BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 1412 |Hearing | 6/17/15 |
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|Author: |Perea |Tax Levy: |No |
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|Version: |4/30/15 |Fiscal: |Yes |
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|Consultant|Weinberger |
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CITY OF SAN JOAQUIN'S REDEVELOPMENT LOAN REPAYMENT
Allows the successor agency to the City of San Joaquin's former
redevelopment agency to accelerate the repayment of loan debts
owed by the former agency to the city
Background and Existing Law
Until 2011, the Community Redevelopment Law allowed local
officials to set up redevelopment agencies (RDAs), prepare and
adopt redevelopment plans, and finance redevelopment activities.
Citing a significant State General Fund deficit, Governor
Brown's 2011-12 budget proposed eliminating RDAs and returning
billions of dollars of property tax revenues to schools, cities,
and counties to fund core services. Among the statutory changes
that the Legislature adopted to implement the 2011-12 budget, AB
X1 26 (Blumenfield, 2011) dissolved all RDAs. The California
Supreme Court's 2011 ruling in California Redevelopment
Association v. Matosantos upheld AB X1 26, but invalidated AB X1
27 (Blumenfield, 2011), which would have allowed most RDAs to
avoid dissolution.
AB X1 26 established successor agencies to manage the process of
unwinding former RDAs' affairs. With limited exceptions, the
city or county that created each former RDA now serves as that
RDA's successor agency. Each successor agency has an oversight
board that is responsible for supervising it and approving its
AB 1412 (Perea) 4/30/15 Page 2
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actions. One of the successor agencies' primary
responsibilities is to make payments for enforceable
obligations, which are statutorily-defined legally binding and
enforceable commitments entered into by former RDAs.
State law generally excludes from the definition of "enforceable
obligation" any agreements, including loan agreements, between
the city, county, or city and county that created a former
redevelopment agency and the former redevelopment agency.
However, if a successor agency complies with state laws
requiring it to remit specified RDA property tax allocations and
cash assets identified through a "due diligence review"
process, it receives a "finding of completion" from the
Department of Finance (AB 1484, Assembly Budget Committee,
2012). A successor agency that receives a finding of completion
can repay loans made to a former redevelopment agency by the
city or county that created it, if the successor agency's
oversight board finds that the loan was for legitimate
redevelopment purposes. State law specifies timelines, maximum
repayment amounts, and interest rate calculations that apply to
these loan repayments
The City of San Joaquin and its 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 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.
DOF issued a finding of completion for the successor agency on
March 8, 2013. On April 24, 2013, the successor agency's
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 redevelopment purposes. The loan agreement was
subsequently amended on February 11, 2014, and the new loan
agreement was 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
Local Agency Investment Fund rate.
AB 1412 (Perea) 4/30/15 Page 3
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San Joaquin city officials estimate that, under current law, the
loan will not be fully repaid until 2050. Faced with ongoing
economic and fiscal challenges, city officials want the
Legislature to allow the successor agency to repay the loan more
rapidly.
Proposed Law
Assembly Bill 1412 allows for an expedited repayment schedule of
a loan agreement between a former redevelopment agency (RDA) and
the City of San Joaquin, subject to specified conditions.
Specifically, the bill:
Requires, upon application by the successor agency and
approval by the oversight board, loan agreements entered
into between the RDA and the City of San Joaquin, 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:
o The loan was for legitimate redevelopment
purposes, and was entered into more than two years
after the creation of the former RDA, and before
January 1, 2011.
o The loan was related to an indebtedness
obligation and is the only debt of the former RDA
remaining to be paid on the Recognized Obligation
Payment Schedule (ROPS).
o The amount of former tax increment revenues
distributed to the taxing entities pursuant to
existing law in the previous fiscal year was less than
$250,000.
Prohibits repayments of a loan described above, from
being subject to existing law that specifies the
calculation schedule and maximum repayment amounts of a
loan.
Directs that the accumulated interest rate must be
recalculated from origination at the interested rate of .25
percent.
AB 1412 (Perea) 4/30/15 Page 4
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State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . The City of San Joaquin confronts
significant economic and fiscal challenges. By allowing San
Joaquin's successor agency to make loan payments that exceed the
maximum amounts allowed by existing law AB 1412 will increase
revenues that are available to support vital public services in
the city, which has significantly lower median wages, higher
poverty rates, and higher unemployment rates compared to the
rest of California and the United States. Because the City's
loan is the only remaining enforceable obligation of the former
RDA's successor agency, accelerating the loan repayment will
allow the wind-down of the former RDA's affairs to be completed
much sooner than it would be under existing law.
2. Zero-sum game . Allocating former RDAs' property tax
increment revenues is a zero-sum game; every reallocation
creates winners and losers. Under AB 1412's provisions, the San
Joaquin RDA's successor agency will receive a larger allocation
of former property tax increment revenues over the next several
years than it would under current law. Other local governments
- including school districts - will receive smaller allocations
than they would under current law. One fiscal loser will be the
State General Fund, which must backfill the revenues that the
schools won't get.
3. Next in line ? Changing state law to address the City of San
Joaquin's need for accelerated RDA loan repayment may invite
similar proposals from other local governments. There are
undoubtedly other cities that would like to benefit from a more
rapid repayment of their former RDAs' debts. While AB 1412's
provisions require the successor agency's oversight board to
make finding that underscore relatively unique characteristics
of the San Joaquin loan, like the fact that it is the successor
agency's only remaining enforceable obligation, the bill may lay
the groundwork for future requests to change loan repayment
provisions to suit other communities' unique circumstances.
AB 1412 (Perea) 4/30/15 Page 5
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4. Special legislation . The California Constitution prohibits
special legislation when a general law can apply (Article IV,
§16). AB 1412 contains findings and declarations explaining the
need for legislation that applies only to the City of San
Joaquin.
Assembly Actions
Assembly Local Government Committee: 9-0
Assembly Housing & Community Development Committee: 6-0
Assembly Appropriation Committee: 15-0
Assembly Floor: 76-0
Support and
Opposition (6/11/15)
Support : City of San Joaquin.
Opposition : Unknown.
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