BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 441| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 441 Author: Leno (D) Amended: 4/6/15 Vote: 21 SENATE GOVERNANCE & FIN. COMMITTEE: 5-0, 4/29/15 AYES: Hertzberg, Beall, Hernandez, Lara, Pavley NO VOTE RECORDED: Nguyen, Moorlach SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/28/15 AYES: Lara, Beall, Hill, Leyva, Mendoza NOES: Bates, Nielsen SUBJECT: San Francisco redevelopment: housing SOURCE: Author DIGEST: This bill allows San Francisco's successor agency to issue bonds to pay for recognized obligations. ANALYSIS: Existing law: 1)Establishes successor agencies to manage the process of unwinding former redevelopment agencies' (RDAs') affairs. With limited exceptions, the city or county that created each former RDA now serves as that RDA's successor agency. Each SB 441 Page 2 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 entered into by former RDAs. 2)Defines an "enforceable obligation" as including bonds, specified bond-related payments, some loans, payments required by the federal government, obligations to the state, obligations imposed by state law, legally required payments related to RDA employees, judgments or settlements, and other legally binding and enforceable agreements or contracts that are not otherwise void as violating the debt limit or public policy. 3)Allows the Department of Finance (DOF) to review and request reconsideration of an oversight board's decisions. 4)Allows a successor agency to request that DOF issue a binding, "final and conclusive" determination that an enforceable obligation is valid. This bill: 1)Allows the successor agency to the Redevelopment Agency of the City and County of San Francisco, in addition to the powers granted to each successor agency, and notwithstanding any other provision of the statutes governing successor agencies, to issue bonds or incur other indebtedness to finance specified enforceable obligations that the DOF has recognized as final and conclusive. 2)Allows San Francisco's successor agency to pledge to the bonds or other indebtedness incurred pursuant to this bill's provisions any property tax revenues available in the Redevelopment Property Tax Trust Fund (RPTTF) that are not otherwise obligated. SB 441 Page 3 3)Allows bonds issued pursuant to this bill's provisions to be sold at either a negotiated or a competitive sale and specifies other characteristics of the bonds. 4)Specifies the manner in which San Francisco's successor agency may make some statutorily required payments to an affected taxing entity subordinate to the bonds or other indebtedness, provided that the affected taxing entity has approved the subordinations. 5)Specifies how an action may be brought pursuant to state law to determine the validity of bonds or other obligations authorized by this bill, the pledge of revenues to those bonds or other obligations authorized by this bill, and the legality and validity of specified proceedings related to the bonds or other obligations. 6)Requires that the San Francisco successor agency's actions authorized by this bill must be subject to the approval of the oversight board. Additionally, an oversight board may direct the successor agency to commence specified bond and debt transactions so long as the successor agency is able to recover its related costs in connection with the transaction. After a successor agency, with approval of the oversight board, issues any bonds, incurs any indebtedness, or executes an amended enforceable obligation, the oversight board is prohibited from unilaterally approving any amendments to or early termination of the bonds, indebtedness, or enforceable obligation. This bill specifies the conditions that apply to the DOF's review of an oversight board's approval of an action authorized by this bill. 7)Directs that any bonds, indebtedness, or amended enforceable obligations authorized by this bill must be: a) Considered indebtedness incurred by the dissolved RDA, with the same legal effect as if the bonds, indebtedness, financing agreement, or amended enforceable obligation had SB 441 Page 4 been issued, incurred, or entered into prior to June 29, 2011, in full conformity with the applicable provisions of the Community Redevelopment Law that existed prior to that date. b) Included in the successor agency's Recognized Obligation Payment Schedule. c) Secured by a pledge of, and lien on, and must be repaid from moneys deposited from time to time in the RPTTF. 8)Specifies that property tax revenues pledged to any bonds, indebtedness, or amended enforceable obligations authorized by this bill are taxes allocated to the successor agency pursuant to specified provisions of state law. 9)Requires San Francisco's successor agency to make diligent efforts to ensure that the lowest cost long-term financing is obtained. 10)Prohibits the financing from providing for any bullets or spikes or using variable rates. 11)Requires the successor agency to make use of an independent financial advisor in developing financing proposals and to make the work products of the financial advisor available to the DOF at its request. 12)Contains legislative findings and declarations relating to the unique need to finance affordable housing enforceable obligations of San Francisco's successor agency with proceeds of bonds or debt issued by the successor agency. Background SB 441 Page 5 The DOF has determined that specified development projects approved by San Francisco's former RDA in the Transbay, Mission Bay, and Hunter's Point shipyard/Candlestick Point areas are finally and conclusively approved enforceable obligations. When completed, those projects will account for more than 3,300 additional units of affordable housing. However, current law does not allow San Francisco's successor agency to issue debt backed by former tax increment revenues to finance the projects. As a result, San Francisco officials' only option under current law is to divert as much former tax increment revenue as possible over many years in order to accumulate enough capital to construct the affordable housing projects on a pay-as-you-go basis. As an alternative, San Francisco officials want legislators to allow them to accelerate the completion of these projects by financing the costs through bonds issued by the successor agency. Comments Purpose of the bill. This bill will help San Francisco address a severe housing crisis by accelerating the completion of more than 3,300 critically-needed units of affordable housing that are recognized obligations of the successor agency to San Francisco's former RDA. This bill also expedites the completion of public infrastructure improvements for development of a new residential neighborhood surrounding the Transbay Terminal Center that will include a significant component of affordable housing units. By giving San Francisco's successor agency an alternative to paying for these enforceable obligation construction costs on a pay-as-you-go basis, this bill will increase the amount of residual property tax revenues that will be available to schools and other taxing entities during the next several years. This bill also seeks to fulfill the goals of the redevelopment dissolution law by shortening the length of time that it will take for San Francisco's successor agency to wind down the affairs of the City's former RDA. Unique? This bill contains legislative findings that cite the uniqueness of San Francisco's affordable housing crisis to explain why this bill grants San Francisco's successor agency new authority to issue bonds or other indebtedness. While the SB 441 Page 6 features of San Francisco's housing market are indisputably unique, it is not clear whether San Francisco's successor agency is unique in having recognized enforceable obligations that cannot currently be financed through the issuance of bonds or other indebtedness. This bill may establish a precedent that invites other successor agencies to ask the Legislature for similar authority. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: Yes According to the Senate Appropriations Committee, this bill is expected to result in additional net General Fund expenditures of approximately $273 million over 40 years by authorizing bond financing pledged by revenues in San Francisco's RPTTF for specified projects, rather than financing those projects on a pay-as-you-go (pay/go) basis. This bill results in reduced General Fund expenditures over the next 10 years, followed by 30 years of increased General Fund expenditures, as follows: Reduced General Fund allocations to San Francisco school entities of approximately $79 million over the five-year period from 2015-16 through 2019-20. Reduced General Fund allocations to San Francisco schools of approximately $6 million over the five-year period from 2021-22 through 2024-25. Increased General Fund allocations to San Francisco schools of approximately $131 million over the 10-year period from 2025-26 through 2034-35. Increased General Fund allocations to San Francisco schools of approximately $227 million over the remaining 20-year period of bond repayment, ending in 2054-55. These impacts are a result of the affect this bill will have on payments to schools from the RPTTF. In general, any reductions in amounts allocated to schools from the RPTTF must be SB 441 Page 7 backfilled from the state General Fund, while any increased allocations to schools from the RPTTF will reduce General Fund expenditures, pursuant to the Proposition 98 minimum funding guarantees. It is noted that the school share of property tax revenues in the City and County of San Francisco is approximately 35 percent of total revenues. All figures noted here are based on comparative scenarios for financing the projects (pay/go vs. bonding) with data provided by San Francisco's successor agency. Using the pay/go scenario, total RPTTF expenditures to finance the projects would be approximately $598 million, most of which would occur over the next 8-10 years. If the successor agency issues bonds to finance the projects, total RPTTF expenditures for debt service would be approximately $1.38 billion over the next 40 years, with three phases of 30-year bonds issued over the next 10 years. SUPPORT: (Verified5/29/15) California Apartment Association San Francisco Mayor Edwin M. Lee OPPOSITION: (Verified5/29/15) None received Prepared by:Brian Weinberger / GOV. & F. / (916) 651-4119 5/30/15 18:01:31 **** END **** SB 441 Page 8