BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON BUDGET AND FISCAL REVIEW
                              Senator Mark Leno, Chair
                                2015 - 2016  Regular 

          Bill No:            AB 113          Hearing Date:    July 13,  
          2015
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          |Author:   |Committee on Budget                                   |
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          |Version:  |July 9, 2015    Amended                               |
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          |Urgency:  |Yes                    |Fiscal:    |Yes              |
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          |Consultant|Mark  Ibele                                           |
          |:         |                                                      |
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                             Subject:  Local government.


          Summary: This bill contains additional provisions and provides  
          specificity to existing law governing the dissolution of  
          redevelopment agencies (RDAs) and the wind-down of their  
          existing activities and obligations. In addition, the measure  
          addresses several ongoing issues relating to state-local fiscal  
          situations. The bill is related to the implementation of the  
          Budget Act of 2015.
          
          Background:  
          AB 26 X1 (Blumenfield), Chapter 5, Statutes of 2011, First  
          Extraordinary Session, eliminated the state's approximately 400  
          RDAs, replacing them with locally-organized successor agencies  
          (SAs) assigned with the task of retiring the outstanding debts  
          and addressing other legal obligations of RDAs. The process of  
          winding-down redevelopment agencies was not expected to be a  
          straightforward process without uncertainty and controversy;  
          however, the extreme complexity of dissolving the program and  
          the time required to accomplish this was unexpected. The process  
          has somewhat delayed the receipt of property taxes by school  
          districts and often resulted in a lack of clarity for local  
          governments. Most, but not all, of these issues have been  
          resolved over the last year, and the Administration is  
          continuing the ongoing workload involved with winding down the  
          state's former RDAs.

          In terms of additional property tax increment, from 201112 to  







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          201415, approximately $1.3 billion in property tax revenue has  
          gone to cities, $1.6 billion to counties, and $531 million to  
          special districts. The budget anticipates that in 201415 and  
          201516 combined, cities will receive an additional $580 million,  
          counties $660 million, and special districts $200 million. For  
          the period through 2018-19, the Administration expects cities to  
          receive $2.9 billion, counties $3.5 billion and special  
          districts $1.1 billion. From 201112 through 2014-15,  
          approximately $4.4 billion will be returned to K14 schools. The  
          budget anticipates Proposition 98 General Fund savings resulting  
          from the dissolution of RDAs will be $964 million in 201415 and  
          $1.1 billion in 201516. On an ongoing basis, Proposition 98  
          General Fund savings stemming from RDA dissolution are estimated  
          to be well over $1.0 billion annually.

          Proposed Law: The measure includes numerous provisions which  
          represent an approach to clarifying and simplifying the RDA  
          dissolution process and addressing local fiscal situations.  
          Specifically, the bill would:

             1.   Clarify that the Department of Finance's (DOF's) actions  
               with respect to the dissolution and reconciliation process  
               for RDAs are exempt from the Administrative Procedures Act  
               (APA).

             2.   Redefine and clarify the definition of administrative  
               cost allowance as the maximum amount of administrative  
               costs that may be paid by an SA from the Redevelopment  
               Property Tax Trust Fund (RPTTF) in a fiscal year, and the  
               sole funding source for any legal expenses related to civil  
               actions regarding the RDA dissolution process.

             3.   Add the following new calculations for administrative  
               costs:

                  a.        Five percent of the property tax allocated to  
                    the SA on the Recognized Obligation Payment Schedule  
                    (ROPS) through June 30, 2016, and up to three percent  
                    of the property tax allocated to the Redevelopment  
                    Obligation Retirement Fund (RORF) thereafter through  
                    June 30, 2016.

                  b.        From July 1, 2016, and thereafter, up to three  
                    percent of the actual property tax distributed to the  








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                    SA for payment of approved enforceable obligations  
                    (EOs), not to exceed 50 percent of the total RPTTF  
                    distributed to pay for EOs in the preceding year,  
                    whether or not administrative costs are paid within  
                    the administrative cost allowance or not, with the  
                    limitation inapplicable if these costs are paid from  
                    sources other than the property tax.

                  c.        From January 1, 2012, and thereafter, not less  
                    than $250,000 in any fiscal year unless reduced by the  
                    oversight board (OB) or by agreement with the SA.

             4.   Allow sponsoring entities to provide funds to an SA for  
               purposes of paying legal expenses related to civil actions  
               contesting the RDA dissolution and reconciliation process  
               and allow these funds to be an EO for repayment, only in  
               the event that judicial relief is granted to the SA.

             5.   Make certain clarifications that the following are EOs:

                  a.        Written agreements entered into no later than  
                    June 27, 2011, for the purposes of refunding of bonds  
                    that were issued prior to January 1, 2011.

                  b.        Agreements entered into by a former RDA prior  
                    to June 28, 2011, if the agreement relates to state  
                    highway infrastructure improvements.

             1.   Create an annual, rather than biannual, process for ROPS  
               beginning with the July 1, 2016 period.

             2.   Allow for expenditure of the entire indebtedness  
               obligation proceeds associated with low- and  
               moderate-income housing purposes. Clarify annual reporting  
               requirements for the low- and moderate-income housing  
               funds.

             3.   Establish that the local governments that authorized the  
               creation of a RDA may loan funds to the RDA for costs or  
               for EOs, only to the extent that the SA receives an  
               insufficient distribution from the RPTTF, and:

                  a.        The loan shall be repaid from the source of  
                    funds originally approved for payment of the  








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                    underlying EO.

                  b.        The interest payable will be calculated at a  
                    rate not to exceed the Local Agency Investment Fund  
                    (LAIF) interest rate earned.

                  c.        Repayment will be made to the extent property  
                    tax revenue allocated to the SA is available after EOs  
                    on the ROPS are fulfilled.

             4.   Allow the county auditor-controller, as well as DOF, to  
               have the authority to require any documents associated with  
               EOs to be provided to them.

             5.   Prescribe that ROPS items that are subject to active  
               litigation are not required to be disputed in a meet and  
               confer with DOF on other disputed items.

             6.   Indicate that all agreements entered or re-entered  
               between an SA and the city or county that formed the RDA,  
               and executed after June 27, 2012, are not EOs, unless they  
               are related to the RDA wind-down process. Disallows funding  
               for any item reduced or eliminated by DO and clarify that  
               OB are not allowed to approve post June 27, 2012 re-entered  
               agreements.

             7.   Specify that RDA wind-down activities do not include  
               planning, design, redesign, development, demolition,  
               alteration, construction, construction financing, site  
               remediation, site development or improvement, land  
               clearance, seismic retrofits, or other similar work, unless  
               such work is undertaken pursuant to an EO.

             8.   State that SAs may not create EOs to repay loans entered  
               into between the RDA and the city or county that formed it  
               except as expressly provided for in law.

             9.   Establish that for a final and conclusive determination  
               regarding an EO, the SA must provide a copy of the request  
               to the county auditor-controller and to DOF, which will  
               have 100 days from the date of the request for a final and  
               conclusive determination for denial or approval of the  
               request. Specify that for a final and conclusive  
               determination request submitted prior to June 30, 2015, DOF  








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               shall have until September 30, 2015 to approve or deny.

             10.   Facilitate the issuance of bonds or other indebtedness  
               for the purposes of low- and moderate-income housing and  
               various infrastructure in the City and County of San  
               Francisco, by allowing the pledge of revenues available in  
               the RPTTF that are not otherwise pledged, subject to the  
               approval of the OB.

             11.   Address administrative aspects of OBs, including  
               establishing, clarifying or specifying that:

                  a.        Alternate representatives can be appointed to  
                    serve on OBs when members of the OB must be absent.

                  b.        Resolutions, minutes, agendas, changes in  
                    membership and certain other administrative documents  
                    or actions to be considered by the OB do not need to  
                    be submitted to DOF for approval.

                  c.        County-wide OB shall be staffed by the county  
                    auditor-controller, another county entity, or by a  
                    city chosen by the county auditor-controller after  
                    consultation with DOF, with associated costs to be  
                    recovered from the RPTTF.

                  d.        For counties with more than one OB (except  
                    counties with more than 40 OBs), there will be only  
                    one OB beginning July 1, 2017 (instead of July 1,  
                    2016).

                  e.        For counties with more than 40 OBs, commencing  
                    July 1, 2017, there shall be five OBs, with their  
                    respective jurisdictions generally coterminous with  
                    the respective borders of the 1st through 5th  
                    supervisorial districts. 

                  f.        An OB will cease to exist when its SA (or for  
                    county-wide OB, all the SAs within the county) has  
                    been dissolved.

             1.   Clarify and institute certain new provisions regarding  
               issuances of a finding of completion (FOC) by DOF,  
               specifically:








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                  a.        In addition to other options, allow an SA to  
                    receive a FOC upon entering into a written installment  
                    payment plan with DOF for payment of the amounts due  
                    pursuant to the due diligence review.

                  b.        Stipulate that an SA may not receive a FOC  
                    unless it enters into a written payment plan with DOF  
                    by December 31, 2015.

                  c.        Allow the creation of an EO with the SA if  
                    amounts due pursuant to the written payment plan are  
                    reduced pursuant to a final judicial determination.

                  d.        Provide that failure by an SA to pay amounts  
                    due under the written agreement will result in:  
                    permanent ineligibility for an FOC; invalidation of OB  
                    actions, including EO loan agreements; disallowance of  
                    any long-range property management plan; and potential  
                    recalibration of the last and final ROPS.

                  e.        Allow for an amendment to the written  
                    installment payment plan if DOF determines the  
                    necessity based on SA's fiscal condition.

             1.   Clarify the legal obligation of sponsoring entities to  
               return RDA assets when ordered to do so, provided the  
               assets were not transferred pursuant to an EO.

             2.   Expand the ability of the OB to direct the SA to  
               transfer ownership of assets with a governmental purpose to  
               an appropriate public jurisdiction, to include parking  
               facilities and lots dedicated solely to public parking.  
               Also allow a revision to the Long-Range Property Management  
               Plan (LRPMP) to include public parking lots and facilities  
               as a government purpose asset.

             3.   Allow pension and State Water Project overrides that are  
               not pledged to RDA-related debt service to go entirely to  
               the levying entity for the payment due on such obligations.  
               Provide that pledged overrides not needed for RDA debt  
               service return in their entirety to the levying entity.

             4.   Define the process and timelines for the submission,  








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               review and reconciliation for adjustments during the annual  
               ROPS process, and provide for the review by the county  
               auditor-controller and notification of DOF.

             5.   Define the process of final dissolution of the SA and  
               the required actions of various parties, including the  
               retirement of all EOs and the disposal of all assets, and  
               specify that an RDA that failed to generate any tax  
               increment is considered dissolved.

             6.   Clarify the application of tax increment caps and plan  
               expiration dates and provide that qualifying loan  
               repayments to cities or counties are exempt from the caps.

             7.   Clarify and specify that loan agreements are defined as  
               loans for money entered into between the sponsoring city or  
               county and the former RDA, with such loans to be repaid  
               with interest calculated at a rate not to exceed simple  
               interest rate of three percent, recalculated quarterly, and  
               payment applied first to principal and then to interest.  
               Specify that this provision would not have an impact on  
               loans previously approved or affect legal judgments in  
               either City of Watsonville v. Department of Finance or City  
               of Glendale v. Department of Finance.

             8.   Stipulate that proceeds of bonds issued by RDAs prior to  
               December 31, 2010 should be used as expeditiously as  
               possible with any proceeds that cannot be used in a manner  
               consistent with the bond covenants applied to the  
               defeasance of the bonds.

             9.   Provide for a tiered structure regarding the use of  
               proceeds of bonds issued by RDAs between January 1, 2011  
               and  June 30, 2011, with the incremental percentage of  
               proceeds that may be expended equal to:

                  a.        Fifteen percent upon a FOC.

                  b.        Fifteen percent with an approved last and  
                    final ROPS.

                  c.        Twenty-five percent for bonds issued between  
                    January 1, 2011 and January 31, 2011, inclusive.









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                  d.        Twenty percent for bonds issued between  
                    February 1, 2011 and February 28, 2011, inclusive.

                  e.        Fifteen percent for bonds issued between March  
                    1, 2011 and March 31, 2011, inclusive.

                  f.        Ten percent for bonds issued between April 1,  
                    2011 and April 30, 2011, inclusive.

                  g.        Five percent for bonds issued between May,  
                    2011 and May 31, 2011, inclusive.

             1.   Allow for expenditure of 55 percent of post-2010 bond  
               proceeds to be expended if their issuance was delayed due  
               to actions of a metropolitan regional transportation  
               district or resulted from refunding or refinancing of other  
               bonds issued prior to 2011.

             2.   Indicate specific provisions regarding the LRPMPs,  
               including that:

                  a.        SAs with no RDA property must submit a plan  
                    stating that fact.

                  b.        Compensation agreements may be arranged with  
                    the affected taxing entity prior to approval of the  
                    LRPMP.

                  c.        DOF must only consider whether the LRPMP  
                    represents a good faith effort and shall approve LRPMP  
                    with alacrity.

                  d.        OB actions to dispose of property pursuant to  
                    a LRPMP do not require DOF approval.

             1.   Create a last and final ROPS process that may take place  
               beginning August 1, 2015, which must be acted on by DOF  
               within 100 days after approval by the OB. Indicate that the  
               sponsoring entity loans would be repaid at the simple  
               interest rate of not to exceed four percent with payments  
               not to exceed a threshold of 15 percent of the sums that  
               would otherwise flow to the taxing entities, and allow for  
               the use of the alternative loan repayment plan. Stipulate,  
               for a last and final ROPS, the following conditions:








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                  a.        Remaining debt of the SA is limited to  
                    administrative costs and payments pursuant to EOs with  
                    defined payment schedules.

                  b.        All remaining obligations have been previously  
                    listed on a ROPS and approved for payment by DOF.

                  c.        Except for the litigation involving Los  
                    Angeles Unified School District and the County of Los  
                    Angeles, the SA is not a party to outstanding or  
                    unresolved litigation.

             1.   End "negative bailout," thus providing annual fiscal  
               relief to the counties of Stanislaus, Trinity, Plumas and  
               Lassen. Negative bailout occurs if the health and welfare  
               costs that the state assumed for a county exceed the  
               additional property tax the county receives from the  
               schools (pursuant to the post Proposition 13 property tax  
               shift), reducing through statute the county's property tax  
               revenue by the difference.

             2.   Provide fiscal relief for specified cities in Riverside  
               County incorporated after 2004-Jurupa Valley, Menife,  
               Wildomar and Eastvale-which experienced fiscal stress due  
               to lost revenue from the VLF swap, for which they were  
               ineligible, and the loss of the enhanced VLF rate  
               redirected in 2011 to fund public safety realignment.

             3.   Terminate, over a five-year period, the requirement of  
               four cities in Santa Clara County to reimburse the county  
               for the loss of ERAF due to Tax Equity Allocations (TEA), a  
               program that provides property tax to cities that levied  
               little or no property tax prior to Proposition 13 by  
               shifting property taxes from the county.

             4.   Allow the County of San Benito to participate in an  
               Educational Revenue Augmentation Fund (ERAF) repayment  
               program (for which they are currently ineligible), in order  
               to pay amounts owed to the ERAF, resulting state  
               forgiveness of approximately $3.4 million of the $4 million  
               owed by the county.

             5.   Provide for an appropriation, identifying the measure as  








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               a budget bill.
          
          Fiscal Effect: The bill would result in additional General Fund  
          costs of approximately $100 million in 2015-16, due to  
          Proposition 98 guarantee requirements and direct payments to  
          local governments.

          Support: None on file

          Opposed: None on file

          Comments: The measure represents a reasonable attempt to  
          implement a final resolution for the dissolution of RDAs, as  
          well as resolve several long standing issues related to  
          state-local fiscal relations. The bill allows for a number of  
          broad-based benefits for local governments including the use of  
          bond proceeds, allowance of certain re-entered agreements, use  
          of proceeds of bonds issued for low- and moderate-income  
          housing, as well as other benefits related to specific  
          communities. The bill also addresses the definition of loan  
          agreements and, in aggregate, is likely to reduce the amount of  
          uncertainty and litigation moving forward.

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