BILL ANALYSIS Ó
AB 1412
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Date of Hearing: April 15, 2015
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Brian Maienschein, Chair
AB 1412
(Perea) - As Introduced February 27, 2015
SUBJECT: Redevelopment: successor agencies to redevelopment
agencies.
SUMMARY: Allows for an expedited repayment schedule of an
outstanding loan agreement entered into between a former
redevelopment agency (RDA) and a city or county, in specified
conditions. Specifically, this bill:
1)Requires, upon application by the successor agency and
approval by the oversight board, loan agreements entered into
between the RDA and the city, county, or city and county that
created the RDA, where the outstanding principal balance of
the loan is $1.25 million or less, to be deemed to be
enforceable obligations, if the oversight board makes all of
the following findings:
a) The loan was for legitimate redevelopment purposes;
b) The loan was entered into more than two years after the
creation of the former RDA, and prior to January 1, 2011;
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c) The loan was related to an indebtedness obligation;
d) The loan is the only debt of the former RDA remaining to
be paid on the Recognized Obligation Payment Schedule
(ROPS); and,
e) The amount distributed to the taxing entities pursuant
to existing law in the previous fiscal year was less than
$250,000.
2)Prohibits repayments of a loan pursuant to 1), above, from
being subject to the requirements of existing law that
specifies the calculation schedule and maximum repayment
amounts of a loan.
3)Provides that the accumulated interest rate shall be
recalculated from origination at the interested rate of .25
percent.
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)Requires the entity assuming the housing functions of the
former RDA to submit to the Department of Finance (DOF) by
August 1, 2012, a list of all housing assets, as specified.
4)Allows the entity that assumed the housing functions to
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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
housing prior to January 1, 2011, and were backed by the Low-
and Moderate-Income Housing Fund.
6)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.
7)Provides that if the oversight board finds that the loan is an
enforceable obligation, that the accumulated interest on the
remaining principal amount of the loan shall be recalculated
from the origination at the interest rate earned by funds
deposited into the Local Agency Investment Fund (LAIF), and
requires the loan to be repaid to the city, county, or city
and county in accordance with a defined schedule over a
reasonable term of years at an interest not to exceed the
interest rate earned by funds deposited into the LAIF.
8)Requires annual loan repayments provided for in the ROPS to be
subject to all the following limitations:
a) Loan repayments shall not be made prior to the 2013-14
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fiscal year. Beginning in the 2013-14 fiscal year, the
maximum repayment amount authorized each fiscal year for
repayments made and paragraph (7) of subdivision (e) of
Section 34176 combined shall be equal to one-half of the
increase between the amount distributed to the taxing
entities pursuant to paragraph (4) of subdivision (a) of
Section 34183 in that fiscal year and the amount
distributed to taxing entities pursuant to that paragraph
in the 2012-13 base year, provided, however, that
calculation of the amount distributed to taxing entities
during the 2012-13 base year shall not include any amounts
distributed to taxing entities pursuant to the due
diligence review process. Loan or deferral repayments
shall be second in priority to amounts to be repaid
pursuant to paragraph (7) of subdivision (e) of Section
34176;
b) Repayments received by the city, county, or city and
county that formed the RDA shall first be used to retire
any outstanding amounts borrowed and owed to the Low- and
Moderate-Income Housing Fund of the former RDA for purposes
of the Supplemental Educational Revenue Augmentation Fund
(SERAF) and shall be distributed to the Low- and
Moderate-Income Housing Asset Fund; and,
c) Twenty percent of any loan repayment shall be deducted
from the loan repayment amount and shall be transferred to
the Low- and Moderate-Income Housing Asset Fund, after all
outstanding loans from the Low- and Moderate-Income Housing
Fund for purposes of the SERAF have been paid.
9)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 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: This bill is keyed fiscal.
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COMMENTS:
1)Bill Summary. This bill would allow a qualifying loan between
a former RDA and its sponsoring city or county to be
recognized as an enforceable obligation and accelerate
repayment of that loan. In order to qualify, the outstanding
balance of the loan must be
$1.25 million or less and the oversight board must approve the
application and make all
of the following findings: (1) The loan was for legitimate
redevelopment purposes; (2) the loan was entered into more
than two years after the creation of the former RDA, and prior
to January 1, 2011; (3) the loan was related to a indebtedness
obligation; (4) the loan is the only debt of the former RDA
remaining to be paid on the ROPS; and, (5) the amount
distributed to the taxing entities in the previous fiscal year
was less than $250,000.
The bill exempts repayment of the loan from portions of
existing law related to the maximum annual loan repayment
amount based on growth in the Redevelopment Property Tax Trust
Fund revenues, and the requirement that 20% of any loan
repayment shall be deducted from the loan repayment amount and
transferred to a Low- and Moderate-Income Housing Asset Fund.
The bill specifies that the accumulated interest rate shall be
recalculated from origination at the interest rate of .25%.
This bill is sponsored by the City of San Joaquin.
2)City of San Joaquin. According to the author, the City of San
Joaquin has a population of just over 4,000 people, and is
located in Fresno County. The City's projected General Fund
revenues for fiscal year 2014-15 are $898,240. Median worker
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earnings in San Joaquin are 40% lower than the national
average, and according to recent data, San Joaquin had a
poverty rate of 51.7% and an unemployment rate of 31.3% in
2013.
3)Author's Statement. According to the author, "The City of San
Joaquin and Successor Agency to the former San Joaquin
Redevelopment Agency requested this bill because the City is
owed over $1 million from a loan made to the former San
Joaquin Redevelopment Agency. Under existing law, the loan
cannot be repaid until 2050. The City is in dire need of
repayment because the remaining amount due is larger than the
City's annual budget. The loan repayment would fund much
needed public services for the community, which has
significantly lower median wages, higher poverty rates, and
higher unemployment rates compared to the rest of the State
and nation."
"Because DOF cannot authorize the Successor Agency to make
payments on the outstanding loan in excess of the maximum
amounts set in existing law, special legislation is required.
AB 1412 will permit eligible sponsoring entity loans to be
repaid faster, enabling successor agencies to be terminated
earlier. Taxing entities and the general public will benefit
because tax revenues will no longer be needed to fund the
administrative activities of the successor agency, and instead
will be distributed to affected taxing entities that provide
services to the community, such as schools and local
government agencies."
4)Loan Agreement and Repayment under Existing RDA Dissolution
Law. The City of San Joaquin and the Redevelopment Agency
entered into a loan agreement, dated February 11, 2010,
whereby the City and the RDA recognized that the RDA had
borrowed funds from the City for RDA programs and operations.
The outstanding principal amount owed to the City under the
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loan agreement, as of February 1, 2012, (the date of
dissolution of the former RDA), was $1,028,723. This loan
agreement formalized loans made by the City to the RDA since
1998 to fund redevelopment programs and operations. In part,
the loan helped the RDA pay off debts after bonds issued in
1997 went into default.
In a subsequent ratification and amendment to the loan
agreement dated February 11, 2014, the parties to the
agreement mutually agreed as follows: (1) The parties
acknowledged and agreed that the loan was for legitimate
redevelopment purposes; (2) the parties agree that the
conditions precedent in the Dissolution Act for repayment of
the loan have been met and that the loan agreement shall be
deemed to be an "enforceable obligation"; and, (3) the parties
acknowledged and agreed that the repayment of amounts owing to
the City under the loan agreement shall be subject to the
limitations and restrictions set forth in Health and Safety
Code 34191.4 (b) [specifies provisions that apply to a
successor agency that has been issued a finding of completion
by DOF and the process for repayment of loan agreements].
The Successor Agency was issued a finding of completion by DOF
on March 8, 2013. On April 24, 2013, the Successor Agency
applied for and the Oversight Board approved the loan
agreement, and made a finding that the loan of funds to the
RDA under the loan agreement was for legitimate purposes. The
loan agreement was subsequently approved by DOF on January 28,
2015. The approved terms of the loan agreement allow for the
payment of $1,028,723 bearing an interest rate of 0.249% as
determined by the current LAIF rate.
Under existing law, the loan is estimated by the City to not
be fully repaid until the year 2050. If the provisions of AB
1412 took effect, the City estimates that the loan will be
repaid by fiscal year 2021-22.
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The City notes that the Successor Agency sent a letter to and
met with DOF requesting that they consider allowing the
Successor Agency to make payments on the outstanding loan in
excess of the maximum annual amounts set by the formula in
existing law. However, DOF denied the Successor Agency's
request, stating that they do not have the authority to allow
for any other repayment amount outside of what is defined in
the statute.
5)Policy Considerations. The Committee may wish to discuss the
following policy considerations:
a) Low- and Moderate-Income Housing Asset Fund. In
addition to expediting the loan repayment schedule by
creating an exemption from the repayment schedule in
existing law, this bill also creates an exemption from the
section in existing law that requires 20% of any loan
repayment to be deducted from the loan repayment amount and
requires that money to be transferred to the Low- and
Moderate-Income Housing Asset Fund, after all outstanding
loans from the Low- and Moderate-Income Housing Fund for
purposes of the SERAF have been paid.
b) Narrow the Scope. The provisions of the bill apply to
any loan agreement that meets the criteria specified in the
bill. However, it is unclear whether there are other
cities or counties that have a similar issue and would be
captured under the bill's provisions. The Committee may
wish to consider making the bill specific to only the City
of San Joaquin.
6)Arguments in Support. The sponsor argues that the bill "is
important to the City and a win-win for all as payment
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acceleration of the loan repayment schedule will bring greater
cash flow more quickly to both the City and the affected
taxing entities?..with a General Fund of less than $1 million,
any added revenue to the City is heartily welcome?this
legislation will help complete the wind-down process regarding
the former RDA."
7)Arguments in Opposition. None on file.
8)Double-Referral. This bill is double-referred to the Housing
and Community Development Committee.
REGISTERED SUPPORT / OPPOSITION:
Support
City of San Joaquin [SPONSOR]
Opposition
None on file
Analysis Prepared by:Debbie Michel / L. GOV. / (916) 319-3958
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