the
definition of "enforceable obligation" any agreements
between the city, county, or city and county that created a
former redevelopment agency and the former redevelopment
agency. Assembly Bill 662 exempts from this prohibition an
agreement entered into between a redevelopment agency and
the city, county, or city and county that created it, if
the agreement:
Was entered into before October 1, 2011 and
Relates to a project identified, in whole or in
part, in an infill infrastructure grant program
disbursement agreement entered into by the Department
of Housing and Community Development pursuant to
specified provisions of the Housing and Emergency
Shelter Trust Fund Act of 2006 (Proposition 1C, 2006).
AB 662 -- 5/24/13 -- Page 3
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, which contains the revenues that would have
been allocated as tax increment to a former RDA. Assembly
Bill 622:
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
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.
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). More than 150
successor agencies have received a finding of completion.
A successor agency that receives a finding of completion
can 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 662
specifies that the phrase "identified in an approved
redevelopment plan" includes properties listed in a
community plan, a five-year implementation plan, or other
similar document.
In addition to gaining authority to retain real property
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assets, 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 662 provides 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.
Assembly Bill 662 allows a successor agency that has
received a finding of completion to enter into, or amend
existing, contracts and agreements, make land use
decisions, or otherwise administer projects in connection
with long-term enforceable obligations, if the contract or
agreement, land use decision, or project will not commit
new tax funds, or will not otherwise adversely affect the
flow of tax increment to taxing agencies.
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 other 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 662
repeals this prohibition, allowing IFDs to use tax
increment revenues to finance public works in former RDA
project areas.
State Revenue Impact
No estimate.
Comments
AB 662 -- 5/24/13 -- Page 5
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 agreements related to
millions of dollars of Proposition 1C infill infrastructure
grants are not recognized as enforceable obligations,
communities throughout the state may be unable to complete
much-needed infill and transit-oriented development
projects. 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 662 will support the completion of
numerous development projects that have already received
millions of dollars of public investments, support state
policy goals, and benefit residents throughout California.
2. Next in line ? Agreements related to the Department of
Housing Community Development's Infill Infrastructure Grant
Program aren't the only kinds of agreements that don't
qualify as enforceable obligations under current law. The
Department of Finance has rejected hundreds of requests
from successor agencies to recognize loan agreements,
cooperative development agreements, and other covenants
between a former RDA and the city or county that created it
as enforceable obligations. Local officials throughout
California would undoubtedly welcome the opportunity to
recognize their agreements with former RDAs as enforceable
obligations. Changing state law to help infill development
projects may invite a long line of similar proposals from
other local governments. AB 662 may lay the groundwork for
further expanding the statutory definition of enforceable
obligation to include other types of local government-RDA
agreements.
3. Zero-sum game . Allocating former RDAs' property tax
increment revenues is a zero-sum game; every reallocation
creates winners and losers. A successor agency that, under
AB 662 -- 5/24/13 -- Page 6
AB 662'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 -
including school districts - will 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.
4. Related legislation . AB 662 is not the only bill
related to redevelopment dissolution or infrastructure
financing districts.
SB 33 (Wolk) waives the voter-approval requirements
to create an IFD, extends an IFD's life term, requires
annual, independent audits, and authorizes an IFD's
use for projects in disadvantaged communities,
hazardous cleanup, environmental mitigation, and flood
protection. It is scheduled to be heard in the
Assembly Local Government Committee on June 12.
SB 628 (Beall) removes the voter-approval
requirements to create an IFD and issue bonds for a
transit priority project. It is awaiting a referral
to policy committee in the Assembly.
AB 229 (J. P�rez) creates Infrastructure and
Revitalization Financing Districts and authorizes a
city, county, city and county, or JPA acting as the
military base reuse authority -- following a 2/3-vote
to form the district, a 2/3-vote to issue the bonds,
and a majority-vote for the appropriations limit -- to
finance projects like flood management, environmental
mitigation, and hazardous cleanup. It is scheduled to
be heard in the Senate Local Government Committee on
June 5.
AB 243 (Dickinson) creates Infrastructure and
Revitalization Financing Districts (IRFD) and reduces
the 2/3-voter thresholds to 55% to form an IRFD and
issue bonds. It is scheduled to be heard in the
Senate Local Government Committee on June 12.
Assembly Actions
Assembly Local Government Committee: 9-0
Assembly Floor: 76-0
AB 662 -- 5/24/13 -- Page 7
Support and Opposition (5/30/13)
Support : American Federation of State, County, and
Municipal Employees, AFL-CIO; BRIDGE Housing; California
Infill Builders Association; Cities of San Diego and West
Sacramento; Cynthia Morgan, Chair of the Board of Civic
San Diego; Mission Bay Development Group; San Diego
Housing Federation; Smart Growth Investors II; Strada
Investment Group.
Opposition : Unknown.