BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     SB 441


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          Date of Hearing:  July 15, 2015


                       ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT


                              Brian Maienschein, Chair


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


          SENATE VOTE:  26-13


          SUBJECT:  San Francisco redevelopment: housing.


          SUMMARY:  Allows the successor agency to the Redevelopment  
          Agency of the City and County of San Francisco (SF successor  
          agency) to issue bonds or incur other indebtedness to finance  
          the affordable housing requirements of several designated  
          projects. Specifically, this bill:  


          1)Allows the SF 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 Participation Agreement;


               ii)    The Mission Bay South Owner Participation Agreement;








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               iii)   The Disposition and Development Agreement for  
                 Hunters Point Shipyard Phase 1;


               iv)    The Candlestick Point-Hunters Point Shipyard Phase 2  
                 Disposition and Development Agreement; and,


               v)     The Transbay Implementation Agreement.


             b)   The infrastructure requirements of the Transbay  
               Implementation Agreement.


          2)Allows the SF successor agency to pledge any property tax  
            revenues available in the Redevelopment Property Tax Trust  
            Fund (RPTTF) that are not otherwise obligated to pay the bonds  
            or other indebtedness that results from financing the above  
            enforceable obligations.


          3)Allows bonds to be sold at either a negotiated or a  
            competitive sale.


          4)Specifies that bonds issued or other indebtedness incurred may  
            be issued or incurred on a parity basis with outstanding bonds  
            or other indebtedness obligations of the SF successor agency.   



          5)Allows the SF successor agency to pledge the revenues pledged  
            to those outstanding bonds or other indebtedness obligations  
            to the issuance of bonds or other indebtedness.  Requires the  
            pledge, when made in connection with the issuance of bonds or  
            other indebtedness obligations to have the same lien priority  








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            as the pledge of outstanding bonds or other indebtedness, and  
            shall be valid, binding, and enforceable in accordance with  
            tis terms.


          6)Requires, prior to incurring any bonds or other indebtedness,  
            the SF successor agency to subordinate to the bonds or other  
            indebtedness the amount required to be paid to an affected  
            taxing entity that is required to be paid out through pass  
            through agreements, provided that the affected taxing entity  
            has approved the subordinations, pursuant to the bill's  
            provisions.


          7)Requires, at the time the SF successor agency requests an  
            affected taxing entity to subordinate the amount to be paid to  
            it, the SF 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 or other  
            indebtedness and the pass through agreements to the other  
            taxing entities.


          8)Requires, within 45 days after receipt of the agency's  
            request, the affected taxing entity to approve or disapprove  
            the request for subordination.  Allows an affected taxing  
            entity to disapprove the request for subordination only if it  
            finds, based upon 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.   
            Specifies that if the affected taxing entity does not act  
            within 45 days after receipts of the agency's request, the  
            request to subordinate shall be deemed approved and shall be  
            final and conclusive.


          9)Allows an action to be brought, pursuant to determine the  
            validity of bonds or other obligations authorized by the  
            bill's provisions, the pledge of revenues to those bonds or  








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            other obligations authorized by this section, the legality and  
            validity of all proceedings theretofore taken and, as provided  
            in the resolution of the legislative bond of the SF successor  
            agency authorizing the bonds or other obligations authorized  
            by the bill's provisions, proposed to be taken for the  
            authorization, execution, issuance, sale, and delivery of the  
            bonds or other obligations, and for the payment of debt  
            service on the bonds or the payment of amounts under other  
            obligations, as authorized.  


          10)Requires the Department of Finance to be notified of the  
            filing of any action as an affected party.


          11)Requires an action to challenge the issuance of bonds or the  
            incurrence of indebtedness by the SF successor agency to be  
            brought within 30 days after the date on which the oversight  
            board approves the resolution of the successor agency  
            approving the issuance of bonds or the incurrence of  
            indebtedness.


          12)Specifies for the Department of Finance (DOF), that under the  
            authority granted to DOF under existing law, DOF either  
            reviews and approves or fails to request review within five  
            business days of an oversight board approval of an action  
            authorized by the bill's provisions, that the scheduled  
            payments on the bonds or other indebtedness shall be listed in  
            the Recognized Obligation Payment Schedule (ROPS) and shall  
            not be subject to further review and approval by DOF or the  
            Controller.  Allows DOF to extend its review time to 60 days  
            for actions authorized, pursuant to the bill's provisions, and  
            to seek the assistance of the Treasurer in evaluating proposed  
            actions.


          13)Specifies that any bonds, indebtedness, or amended  
            enforceable obligations to be considered indebtedness incurred  








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            by the dissolved redevelopment agency (RDA), with the same  
            legal effect as if the bonds, indebtedness, financing  
            agreement, or amended enforceable obligation had 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, shall be  
            included in the SF successor agency's ROPS, and shall be  
            secured by a pledge of, and lien on, and shall be repaid from  
            moneys deposited form time to time in the RPTTF, as specified.  
             States that property tax revenues pledges to any bonds,  
            indebtedness, or amended enforceable obligations are taxes  
            allocated to the SF successor agency, as specified.


          14)Requires the SF successor agency to make diligent efforts to  
            ensure that the lowest long-term cost financing is obtained,  
            and that the financing shall not provide for any bullets or  
            spikes and shall not use variable rates.  Requires the SF  
            successor agency to make use of an independent financial  
            advisor in developing financing proposals and requires the  
            work products of the financial advisor available to DOF at its  
            request.


          15)Declares that a special law is necessary 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 related to affordable housing in the City  
            and County of San Francisco, in conjunction with the  
            affordable housing and infrastructure requirements of the  
            enforceable obligations, specified in the bill's provisions.


          16)Provides that no reimbursement is required because the only  
            costs that may be incurred by a local agency or school  
            district are the result of a program for which legislative  
            authority was requested by that local agency or school  
            district, as specified.









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          17)Makes a number of findings and declarations.


          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.

          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.

          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.

          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 ROPS and that are  
            consistent with the indebtedness obligation covenants.

          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.

          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  








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            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.
          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.

          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.



           Increased General Fund allocations to San Francisco schools of  
            approximately $131 million over the ten-year period from  
            2025-26 through 2034-35.











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           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 effect 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% 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.





          COMMENTS:  


          1)Bill Summary. This bill authorizes the SF successor agency to  








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            issue bonds or incur other indebtedness to finance the  
            construction of specified affordable housing and  
            infrastructure enforceable obligations.  This bill is  
            sponsored by Edwin M. Lee, Mayor of San Francisco.


          2)Background on 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 redevelopment plans remained in effect, and required  
            that RDAs must meet their housing obligations before they  
            terminate a project area.  SB 211 (Torlakson), Chapter 741,  
            Statutes of 2001, suspended the time limits on a redevelopment  
            plan's effectiveness and on the diversion of property tax  
            increment revenues to repay its debts until the RDA "fully  
            complied with its obligations."
            
            In 2000, six of San Francisco's oldest redevelopment project  
            areas were about to reach some of the statutory deadlines on  
            RDA 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 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  








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            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 that the Burton bill  
            allowed it to finance.  


          3)Author's Statement.  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 1,000 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 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 3,300  
            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.  












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            "SB 441 will authorize San Francisco to use bond financing to  
            fund and construct over 3,300 units of affordable housing and  
            complete public infrastructure for a new residential  
            neighborhood surrounding the Transbay Terminal Center.  This  
            bill allows the San Francisco Successor Agency to fulfill, in  
            an expeditious manner with less impact on taxing entities,  
            enforceable obligations that the California Department of  
            Finance has finally and conclusively determined to have  
            survived redevelopment dissolution."

          4)Previous Legislation. SB 1404 (Leno, 2014) 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  
            with the following veto message:


            I am returning Senate Bill 1404 without my signature.



            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  








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            alternatives.



          5)Arguments in Support.  Supporters argue that this bill will  
            provide funding for over 3,000 units of affordable housing in  
            the near term, and will actually hasten the wind down of  
            redevelopment in San Francisco.



          6)Arguments in Opposition.  None on file.



          7)Conflicting Legislation. This bill amends one of the same  
            sections as AB 113 (Budget).  Should both bills continue to  
            progress, amendments may be needed.



          8)Double-Referral.  This bill was heard by the Housing and  
            Community Development Committee on July 1, 2015, and passed  
            with a 5-2 vote.


          REGISTERED SUPPORT / OPPOSITION:




          Support


          Honorable Edwin M. Lee, Mayor of San Francisco [SPONSOR]


          City and County of San Francisco









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          California Apartment Association




          Opposition


          None on file




          Analysis Prepared by:Debbie Michel / L. GOV. / (916)  
          319-3958