BILL ANALYSIS                                                                                                                                                                                                    



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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




















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