BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 1412| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 1412 Author: Perea (D), et al. Amended: 4/30/15 in Assembly Vote: 21 SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 6/17/15 AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach, Pavley SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/27/15 AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen ASSEMBLY FLOOR: 76-0, 5/26/15 (Consent) - See last page for vote SUBJECT: Redevelopment: successor agencies to redevelopment agencies SOURCE: City of San Joaquin DIGEST: This bill allows the successor agency to the City of San Joaquins former redevelopment agency (RDA) to accelerate the repayment of loan debts owed by the former RDA to the city. ANALYSIS: Existing law allows a former RDA's successor agency, upon receiving a finding of completion issued by the Department of Finance, to place loan agreements between the former RDA and its sponsoring entity on its Recognized Obligation Payment Schedule (ROPS), as an enforceable obligation, provided the successor agency's oversight board makes a finding that the loan was for legitimate redevelopment purposes. This bill allows for an expedited repayment schedule of a loan agreement between a former RDA and the City of San Joaquin, AB 1412 Page 2 subject to 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 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: a) 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. b) The loan was related to an indebtedness obligation and is the only debt of the former RDA remaining to be paid on the ROPS. c) 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. 2)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. 3)Directs that the accumulated interest rate must be recalculated from origination at the interested rate of .25 percent. Background Until 2011, the Community Redevelopment Law allowed local officials to set up 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 AB 1412 Page 3 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, ABX1 26 (Blumenfield, Chapter 5, Statutes of 2011-12 First Extraordinary Session) dissolved all RDAs. The California Supreme Court's 2011 ruling in California Redevelopment Association v. Matosantos upheld ABX1 26, but invalidated ABX1 27 (Blumenfield, Chapter 6, Statutes of 2011-12 First Extraordinary Session), which would have allowed most RDAs to avoid dissolution. ABX1 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 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 RDA and the former RDA. 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, Chapter 26, Statutes of 2012). A successor agency that receives a finding of completion can repay loans made to a former RDA 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 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. AB 1412 Page 4 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 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. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No According to the Senate Appropriations Committee, relative to current law, this bill will result in increased General Fund expenditures of approximately $650,535 through the 2022-23 fiscal year, followed by reduced General Fund expenditures through 2051-52. The net impact of this bill relative to the current loan repayment schedule would be a reduction of approximately $2.8 million in overall expenditures from the General Fund. SUPPORT: (Verified8/27/15) City of San Joaquin (source) OPPOSITION: (Verified8/27/15) AB 1412 Page 5 None received ASSEMBLY FLOOR: 76-0, 5/26/15 AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins NO VOTE RECORDED: Bloom, Chávez, Harper, Mathis Prepared by:Brian Weinberger / GOV. & F. / (916) 651-4119 8/31/15 9:05:46 **** END ****