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 --