BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 341
                                                                  Page  1

          Date of Hearing:   June 26, 2013

                       ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
                           K.H. "Katcho" Achadjian, Chair
                   SB 341 (DeSaulnier) - As Amended:  May 30, 2013

           SENATE VOTE  :   34-0
           
          SUBJECT  :   Redevelopment.

          SUMMARY  :  Revises the activities required for entities that  
          assumed the housing functions of a former redevelopment agency.   
          Specifically,  this bill  :   

          1)Defines "housing successor" to mean the entity that assumed  
            the housing function of a former redevelopment agency, and  
            replaces the phrase "the entity assuming the housing functions  
            of the former redevelopment agency" with the term "housing  
            successor" in existing law.

          2)Defines "statutory value of real property" as the value of the  
            properties formerly held by the redevelopment agency listed on  
            the housing asset transfer form, the value of properties  
            transferred to the housing successor, and the purchase price  
            of properties purchased by the housing successor. 

          3)Defines "development" as new construction, acquisition, and  
            substantial rehabilitation of housing; acquisition of  
            long-term affordability covenants on multifamily units; or the  
            preservation of assisted housing developments that are  
            eligible for prepayment or for which the rental restrictions  
            are set to expire within five years.   

          4)Defines "excess surplus" as either an unencumbered amount in  
            the Low- and Moderate- Income Housing Asset Fund (the Fund)  
            that exceeds the greater of either $1 million or the aggregate  
            amount deposited into the account during the preceding four  
            fiscal years, whichever is greater.  

          5)Requires the housing successor to comply with the Community  
            Redevelopment Law (CRL) when administering the funds in the  
            Fund, except as specified.

          6)Allows the housing successor each fiscal year, to spend up to  
            2% of the statutory value of real property owned by the  








                                                                  SB 341
                                                                  Page  2

            housing successor and of loans and grants receivable,  
            including real property, on administrative costs of monitoring  
            and preserving the long-term affordability of units and other  
            activities as specified. If this amount is less than $200,000,  
            allows the housing successor to spend up to $200,000 for that  
            fiscal year on monitoring and preserving the affordability of  
            housing units. 

          7)Allows the housing successor, once it has fulfilled its  
            monitoring obligations and its obligations to replace low- and  
            moderate-income housing that has been removed or destroyed, to  
            spend up to $250,000 on homeless prevention and rapid  
            rehousing activities for families and individuals. 

          8)Requires the housing successor to spend any funds remaining,  
            after 5) and 6) are accomplished, on the development of  
            housing affordable to and occupied by households earning 80%  
            or less of area median income (AMI) of which at least 30% must  
            be spent for rental housing affordable to households earning  
            30% or less of AMI and no more than 20% may be spent on  
            housing affordable to and occupied households earning between  
            60% and 80% of AMI.    

          9)Requires a housing successor to complete a report in 2019, and  
            every five years after, which demonstrates that it has spent  
            funds on the specified income categories from January 1, 2014,  
            through the end of the latest fiscal year.   

          10)Requires a housing successor that fails to spend the required  
            amount of funds on extremely low-income housing to set aside  
            50% of remaining funds, expended in each fiscal year following  
            the latest fiscal year, on extremely low-income housing until  
            the housing successor is in compliance. 

          11)Requires a housing successor that exceeds the expenditure  
            limit allowed for housing for households earning between 60%  
            and 80% of AMI, as evidenced by the five-year report, to cease  
            expending funds on those households until the housing  
            successor demonstrates compliance with the limit in an annual  
            report. 

          12)Provides that if the aggregate number of deed-restricted  
            rental housing provided to seniors in the last ten years by  
            the housing successor, former redevelopment agency, or host  
            jurisdiction exceeds 50% of the aggregate number of units of  








                                                                  SB 341
                                                                  Page  3

            deed restricted housing within the same time period, then the  
            housing successor must not expend any funds to assist  
            additional senior housing until construction begins on units  
            available to all persons regardless of age that is equal to  
            50% of the aggregate number of total deed restricted rental  
            units within the previous ten years. 

          13)Provides that program income does not have to be spent in a  
            project area but can be spent anywhere in the jurisdiction it  
            was collected or can be transferred to another jurisdiction  
            without a finding of benefit. 

          14)Allows two or more housing successors in a county or in a  
            single metropolitan statistical area, within 15 miles of each  
            other, or that are contiguous jurisdictions, to enter into an  
            agreement to transfer funds, without making a finding of  
            benefit to the project area, with the following conditions:

             a)   The funds are used for the following purposes:  
               transit-oriented development, permanent supportive housing,  
               farmworker housing, or special-needs housing;

             b)   The participating housing successors make a finding that  
               the transfer will not exacerbate racial, ethnic, and  
               economic segregation;

             c)   The development is not in a census tract where more than  
               50% of the population is very low-income unless it is  
               within one-half mile of a major transit stop or high  
               quality transit corridor;

             d)   Neither housing successor has any outstanding  
               obligations to replace removed or destroyed low-income  
               housing;

             e)   The completed development will not result in a reduction  
               in the number of housing units or a reduction in the  
               affordability of housing units;

             f)   No housing successor is allowed to transfer more than $1  
               million;

             g)   The jurisdictions of the housing successor agencies that  
               are transferring funds have an adopted and substantially  
               compliant housing element and have submitted an annual  








                                                                  SB 341
                                                                  Page  4

               progress report within the preceding 12 months;

             h)   Transferred funds can only be used for housing that is  
               affordable to households earning 60% of AMI; and,

             i)   If transferred funds are not encumbered within two  
               years, then they must be transferred to the Department of  
               Housing & Community Development (HCD) and deposited in the  
               Multifamily Housing Program (MHP) or Joe Serna Jr.  
               Farmworker Housing Program. 

          1)Requires a housing successor with an excess surplus to either  
            encumber the funds for the development of affordable housing  
            or transfer the funds to another qualifying successor agency  
            within three fiscal years.  If a successor agency fails to do  
            either of these, it must transfer the excess surplus to HCD to  
            be spent under the MHP or Joe Serna Jr. Farmworker Housing  
            Program.

          2)Eliminates the requirement for a housing successor to report  
            annually to the State Controller or to HCD. 

          3)Requires a housing successor, to conduct an independent  
            financial audit of the Low- and Moderate-Income Housing Asset  
            Fund within six months of the end of each fiscal year. 

          4)Requires a housing successor that is a city or county to  
            include the following in its housing element annual report and  
            post it on its website or if the housing successor is not a  
            city or county to provide the following to the governing body  
            and post it on its Internet Web site:

             a)   The amount deposited into the Fund, distinguishing the  
               amounts for enforceable obligations on the ROPS and other  
               amounts;

             b)   A statement of the balance of the funds at the close of  
               the fiscal year, which distinguishes any amounts held for  
               items on the ROPS from other amounts;

             c)   A description of expenditures from the Fund by category;

             d)   The statutory value of real property owned by the  
               housing successor, the value of loans and grants  
               receivable, and the sum of the two amounts;








                                                                  SB 341
                                                                  Page  5


             e)   A description of any amounts transferred to another  
               housing successor in the previous fiscal year, any amounts  
               that are still unencumbered from an earlier fiscal years,  
               and an update on the status of the project for which funds  
               were transferred;
             f)   A description and status of any project that the housing  
               successor receives tax revenue as part of the ROPs;

             g)   A description of any outstanding obligations to replace  
               destroyed or removed housing that remained and were  
               transferred to the housing successor on February 1, 2012,  
               the plan for accomplishing that obligation, and a copy of  
               the implementation plan of the former redevelopment agency;

             h)   Compliance with expenditures required for housing for  
               extremely low-income households;

             i)   The percentage of deed restricted rental units for  
               seniors assisted within the previous 
             10 years as compared to the aggregate number of units  
               assisted in deed-restricted rental housing; and,

             j)   The amount of excess surplus, the amount of time that  
               the successor agency has had the excess surplus, and the  
               housing successor's plan for eliminating the excess  
               surplus.

           EXISTING LAW  :

          1)Limits planning and general administrative expenditures from  
            the Low- and Moderate-Income Housing Fund to the following  
            costs which are directly related to permissible housing  
            activities:  

             a)   Salaries, wages and related costs of the agency's staff  
               or the costs for services provided through interagency or  
               outside agreements; and,

             b)   Costs incurred by a nonprofit corporation that are  
               directly attributable to a specific project. 

          2)States that legal, architectural and engineering costs and  
            other salaries, wages and costs directly related to the  
            planning and execution of a specific project are not planning  








                                                                  SB 341
                                                                  Page  6

            and administrate cost for that purpose of this section but  
            instead project costs.

          3)Requires redevelopment agencies to expend funds to increase,  
            preserve, and improve the community's supply of low- and  
            moderate-income housing. 

          4)Defines "excess surplus" as any unexpended and unencumbered  
            amount in an agency's Low- and Moderate-Income Housing Fund  
            that is greater than $1 million or the sum of the last four  
            years' worth of tax increment. 

          5)Requires a redevelopment agency to disburse excess surplus  
            funds to the housing authority or a local housing development  
            agency within one year or expend the funds itself in three  
            years. 

          6)Requires a redevelopment agency within five years of acquiring  
            a property to initiate activities consistent with the  
            development of the property, including, but not limited to,  
            zoning changes, disposition and development agreements. 

          7)Provides that a redevelopment agency may, by resolution,  
            extend the deadline by up to five years to initiate activities  
            consisted with development of a property.

          8)Requires that each redevelopment agency, over each 10-year  
            period of the agency's redevelopment implementation plan,  
            expend the moneys in the Low- and Moderate-Income Housing Fund  
            to assist housing for persons of very low- and low-income in  
            at least the same proportion as those income categories  
            represent within the total number of very low-, low-, and  
            moderate-income housing units assigned to the jurisdiction as  
            part of the regional housing needs assessment under housing  
            element law.

          9)Requires a redevelopment agency, within four years of  
            destroying or removing dwelling units that house low-or  
            moderate-income households to replace the units by  
            rehabilitating, developing, or constructing an equal number of  
            replacement units at the same affordability level within the  
            territory of the redevelopment agency. 

          10)Requires a redevelopment agency to ensure that 30% of all new  
            substantially rehabilitated housing units developed by the  








                                                                  SB 341
                                                                  Page  7

            redevelopment agency and 15% of all new and substantially  
            rehabilitated housing units developed within the project area  
            are affordable to low- and moderate-income households. 

          11)Requires a redevelopment agency to hire impendent auditors  
            each year to review their financial statements.

          12)Requires a redevelopment agency to submit their audits to the  
            Controller by April 1 of each year who must compile a list of  
            agencies for which an independent auditor identified major  
            audit violations.  

          13)Requires the Controller by June 1 of each year to determine  
            if the listed agencies have corrected the major audit  
            violation, and if not, refer the violations to the Attorney  
            General for action.

           FISCAL EFFECT  :   This bill is keyed fiscal.

           COMMENTS  :   

          1)This bill revises rules governing the activities and  
            expenditures of housing successors to streamline  
            administrative requirements while ensuring accountability,  
            provide additional flexibility, and target scarce available  
            resources to the greatest needs.  This bill is  
            author-sponsored.

            According to the author, "After the dissolution of  
            redevelopment agencies, 'housing successors' assumed the  
            housing rights, powers, duties, obligations, and physical  
            assets of the former redevelopment agencies.  In most cases,  
            the city or county that hosted the redevelopment agency became  
            the housing successor.  Housing successors are subject to all  
            of the housing-related provisions of the Community  
            Redevelopment Law.  This law was written, however, for a  
            context in which redevelopment agencies received at least 20%  
            of all redevelopment tax increment, more than $1 billion per  
            year in aggregate.  Housing successors anticipate  
            significantly reduced resources and income that may be  
            sporadic and somewhat unpredictable.   
            "Given this new context, the staff of the Senate  
            Transportation and Housing Committee convened a small working  
            group to develop a revised set of rules to govern the  
            activities and expenditures of housing successors'  








                                                                  SB 341
                                                                  Page  8

            redevelopment-related funds.  The goals of the working group  
            were to streamline administrative requirements while ensuring  
            accountability, provide additional flexibility, and target  
            scarce available resources to the greatest needs.  This bill  
            represents the group's consensus."

          2)In 2011, facing a severe budget shortfall, the Governor  
            proposed eliminating redevelopment agencies in order to  
            deliver more property taxes to other local agencies.   
            Redevelopment redirected 12% of property taxes statewide away  
            from schools and other local taxing entities and into  
            community development and affordable housing.  Ultimately, the  
            Legislature approved and the Governor signed two measures,  
            ABX1 26 and ABX1 27 that together dissolved redevelopment  
            agencies as they existed at the time and created a voluntary  
            redevelopment program on a smaller scale.  In response, the  
            California Redevelopment Association (CRA), the League of  
            California Cities, along with other parties, filed suit  
            challenging the two measures. The Supreme Court denied the  
            petition for peremptory writ of mandate with respect to ABX1  
            26.  However, the Court did grant CRA's petition with respect  
            to ABX1 27.  As a result, all redevelopment agencies were  
            required to dissolve as of February 1, 2012.    

            As part of the dissolution process, local jurisdictions were  
            required to set up a housing successor to assume the housing  
            functions of the former redevelopment agency.  The city or  
            county that created the redevelopment agency could opt to  
            become the housing successor, but if they chose not to, the  
            responsibility was transferred to a housing authority in the  
            jurisdiction of the former redevelopment agency.  If there was  
            no housing authority in the jurisdiction, then the housing  
            functions were to be transferred to HCD.  Housing successors  
            are required to maintain any funds generated from housing  
            assets in the Low- and Moderate-Income Housing Asset Fund and  
            use them in accordance with the housing-related provisions of  
            the CRL.  The Low- and Moderate-Income Housing Asset Fund  
            includes real property and other physical assets, funds  
            encumbered for enforceable obligations, any loan or grant  
            receivable, any funds revised from rents or operation of  
            properties, rents or other payments from housing tenants or  
            operators, and repayment of loans or deferrals owed to the  
            Low- and Moderate-Income Housing Fund.  Funding available to a  
            housing successor in the post-redevelopment world is limited  
            to program dollars repaid from loans or investments made by  








                                                                  SB 341
                                                                  Page  9

            the former redevelopment agency. This is a much smaller amount  
            than was generated by a redevelopment agency which produced  
            more than $1 billion in tax increment for housing activities  
            statewide each year.

          3)SB 341 retains the housing provisions of the CRL as the basic  
            law governing housing successors but alters the law for  
            housing successor in the following ways:

             a)   Allows housing successors to expend available funds  
               first for the purpose of monitoring and preserving the  
               long-term affordability of units in its portfolio and for  
               administering its activities up to an annual cap of 2% of  
               its portfolio value or $200,000 whichever is greater;

             b)   Allows housing successors to expend up to $250,000 per  
               year for homeless prevention and rapid rehousing services  
               to individuals and families who are homeless or at risk of  
               homelessness;

             c)   Alters the income targeting requirements and applies  
               them only to funds left after allowed monitoring and  
               administration expenditures and homeless prevention  
               services;

             d)   Relaxes the limitations on senior housing allowing no  
               more than 50% of housing financed by the jurisdiction over  
               a ten-year period to be limited to seniors; and,

             e)   Allows housing successors to transfer funds among  
               themselves under certain conditions for the purpose of  
               developing affordable units in transit priority projects,  
               permanent supportive housing, farmworker housing, or  
               special needs housing. 
           
           1)Given the current ongoing process to unwind redevelopment, the  
            Committee may wish to consider whether it is prudent to pass  
            legislation that creates new rules for housing successors this  
            year, or whether it may be more appropriate to continue with  
            the unwinding and numerous lawsuits and revisit this issue in  
            future years, once the dust settles.

            The Committee may also wish to ask the author to talk about  
            the small working group that assisted with the contents of  
            this bill.  Who was included? How many meetings did the group  








                                                                  SB 341
                                                                 Page  10

            have?  Was this bill met with consensus from all those  
            involved, or are there still concerns?  Were local government  
            associations consulted?

          2)The author has a companion measure to this bill, SB 133  
            (DeSaulnier), that is contingent upon the enactment of this  
            bill. SB 133 makes reforms to the CRL that would apply to any  
            future entities that are created and vested with the same  
            statutory powers and duties of redevelopment agencies.  SB 133  
            is pending in both the Assembly Housing and Community  
            Development Committee and this Committee.

           3)Support arguments  :  Supporters argue that this bill revises  
            rules governing the activities and expenditures of housing  
            successors to streamline administrative requirements while  
            ensuring accountability, additional flexibility, and the  
            ability to target scare available resources to the greatest  
            needs.

             Opposition arguments  :  None on file

          4)This bill was heard by the Assembly Housing and Community  
            Development Committee on June 19, 2013 and passed on a 7-0  
            vote.

           REGISTERED SUPPORT / OPPOSITION  :

           Support                                            Opposition 
           
          California Housing Consortium                None on file
          City of San Jose
          County of Sonoma
          Housing California
          The Non-Profit Housing Association of Northern California
           
           
           Analysis Prepared by  :    Debbie Michel / L. GOV. / (916)  
          319-3958