BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair SB 341 (DeSaulnier) - Redevelopment: assumption of housing functions. Amended: April 1, 2013 Policy Vote: T&H 10-0 Urgency: No Mandate: No Hearing Date: April 29, 2013 Consultant: Mark McKenzie This bill does not meet the criteria for referral to the Suspense File. Bill Summary: SB 341 would make numerous changes to the powers and duties of entities assuming the housing functions of former redevelopment agencies (housing successors). Fiscal Impact: Minor and absorbable costs to the Department of Housing and Community Development (HCD) to make annual adjustments to the cap on monitoring and administrative costs based on inflationary factors (General Fund). Potential shift of housing successor revenues among local agencies, and shifts in local expenditures from activities authorized under current law to the priorities identified in the bill (Local- Low and Moderate Income Housing Asset Funds). Unknown, likely minor state revenue gains, to the extent that housing successors fail to encumber excess surplus or specified transferred funds within the allotted timeframes. Any funds that accrue to HCD as a result of these transfers must be programmed for expenditure in the Multifamily Housing Program or the Joe Serna, Jr. Farmworker Housing Program. Minor costs to HCD to administer the expenditure of any transferred funds, as specified above. Background: Prior to 2011, the Community Redevelopment Law (CRL) authorized cities and counties to establish redevelopment agencies (RDAs) and capture any increase in property taxes generated within a project area (referred to as "tax increment") over a period of decades for expenditures to eliminate blight. SB 341 (DeSaulnier) Page 1 State law required redevelopment agencies to deposit 20 percent of tax increment into a Low and Moderate Income Housing Fund to be used to increase, improve, and preserve the community's supply of low and moderate income housing available at an affordable housing cost. In 2011, the Legislature enacted ABx1 26 (Blumenfield), Chapter 5 of the First Extraordinary Session. ABx1 26 eliminated redevelopment agencies and established procedures for winding down RDA affairs, paying off enforceable obligations, and disposing of agency assets. ABx1 26 provided for "housing successors" to assume the housing rights, powers, duties, obligations, and physical assets of the former redevelopment agencies, as specified in the CRL. In most cases, the city or county that authorized the creation of the RDA became the housing successor. If the host jurisdiction opted not to take on the responsibility, the local housing authority became the housing successor. If there is no local housing authority in the jurisdiction of the former RDA, the Department of Housing Community Development became the housing successor. To date, HCD has not assumed the duties as housing successor for any former RDAs. Proposed Law: SB 341 would specify that funds in a housing successor's Low and Moderate Income Housing Asset Fund are generally subject to expenditure requirements of the housing provisions of the CRL, with revisions to the general requirements in the following ways: Deletes current CRL provisions relating to planning and administrative costs and specified income targeting requirements. Authorize a housing successor to spend up to 2% of its annual portfolio value, or $200,000, whichever is greater, for the purpose of monitoring and preserving the long-term affordability of units in its portfolio and for administering its activities. Authorize housing successors to spend up to $250,000 annually for homeless prevention and rapid rehousing services to individuals and families who are homeless or at risk of homelessness, as long as outstanding housing replacement and production requirements of the RDA have been fulfilled. Apply income targeting requirements only to funds left after expenditures for authorized monitoring and administration and SB 341 (DeSaulnier) Page 2 provision of homeless prevention services. Require new reporting every five years on expenditures related to targeted populations, and restricts future expenditures if specified goals are not met. Provide that program income a housing successor receives shall not be associated with a project area and may be expended outside of a project area without a finding of benefit to a project area. Allow housing successors to transfer funds among themselves for the purpose of developing affordable units in transit priority projects, permanent supportive housing, farmworker housing, or special needs housing, subject to specified conditions. Require any funds that are transferred among housing successors to be transferred to HCD for expenditure in the Multifamily Housing Program or the Joe Serna, Jr. Farmworker Housing Grant Program. Require that a housing successor that has not expended excess surplus within three years to transfer the surplus to HCD for expenditure in those existing programs for multifamily housing or farmworker housing. Eliminate the requirement for a housing successor to report annually to the State Controller, and instead allow a successor to combine its annual independent financial audit with that of its host jurisdiction. Also replaces the current provisions requiring reporting to HCD and the agency's governing body with a requirement for the housing successor to include specified information in its annual housing element progress report to HCD. Staff Comments: This bill would revise the general requirements for a housing successor's expenditure of funds available in a local Low and Moderate Income Housing Asset Fund, which includes real property and other physical assets, funds related to housing enforceable obligations, loan and grant receivables, rents and other payments from housing tenants or operators, and repayments of loans or deferrals, as specified in existing law. The changes in the bill are intended to provide increased flexibility, streamline administrative requirements, and target resources to expenditures that have been deemed the greatest needs by interested parties. The California Constitution prohibits the state from redirecting redevelopment property tax revenues, and generally prohibits the SB 341 (DeSaulnier) Page 3 state from shifting property taxes revenues from cities, counties, and special districts (Section 25.5 of Article XIII). It is unclear whether the transfers of unencumbered "excess" housing asset funds, or those transferred among housing successors, to HCD, as specified in the bill, would violate the constitutional protections related to local property tax revenues. It seems unlikely, however, that there would be a legal challenge to any such transfer. Since there are be significant demands on available housing asset revenues, it seems unlikely that there would be any transfers to HCD, and if there ever were in the future, such transfers would likely be rare and the amounts involved would be fairly small. In addition, housing asset funds are not narrowly defined as property tax revenues. Rather, the funds are either the rents derived from, or proceeds from the sale of, property that was purchased, partially at least, with property tax increment revenues, or repayment of loans of former housing asset funds, which are repaid from property tax revenue reallocated to a successor agency. At this time, staff is uncertain whether there is a legal case to be made that housing asset funds are property tax revenues that are subject to constitutional restrictions.