BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 1412 (Perea) - Redevelopment:  successor agencies to  
          redevelopment agencies
          
           ----------------------------------------------------------------- 
          |                                                                 |
          |                                                                 |
          |                                                                 |
           ----------------------------------------------------------------- 
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Version: April 30, 2015         |Policy Vote: GOV. & F. 7 - 0    |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Urgency: No                     |Mandate: No                     |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Hearing Date: June 29, 2015     |Consultant: Mark McKenzie       |
          |                                |                                |
           ----------------------------------------------------------------- 


          This bill meets the criteria for referral to the Suspense File. 







          Bill  
          Summary:  AB 1412 would authorize the accelerated repayment of a  
          loan between the City of San Joaquin and the City's former  
          redevelopment agency (RDA), under specified conditions.


          Fiscal  
          Impact:  Relative to current law, this bill would result in  
          increased General Fund expenditures of approximately $650,535  
          through the 2022-23 fiscal year (see below), followed by reduced  
          General Fund expenditures through 2051-52.  The net impact of  
          the bill relative to the current loan repayment schedule would  
          be a reduction of approximately $2.8 million in overall  
          expenditures from the General Fund.







          AB 1412 (Perea)                                        Page 1 of  
          ?
          
          

          The estimated short-term increased General Fund expenditures  
          related to the accelerated loan repayment schedule would be as  
          follows:  
                 $72,254 in 2015-16
                 $76,129 in 2016-17
                 $80,081 in 2017-18
                 $84,112 in 2018-19
                 $88,224 in 2019-20
                 $92,418 in 2020-21
                 $96,695 in 2021-22
                 $60,626 in 2022-23.  

          These amounts represent the portion of Redevelopment Property  
          Tax Trust Fund (RPTTF) revenues dedicated to loan repayment  
          through 2022-23 that would otherwise be allocated to school  
          entities, absent the bill.  In general, any reductions in  
          amounts allocated to schools from the RPTTF as a result of  
          accelerating loan repayments must be backfilled from the state  
          General Fund, while any increased allocations to schools from  
          the RPTTF as a result of avoided future loan payments would  
          reduce General Fund expenditures, pursuant to the Proposition 98  
          minimum funding guarantees.


          Background:  Historically, the Community Redevelopment Law has allowed a  
          local government to establish RDAs and capture all of the  
          increase in property taxes that is generated within the project  
          area beyond the base year value (referred to as "tax increment")  
          over a period of decades.  Prior to their dissolution pursuant  
          to ABx1 26 (Blumenfield) Chap 5/2011, RDAs used tax increment  
          financing (including the school share), oftentimes issuing  
          long-term debt in the form of tax allocation bonds, to address  
          issues of blight, construct affordable housing, rehabilitate  
          existing buildings, and finance development and infrastructure  
          projects.
          Existing law establishes procedures for winding down RDA  
          activity, including a requirement that successor agencies  
          dispose of former RDAs' assets under direction of an oversight  
          board.  Successor agencies are required to make any payments  
          related to enforceable obligations, as specified in an adopted  
          biannual recognized obligation payment schedule (ROPS), and  
          remit unencumbered balances of RDA funds to the county  
          auditor-controller for distribution to local taxing entities in  








          AB 1412 (Perea)                                        Page 2 of  
          ?
          
          
          the county.  The Department of Finance (DOF) reviews each ROPS  
          to determine if the listed payments meet the statutory criteria  
          for repayment, and has the authority to disallow any payments  
          that do not meet those criteria.  


          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.  San Joaquin city officials  








          AB 1412 (Perea)                                        Page 3 of  
          ?
          
          
          estimate that, under current law, the loan will not be fully  
          repaid until 2051-52.  



          Proposed Law:  
            AB 1412 allows for an expedited repayment schedule of a loan  
          agreement between a former 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 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 interest rate of 0.25  
               percent.




          Related  
          Legislation:  AB 113 (Budget Committee), currently pending in  








          AB 1412 (Perea)                                        Page 4 of  
          ?
          
          
          the Senate Budget and Fiscal Review Committee, is a budget  
          trailer bill that would make numerous changes to the RDA  
          dissolution statutes, among other local government provisions.  


          Recommended  
          Amendments:  This bill and AB 113 both propose to amend Health  
          and Safety Code §34191.4.  Staff recommends that the bill be  
          amended to avoid chaptering conflicts with the proposed trailer  
          bill.


                                      -- END --