BILL ANALYSIS                                                                                                                                                                                                    



                                                                     AB 974


                                                                    Page  1





          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  








                                                                     AB 974


                                                                    Page  2





               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  








                                                                     AB 974


                                                                    Page  3





               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  








                                                                     AB 974


                                                                    Page  4





            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  








                                                                     AB 974


                                                                    Page  5





            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  








                                                                     AB 974


                                                                    Page  6





            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  








                                                                     AB 974


                                                                    Page  7





          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  








                                                                     AB 974


                                                                    Page  8





          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  








                                                                     AB 974


                                                                    Page  9





          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








                                                                     AB 974


                                                                    Page  10









          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