BILL ANALYSIS Ó
AB 974
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Date of Hearing: April 15, 2015
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Brian Maienschein, Chair
AB 974
(Bloom) - As Amended March 26, 2015
SUBJECT: Redevelopment dissolution: housing projects: bond
proceeds.
SUMMARY: Allows successor agencies greater flexibility for bond
obligation proceeds issued between January 1, 2011, and June 28,
2011, under specified conditions. Specifically, this bill:
1)Extends, from January 1, 2011, to June 28, 2011, the date by
which a housing successor can designate the use of, and
commit, indebtedness obligation proceeds that were issued for
affordable housing purposes.
2)Extends, from December 31, 2010, to June 28, 2011, the date in
existing law that provides that bond proceeds derived from
bonds issued on or before that date must be used for the
purposes for which the bonds were sold.
3)Requires bond proceeds derived from bonds issued between
January 1, 2011, and June 28, 2011, to only be used for
projects which meet the following criteria, as determined by a
resolution issued by the oversight board:
a) The project shall be consistent with the applicable
regional sustainable communities strategy or alternative
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planning strategy adopted, as specified, that the State Air
Resources Board (Board) has determined would, if
implemented, achieve the greenhouse gas emission reduction
targets established by the Board or, if a sustainable
communities strategy is not required for a region by law, a
regional transportation plan that includes programs and
policies to reduce greenhouse gas emissions;
b) Two or more significant planning or implementation
actions shall have occurred on or before December 31, 2010.
The term" significant planning or implementation actions"
means any of the following:
i) An action approved by the governing body of the
city, county, city and county, the board of the former
redevelopment agency (RDA), or the planning commission
directly related to the planning or implementation of the
project;
ii) The project is included within an approved city,
county, city and county, or RDA planning document,
including, but not limited to, an RDA five-year
implementation plan, capital improvement plan, master
plan, or other planning document; or,
iii) The expenditure by the city, county, city and
county, or project sponsor, of more than $25,000 on
planning-related activities for the project within one
fiscal year, of $50,000 in total, over multiple years.
c) Documentation dated on or before December 31, 2010,
shall be provided indicating the intention to finance all
or a portion of the project with the future issuance of
long-term debt, or documentation showing that the issuance
of long-term RDA debt was being planned on or before
December 31, 2010;
d) Each construction contract over $100,000 shall include a
provision that prevailing wage will be paid by the
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contractor and all of that contractor's subcontractors;
and,
e) For each construction contract over $250,000, the
successor agency shall require prospective contractors to
submit a standardized questionnaire and financial
statements as part of their bid package, to establish the
contractor's financial ability and experience in performing
large construction projects.
4)Provides that any city, county, or city and county that funded
an eligible project, meeting the criteria listed above in 3a)
through 3c), inclusive, with funds other than redevelopment
funds, between June 28, 2011, and the effective date of this
bill, shall be eligible to be reimbursed utilizing 2011 bond
proceeds, if the project meets the purpose for which the bonds
were issued.
5)Requires any successor agency requesting the use of bond
proceeds derived from bonds issued between January 1, 2011,
and June 28, 2011, in accordance with 3) and 4), above, shall
place that request on its Recognized Obligation Payment
Schedule (ROPS).
6)Requires the successor agency to place each project on a
separate ROPS line item.
7)Requires the successor agency to detail in the resolution
adopting the ROPS how each project will meet the requirements
in 3) and 4), above, and all documentation showing how the
project meets those shall be attached to the resolution.
8)Requires the resolution adopting the ROPS, including the
supporting documentation, to be forwarded to the Department of
Finance (DOF) for review and approval or denial.
9)Provides that if remaining bond proceeds derived from bonds
issued on or before December 31, 2010, cannot be spent in a
manner consistent with the bond covenants in existing law, or
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if bond proceeds derived from bonds issued between January 1,
2011, and June 28, 2011, cannot be used for projects that met
the requirements in 3) and 4), above, the proceeds shall be
used to defease the bonds or to purchase those same
outstanding bonds on the open market for cancellation.
10)Requires, if only a portion of the bonds proceeds will be
used, the successor agency to defease or purchase bonds for
cancellation in a manner that maximizes fiscal savings.
11)Requires, if bond proceeds derived from bonds issued between
January 1, 2011, and June 28, 2011, can be used for projects
that met the requirements of 3) and 4), above, the
corresponding bonds to be refinanced, when refinancing is
allowed according to the bond's indenture, to reduce debt
service costs by lowering interest rates according to the
provisions set forth in existing law.
EXISTING LAW:
1)Dissolves redevelopment agencies and institutes a process for
winding down their activities.
2)Allows a city or county that authorized the creation of an RDA
to elect to retain the housing assets and functions previously
performed by the RDA.
3)Required the entity assuming the housing functions of the
former RDA to submit to DOF by August 1, 2012, a list of all
housing assets, as specified.
4)Allows the entity that assumed the housing functions to
designate the use of and commit indebtedness obligation
proceeds that remain after the satisfaction of enforceable
obligations that have been approved in a Recognized Obligation
Payment Schedule and that are consistent with the indebtedness
obligation covenants.
5)Requires the proceeds to be derived from indebtedness
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obligations that were issued for the purposes of affordable
housing prior to January 1, 2011, and were backed by the Low-
and Moderate-Income Housing Fund.
6)Requires DOF to issue a finding of completion to the successor
agency, within five business days, once the following
conditions have been met and verified:
a) The successor agency has paid the full amount as
determined during the due diligence reviews and the county
auditor-controller has reported those payments to DOF; and,
b) The successor agency has paid the full amount as
determined during the July True-up process; or,
c) The successor agency has paid the full amount upon a
final judicial determination of the amounts due and
confirmation that those amounts have been paid by the
county auditor-controller.
7)Allows the successor agency, upon receiving the finding of
completion, to:
a) Retain dissolved redevelopment agency assets;
b) Place loan agreements between the former redevelopment
agency and sponsoring entity on the ROPS, as an enforceable
obligation, provided the oversight board makes a finding
that the loan was for legitimate redevelopment purposes;
and,
c) Utilize proceeds derived from bonds issued prior to
January 1, 2011, in a manner consistent with the original
bond covenants.
8)Requires, after DOF issues a finding of completion, the
successor agency to prepare a long-range property management
plan that addresses the disposition and use of the real
properties of the former redevelopment agency, and requires
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the report to be submitted to the oversight board and DOF for
approval no later than six months following the issuance to
the successor agency of the finding of completion.
FISCAL EFFECT: This bill is keyed fiscal.
COMMENTS:
1)Background on RDA Dissolution. 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,
AB 26 X1 (Blumenfield), Chapter 5, Statutes of 2011-12 First
Extraordinary Session, and AB 27 X1 (Blumenfield), Chapter 6,
Statutes of 2011-12 First Extraordinary Session, 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
and 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 AB 26 X1. However, the Court did grant the
California Redevelopment Association's petition with respect
to AB 27 X1. As a result, all redevelopment agencies were
required to dissolve as of February 1, 2012.
As part of the winding down of redevelopment agencies, AB 1484
(Blumenfield), Chapter 26, Statutes of 2012, made various
statutory changes associated with the dissolution of
redevelopment agencies and addressed a number of substantive
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issues related to administrative processes, affordable housing
activities, repayment of loans from communities, use of
existing bond proceeds and the disposition or retention of
former redevelopment agency assets.
One of the provisions in AB 1484 allowed successor agencies
that have received a "finding of completion" from DOF to have
additional discretion regarding former agency real property
assets, loan repayments to the local government community that
formed the agency, and use of proceeds from bonds issued by
the former redevelopment agency. In order to receive the
finding of completion, the successor agency must undergo
specified due diligence reviews and make the required payments
to DOF.
Current law requires redevelopment bonds issued between
January 1, 2011, and June 28, 2011 to be defeased, or used to
purchase the bonds on the open market for cancellation.
2)Bill Summary. This bill allows successor agencies to use bond
proceeds issued by RDAs between January 1, 2011, and June 28,
2011, as long as the criteria in the bill are met, and gives
DOF the ability to review and either approve or deny the
request by the successor agency to use bond proceeds.
Criteria for allowing bond proceeds to be used include a
requirement that the project be consistent with the applicable
sustainable communities strategy or alternative planning
strategy, pursuant to SB 375 (Steinberg), Chapter 728,
Statutes of 2008, a requirement that two or more significant
planning or implementation actions must have occurred on or
before December 31, 2010, as the bill defines, and that
documentation dated on or before December 31, 2010, must be
provided indicating the intention to finance all or a portion
of the project with the future issuance of long-term debt, or
documentation showing that the issuance of long-term RDA debt
was being planned on or before December 31, 2010.
The bill also specifies that prevailing wage must be included
for each construction contract over $100,000, and requires a
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standardized questionnaire and financial statements as part of
the bid package for construction contracts over $250,000. The
bill contains several other provisions to clarify when 2011
bond proceeds need to be defeased, if the criteria in the bill
isn't met, and requires the defeasing of bonds to be done in a
manner that maximizes fiscal savings.
This bill is sponsored by the City of West Hollywood.
3)Author's Statement. According to the author, "It is estimated
that approximately $750 million in 2011 RDA bond proceeds are
currently sitting idle and cannot be used. If these proceeds
were spent on their intended projects, it is estimated that
19,000 high wage construction and related jobs would be
generated.
"The State has asserted that the vast majority of the 2011 RDA
bonds must be defeased and their proceeds not spent on
projects; however, over 90% of these bonds cannot be defeased
for 10 years. During this ten year period nearly $1 billion
will be spent on the debt service payments for these bonds,
and the bond proceeds will continue to go unused. The vast
majority of these bonds were issued for public works projects
such as infrastructure construction and repair, new public
facilities, and affordable housing.
"Bondholders who purchased tax-exempt bonds (approximately 70%
of the bonds in question) for specific public works projects
were promised tax-free returns. Per Federal Tax Law,
tax-exempt bond proceeds must be used for their intended
purpose, or the bonds could be subject to losing their
tax-exempt status."
4)Prior Legislation. AB 981 (Bloom) of 2013 would have allowed
successor agencies to use proceeds of bonds issued by a
redevelopment agency between January 1, 2011, and June 28,
2011, for projects of the former RDA, upon the issuance of a
finding of completion by DOF. That bill was held in the
Assembly Appropriations Committee.
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AB 2493 (Bloom) of 2014 would have allowed successor agencies
to use proceeds derived from bonds issued between January 1,
2011, and June 28, 2011, if the project was consistent with a
sustainable communities strategy or reduced greenhouse gas
emissions. AB 2493 was vetoed by Governor Brown, with the
following veto message:
"I applaud the author's efforts to craft legislation to target
specific projects for funding from 2011 bond proceeds.
Funding for this measure, however, would come at the expense
of lost property tax dollars to cities and counties that chose
not to incur debt during this period, as well as special
districts and schools. The cost to the general fund to
backfill schools could be significant, to the tune of $500
million, at a time when the state is still recovering from
deep recession.
"I recognize that the cost to local governments to defease
these high interest rate bonds is significant. Therefore, I
am directing DOF to develop a plan to address the outstanding
bond debt of these agencies."
5)Arguments in Support. Supporters argue that allowing these
funds to be expended will create many prevailing wage jobs,
shelter additional families in affordable housing, and rebuild
critical infrastructure in cities that can serve as a catalyst
for additional private-sector development.
6)Arguments in Opposition. The County of Santa Clara argues
that this bill "would allow these funds to be used for new
projects that were not under contract by June 27, 2011, rather
than to pay down debt as required by current law?this is
directly contrary to the expeditious wind-down of the former
RDAs and improperly rewards RDAs that deliberately acted to
circumvent the dissolution process."
7)Double-Referral. This bill is double-referred to the
Committee on Housing and Community Development.
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REGISTERED SUPPORT / OPPOSITION:
Support
City of West Hollywood [SPONSOR]
Opposition
California Special Districts Association
County of Santa Clara
Analysis Prepared by:Debbie Michel / L. GOV. / (916) 319-3958
AB 974
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