BILL ANALYSIS Ó SB 133 Page 1 Date of Hearing: august 21, 2013 ASSEMBLY COMMITTEE ON APPROPRIATIONS Mike Gatto, Chair SB 133 (DeSaulnier) - As Amended: August 6, 2013 Policy Committee: Local GovernmentVote:9-0 Housing and Community Development 7-0 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill requires a new agency or authority that must comply with provisions of the Community Redevelopment Law (CRL), to comply with new programs and procedures to increase, preserve and improve low- and moderate-income L & M housing. Specifically, this bill: 1)States the bill's provisions only apply to an agency or authority created on or after January 1, 2014 and that is required to comply with CRL or is defined as an agency pursuant to CRL. It does not apply to an agency that has assumed the housing assets and functions of a former redevelopment agency (RDA). 2)Establishes a process for HCD to address major audit violations, including referrals to the Attorney General. 3)Grants the Controller an enhanced role in reviewing RDA audits and working to improve and correct audits, including the authority to report to the Board of Accountancy independent auditors whose actions are unprofessional or in violation of law. FISCAL EFFECT This bill will result in no direct new costs because there are no existing entities yet that meet the requirements in the bill. However, there have been numerous legislative efforts to establish new entities that can use the powers of the former redevelopment entities. If these efforts are successful and new SB 133 Page 2 entities are established there will be costs as a result of this bill. Absent knowing the number of these yet to be created entities, the costs cannot be estimated. However, they could reach into the hundreds of thousands of dollars for HCD and the Controller. In addition, there could be costs to the Department of Justice and the Board of Accountancy for enforcement actions stemming from audits by HCD and audit reviews by the Controller. COMMENTS 1)Purpose . According to the author, the evidence for the need to reform the CRL, can be found in a 2010 report by the Senate Office of Oversight and Outcomes that looked at the housing expenditures from 12 redevelopment agencies, seven of which had showed consistently high planning and administration expenditures and five chosen at random. The report made the following findings: a) No assurance . Current laws and oversight give the Legislature and public no assurance that redevelopment agencies are using at least 20% of revenues to efficiently create affordable housing. b) Lax records . Many redevelopment agencies use their low- and moderate-income housing fund to cover costs in other city departments - such as public works, finance, and personnel - without documenting that the resources are directly related to an affordable housing project. c) Loose law . Each year redevelopment agencies were required to determine the need to spend any housing set-aside money on planning and administration. Many redevelopment agency officials did not know about the law, ignored it or complied by passing a pro forma resolution. The lack of compliance made little difference. An appellate court found that the law limiting planning and administrative costs gives so much discretion to redevelopment agencies that they are largely shielded from lawsuits, even those agencies that ignore the law and make assertions unsupported by facts. d) Questionable spending . Some redevelopment agencies used their housing set-aside funds in what appear to be impermissible ways, such as hiring a lobbyist, funding a public relations campaign and paying a non-profit housing SB 133 Page 3 rights center to offer residents legal advice. e) Unreliable audits . Each redevelopment agency has to get an annual independent financial audit, yet these audits are of inconsistent quality. Many Certified Public Accountants fail to test or make note of compliance with housing set-aside fund laws. f) Code enforcement . Some redevelopment agencies used their housing set-aside funds to pay for code enforcement, which is permitted only when the code enforcement work is directly linked to efforts to develop, improve or preserve affordable housing. The author also notes that in October 2010, the Los Angeles Times reported a number of irregularities in the spending of L&M funds. The article cited examples of agencies that spent most of their affordable housing money over the decade on planning and administration, but never built a single unit. The author states the article also cited examples of agencies that used L&M funds to buy properties that were never used for affordable housing. According to the author, given the abuses of the past, it is critical to put reforms into place before redevelopment is reborn so that they do not recur. 2)Relevant legislation . Several 2013 bills establish new entities that would be subject to the provisions of SB 133. a) SB 1 (Steinberg) creates a new entity, the Sustainable Communities Investment Authority, to authorize the use of tax increment as well as other funding sources to finance specified projects. SB 1 is before the Assembly Appropriations Committee, today. b) AB 1080 (Alejo) allows local governments to establish a Community Revitalization and Investment Authority in a disadvantaged community to fund specified activities and allows the authority to collect tax increment. AB 1080 is in the Senate Appropriations Committee. c) SB 628 (Beall) authorizes a city or a county to create an infrastructure financing district (IFD) to implement transit priority projects without having to hold an SB 133 Page 4 election and requires the city or county to use 25% of the resulting revenues for affordable housing. SB 628 has been concurred in by the Senate. 3)Previous legislation . This bill is substantially similar to SB 450 (Lowenthal) of 2011, which applied to existing agencies. SB 450 was vetoed by Governor Brown, who opined it was premature given the Supreme Court was about to act on the legislation that eliminated redevelopment agencies. Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081