BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 974|
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THIRD READING
Bill No: AB 974
Author: Bloom (D)
Amended: 3/26/15 in Assembly
Vote: 21
SENATE TRANS. & HOUSING COMMITTEE: 8-2, 7/7/15
AYES: Beall, Cannella, Allen, Galgiani, McGuire, Mendoza,
Roth, Wieckowski
NOES: Gaines, Leyva
NO VOTE RECORDED: Bates
SENATE GOVERNANCE & FIN. COMMITTEE: 4-1, 7/15/15
AYES: Hertzberg, Beall, Lara, Pavley
NOES: Moorlach
NO VOTE RECORDED: Nguyen, Hernandez
SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/27/15
AYES: Lara, Beall, Hill, Leyva, Mendoza
NOES: Bates, Nielsen
ASSEMBLY FLOOR: 46-29, 6/2/15 - See last page for vote
SUBJECT: Redevelopment dissolution: housing projects: bond
proceeds
SOURCE: Author
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
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proceeds are approved by the oversight board and used for
projects that meet specific criteria.
ANALYSIS:
Existing law:
1)Eliminates redevelopment agencies (RDAs) and establishes
procedures for winding down the agencies, paying off
enforceable obligations, and disposing of agency assets.
2)Establishes successor agencies, typically the city that
established the RDA, to take control of all RDA 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.
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
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
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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.
Background
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, ABX1 26
(Blumenfield) and ABX1 27 (Blumenfield), Chapters 5 and 6,
respectively, of the First Extraordinary Session. ABX1 26
eliminated RDAs and established procedures for winding down the
agencies, paying off enforceable obligations, and disposing of
agency assets. ABX1 26 established successor agencies,
typically the city that established the agency, to take control
of all RDA assets, properties, and other items of value.
Successor agencies are to dispose of an RDA'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.
ABX1 26 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
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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 takes on that
responsibility.
ABX1 27 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 ABX1 26 and
overturned ABX1 27. As a result, all of the state's roughly 400
RDAs dissolved on February 1, 2012, and successor agencies began
implementing ABX1 26's provisions to distribute former
redevelopment assets and pay the remaining obligations.
Subsequent legislation, AB 1484 (Assembly 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.
Comments
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.
Prior Legislation
This bill is very similar to AB 2493 (Bloom) of 2014, which
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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 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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Senate Appropriations Committee, this bill will
likely incur significant General Fund impacts, potentially tens
of millions of dollars in some years, most of which would occur
beginning in 2021 and through 2041, as a result of the bill
allowing for continued debt repayment on bonds issued in 2011
from tax increment that would otherwise be redistributed to
taxing entities if the bonds were defeased.
The amount of continued debt service payments from tax increment
revenues would escalate to a peak of $99 million in 2026 and
decline to approximately $42 million in 2041 (the typical
30-year term of most affected bonds), preventing a like amount
from being distributed to local agencies that receive a portion
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of the property tax, including schools. Since the General Fund
must backfill any amounts that would otherwise go to schools
under Proposition 98's minimum funding guarantees, this bill
would result in future General Fund impacts that could reach the
tens of millions of dollars, reaching a peak in 2026 and
declining thereafter. (This does not account for any potential
economic benefits resulting from allowing the completion of
projects funded by the 2011 bonds.)
SUPPORT: (Verified8/28/15)
City of Santa Monica
City of West Hollywood
OPPOSITION: (Verified8/28/15)
California Professional Firefighters
California Special Districts Association
California State Association of Counties
County of Los Angeles
County of Santa Clara
Urban Counties Caucus
ARGUMENT IN SUPPORT: 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
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proceeds must be used for their intended purpose, or the bonds
could be subject to losing their tax-exempt status.
ARGUMENT IN 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.
ASSEMBLY FLOOR: 46-29, 6/2/15
AYES: Alejo, Bloom, Bonilla, Bonta, Brown, Burke, Calderon,
Campos, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Dodd,
Eggman, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez,
Roger Hernández, Holden, Jones-Sawyer, Levine, Lopez, Low,
McCarty, Medina, Mullin, Nazarian, O'Donnell, Perea, Quirk,
Rendon, Ridley-Thomas, Salas, Santiago, Mark Stone, Thurmond,
Ting, Weber, Williams, Wood, Atkins
NOES: Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang,
Dahle, Beth Gaines, Gallagher, Gray, Grove, Hadley, Harper,
Irwin, Jones, Kim, Lackey, Linder, Maienschein, Mathis, Mayes,
Melendez, Obernolte, Olsen, Patterson, Steinorth, Wagner,
Waldron, Wilk
NO VOTE RECORDED: Chávez, Frazier, Gonzalez, Gordon, Rodriguez
Prepared by:Eric Thronson / T. & H. / (916) 651-4121
8/31/15 17:35:41
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