BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     SB 441


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          Date of Hearing:  July 1, 2015


               ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT


                                   Ed Chau, Chair


          SB  
          441 (Leno) - As Amended April 6, 2015


          SENATE VOTE:  26-13


          SUBJECT:  San Francisco redevelopment:  housing


          SUMMARY:  Authorizes the successor agency to the redevelopment  
          agency of the City and County of San Francisco (successor  
          agency) to issue bonds or incur indebtedness to finance the  
          affordable housing requirements of four designated projects.    
          Specifically, this bill:  


          1)Includes legislative findings and intent.


          2)Authorizes the successor agency, subject to the approval of  
            the oversight board, to issue bonds or incur other  
            indebtedness to finance all of the following: 


             a)   The affordable housing requirements of the following  
               enforceable obligations:


                  i.        The Mission Bay North Owner Partnership  








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                    Agreement;


                  ii.       The Mission Bay South Owner Partnership  
                    Agreement;


                  iii.      The Disposition and Development Agreement for  
                    Hunters Point Shipyard Phase Two;


                  iv.       The Transbay Implementation Agreement.  


             a)   The infrastructure requirements of the Transbay  
               Implementation Agreement. 


          1)Authorizes the successor agency to pledge any property tax  
            revenues available in the Redevelopment Property Tax Trust  
            Fund that are not otherwise obligated to pay the bonds or  
            other indebtedness that result from financing the above  
            enforceable obligations.


          2)Provides that bonds issued for the enforceable obligations  
            listed in 2) may be sold at either a negotiated or competitive  
            sale.


          3)Provides that bonds issued for the enforceable obligations  
            listed in 2) may be issued or incurred on an equal basis with  
            outstanding bonds or other indebtedness of the successor  
            agency and the successor agency may pledge the revenues of  
            other outstanding bonds or indebtedness to the bonds issued.


          4)Provides that bonds issued for the enforceable obligations  
            listed in 2) have the same lien priority as the pledge of  








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            outstanding bonds for other indebtedness and are valid,  
            binding, and enforceable in accordance with those terms.


          5)Allows the successor agency to subordinate to the bonds or  
            other indebtedness issued for enforceable obligations listed  
            in 2) the amount that is required to be paid out through pass  
            through agreements or to other taxing entities.


          6)Requires the successor agency to provide the affected taxing  
            entity with substantial evidence that sufficient funds will be  
            available to pay both the debt service on the bonds issued for  
            the enforceable obligations listed in 2) and pass through  
            agreements to the other taxing entities. 


          7)Requires a taxing entity to approve or disapprove the request  
            for subordination 45 days after receipt of the request from  
            the successor agency. 


          8)Provides that a successor agency may disapprove a request for  
            subordination only if it finds based on substantial evidence  
            that the successor agency will not be able to pay the debt  
            service payments and the amount required to be paid to the  
            affected taxing entity. 


          9)Provides that if the taxing entity does not act within 45 days  
            after receiving the successor agency's request, the request to  
            subordinate will be deemed approved and will be final and  
            conclusive. 


          10)Provides that an action may be brought against the validity  
            of bonds or other obligations and the legality and validly of  
            all proceedings taken by the successor agency authorizing the  
            bonds or other obligations for the enforceable obligations  








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            listed in 2). 


          11)Requires the Department of Finance (DOF) to be notified of  
            any action brought to challenge the validity of bonds or other  
            obligations and the legality and validly of all proceedings  
            taken by the successor agency authorizing the bonds or other  
            obligations for the enforceable obligations listed in 2). 


          12)Requires a challenge to the issuance of bonds or incurrence  
            of indebtedness by the successor agency must be brought within  
            30 days after the date that the oversight board approves the  
            resolution for the successor agency to issue bonds or the  
            incur debt for the enforceable obligations listed in 2). 


          13)Allows an oversight board to direct the successor agency to  
            issue bonds or incur debt for the enforceable obligations  
            listed in 2).


          14)Provides that after the successor agency issues bonds, incurs  
            debt, or executes an amended enforceable obligation for the  
            enforceable obligations listed in 2) the oversight board  
            cannot unilaterally approve any amendments to or early  
            termination of the bonds, indebtedness, or enforceable  
            obligations. 


          15)Provides that if DOF either reviews and approves or fails to  
            request review within five days of an oversight board's action  
            approving the issuance of bonds or incurrence of debt for the  
            enforceable obligations listed in 2) the scheduled payment of  
            the bonds or other indebtedness will be listed on the  
            Recognized Obligation Payment Schedule (ROPS) and is not  
            subject to further review and approval by DOF or the  
            Controller. 









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          16)Allows DOF to extend the time it has to review an action by  
            an oversight board approving the issuance of bonds or  
            incurrence of debt for the enforceable obligations listed in  
            2) for 60 days and to seek the assistance of the Treasurer in  
            evaluating a proposed action. 





          17)Provides that any bonds, indebtedness, or amended enforceable  
            obligations issued for the enforceable obligations listed in  
            2) will be considered indebtedness incurred by the dissolved  
            redevelopment agency with the same legal effect as those  
            entered into prior to June 29, 2011 and will be included in  
            the successor agency's ROPS, and will be secured by a pledge  
            of and lien on and be repaid out of the Redevelopment Property  
            Tax Trust Fund (RPTTF).


          18)Provides that the successor agency will make diligent efforts  
            to ensure that the lowest long-term cost financing is obtained  
            and the financing will not have any bullets or spikes and will  
            not use variable rates. 


          19)Requires the successor agency to use an independent advisor  
            in developing financing proposals and make the work products  
            of the financial advisor available to DOF upon its request.  


          20)Finds that a special law is needed and that a general law  
            cannot be made applicable within the meaning of Section 16 of  
            Article IV of the California Constitution because of the  
            unique circumstances relating to affordable housing in the  
            City and County of San Francisco. 










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          21)Provides that no reimbursement is needed because the only  
            cost that may be incurred by a local agency or school district  
            are the result of a program for which legislative authority  
            was requested by the local agency or school district. 


          EXISTING LAW:   


          1)Requires RDAs to dissolve effective February 1, 2012, pursuant  
            to the California Supreme Court's decision in CRA v.  
            Matosantos (2011).

          2)Establishes successor agencies to RDAs that would, except in  
            certain situations, be the city, county, or city and county in  
            the territorial jurisdiction of the former RDA.  (Health and  
            Safety Code Section 34177)

          3)Allows a city or county that authorized the creation of an RDA  
            to elect to retain the housing assets and functions previously  
            performed by the RDA. (Health and Safety Code Section 34176)

          4)Requires the entity assuming the housing functions of the  
            former RDA to submit a list of all housing assets to DOF by  
            August 1, 2012, as specified. (Health and Safety Code Section  
            34177)

          5)Allows the entity that assumed the housing functions to  
            designate the use of and commit indebtedness obligation  
            proceeds that remain after the satisfaction of enforceable  
            obligations that have been approved in a Recognized Obligation  
            Payment Schedule and that are consistent with the indebtedness  
            obligation covenants. (Health and Safety Code Section 34177)

          6)Requires the proceeds to be derived from indebtedness  
            obligations that were issued for the purposes of affordable  
            housing prior to January 1, 2011, and were backed by the Low-  
            and Moderate-Income Housing Fund. (Health and Safety Code  
            Section 34177)








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          7)Allows the RDA of the city and county of San Francisco to,  
            subject to the approval of the Board of Supervisors of the  
            city and county of San Francisco, retain its ability to incur  
            indebtedness exclusively for Low- and Moderate-Income Housing  
            Fund activities, as specified, until January 1, 2014, or until  
            the agency replaces all of the housing units demolished prior  
            to the enactment of the replacement housing obligations in  
            Chapter 970 of the Statutes of 1975, whichever occurs earlier.  
            (Health and Safety Code Section 33333.7)

          8)Allows the ability of the RDA of the city and county of San  
            Francisco to receive tax increment revenues to repay  
            indebtedness incurred for these Low- and Moderate- Income  
            Housing Fund activities to be extended until no later than  
            January 1, 2044. (Health and Safety Code Section 33333.7)



          FISCAL EFFECT: 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 Redevelopment Property Tax Trust Fund (RPTTF) for  
          specified projects, rather than financing those projects on a  
          pay-as-you-go (pay/go) basis.  The bill would result in reduced  
          General Fund expenditures over the next ten years, followed by  
          thirty 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.










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           Increased General Fund allocations to San Francisco schools of  
            approximately $131 million over the ten-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 the bill would have on  
          payments to schools from the RPTTF.  In general, any reductions  
          in amounts allocated to schools from the RPTTF must be  
          backfilled from the state General Fund, while any increased  
          allocations to schools from the RPTTF would reduce General Fund  
          expenditures, pursuant to the Proposition 98 minimum funding  
          guarantees.  Staff notes that the school share of property tax  
          revenues in the City and County of San Francisco is  
          approximately 35 percent of total revenues.





          Staff notes that 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 ten years.












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          COMMENTS:  


           Background:   In 2011, as a result of serious budget shortfalls,  
          the Governor proposed eliminating RDAs and creating a Voluntary  
          Alternative Redevelopment Program to replace them.  Two pieces  
          of budget trailer legislation, AB1X 26 (Chapter 5, Statutes of  
          2011-12 First Extraordinary Session) and AB1X 27 (Chapter 6,  
          Statutes of 2011-12 First Extraordinary Session), were enacted  
          to achieve this goal.  AB1X 26 provided for the dissolution of  
          RDAs and for the winding up of their obligations by successor  
          agencies.  AB1X 27 which would have allowed RDAs to continue  
          operations if their local city or county made voluntary annual  
          payments benefitting schools, for the purpose of offsetting  
          state education costs.  In CRA v. Matosantos (2011), the  
          California Supreme Court upheld the constitutionality of AB1X  
          26, but invalidated AB1X 27.  This had the effect of dissolving  
          RDAs without giving them the option of continuing operations by  
          offsetting state education costs.  
           
          When RDAs were dissolved, successor agencies were established to  
          wind up the RDAs' obligations.  Except in certain situations,  
          the successor agency is the city, county, or city and county in  
          the territorial jurisdiction of the former RDA.  Cities and  
          counties were also given the option of taking over the housing  
          assets of their jurisdiction's RDA.   
           
           Redevelopment and replacement of affordable housing units in San  
          Francisco  :  Prior to the dissolution of redevelopment, state law  
          required RDAs to set aside 20% of their property tax increment  
          revenues to increase, improve, and preserve the supply of  
          affordable housing.  State law also required local officials to  
          limit the length of time during which RDA plans remained in  
          effect, and required that RDAs must meet their housing  
          obligations before they terminate a project area.  

          In 2000, six of San Francisco's oldest RDA project areas were  
          about to reach some of the statutory deadlines on RDA  








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          activities.  The Legislature, in SB 2113 (Burton), Chapter 661,  
          Statutes of 2000, extended the deadlines and allowed San  
          Francisco officials to use the resulting funds to replace more  
          than 6,700 affordable housing units that the RDA had demolished  
          and not replaced during the years before state law imposed  
          replacement housing requirements on RDAs.  Specifically, the  
          Legislature allowed San Francisco officials to extend the  
          deadline for establishing debt in the older project areas until  
          2014, or until the RDA replaced all of the demolished housing  
          units, whichever date was earlier, and to extend the deadline  
          for receiving property tax increment revenues to pay for their  
          housing debts until 2044.  

          SB 2113 (Burton) also required San Francisco to focus on  
          low-income housing, limit its administrative spending, and get  
          state approval before incurring more debt.  The time extension  
          excluded schools' share of property tax revenues, therefore not  
          impacting the state's General Fund.

          Before state law dissolved RDAs, San Francisco's RDA had been  
          able to finance the construction of 867 of the 6,709 replacement  
          affordable housing units.  Because DOF does not recognize the  
          financing of the remaining 5,842 replacement affordable housing  
          units as an enforceable obligation of the former RDA, San  
          Francisco officials are unable to issue debt backed by former  
          tax increment revenues to finance the remaining replacement  
          housing units.  



           Purpose of this bill  : According to the author, "at the time of  
          redevelopment dissolution in 2012, the former redevelopment  
          agency had just started planning and funding for the affordable  
          housing projects in Transbay and Hunters Point  
          Shipyard/Candlestick Point and had completed or approved less  
          than 1000 units of affordable housing at Mission Bay.  In 2013  
          and 2014, the California Department of Finance finally and  
          conclusively determined that the Successor Agency's obligations  
          to fund affordable housing and public infrastructure in the  








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          Major Approved Development Projects were enforceable under  
          redevelopment dissolution law and thus constituted continuing  
          obligations of the San Francisco Successor Agency, also known as  
          the Office of Community Investment and Infrastructure.   
          Redevelopment dissolution law generally does not provide  
          successor agencies with the authority to issue tax allocation  
          bonds to complete surviving enforceable obligations, except  
          where contracts explicitly pledged specific amounts.  As a  
          result, the completion of San Francisco's affordable housing  
          program in the Major Approved Development Projects cannot be  
          financed and would require, in the next several years, the set  
          aside of large amounts of property tax revenues from the 3300  
          affordable units in Transbay, Mission Bay, and Hunters Point  
          Shipyard/Candlestick Point and for public infrastructure (other  
          than the Transbay Transit Center) in the Transbay area." 


          


           Related legislation  :





          SB 1404 (Leno) (2014):  Similar to this bill, would have allowed  
          the successor agency of the  City and County of  San Francisco  
          to receive property tax increment from six specified  
          redevelopment project areas, and issue debt to pay for specified  
          replacement housing obligations. The bill was vetoed and  
          included the following veto message:





            I am returning Senate Bill 1404 without my signature.









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            This bill allows the Successor Agency of the former City and  
            County of San Francisco Redevelopment Agency to create a new  
            enforceable obligation to replace approximately 5,800 units of  
            affordable housing. 

            Without a doubt, San Francisco faces extraordinary housing  
            affordability challenges, compounded by the number of  
            affordable units previously destroyed by the former  
            redevelopment agency. I applaud the author and the mayor's  
            continued efforts to increase affordability in this area. This  
            bill as drafted, however, would grant this particular  
            Successor Agency the ability to use tax increment and  
            redevelopment law in a way that no other successor agency in  
            the state has been granted. 

            I am directing the Department of Finance to work closely with  
            the author and sponsors of this measure to explore other  
            alternatives. 


          REGISTERED SUPPORT / OPPOSITION:




          Support


          City and County of San Francisco, Edwin M. Lee, Mayor (sponsor)


          California Apartment Association




          Opposition








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          None on file




          Analysis Prepared by:Lisa Engel / H. & C.D. / (916)  
          319-2085