BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 2647 HEARING: 6/18/14
AUTHOR: Wagner FISCAL: Yes
VERSION: 4/10/14 TAX LEVY: No
CONSULTANT: Weinberger
REDEVELOPMENT SUCCESSOR AGENCIES
Directs how the Orange County Auditor-Controller must
allocate property tax revenues between the RDA successor
agencies for Orange County and the City of Lake Forest.
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. 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.
The Neighborhood Preservation and Development Project,
established by Orange County's former RDA, was a single
redevelopment project area that consisted of 14 separate,
non-contiguous subareas. When the City of Lake Forest
incorporated in 1991, the City's boundaries encompassed
almost all of the subarea known as the El Toro Project
Area. After the City of Lake Forest created its RDA, the
Legislature specified terms under which Orange County's RDA
could transfer, to a city's RDA, jurisdiction over the
portion of the Neighborhood Preservation and Development
Project's area that fell within a city's boundaries (AB
1502, Campbell, 1997). Pursuant to that statute, in 1998,
Orange County's RDA transferred territorial jurisdiction
over the portion of the El Toro Project Area located in the
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City of Lake Forest to the city's RDA. In 1999, the county
and the city entered into a transfer agreement that
formalized the terms of the transfer.
RDAs used property tax revenues generated by growth in the
assessed value of properties in a project area - commonly
known as tax increment revenues - to repay their debts,
including tax allocation bonds, contracts with property
owners and builders, and advances and loans from their
underlying cities and counties. Orange County's RDA had
committed tax increment revenue from the El Toro Project
area to repay indebtedness it incurred before it entered
into the transfer agreement with Lake Forest. To preserve
the Orange County RDA's ability to repay its indebtedness,
the transfer agreement specified the manner in which the
county's RDA and Lake Forest's RDA were to receive tax
increment revenues from the part of the El Toro Project
Area that was subject to the transfer agreement.
Specifically, the agreement directed the Orange County
Auditor-Controller to make, to the City of Lake Forest, a
single annual payment of the property tax increment
revenues that remained after the Auditor-Controller
allocated property tax increment revenues to Orange
County's RDA, pursuant to specified formulas, in an amount
sufficient to repay or refinance the County RDA's existing
indebtedness related to the El Toro Project Area.
The transfer agreement worked well before RDAs were
dissolved. However, the state laws governing RDAs'
dissolution have complicated efforts to properly allocate
property tax increment revenues among the various affected
taxing entities. City of Lake Forest officials want the
Legislature to clarify the manner in which the Orange
County Auditor-Controller must allocate property tax
revenues from the former El Toro Project Area to the former
Orange County and Lake Forest RDAs' successor agencies.
Proposed Law
Assembly Bill 2647 specifies a methodology by which the
Orange County Auditor-Controller must allocate property tax
revenues attributable to the El Toro Project Area between
the Redevelopment Property Tax Fund (RPTTF) established for
the former Orange County RDA and the RPTTF established for
the former Lake Forest RDA.
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In broad terms, AB 2647's methodology requires the
Auditor-Controller to:
Initially deposit into the former Orange County
RDA's RPTTF all property tax revenues attributable to
the Neighborhood Preservation and Development Project
Area, including the El Toro Project Area, that would
have been allocated to the RDA had it not been
dissolved.
Calculate, before specified dates, an amount that
includes administrative costs, redevelopment
passthrough obligations, specified statutory
obligations, and all other obligations secured by a
prior claim on, or pledge of, moneys in the former
Orange County RDA's RPTTF, including tax allocation
bonds, that are payable before any transfer to the
former Lake Forest RDA pursuant to state law or the
1999 transfer agreement.
Determine whether moneys in the former Orange
County RDA's RPTTF, excluding amounts attributable to
the El Toro Project Area, are sufficient to pay all of
the obligations calculated in the previous step.
If insufficient money is available, the
Auditor-Controller must retain property tax revenues
in the Orange County RDA's RPTTF in specified amounts
that must be sufficient to fund the balance of the
obligations for which sufficient money was otherwise
not available. The Auditor-Controller must deposit
the remainder into the former Lake Forest RDA's RPTTF,
pursuant to state law governing RDAs' dissolution.
If sufficient money is available, the
Auditor-Controller must deposit into the former Lake
Forest RDA's RPTTF the amount by which the property
tax revenues attributable to the El Toro Project Area
exceeds the amount to be retained by the former Orange
County Development Agency pursuant to the 1999
transfer agreement.
AB 2647 defines the "El Toro Project Area" as the portion
of the former Orange County RDA's Neighborhood Preservation
and Development Project Area that was transferred to the
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Lake Forest RDA pursuant to the transfer agreement and
state law.
The bill defines "transfer agreement" as the specified
agreement dated as of July 6, 1999, entered into among the
County of Orange, the Orange County RDA, the City of Lake
Forest, the Lake Forest RDA, and the City of Laguna Hills.
AB 2647 declares that its provisions should not be
construed to affect specified statutory obligations of the
former Orange County RDA related to the County's 1994
bankruptcy. The bill directs that those obligations must be
prior to any transfer of property tax revenues directed by
the bill's provisions and requires the bill's provisions to
be interpreted and construed in a manner consistent with
the statute that imposes those obligations.
AB 2647 declares that its provisions are intended to
implement the 1999 transfer agreement in light of ABx1 26
of 2011 and, with specified exceptions, is not intended to
alter the transfer agreement, which continues in full force
and effect.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Although the transfer agreement
between Orange County and Lake Forest worked well before
RDAs' dissolution, the complex statutory framework that
governs the allocation of property tax revenues related to
the dissolution of RDAs has created a unique and confusing
situation. Under current law, the funds to which the City
of Lake Forest's former RDA are entitled under the transfer
agreement are being paid as an enforceable obligation
listed on the Recognized Obligation Payment Schedule of the
successor agency for Orange County's former RDA.
According to AB 2647's author, this has caused significant
confusion for the Department of Finance, which has
necessitated the expenditure of public resources to clarify
the unique circumstance through the meet and confer
process. Some local officials are concerned that, without
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legislative action to clarify this process and mitigate the
confusion, payments due to the affected tax agencies,
including school districts and public agencies could be
delayed or missed altogether. AB 2647 provides this
clarity by conforming the method for allocating property
taxes from the El Toro Project Area more closely to the
allocation method that applies to most other
redevelopment-related property taxes.
2. Mandate . The California Constitution requires the
state government to reimburse the costs of new or expanded
state mandated local programs. Legislative Counsel says
that AB 2647 creates a new state mandated local program by
in-creasing the Orange County Auditor-Controller's duties.
Section 3 of the bill requires the state to reimburse any
costs identified by the Commission on State Mandates. To
avoid potential State General Fund costs, the Committee may
wish to consider amending AB 2647 to disclaim
responsibility for reimbursing any mandate costs by citing
the Auditor-Controller's statutory authority to charge an
RPTTF to recover administrative costs associated with the
RDA dissolution process.
3. Special legislation . The California Constitution
prohibits special legislation when a general law can apply
(Article IV, §16). AB 2746 contains findings and
declarations explaining the need for legislation that
applies only to the area served by the former City of Lake
Forest Redevelopment Agency.
Assembly Actions
Assembly Local Government Committee: 8-0
Assembly Appropriations Committee:17-0
Assembly Floor: 78-0
Support and Opposition (6/12/14)
Support : Association of California Cities - Orange County;
California State Association of Counties; City of Lake
Forest; South Orange County Community College District.
Opposition : Unknown.
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