BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON BUDGET AND FISCAL REVIEW
                              Senator Mark Leno, Chair
                                2015 - 2016  Regular 

          Bill No:            SB 107          Hearing Date:    September  
          11, 2015 
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          |Author:   |Committee on Budget and Fiscal Review                 |
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          |Version:  |September 10, 2015    Amended                         |
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          |Urgency:  |Yes                    |Fiscal:    |Yes              |
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          |Consultant|Mark Ibele                                            |
          |:         |                                                      |
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                    Subject:  General Subject: Local government.


          Summary: This bill contains additional provisions and provides  
          specificity to existing law governing the dissolution of  
          redevelopment agencies (RDAs) and the wind-down of their  
          existing activities and obligations. In addition, the measure  
          addresses several ongoing issues relating to state-local fiscal  
          situations. The bill is related to the implementation of the  
          Budget Act of 2015.

          Background:  This measure includes numerous provisions which clarify and  
          simplify the RDA dissolution process and address local fiscal  
          situations. Specifically, the bill would:
          
          1.Clarify that the Department of Finance's (DOF's) actions with  
            respect to the dissolution and reconciliation process for RDAs  
            are exempt from the Administrative Procedures Act (APA).

          2.Redefine and clarify the definition of administrative cost  
            allowance as the maximum amount of administrative costs that  
            may be paid by a successor agency (SA) from the Redevelopment  
            Property Tax Trust Fund (RPTTF) in a fiscal year, and the sole  
            funding source for any legal expenses related to civil actions  
            regarding the RDA dissolution process.

          3.Add the following new calculations for administrative costs:

               a.     Five percent of the property tax allocated to the SA  







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                 on the Recognized Obligation Payment Schedule (ROPS)  
                 through June 30, 2016, and up to three percent of the  
                 property tax allocated to the Redevelopment Obligation  
                 Retirement Fund (RORF) thereafter through June 30, 2016.

               b.     From July 1, 2016, and thereafter, up to three  
                 percent of the actual property tax distributed to the SA  
                 for payment of approved enforceable obligations (EOs),  
                 not to exceed 50 percent of the total RPTTF distributed  
                 to pay for EOs in the preceding year, whether or not  
                 administrative costs are paid within the administrative  
                 cost allowance or not, with the limitation inapplicable  
                 if these costs are paid from sources other than the  
                 property tax.

               c.     From January 1, 2012, and thereafter, not less than  
                 $250,000 in any fiscal year unless reduced by the  
                 oversight board (OB) or by agreement with the SA.

            4.  Allow sponsoring entities to provide funds to an SA for  
              purposes of paying legal expenses related to civil actions  
              contesting the RDA dissolution and reconciliation process  
              and allow these funds to be an EO for repayment, only in the  
              event that judicial relief is granted to the SA.

            5.  Make certain clarifications that the following are EOs:

                 a.       Written agreements entered into no later than  
                   June 27, 2011, for the purposes of refunding of bonds  
                   that were issued prior to January 1, 2011.

                 b.       Agreements entered into by a former RDA prior to  
                   June 28, 2011, if the agreement relates to state  
                   highway infrastructure improvements.

                 c.       Agreements pursuant to loans or development  
                   obligations imposed by federal agencies, including US  
                   Department of Housing and Urban Development.

            1.  Create an annual, rather than biannual, process for ROPS  
              beginning with the July 1, 2016 period.

            2.  Allow for expenditure of the entire indebtedness  
              obligation proceeds associated with low- and moderate-income  








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              housing purposes. Clarify annual reporting requirements for  
              the low- and moderate-income housing funds.

            3.  Establish that the local governments that authorized the  
              creation of a RDA may loan funds to the RDA for costs or for  
              EOs, only to the extent that the SA receives an insufficient  
              distribution from the RPTTF, and:

                 a.       The loan shall be repaid from the source of  
                   funds originally approved for payment of the underlying  
                   EO.

                 b.       The interest payable will be calculated at a  
                   rate not to exceed the Local Agency Investment Fund  
                   (LAIF) interest rate earned.

                 c.       Repayment will be made to the extent property  
                   tax revenue allocated to the SA is available after EOs  
                   on the ROPS are fulfilled.

            4.  Allow the county auditor-controller, as well as DOF, to  
              have the authority to require any documents associated with  
              EOs to be provided to them.

            5.  Prescribe that ROPS items that are subject to active  
              litigation are not required to be disputed in a meet and  
              confer with DOF on other disputed items.

            6.  Indicate that all agreements entered or re-entered between  
              an SA and the city or county that formed the RDA, and  
              executed after June 27, 2012, are not EOs, unless they are  
              related to the RDA wind-down process. Disallows funding for  
              any item reduced or eliminated by DO and clarify that OB are  
              not allowed to approve post June 27, 2012 re-entered  
              agreements.

            7.  Specify that RDA wind-down activities do not include  
              planning, design, redesign, development, demolition,  
              alteration, construction, construction financing, site  
              remediation, site development or improvement, land  
              clearance, seismic retrofits, or other similar work, unless  
              such work is undertaken pursuant to an EO.

            8.  State that SAs may not create EOs to repay loans entered  








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              into between the RDA and the city or county that formed it,  
              except as expressly provided for in law.

            9.  Establish that for a final and conclusive determination  
              regarding an EO, the SA must provide a copy of the request  
              to the county auditor-controller and to DOF, which will have  
              100 days from the date of the request for a final and  
              conclusive determination for denial or approval of the  
              request. Specify that for a final and conclusive  
              determination request submitted prior to June 30, 2015, DOF  
              shall have until December 31, 2015 to approve or deny.

            10.   Facilitate the issuance of bonds or other indebtedness  
              for the purposes of low- and moderate-income housing and  
              various infrastructure in the City and County of San  
              Francisco, by allowing the pledge of revenues available in  
              the RPTTF that are not otherwise pledged, subject to the  
              approval of the OB.

            11.   Address administrative aspects of OBs, including  
              establishing, clarifying or specifying that:

                 a.       Alternate representatives can be appointed to  
                   serve on OBs when members of the OB must be absent.

                 b.       Resolutions, minutes, agendas, changes in  
                   membership and certain other administrative documents  
                   or actions to be considered by the OB do not need to be  
                   submitted to DOF for approval.

                 c.       County-wide OB shall be staffed by the county  
                   auditor-controller, another county entity, or by a city  
                   chosen by the county auditor-controller after  
                   consultation with DOF, with associated costs to be  
                   recovered from the RPTTF.

                 d.       For counties with more than one OB (except  
                   counties with more than 40 OBs), there will be only one  
                   OB beginning July 1, 2018 (instead of July 1, 2016).

                 e.       For counties with more than 40 OBs, commencing  
                   July 1, 2018, there shall be five OBs, with their  
                   respective jurisdictions generally coterminous with the  
                   respective borders of the 1st through 5th supervisorial  








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                   districts. 

                 f.       An OB will cease to exist when its SA (or for  
                   county-wide OB, all the SAs within the county) has been  
                   dissolved.

            1.  Clarify and institute certain new provisions regarding  
              issuances of a finding of completion (FOC) by DOF,  
              specifically:

                 a.       In addition to other options, allow an SA to  
                   receive a FOC upon entering into a written installment  
                   payment plan with DOF for payment of the amounts due  
                   pursuant to the due diligence review.

                 b.       Stipulate that an SA may not receive a FOC  
                   unless it enters into a written payment plan with DOF  
                   by December 31, 2015.

                 c.       Allow the creation of an EO with the SA if  
                   amounts due pursuant to the written payment plan are  
                   reduced pursuant to a final judicial determination.

                 d.       Provide that failure by an SA to pay amounts due  
                   under the written agreement will result in: permanent  
                   ineligibility for an FOC; invalidation of OB actions,  
                   including EO loan agreements; disallowance of any  
                   long-range property management plan; and potential  
                   recalibration of the last and final ROPS.

                 e.       Allow for an amendment to the written  
                   installment payment plan if DOF determines the  
                   necessity based on SA's fiscal condition.

            1.  Clarify the legal obligation of sponsoring entities to  
              return RDA assets when ordered to do so, provided the assets  
              were not transferred pursuant to an EO.

            2.  Expand the ability of the OB to direct the SA to transfer  
              ownership of assets with a governmental purpose to an  
              appropriate public jurisdiction, to include parking  
              facilities and lots dedicated solely to public parking,  
              unless such properties generate revenues in excess of  
              reasonable maintenance costs. Allows local governments to  








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              exclude from repayment any costs of construction of the  
              parking facilities and permits a revision to the Long-Range  
              Property Management Plan (LRPMP) to include public parking  
              lots and facilities as a government purpose asset.

            3.  Allow pension and State Water Project overrides that are  
              not pledged to RDA-related debt service to go entirely to  
              the levying entity for the payment due on such obligations.  
              Provide that pledged overrides not needed for RDA debt  
              service return in their entirety to the levying entity.

            4.  Define the process and timelines for the submission,  
              review and reconciliation for adjustments during the annual  
              ROPS process, and provide for the review by the county  
              auditor-controller and notification of DOF.

            5.  Define the process of final dissolution of the SA and the  
              required actions of various parties, including the  
              retirement of all EOs and the disposal of all assets, and  
              specify that an RDA that failed to generate any tax  
              increment is considered dissolved.

            6.  Clarify the application of tax increment caps and plan  
              expiration dates and provide that qualifying loan repayments  
              to cities or counties are exempt from the caps.

            7.  Specify that loan agreements are defined as:

                 a.       Loans for money entered into between the  
                   sponsoring city or county and the former RDA.

                 b.       Agreements entered into between the sponsoring  
                   local government and the former RDA related to a  
                   transfer of real property.

                 c.       An arrangement whereby a third-party developed  
                   infrastructure for the former RDA under contract by the  
                   sponsoring local government, with the loan amount not  
                   to exceed $5.0 million.

            8.  Require that loans are to be repaid from the effective on  
              the date of loan origination, with interest calculated at a  
              rate not to exceed simple interest rate of three percent,  
              recalculated quarterly, and payment applied first to  








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              principal and then to interest. Specify that this provision  
              would not have an impact on loans previously approved or  
              affect legal judgments in either City of Watsonville v.  
              Department of Finance or City of Glendale v. Department of  
              Finance.

            9.  Stipulate that proceeds of bonds issued by RDAs prior to  
              December 31, 2010 should be used as expeditiously as  
              possible with any proceeds that cannot be used in a manner  
              consistent with the bond covenants applied to the defeasance  
              of the bonds.

            10. Provide for a tiered structure regarding the use of  
              proceeds of bonds issued by RDAs between January 1, 2011 and  
               June 30, 2011, with the incremental percentage of proceeds  
              that may be expended equal to:

                 a.       Five percent upon a FOC.

                 b.       Fifteen percent with an approved last and final  
                   ROPS.

                 c.       Twenty-five percent for bonds issued between  
                   January 1, 2011 and January 31, 2011, inclusive, for a  
                   total of forty-five percent.

                 d.       Twenty percent for bonds issued between February  
                   1, 2011 and February 28, 2011, inclusive, for a total  
                   of forty percent.

                 e.       Fifteen percent for bonds issued between March  
                   1, 2011 and March 31, 2011, inclusive, for a total of  
                   thirty five percent.

                 f.       Ten percent for bonds issued between April 1,  
                   2011 and April 30, 2011, inclusive, for a total of  
                   thirty percent.

                 g.       Five percent for bonds issued between May, 2011  
                   and May 31, 2011, inclusive, for a total of twenty five  
                   percent.

            1.  Allow for expenditure of 45 percent of post-2010 bond  
              proceeds to be expended if their issuance was delayed due to  








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              actions of a metropolitan regional transportation district  
              or resulted from refunding or refinancing of other bonds  
              issued prior to 2011.

            2.  Indicate specific provisions regarding the LRPMPs,  
              including that:

                 a.       SAs with no RDA property must submit a plan  
                   stating that fact.

                 b.       Compensation agreements may be arranged with the  
                   affected taxing entity prior to approval of the LRPMP.

                 c.       DOF must only consider whether the LRPMP  
                   represents a good faith effort and shall approve LRPMP  
                   with alacrity.

                 d.       OB actions to dispose of property pursuant to a  
                   LRPMP do not require DOF approval.

            1.  Create a last and final ROPS process that may take place  
              beginning January 1, 2015, which must be acted on by DOF  
              within 100 days after approval by the OB. Indicate that the  
              sponsoring entity loans would be repaid at the simple  
              interest rate of not to exceed four percent with payments  
              not to exceed a threshold of 15 percent of the sums that  
              would otherwise flow to the taxing entities, and allow for  
              the use of the alternative loan repayment plan. Stipulate,  
              for a last and final ROPS, the following conditions:

                 a.       Remaining debt of the SA is limited to  
                   administrative costs and payments pursuant to EOs with  
                   defined payment schedules.

                 b.       All remaining obligations have been previously  
                   listed on a ROPS and approved for payment by DOF.

                 c.       Except for the litigation involving Los Angeles  
                   Unified School District and the County of Los Angeles,  
                   the SA is not a party to outstanding or unresolved  
                   litigation.

            1.  End "negative bailout," thus providing annual fiscal  
              relief to the counties of Stanislaus, Trinity, Plumas and  








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              Lassen. Negative bailout occurs if the health and welfare  
              costs that the state assumed for a county exceed the  
              additional property tax the county receives from the schools  
              (pursuant to the post Proposition 13 property tax shift),  
              reducing through statute the county's property tax revenue  
              by the difference.

            2.  Provide fiscal relief for specified cities in Riverside  
              County incorporated after 2004-Jurupa Valley, Menife,  
              Wildomar and Eastvale-which experienced fiscal stress due to  
              lost revenue from the VLF swap, for which they were  
              ineligible, and the loss of the enhanced VLF rate redirected  
              in 2011 to fund public safety realignment.

            3.  Terminate, over a five-year period, the requirement of  
              four cities in Santa Clara County to reimburse the county  
              for the loss of ERAF due to Tax Equity Allocations (TEA), a  
              program that provides property tax to cities that levied  
              little or no property tax prior to Proposition 13 by  
              shifting property taxes from the county.

            4.  Allow the County of San Benito to participate in an  
              Educational Revenue Augmentation Fund (ERAF) repayment  
              program (for which they are currently ineligible), in order  
              to pay amounts owed to the ERAF, resulting state forgiveness  
              of approximately $3.4 million of the $4 million owed by the  
              county.

            5.  Provide for an appropriation, identifying the measure as a  
              budget bill.
          
          Fiscal Effect:The bill would result in additional General Fund  
          near term annual costs in the range of $135 million to $310  
          million, due to Proposition 98 guarantee requirements and direct  
          payments to local governments.

          Comments:AB 26 X1 (Blumenfield), Chapter 5, Statutes of 2011,  
          First Extraordinary Session, eliminated the state's  
          approximately 400 RDAs, replacing them with locally-organized  
          SAs assigned with the task of retiring the outstanding debts and  
          addressing other legal obligations of RDAs. The process of  
          winding-down redevelopment agencies was not expected to be a  
          straightforward process without uncertainty and controversy;  
          however, the extreme complexity of dissolving the program and  








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          the time required to accomplish this was unexpected. The process  
          has somewhat delayed the receipt of property taxes by school  
          districts and often resulted in a lack of clarity for local  
          governments. Most, but not all, of these issues have been  
          resolved over the last year, and the Administration is  
          continuing the ongoing workload involved with winding down the  
          state's former RDAs.

          In terms of additional property tax increment, from 201112 to  
          201415, approximately $1.3 billion in property tax revenue has  
          gone to cities, $1.6 billion to counties, and $531 million to  
          special districts. The budget anticipates that in 201415 and  
          201516 combined, cities will receive an additional $580 million,  
          counties $660 million, and special districts $200 million. For  
          the period through 2018-19, the Administration expects cities to  
          receive $2.9 billion, counties $3.5 billion and special  
          districts $1.1 billion. From 201112 through 2014-15,  
          approximately $4.4 billion will be returned to K14 schools. The  
          budget anticipates Proposition 98 General Fund savings resulting  
          from the dissolution of RDAs will be $964 million in 201415 and  
          $1.1 billion in 201516. On an ongoing basis, Proposition 98  
          General Fund savings stemming from RDA dissolution are estimated  
          to be well over $1.0 billion annually.

          This measure represents a reasonable attempt to implement a  
          final resolution for the dissolution of RDAs, as well as resolve  
          several long standing issues related to state-local fiscal  
          relations. The bill allows for a number of broad-based benefits  
          for local governments including the use of bond proceeds,  
          allowance of certain re-entered agreements, use of proceeds of  
          bonds issued for low- and moderate-income housing, as well as  
          other benefits related to specific communities. The bill also  
          addresses the definition of loan agreements and, in aggregate,  
          is likely to reduce the amount of uncertainty and litigation  
          moving forward.
          
          Support:   None on file
          
          Opposed:  None on file
          
                                      -- END --
          










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