BILL ANALYSIS Ó
AB 974
Page 1
ASSEMBLY THIRD READING
AB
974 (Bloom)
As Amended March 26, 2015
Majority vote
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|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 | |
| | | | |
| | | | |
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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