BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1404 HEARING: 4/30/14
AUTHOR: Leno FISCAL: No
VERSION: 4/23/14 TAX LEVY: No
CONSULTANT: Weinberger
SAN FRANCISCO SUCCESSOR AGENCY'S ENFORCEABLE OBLIGATIONS
Allows San Francisco's successor agency to receive former
tax increment revenues and issue debt to pay for specified
affordable housing activities.
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. As a redevelopment project area's assessed
valuation grew above its base-year value, the resulting
property tax revenues - the property tax increment - went
to the RDA instead of going to the underlying local
governments. The RDA kept the property tax increment
revenues generated from increases in property values within
a redevelopment project area. State law required
redevelopment agencies to set aside 20% of their property
tax increment revenues to increase, improve, and preserve
the supply of affordable housing (AB 3674, Montoya, 1976).
In response to criticism that some redevelopment projects
seemed to continue without end, the Legislature required
local officials to limit the length of time during which
redevelopment plans remained in effect, RDAs could issue
debt, and property tax increment could be diverted to RDAs
(AB 1290, Isenberg, 1993). Worried that some redevelopment
project areas might reach their statutory deadlines without
having fulfilled their obligations to provide affordable
housing, the Legislature required that RDAs must meet their
housing obligations before they terminate project areas.
State law suspended the time limits on a redevelopment
plan's effectiveness and on the diversion of property tax
increment revenues to repay its debts until the RDA "fully
complied with its obligations" (SB 211, Torlakson, 2001).
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In 2000, six of San Francisco's oldest redevelopment
project areas were about to reach some of the statutory
deadlines on RDA activities. The Legislature extended the
deadlines and allowed San Francisco officials to use the
resulting funds to replace more than 6,700 affordable
housing units that the RDA had demolished and not replaced
during the years before state law imposed replacement
housing requirements on RDAs (SB 2113, Burton, 2000).
Specifically, the Legislature allowed San Francisco
officials to:
Extend the deadline for establishing debt in the
older project areas until 2014, or until the RDA
replaced all of the demolished housing units,
whichever date was earlier.
Extend the deadline for receiving property tax
increment revenues to pay for their housing debts
until 2044.
The Burton bill required San Francisco to focus on
low-income housing, limit its administrative spending, and
get state approval before incurring more debt. The time
extension excluded schools' share of property tax revenues,
avoiding a continuing cost to the State General Fund.
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.
AB X1 26 established successor agencies to manage the
process of unwinding former RDAs' affairs. With limited
exceptions, the city or county that created each former RDA
now serves as that RDA's successor agency. Each successor
agency has an oversight board that is responsible for
supervising it and approving its actions. The Department
of Finance (DOF) can review and request reconsideration of
an oversight board's decisions. One of the successor
agencies' primary responsibilities is to make payments for
SB 1404 -- 4/23/14 -- Page 3
enforceable obligations entered into by former RDAs. The
statutory definition of an "enforceable obligation"
includes bonds, specified bond-related payments, some
loans, payments required by the federal government,
obligations to the state, obligations imposed by state law,
legally required payments related to RDA employees,
judgments or settlements, and other legally binding and
enforceable agreements or contracts that are not otherwise
void as violating the debt limit or public policy.
Before state law dissolved RDAs, San Francisco's RDA had
been able to finance the construction of 867 of the 6,709
replacement affordable housing units that the Burton bill
allowed it to finance. The DOF does not recognize the
financing of the remaining 5,842 replacement affordable
housing units as an enforceable obligation of the former
redevelopment agency. As a result, San Francisco officials
are unable to issue debt backed by former tax increment
revenues to finance the remaining replacement housing
units.
Proposed Law
Senate Bill 1404 confirms that replacing 5,842 housing
units that the former Redevelopment Agency of the City and
County of San Francisco destroyed and did not replace is a
statutory obligation that remains under statutes governing
redevelopment agencies' dissolution. SB 1404 allows the
successor agency to San Francisco's redevelopment agency,
with approval from its oversight board, to replace all of
the demolished housing units. The bill grants the
successor agency, in addition to the powers that state law
grants to each successor agency, the authority, rights, and
powers of the Redevelopment Agency of the City and County
of San Francisco, subject to the oversight board's
approval, exclusively for the purpose of fulfilling the
replacement housing obligations. SB 1404 requires the
successor agency to use no more than six redevelopment
project areas under redevelopment plans that meet specified
criteria to fulfill the replacement housing obligations.
The bill allows the successor agency, with the oversight
board's approval, to merge the redevelopment project areas.
SB 1404 -- 4/23/14 -- Page 4
SB 1404 allows the successor agency to issue bonds or other
indebtedness, backed by property tax revenues from six
project areas, exclusively for the purpose of fulfilling
replacement housing obligations. The bill requires that
the bonds must be sold subject to standards enumerated in
specified state laws that currently govern bonds issued by
successor agencies. SB 1404 allows the successor agency to
issue bonds through either a negotiated or competitive
sale. The bill directs that any time limit on incurring
debt or receiving property tax revenues to repay that debt
does not apply until the successor agency replaces all of
the demolished housing units. The successor agency may
issue new bonds or other obligations on a parity basis with
outstanding bonds or other obligations of the successor
agency relating to the six project areas. The successor
agency may pledge the revenues pledged to those outstanding
bonds or other obligations to a new issuance of bonds or
other obligation. That pledge, when made in connection
with the issuance of those bonds or other obligations must
have the same lien priority as the pledge of outstanding
bonds or other obligations, and must be valid, binding, and
enforceable in accordance with its terms.
SB 1404 prohibits annual property tax revenues authorized
by the bill from exceeding the amount needed to pay for the
successor agency's activities in fulfilling replacement
housing obligations. The bill prohibits the successor
agency from collecting or spending more than 10% of the
revenues on planning and administrative costs. SB 1404
requires that property tax revenues allocated to the
successor agency pursuant to the bill's provisions must be
distributed from funds that are available for distribution
to non-school entities from the Redevelopment Property Tax
Trust Fund after specified preexisting legal commitments
and statutory obligations are funded from that revenue
pursuant to state law. Property tax allocations made
pursuant to SB 1404's provisions cannot include specified
moneys that are payable to school entities from the
Redevelopment Property Tax Trust Fund.
SB 1404 requires that the successor agency's activities
must:
Be consistent with statutory affordable housing
requirements and the policies and objectives of the
community's housing element.
Address the unmet housing needs of very low, low-
and moderate-income households.
SB 1404 -- 4/23/14 -- Page 5
Be consistent with the community's most recently
approved consolidated and annual action plans
submitted to the United States Department of Housing
and Urban Development.
The bill requires the successor agency to devote no less
than 50% of the revenues to assist in developing housing
that is affordable to very low income households.
SB 1404 contains additional legislative findings and
declarations relating to San Francisco's affordable housing
replacement obligations.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . The unique history of the former
San Francisco Redevelopment Agency's demolition of low- and
moderate-income housing as part of its so-called "urban
renewal" more than four decades ago directly contributed to
the housing affordability crisis that confronts the city
today. Allowing San Francisco's successor agency to issue
debt backed by former tax increment revenues to finance the
construction of 5,842 affordable housing units provides San
Francisco officials with a vital tool they can use to
address the city's critical shortage of affordable housing.
SB 1404 only grants San Francisco narrow authority to
finance the construction of a limited number of specific
affordable housing units in a manner that is consistent
with the terms established by SB 2113 (Burton, 2000).
Specifically, the bill does not allow the successor agency
to divert any money that would otherwise be payable to
school entities, thereby avoiding State General Fund costs.
The bill preserves the requirement for State approval of
indebtedness issued by the successor agency and
specifically requires oversight board approval of the
successor agency's activities. Because of San Francisco's
unique structure as a city and county, with only two
non-school taxing entities within its boundaries, the
dedication of property tax revenues pursuant to SB 1404
will have limited fiscal implications for other local
SB 1404 -- 4/23/14 -- Page 6
governments. By enabling San Francisco to finance
thousands of urgently-needed affordable housing units and
mitigate the effects of its former RDAs housing demolition,
SB 1404 will benefit residents of San Francisco and the
wider Bay Area.
2. Rights vs. obligations . San Francisco officials may
have broadly interpreted the Burton bill as imposing an
obligation on the RDA to replace all of the housing units
demolished by the agency before 1975. However, this
interpretation is debatable. SB 2113 could be interpreted
as merely granting the former RDA the right to continue
some of its affordable housing activities for a limited
time to replace some, but not necessarily all, of the
demolished units. SB 2113 said that the RDA "may" retain
the ability to incur indebtedness for affordable housing
activities, subject to the approval of San Francisco's
Board of Supervisors, not that it "must" replace the
demolished housing units. The bill declared that the RDA
wished "to the greatest extent feasible" to replace the
lost units according to statutory formulas that governed
the replacement of affordable housing units demolished by
RDAs, implying that the RDA did not wish to be fully
obligated to replace the demolished housing units.
Subsequent legislation requiring RDAs to meet their housing
obligations before they terminated project areas (SB 211,
Torlakson, 2001) did not specifically cross-reference the
statute enacted by the Burton bill. As a result, it may be
inaccurate for SB 1404 to "confirm" that the replacement of
5,842 demolished affordable housing units is an enforceable
obligation of San Francisco's former RDA. Undoubtedly,
many other communities would like the Legislature to
designate, as enforceable obligations, worthwhile
redevelopment activities that their former RDAs had
planned, but not completed, when RDAs were dissolved.
3. Let's be clear . SB 1404's requirement that the
successor agency can use the former RDA's powers
exclusively for the purpose of fulfilling replacement
housing obligations is ambiguous. It is possible to
misread the bill's language as narrowly requiring that only
the issuance of debt must be for the purpose of fulfilling
replacement housing obligations. To avoid any confusion,
the Committee may wish to consider amending SB 1404 to
clarify that the successor agency can exercise the powers
of the former RDA exclusively for the purpose of fulfilling
SB 1404 -- 4/23/14 -- Page 7
replacement housing obligations. SB 1404 also fails to
describe how the successor agency should calculate the
number of replacement housing units that are constructed
using the powers granted by the bill. To help public
officials and other stakeholders evaluate the successor
agency's progress towards replacing the demolished housing
units, the Committee may wish to consider amending SB 1404
to specify the methodology that the successor agency must
use to calculate the number of replacement housing units
that it finances pursuant to the bill's provisions.
4. Special legislation . The California Constitution
prohibits special legislation when a general law can apply
(Article IV, §16). SB 1404 contains findings and
declarations explaining the need for legislation that
applies only to the successor agency to the City and County
of San Francisco's Redevelopment Agency.
Support and Opposition (4/24/14)
Support : City and County of San Francisco; Chinatown
Community Development Center; San Francisco Supervisor
Malia Cohen; Council of Community Housing Organizations;
Mercy Housing; Non-Profit Housing Association of Northern
California; Tenderloin Neighborhood Development
Corporation.
Opposition : Unknown.