BILL ANALYSIS Ó
AB 1412
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Date of Hearing: April 29, 2015
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Ed Chau, 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 RDAs as of February 1, 2012 and institutes a process
for winding down their activities (Health and Safety Code
Section 34170).
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 (Health and Safety Code
Section 34176).
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 rate 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:
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a) Loan repayments shall not be made prior to the 2013-14
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 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.
(Health and Safety Code Section 34191.4)
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
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approval no later than six months following the issuance to
the successor agency of the finding of completion (Health and
Safety Code Section 34191.5).
FISCAL EFFECT: Unknown.
COMMENTS:
Background: In 2011, the Legislature approved and the Governor
signed two measures, ABX1 26 and ABX1 27 that together dissolved
redevelopment agencies as they existed at the time and created a
voluntary redevelopment program on a smaller scale. In
response, the California Redevelopment Association (CRA), League
of California Cities, along with other parties, filed suit
challenging the two measures. The Supreme Court denied the
petition for peremptory writ of mandate with respect to ABX1 26.
However, the Court did grant CRA's petition with respect to ABX1
27. As a result, all RDAs were required to dissolve as of
February 1, 2012.
When RDAs were dissolved, successor agencies were established to
wind up the RDAs' obligations. Successor agencies were required
to effectuate the transfer of an RDA's housing functions and
assets to a "housing successor." Cities and counties were given
the option of acting as housing successors and taking over the
housing assets of their jurisdiction's RDA. If they did not
wish to take on this role, the local housing authority was
required to act as housing successor. A housing successor is
authorized to 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.
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Affordable housing: Prior to their dissolution, redevelopment
generated up to $1 billion a year for affordable housing in the
state. Redevelopment agencies were required to set- a-side 20%
of tax increment generated in a project area to increase,
improve, or rehabilitate affordable housing for low, very-low,
and moderate income families and individuals. Existing law
requires twenty percent of any loan repayment provided for in
the ROPS to be deducted from the loan repayment amount and
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.
Purpose of this bill: According to the author, "the City of San
Joaquin has sponsored AB 1412 because it has a $1 million loan
that cannot be repaid until 2050 under existing law. AB 1412
would allow the loan to be repaid by 2022 (estimated). The
City's annual General Fund budget is less than $1 million, so
additional revenues are greatly needed to fund services for its
citizens, who have higher rates of poverty and unemployment
compared to the rest of the State.
Eligible sponsoring entity loans will be repaid faster without a
maximum annual loan repayment amount, enabling successor
agencies to be terminated earlier. 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."
The sponsor of the bill, the City of San Joaquin, argues that
the bill "is important to the City and a win-win for all as
payment 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
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RDA."
Loan agreement and repayment under existing RDA dissolution law:
The City of San Joaquin and the RDA 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 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
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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.
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.
Accelerated loan repayment: 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
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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%.
Staff comment: AB 1412 would, during the term of the proposed
accelerated repayment plan, prioritize the repayment of the City
of San Joaquin's loan ahead of payments to other taxing entities
such as the county and school districts. Under existing law,
the loan would not enter repayment until 2025, and would be paid
off by 2050. Under AB 1412, it would enter repayment in 2016
and would be paid off by approximately 2022. Accelerating the
loan repayment will result in a temporary reduction in property
tax going to the other taxing agencies, including schools,
during the time of the loan repayment. However, according to
the author, accelerated repayment will eventually increase funds
disbursed to affected taxing entities by about $5.2 million,
primarily from not having to pay over two decades' worth of
administrative costs for the successor agency (as it is required
to terminate its existence within one year of the final debt
payment), as well as from accumulating less interest on the
loan.
AB 1484 (Committee on Budget), Chapter 26, Statutes of 2012,
addressed numerous issues related to the dissolution of RDAs.
Among other things, it clarified certain matters associated with
the dissolution of RDAs and addressed substantive issues related
to administrative processes, affordable housing activities, use
of existing bond proceeds, and the disposition or retention of
former RDA assets. It also placed loan agreements between the
former RDA and the sponsoring entity on the ROPS as an
enforceable obligation, and specified repayment terms, including
that 20% of the loan repayment amount be transferred to the Low-
and Moderate-Income Housing Asset Fund.
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This bill also creates an exemption for the City of San Joaquin
from the requirement that 20% of any loan repayment be deducted
from the loan repayment amount and transferred to the Low- and
Moderate-Income Housing Asset Fund. As applied to the City,
this would be approximately $215,000 that would go to the City's
General Fund, as opposed to the Low- and Moderate-Income Housing
Asset Fund.
Affordable housing lost significant funding after RDA
dissolution, and the 20% transfer ensures that at least some
housing asset funds are used for their intended purpose. The
City states that the amount of taxing entity savings will be
minimally impacted if the bill is amended to require 20% of the
loan repayment amount to be deposited into the Low- and
Moderate-Income Housing Asset Fund. The Committee may wish to
consider whether it is appropriate to exempt the City of San
Joaquin from this requirement.
Committee amendments: The Committee may wish to accept the
following amendments:
1. An amendment narrowing the bill to only apply to the City
of San Joaquin.
2. An amendment providing that the City of San Joaquin is not
exempt from provisions in existing law that require 20% of any
loan repayment to be deducted from the loan repayment amount and
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 Supplemental Educational
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Revenue Augmentation Fund have been paid.
Double-referral : This bill was double-referred to the Assembly
Local Government Committee, where it passed 9-0 on April 15,
2015.
REGISTERED SUPPORT / OPPOSITION:
Support
City of San Joaquin (Sponsor)
Opposition
None on file
Analysis Prepared by:Rebecca Rabovsky / H. & C.D. / (916)
319-2085
AB 1412
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