BILL ANALYSIS Ó
SENATE COMMITTEE ON TRANSPORTATION AND HOUSING
Senator Jim Beall, Chair
2015 - 2016 Regular
Bill No: AB 974 Hearing Date: 7/7/2015
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|Author: |Bloom |
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|Version: |3/26/2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant|Eric Thronson |
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SUBJECT: Redevelopment dissolution: housing projects: bond
proceeds
DIGEST: This bill allows both successor agencies and housing
successors to commit remaining proceeds from non-housing and
housing redevelopment bonds, respectively, issued between
January 1, 2011, and June 28, 2011, provided that the remaining
proceeds are approved by the oversight board and used for
projects that meet specific criteria.
ANALYSIS:
Historically, the Community Redevelopment Law allowed a local
government to establish a redevelopment area and capture all of
the increase in property taxes generated within the area
(referred to as "tax increment") over a period of decades. The
law requires redevelopment agencies to deposit 20% of tax
increment into a Low and Moderate Income Housing Fund (L&M Fund)
to be used to increase, improve, and preserve the community's
supply of low- and moderate-income housing available at an
affordable housing cost.
In 2011, the Legislature enacted two bills, AB 26X (Blumenfield)
and AB 27X (Blumenfield), Chapters 5 and 6, respectively, of the
First Extraordinary Session. AB 26X eliminated redevelopment
agencies (RDAs) and established procedures for winding down the
agencies, paying off enforceable obligations, and disposing of
agency assets. AB 26X established successor agencies, typically
the city that established the agency, to take control of all
AB 974 (Bloom) Page 2 of ?
redevelopment agency assets, properties, and other items of
value. Successor agencies are to dispose of an agency's assets
as directed by an oversight board, made up of representatives of
local taxing entities, with the proceeds transferred to the
county auditor-controller for distribution to taxing agencies
within each county.
AB 26X also included provisions allowing the host city or county
of a dissolving RDA to retain the housing assets and functions
previously performed by the agency, except for funds on deposit
in the agency's L&M Fund, and thus become a housing successor.
If the host city or county chooses not to become the housing
successor, a local housing authority or the California
Department of Housing and Community Development (HCD) takes on
that responsibility.
AB 27X allowed RDAs to avoid elimination if they made payments
to schools in the current budget year and in future years. In
December 2011, the California Supreme Court in California
Redevelopment Association v. Matosantos upheld AB 26X and
overturned AB 27X. As a result, all of the state's roughly 400
RDAs dissolved on February 1, 2012, and successor agencies began
implementing AB 26X's provisions to distribute former
redevelopment assets and pay the remaining obligations.
Subsequent legislation, AB 1484 (Budget Committee, Chapter 26,
Statues of 2012), allowed a successor agency to expend remaining
proceeds from non-housing redevelopment bonds issued before
January 1, 2011, for the purposes for which the bonds were sold
or to defease the bonds. AB 1484 also allowed a housing
successor to commit remaining proceeds of bonds backed by the
L&M Fund and issued for the purposes of affordable housing prior
to January 1, 2011.
This bill:
1)Allows both successor agencies and housing successors to
commit remaining proceeds from non-housing and housing
redevelopment bonds, respectively, issued between January 1,
2011, and June 28, 2011, provided that the remaining proceeds
are approved by the oversight board and used for projects that
meet all of the following criteria:
a) The project must be consistent with a region's
sustainable communities strategy or equivalent planning
AB 974 (Bloom) Page 3 of ?
strategy designed to reduce greenhouse gas emissions.
b) Two or more significant planning actions, as defined,
occurred on or before December 31, 2010, related to the
project.
c) Documentation dated on or before December 31, 2010, is
provided indicating the intention to finance all or a
portion of the project with the future issuance of
long-term debt.
d) Any construction contract over $100,000 must include a
provision ensuring prevailing wage is paid by the
contractor and all subcontractors.
e) Any construction contract over $250,000 must require
prospective contractors to establish their financial
ability and experience in performing large construction
contracts.
1)Authorizes a housing successor to reimburse with the bond
proceeds issued in 2011 a city or county that funded an
eligible project with other funds as long as the project meets
the purpose for which the bonds were issued.
2)Requires bonds to be refinanced as soon as possible to reduce
the debt service costs by lowering interest rates.
COMMENTS:
1)Purpose. 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 10-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. Further, the author
argues that bondholders who purchased tax-exempt bonds for
specific public works projects (approximately 70% of the bonds
in question) 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
AB 974 (Bloom) Page 4 of ?
tax-exempt status.
2)Defeasance vs spending. The core issue presented by this bill
is whether remaining bond proceeds should be spent or repaid
as soon as possible. While many bonds cannot be repaid for 10
years, spending the money means that the bonds will not be
repaid for up to 30 years, which of course entails significant
additional interest. All these costs are funded through local
tax increment, meaning that expending tax revenues on these
projects reduces the amount of revenues available for other
local governmental entities. Spending bond proceeds instead
of repaying the bondholders will result in the completion of
additional projects, many of which are likely to be beneficial
to the community, if not the state, but this comes with an
opportunity cost. Cities, counties, special districts, and
the state by way of the school funding backfill will have
fewer resources to spend on other needs or priorities.
3)Opposition. Opponents argue that allowing successor agencies
to use proceeds from bonds issued after the governor announced
his proposal to dissolve RDAs improperly rewards agencies that
deliberately acted to circumvent the dissolution process,
often by rushing to sell bonds at above-market interest rates.
$750 million in bond proceeds is at stake, but the ultimate
cost to schools, counties, cities, and special districts is $2
billion when the additional interest payments are included.
Opponents prefer to see the bond proceeds used to retire
redevelopment debt so that tax increment is more quickly
available to all taxing entities, including schools, which
otherwise the state's General Fund must support. In other
words, this bill requires the whole state to pay for these 39
"Mardi Gras" agencies.
4)Previous legislation. This bill is very similar to AB 2493
(Bloom) of 2014, which 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
AB 974 (Bloom) Page 5 of ?
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 [the California Department of Finance] to
develop a plan to address the outstanding bond debt of these
agencies."
To address the governor's concern expressed in his veto
message, the author has included in this bill a requirement
that successor agencies refinance their 2011 bonds. The
author argues that this requirement reduces some of the future
fiscal impacts to the state and other taxing entities. It
seems likely agencies would do this anyway; however, it is
unclear how this change will adequately address the Governor's
concerns.
5)Splitting the difference. The opponents of this bill raise
valid concerns about rewarding bad behavior at the expense of
others. Others have questioned the economic and social
benefits that some of the projects may provide should they be
funded through the mechanisms in this bill. For example,
according to the bill's supporters, some of the projects to be
funded with this money include libraries, highway landscaping,
parking structures, and law-enforcement facilities.
Notwithstanding the merits of these and other projects,
opponents are concerned about funding them on the backs of
others.
On the other hand, the bill supporters report that roughly
$135 million of the $750 million outstanding is for affordable
housing projects. About 60% of those projects could be used
under the conditions laid out in this bill, meaning roughly
$80 million could be made available with this bill for
affordable housing around the state. Given the dire need for
affordable housing, the committee may wish to amend the bill
to specify that only funds allocated for affordable housing
projects could be available for expenditure under this bill,
instead of all types of projects that otherwise meet the
bill's criteria.
AB 974 (Bloom) Page 6 of ?
6)Double referred. The Senate Rules Committee has referred this
bill to both this committee and the Committee on Governance
and Finance. If this bill passes out of this committee, then
it will next be heard in the Governance and Finance Committee.
Related Legislation:
AB 113 (Assembly Budget Committee) - this budget trailer bill
includes a number of provisions related to former RDAs and
successor agencies, including language very similar to this
bill. AB 113 is currently pending in the Senate Budget and
Fiscal Review Committee.
AB 806 (Dodd) - among other things, allows the successor agency
to amend or modify existing contracts and agreements, or
otherwise administer projects in connection with enforceable
obligations approved pursuant to existing law if the successor
agency has received a finding of completion. AB 806 is
currently pending in the Senate Governance and Finance
Committee.
AB 2493 (Bloom, 2014) - similar to this bill, 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.
AB 981 (Bloom, 2013) - would have allowed successor agencies to
use proceeds of bonds issued by an RDA between January 1, 2011,
and June 28, 2011, for projects of the former RDA, upon the
issuance of a finding of completion by the state. AB 981 bill
was held in the Assembly Appropriations Committee.
Assembly Votes:
Floor: 46-29
Appr: 12-5
H&CD: 4-2
LGov: 5-3
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes
Local: No
POSITIONS: (Communicated to the committee before noon on
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Wednesday,
July 1, 2015.)
SUPPORT:
City of West Hollywood
OPPOSITION:
California Professional Firefighters
California Special Districts Association
California State Association of Counties
County of Los Angeles
County of Santa Clara
Urban Counties Caucus
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