BILL ANALYSIS                                                                                                                                                                                                    



                                                                       AB 974


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          ASSEMBLY THIRD READING


          AB  
          974 (Bloom)


          As Amended  March 26, 2015


          Majority vote


           ----------------------------------------------------------------- 
          |Committee       |Votes |Ayes                |Noes                |
          |                |      |                    |                    |
          |                |      |                    |                    |
          |----------------+------+--------------------+--------------------|
          |Local           |5-3   |Gonzalez, Alejo,    |Maienschein,        |
          |Government      |      |Chiu, Cooley,       |Linder, Waldron     |
          |                |      |Holden              |                    |
          |                |      |                    |                    |
          |----------------+------+--------------------+--------------------|
          |Housing         |4-2   |Chau, Burke, Chiu,  |Steinorth, Beth     |
          |                |      |Lopez               |Gaines              |
          |                |      |                    |                    |
          |----------------+------+--------------------+--------------------|
          |Appropriations  |12-5  |Gomez, Bonta,       |Bigelow, Chang,     |
          |                |      |Calderon, Daly,     |Gallagher, Jones,   |
          |                |      |Eggman,             |Wagner              |
          |                |      |                    |                    |
          |                |      |                    |                    |
          |                |      |Eduardo Garcia,     |                    |
          |                |      |Gordon, Holden,     |                    |
          |                |      |Quirk, Rendon,      |                    |
          |                |      |Weber, Wood         |                    |
          |                |      |                    |                    |
          |                |      |                    |                    |
           ----------------------------------------------------------------- 








                                                                       AB 974


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          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  
               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,  








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                 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 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  








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            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 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.









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          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  
            obligations that were issued for the purposes of affordable  
            housing prior to January 1, 2011, and were backed by the Low-  








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            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 the  








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            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:  According to the Assembly Appropriations  
          Committee, this bill contains significant General Fund impacts, in  
          the tens of millions of dollars, over several fiscal years  
          resulting from the continued repayment of bonds issued in 2011  
          from tax increment that would otherwise be redistributed to local  
          taxing entities, including schools.  Because the General Fund must  
          backfill any amounts that would otherwise go to schools under  
          Proposition 98's (1988) minimum funding guarantee, this bill would  
          result in future General Fund impacts. 


          COMMENTS:  


          1)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 this 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 this 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.  This  
            bill contains several other provisions to clarify when 2011 bond  








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            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.


          2)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."


          3)Prior Legislation.  AB 981 (Bloom) of the 2013-14 Regular  
            Session 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.  AB 981 was held in  
            the Assembly Appropriations Committee.
            AB 2493 (Bloom) of 2014 would have allowed successor agencies to  








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            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.


          4)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.
          5)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."











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          Analysis Prepared by:                                               
                          Debbie Michel / L. GOV. / (916) 319-3958  FN:  
          0000564