BILL ANALYSIS Ó
AB 974
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Date of Hearing: April 29, 2015
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Ed Chau, Chair
AB 974
(Bloom) - As Amended March 26, 2015
SUBJECT: Redevelopment dissolution: housing projects: bond
proceeds
SUMMARY: Allows successor agencies of former redevelopment
agencies (RDAs) 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
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regional sustainable communities strategy or alternative
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
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 meet
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 bond 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 meet 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 RDAs 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 ROPS and that are
consistent with the indebtedness obligation covenants.
5)Requires the proceeds to be derived from indebtedness
obligations that were issued for the purposes of affordable
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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 RDA assets;
b) Place loan agreements between the former RDA 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 RDA, and requires the report to be
submitted to the oversight board and DOF for approval no later
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than six months following the issuance to the successor agency
of the finding of completion.
FISCAL EFFECT: Unknown.
COMMENTS:
Background: In 2011, facing a severe budget shortfall, the
Governor proposed eliminating RDAs 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 RDAs as they
existed at the time and created a voluntary redevelopment
program on a smaller scale. In response, the California
Redevelopment Association (CRA) 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 petition with respect to AB 27 X1. As a result,
all RDAs 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 RDAs and
addressed a number of substantive 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 RDA 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
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assets, loan repayments to the local government community that
formed the agency, and use of proceeds from bonds issued by the
former RDA. 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.
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.
This bill also specifies that prevailing wage must be included
for each construction contract over $100,000, and requires a
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 are
not met, and requires the defeasing of bonds to be done in a
manner that maximizes fiscal savings.
The author has introduced similar legislation in the past
including AB 2493 (Bloom) (2013) which was vetoed. To address
the veto, this bill would require a successor agency to
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refinance their 2011 bonds to lower interest rates when
refinancing is allowed by the bond's indenture. The intent of
this change is to reduce the fiscal impact to the state and
other taxing entities due to the use of the 2011 bond proceeds.
Purpose of this bill : 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."
Related Legislation :
AB 981 (Bloom) of 2013: Would have allowed successor agencies to
use proceeds of bonds issued by a RDA 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.
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
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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."
Double-referred : This bill was double-referred to the Committee
on Local Government, where it passed 5-1 on April 15, 2015.
REGISTERED SUPPORT / OPPOSITION:
Support
City of West Hollywood (sponsor)
City of Santa Monica
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Opposition
California Professional Firefighters
California Special Districts Association (CSDA)
California State Association of Counties (CSAC)
Santa Clara County Board of Supervisors
Analysis Prepared by:Lisa Engel / H. & C.D. / (916) 319-2085