BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 133| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- UNFINISHED BUSINESS Bill No: SB 133 Author: DeSaulnier (D) Amended: 8/6/13 Vote: 21 PRIOR VOTES NOT RELEVANT ASSEMBLY FLOOR : 77-0, 9/4/13 - See last page for vote SUBJECT : Redevelopment SOURCE : Author DIGEST : This bill makes various reforms to the activities of redevelopment agencies (RDAs) in fulfilling the requirements to increase, preserve and improve low- and moderate-income housing. Assembly Amendments delete the Senate version, which dealt with enterprise zones, and instead add the current language. ANALYSIS : The Community Redevelopment Law (CRL) requires that each RDA submit the final report of any audit undertaken by any other local, state, or federal government entity to its legislative body and to additionally present an annual report to the legislative body containing specified information. Existing law requires that funds used for purposes of increasing, improving, and preserving a community's supply of low- and moderate-income housing be held in a separate Low and Moderate Income Housing Fund (L&M fund) until used. Existing CONTINUED SB 133 Page 2 law limits the planning and general administrative costs which may be paid with moneys from the L&M fund. Existing law requires, except as specified, each agency to expend over each 10-year period of the implementation plan, the moneys in the L&M fund to assist housing for persons of moderate, low, and very low income according to specified calculations. Existing law authorizes a RDA to merge project areas under its jurisdiction, and requires that at least 20% of specified taxes allocated to the RDA be deposited into the L&M fund to assist in the construction or rehabilitation of housing units for very low, and low- and moderate-income households, as specified. Existing law requires that if those funds have not been committed for that purpose within six years, the agency shall offer the funds to the housing authority that operates within the jurisdiction of the agency, as specified. Existing law provides that whenever low- or moderate-income housing dwelling units are destroyed or removed from the low- and moderate-income housing market as part of a redevelopment that is subject to a written agreement with the agency, or where financial assistance has been provided by the agency, the agency is required to provide replacement housing within four years of the destruction or removal. This bill: 1. Requires RDAs to post a copy of their annual report on the agency's or the community's Internet Web site. 2. Requires RDAs to include the following information as part of the annual report: A. The percentage of funds from the L&M fund used for planning and general administration costs; B. An itemized list of planning and general administration expenditures from the L&M fund and an explicit description of how the expenditures are necessary for the production, improvement or preservation of low- and moderate-income housing; CONTINUED SB 133 Page 3 C. Information describing the employees that are paid from the L&M fund including the title, salary, wages, benefits, and the nature of the employee's activities eligible to be paid out of the L&M fund; D. A list of the overhead costs that are paid directly or indirectly from the L&M fund; E. A statement of the amount and percentage of funds deposited into the L&M fund exclusive of debt proceeds expended for planning and administration in each of the preceding five fiscal years that begin after December 31, 2011; F. A list of all the properties owned by a RDA purchased with L&M funds, the date of acquisition for each property, a RDA's intended purpose for the property, and the amount if any of L&M funds used to acquire and maintain the property; G. For each fiscal year since the agency's last adopted implementation plan, a list of the replacement housing obligations of the RDA including the number of units that must be replaced, location, and status of the replacement and production units; and, H. For each housing project for which a RDA designates encumbered funds, or amends an existing designation or encumbrance during the fiscal year and where the RDA's financing constitutes more than 50% of the total cost of the housing project provide the project name, location, number of affordable units, affordability level, amount of agency financing and total cost of the low- and moderate-income units. 1. Provides an agency that has deposited less than $100,000 in the L&M fund is exempt from providing the information required by (A) through (H) above. 2. Requires the legislative body to adopt a separate written resolution finding that based on the annual report the actual planning and general administrative expenses do not exceed the limits allowed. CONTINUED SB 133 Page 4 3. Requires the State Controller, on or before April 1 of each year, to post on its Web site a list of RDAs with major audit violations. 4. Allows the Controller to consult with locally affected community groups as part of determining if an agency has corrected a major audit violation. 5. Allows a RDA that is subject to a court order as a result of a major audit violation to continue to issue, sell, or deliver bonds or incur debt to increase, improve, preserve, or assist in the construction, or rehabilitation of housing units for extremely low, very low, low, or moderate income housing. 6. Allows, in the 60 day window between a court's initial finding of a major audit violation and a final ruling, a RDA to pay the budgeted operation and administration of the agency, as opposed to only 75% of the budgeted amount. 7. Prohibits a RDA that is subject to a court order as result of a major audit violation to exercise the power of eminent domain. 8. Removes the statutory caps on the amount of a monetary sanction that a court can order a RDA to pay for a major audit violation and permits the court to determine a sanction that is commensurate with the violation. 9. Prohibits a RDA from paying a court sanction from the L&M fund or any other special fund related to housing. 10.Provides that an action filed by a court to compel a RDA to correct a major audit violation does not preclude an action by any other interested party or a resident of the jurisdiction. 11.Makes failure to comply with the restrictions regarding eligible expenditures for planning and general administration from the L&M fund a "major audit violation." 12.Requires the Department of Housing and Community Development (HCD) to conduct audits of RDAs to ensure compliance with the housing provisions of the CRL. CONTINUED SB 133 Page 5 13.Requires HCD to review all of the following in audits of RDAs: A. Agency compliance with production and replacement of housing obligations; B. Recording and monitoring of affordability covenants; C. Provision of relocation assistance; D. Propriety of deposits to and expenditures from the L&M fund; E. Compliance with the debt limit of the agency; F. Adoption of a legally sufficient implementation plan; G. Major audit violations as defined in the Health and Safety Code Section 33080.8; and, H. Accounting practice or provision of the CRL in the discretion of the HCD. 14.Requires RDAs to annually remit 0.05% of the L&M tax increment to HCD to conduct redevelopment audits. 15.Requires HCD to determine, on or before April 1 of each year, whether an audit or investigation from the previous year, contains a major audit violation and post those on the HCD's Internet Web site. 16.Requires on or before June 1 of each year, HCD to determine if a major audit violation has been corrected by consulting with each affected agency and locally affected community groups. 17.Requires HCD to direct RDAs to take action to correct audit violations. 18.Provides that if HCD determines that an RDA has not taken action within 180 days to correct an audit violation, it must forward all relevant documents to the Attorney General (AG) for action. CONTINUED SB 133 Page 6 19.Requires HCD to forward a copy of any audit or investigation of a RDA to the AG and the Controller. 20.Requires HCD to notify a RDA and its legislative body when it sends an audit violation to the AG. 21.Prohibits HCD from initiating or settling any litigation or to resolve any audit or investigation in a manner contrary to law. 22.Allows the Controller to conduct quality control reviews of RDA audits to the extent feasible within existing resources and to communicate the results of the review to the RDA and the independent auditor. 23.Requires that if the Controller finds that an audit was conducted in an unprofessional manner, to refer the case to the Board of Accountancy (Board). 24.Provides that if the Board determines that the independent auditor conducted the audit in an unprofessional manner then the auditor is prohibited from performing any RDA audits for three years and the Board may impose additional penalties. 25.Provides that whenever the Controller determines through two consecutive quality control reviews that an audit was not performed in substantial conformity with guidelines in state law, the Controller will notify the auditor and the Board in writing. 26.Gives the auditor 30 days after receiving the Controller's notice to file an appeal or the Controller's determination is final. 27.Provides that if the auditor files an appeal, the Board will investigate and may find that the Controller's determination will not be upheld and has no effect or schedule an appeal for hearing. 28.Provides that if the Controller's determination becomes final, the auditor is prohibited from conducting audits for three years and is subject to any additional conditions ordered by the Board. CONTINUED SB 133 Page 7 29.Provides that no later than March 1, following the date at which the Controller's determination becomes final, the Controller will notify each RDA of the auditors that are ineligible as a result of misconduct. 30.Allows the Board to take any disciplinary action against an auditor that it deems appropriate under the law. 31.Requires a RDA that is found to have deposited less into the L&M fund than required by law or to have spent money from the L&M fund for purposes other than increasing, improving, and preserving the community's supply of affordable housing, to repay the funds with interest, plus an additional 50% of that amount and interest. 32.Applies the 10-year statute of limitations for failure to deposit or expend L&M funds correctly to merged redevelopment project areas and to any other moneys that any agency must deposit in the L&M fund in addition to tax increment. 33.Prohibits repayment of any L&M funds required to meet the set-a-side requirements to come from any other funds designated for affordable housing. 34.Establishes a double cap on the amount of L&M funds that an RDA can spend on planning and general administrative costs. 35.Places a 10% cap on the amount of L&M funds that a RDA can spend on general administrative costs including: A. Employee compensation costs and related non-personnel costs, such as travel and training, paid to or on behalf of any agency, city, or county employee whose duties include permissible L&M housing activities other than direct program and project administration (i.e., line staff); B. Employee compensation costs and related non-personnel costs paid to or on behalf of any agency, city, or county employee who supervises or manages line staff or who provides general administrative services, such as finance, legal, and human resources that indirectly support permissible L&M housing activities; CONTINUED SB 133 Page 8 C. Overhead costs, such as rent, equipment, and supplies; and, D. The total value of any contracts for agency planning or administrative services that are related to permissible housing activities and that are not associated with a specific development project. 1. Places a 10% cap on the amount of L&M funds that a RDA can spend on program and project staff costs, including employee compensation costs and related non-personnel costs that are directly and necessarily associated with development of a specific housing development project including, negotiation and project management of disposition and development agreements, land leases, loan agreements and similar affordable housing agreements, RDA work on entitlements for eligible affordable housing developments, loan processing, and servicing, inspection for new rehabilitation units, construction monitory and monitoring affordable housing units. 2. Allows a RDA to spend up to 2% of their L&M fund on code enforcement provided that the RDA complies with relocation and replacement rules if tenants are displaced or homes are destroyed as a result of code enforcement activities. 3. Allows a RDA to spend any difference between the cap on "general administrative and planning" (employee compensation for executive management cost and overhead costs) and actual administrative expenditures on "program and project staff costs." 4. Requires employee compensation for executive and management staff, to be justified by an independent cost allocation study that is no more than six years old and not represent a greater proportion of the employees total compensation than the proportion of employees working directly and exclusively on activities required for the L&M fund in comparison to the total number of employees supervised, managed and directly supported by the employee. 5. Provides that the limitations planning and administrative costs do not apply to a specific project area during the CONTINUED SB 133 Page 9 first five years. 6. Provides that the planning and administrative costs apply to project areas where the project area is amended or if the tax increment of a new or amended project area is deposited into an L&M fund covering more than one project area. 7. Prohibits a RDA from spending L&M funds on any of the following: A. Code enforcement; B. Land use planning or development of or revision of the housing element except for the payment of normal project-related planning fees that is applicable to similar development projects, except that a RDA may spend L&M funds on the cost of staff participation in the development of the housing element provided that those costs are counted toward the 10% cap on planning and administration costs; C. Lobbying; and, D. Administration of non-redevelopment activities that are not related to the activities required under the L&M fund. 1. Provides that the completion of the current 10-year implementation plan for a RDA (provided the 10-year period began before January 1, 2010), the proportionality requirements dictated by regional housing needs assessment (RHNA) no longer apply, and funds must be expended from the L&M fund as follows: A. Requires at least 75% of each RDA's expenditures from the L&M fund shall directly assist the new construction, acquisition, and substantial rehabilitation or preservation of housing for persons of extremely low, very low, or low income; B. Requires at least 50% of each RDA's expenditures from the L&M fund shall directly assist the new construction, acquisition, and substantial rehabilitation or preservation of housing for persons of extremely low or CONTINUED SB 133 Page 10 very low income; and, C. Requires that at least 25% of each RDA's expenditures from the L&M fund shall directly assist the new construction, acquisition, and substantial rehabilitation or preservation of housing for persons of extremely low income. 1. Allows a RDA to count expenditures for extremely low-income housing toward the percentages required for very low income and to count expenditures for extremely low- and very low-income toward the percentages required for low income. 2. Deletes the ability of an agency to adjust the proportionality requirement for units constructed with non-redevelopment funds. 3. Requires a RDA to demonstrate in each implementation plan at the end of five years that the agency's aggregate expenditures from the L&M fund exclusive of debt service payments from the onset of the new proportionality requirements satisfy the requirements. 4. Defines "preservation" as preserving affordability of an assisted housing development that is eligible for prepayment or termination or the rental restrictions may expire within five years. 5. Defines "housing for persons of extremely low income" as housing that is available at a rent or housing cost that is affordable to households earning 30% of the area median income or 30% of the statewide median income, whichever is greater. 6. Provides that if a RDA has deposited less than $2 million in the L&M fund in the first five years after the onset of the new proportionality requirements, the RDA has 10 years to fulfill the requirements to spend the L&M funds in the percentages described above for extremely low-, very low- and low-income housing for the first time. 7. Allows, for purposes of the proportionality requirements, an agency to count contractually obligated funds as expended funds, provided that the contract is with an entity that is CONTINUED SB 133 Page 11 independent of the agency or the community for the development for a specific eligible housing development. 8. Provides that if a contract to expend funds from the L&M fund for a specific eligible housing development is terminated, the funds may no longer be counted towards meeting the proportionality requirements. 9. Provides that if a RDA fails to meet the proportionality requirements, they may not expend any money from the L&M fund for households whose incomes exceed 50% of median income until they have expended funds for extremely low-, very low- and low-income housing that should have been spent in previous implementation plan periods. 10.Provides that if a RDA fails to spend L&M funds in same proportion as the number of persons in all age groups, they may not expend any money from the L&M fund for senior households until they have expended funds for all-age housing that should have been spent in previous implementation plan periods. 11.Deletes the authority of an agency to disburse excess surplus funds to the local housing authority. 12.Requires for each interest in real property acquired using money from the L&M fund, a RDA within five years of acquiring the property, must do one of the following: A. Enter into a disposition and development agreement or a land lease with a third party for the development of housing affordable to persons and families of low and moderate income; B. Obtain final land use entitlements and secure full financing for agency development for housing that is affordable to persons and families of low and moderate income; and, C. Submit a remedial action plan for the property to the appropriate oversight agency including, but not limited to, the Department of Toxic Substances Control, the Regional Water Quality Control Board or the Office of Human Health Risk Assessment for the cleanup of CONTINUED SB 133 Page 12 contamination. 1. Provides that if a RDA has not completed one of the above within five years, or if less than 10% of the dwelling units or floor area of a project is developed within 10 years from the date the agency originally acquired the property, the agency must reimburse the L&M fund 150% of the amount expended to acquire and maintain the property or 150% the current fair market value of the property whichever is more. 2. Provides that if a RDA owns two or more adjacent properties that make up a single redevelopment project the date of acquisition will be the date of acquisition for the last acquired property provided that the date is not later than five years after the acquisition of the first property. 3. Provides that a RDA may adopt a resolution to petition HCD for an extension of the five-year deadline and the department may grant a single extension of up to five years if the department makes a finding that the failure to complete the required activities is beyond the agency's control and that the agency has a feasible plan for development. 4. Requires HCD to solicit comments from known or expected parties interested in an extension petition. 5. Requires HCD to establish a schedule of fees to cover the cost of reviewing the petition and to charge the RDA from funds other than those designated for affordable housing. 6. Provides that a RDA must deposit 150% of the fair market value of the property at the time it is sold or transferred or if the property is not sold or transferred for the fair market value of the land at the time a building permit is issued for the property if either of the following conditions exist: A. A property acquired using moneys from the L&M fund is sold or transferred for purpose other than housing that is affordable to persons and families of low and moderate income; or, B. A property that is acquired using money from the L&M fund is developed such that less than 50% of the floor CONTINUED SB 133 Page 13 area or a percentage of the floor area equal to the amount of L&M moneys that were used to acquire the property whichever is less, is housing for persons and families of low and moderate income. 1. Requires that for units destroyed within the project area on or after January 1, 2012, a RDA is required to replace vacant units such that the replacement units are available at affordable housing costs and occupied by persons and families in the same or lower income category in the same proportion as the units occupied or last occupied by low and moderate income households in the property. 2. Requires generally a RDA to replace destroyed units with new construction. 3. Provides that up to 25% of the replacement obligation incurred during a five-year implementation plan may be fulfilled by either of the following: A. With units that have been rehabilitated such that the after-rehabilitation values increased by 50% or more of the pre-rehabilitation value and the units being replaced were either: (1) At risk of demolition or closure due to substandard conditions and occupied by extremely low- or very low-income households; and, (2) Vacant due to substandard conditions. A. With substantially rehabilitated multi-family units that the agency has substantially rehabilitated within the project area, two units for each unit the agency is obligated to replace, or outside the project area three units for each unit the agency is obligated to replace. 1. Requires a RDA to adopt a separate written resolution after a public hearing that based on substantial evidence that the rehabilitation of the replacement dwelling units complies with the replacement unit requirements. 2. Provides that if a court finds that a RDA has failed to comply with replacement housing requirements, the court shall CONTINUED SB 133 Page 14 prohibit the agency from issuing any debt for any project areas except debt from which all proceeds will be deposited in the L&M fund until the court determines that the RDA has complied with this section. 3. Adds the following to the information a RDA is required to include in a replacement housing plan: A. A description of the occupancy and affordability restrictions to be imposed on replacement dwelling units; B. Substantial evidence supporting a finding that the replacement dwelling units will meet the needs of households in the income categories of the households displaced from the dwelling units that the replacement units are intended to replace; and, C. A declaration of whether the RDA intends to rehabilitate existing dwelling units. 1. Provides that if a RDA ceases its activities prior to the end of an affordability covenant, then it will designate a successor agency that will monitor and enforce the covenants for the remaining period of the covenant. 2. Provides that if no successor agency is designated at the time a RDA ceases its activities then the community must monitor and enforce the covenants for the remaining period of the covenant. 3. Includes intent language regarding the need for greater accountability and more auditing of RDAs. 4. Deletes the authority given to RDAs to offer money in the L&M fund of a merged project area to the housing authority for the purpose of constructing or rehabilitating affordable housing if the funds have been deposited in the L&M fund for six years but have not been spent. 5. Adds the following to the list of required information the implementation plan for an RDA must include: A. The proposed amount of expenditure for the L&M fund for new construction, acquisition and substantial CONTINUED SB 133 Page 15 rehabilitation or preservation for housing for persons of extremely low, very low or low income during each year of the implementation plan; B. The replacement units that satisfy each replacement housing obligation; C. In the case when replacement units have been destroyed or removed, but units are not yet complete, the proposed location of the replacement units that are not yet complete; and, D. A complete accounting for compliance with the RDA's affordable housing obligation over the life of the plan including the total number of units the RDA is obligated to replace and the total number of units required to be constructed before the end for the project area life. 1. Includes the following information for all affordable housing units that are replaced, constructed, rehabilitated or have covenants attached to them and are included in the database required by existing law: A. The street address and assessor's parcel number of the property and for properties that are listed as a group, the number of units; B. The size of each unit based on the number of bedrooms; C. The affordability level of each unit; D. The year in which the construction or substantial rehabilitation of the unit was complete; E. The date of recordation and document number of the affordability covenants or restrictions; F. The date on which the covenants or restrictions expire; G. For projects developed prior to January 1, 2002, a statement of the effective period of the land use controls established in the plan at the time the unit was CONTINUED SB 133 Page 16 developed; H. For owner-occupied units that have changed ownership during the previous implementation plan period the date and document number of the new affordability covenants or other document recorded to ensure that the affordability restrictions run with the land; and I. Whether units count toward replacement units and the units they are replacing; 1. Requires the following information as part of the implementation plan for owner-occupied and rental units that are required to replace units, are counted toward the RDA's housing obligation and are not included in the database required by existing law: A. The street address and if available assessor's parcel number of the property; B. For properties where units are listed as a group, the number of units; C. The affordability level of each unit; D. The date of recordation and document number or restrictions; and E. Whether the units count toward the replacement obligation and reference the destroyed units they are replacing. 2. Permits the implementation plan to omit any property that is used to confidentially house victims of domestic violence 3. Provides that failure to meet any of the following obligations will be an ongoing violation until the RDA has fulfilled the obligation: A. The deposit and expenditure requirements for the L&M fund; B. The obligation to eliminate project deficits to the L&M fund; CONTINUED SB 133 Page 17 C. The obligation to expend or encumber excess surplus funds; D. The obligation to provide relocation assistance; E. Replacement and production housing obligations; F. The obligation to monitor and enforce affordability covenants; and, G. The obligation to continue the project past the effectiveness date of the redevelopment plan in order to meet unfulfilled housing requirements. 4. Applies to an agency or authority created after January 1, 2014 that must comply with or that is defined as an agency pursuant to the CRL. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Assembly Appropriations Committee, this bill will result in no direct new costs because there are no existing entities yet that meet the requirements in this 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 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 for enforcement actions stemming from audits by HCD and audit reviews by the Controller. ASSEMBLY FLOOR : 77-0, 9/4/13 AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom, Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hernández, Holden, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal, CONTINUED SB 133 Page 18 Maienschein, Mansoor, Medina, Mitchell, Morrell, Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Salas, Skinner, Stone, Ting, Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, John A. Pérez NO VOTE RECORDED: Melendez, Vacancy, Vacancy JA:k 9/5/13 Senate Floor Analyses SUPPORT/OPPOSITION: NONE RECEIVED **** END **** CONTINUED