BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 936 HEARING: 7/6/11
AUTHOR: Hueso FISCAL: No
VERSION: 6/22/11 TAX LEVY: No
CONSULTANT: Detwiler
REDEVELOPMENT AGENCIES' DEBTS
Requires redevelopment agencies to report debt forgiveness.
Background and Existing Law
One of redevelopment agencies' extraordinary powers is the
ability to divert property tax increment revenues from
counties, cities, special districts, and school districts.
To receive these revenues, redevelopment officials must
file detailed annual statements of indebtedness that allow
county auditors to track the agencies' income,
expenditures, and available revenues. County auditors then
allocate property tax increment revenues to pay the
redevelopment agencies' debts. A standard redevelopment
reference book advises officials: To receive the total
available tax increment, agencies must pay more attention
to making certain that sufficient debt is established.
Redevelopment agencies can create debt by issuing tax
allocation bonds and revenue bonds, and by loaning money to
the underlying city or county. For example, a
redevelopment agency and its city can create debt under a
contract that requires the city to build public works that
benefit a project area. In return, the agency pays the
city specified amounts of property tax increment revenues
each year until the city has enough money to build the
public works projects.
Redevelopment officials reported spending $271 million in
debt principal payments for city and county loans in
2008-09. The redevelopment agencies also received $264
million in advances from cities and counties.
Critics worry that some redevelopment agencies' loans to
other public agencies exist only to create debt that
justifies the diversion of property tax increment revenues.
AB 936 -- 6/22/11 -- Page 2
After the loans' usefulness ends, redevelopment officials
just cancel the loans. In particular, critics point to the
loans, debts, and property transfer agreements between
redevelopment agencies and their underlying cities and
counties that occurred earlier this year after Governor
Brown announced his plan to end redevelopment activities.
They worry that these agreements existed just to create the
appearance of debt.
Proposed Law
Before a redevelopment agency forgives a public body for a
loan, advance, or indebtedness, Assembly Bill 936 requires
the agency to adopt a resolution that states its
intentions. The agency's resolution of intention must
specify the:
Public body's name.
Amount of the forgiveness.
Terms of the loan, advance, or indebtedness.
Fiscal effect of the forgiveness on the public
body.
Fiscal effect of the forgiveness on the agency.
Date on which the agency intends to act on the
forgiveness.
The agency must adopt this resolution at least 15 days
before it acts on the proposed forgiveness. AB 936
prohibits this resolution and the forgiveness action from
being on the agency's consent calendar. Both actions need
recorded roll call votes.
The bill also requires each redevelopment agency to adopt a
resolution by February 1, 2012, that declares whether or
not the agency forgave a public body loan, advance, or
indebtedness from January 1, 2010 through December 31,
2011. The agency's resolution of intention must specify
the:
Public body's name.
Amount of the forgiveness.
Terms of the loan, advance, or indebtedness.
Fiscal effect of the forgiveness on the public
body.
Fiscal effect of the forgiveness on the agency.
Date on which the agency intends to act on the
forgiveness.
AB 936 -- 6/22/11 -- Page 3
Within 10 days of adopting this resolution, the agency must
send a copy to its legislative body and the State
Controller.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Critics have worried for decades
that some redevelopment officials create paper debt only to
justify the diversion of all of the available property tax
increment revenues. When they no longer need this fiscal
leverage, redevelopment officials simply forgive the loans,
advances, and debts. To boost fiscal transparency and
political accountability, AB 936 requires redevelopment
officials to give detailed advance notice of their plans to
wipe other public agencies' debt off the books. Further,
the bill tells redevelopment officials to deliver this same
information for the public agencies' debts they've forgiven
over the last two years. That time period matches the
statute that requires city officials to keep original
records before copying and then destroying them.
2. Look back in anger . AB 936 isn't just prospective, it
requires redevelopment officials to go back over their
books and report on public agency forgiveness over the last
two years. That retrospective look may be a reaction to
how some local officials reacted to Governor Brown's
January proposal to end redevelopment activities. In what
some called a Mardi Gras reaction, redevelopment agencies
signed property transfer agreements and other contracts
with their underlying cities and counties, rushing to
establish debt obligations that would tie up property tax
increment revenues well into the future. The Committee may
wish to consider whether this retroactive report will help
track forgiven debt or whether it's merely a punitive
reaction. After all, if a redevelopment agency hurriedly
created a debt in early 2011, its forgiveness is probably
in the future.
3. As we forgive others . AB 936 requires redevelopment
officials to report the debts they forgive to other public
AB 936 -- 6/22/11 -- Page 4
agencies, but doesn't touch private firms that might
benefit from similar forgiveness. Redevelopment agencies
often contract with private builders and property owners,
creating debt relationships. Developer disposition
agreements (DDAs) and owner-participation agreements (OPA)
obligate private parties to construct or rehabilitate
buildings inside redevelopment project areas in return for
redevelopment subsidies. Sometimes, when the builders run
into financing problems, they ask redevelopment officials
to modify the terms of their loans and agreements. Terms
change, interest payments are suspended, and loans become
outright grants. The Committee may wish to consider
whether AB 936 should apply to redevelopment agencies'
loans, advances, and debts with private parties, not just
other public agencies.
Assembly Actions
Assembly Housing & community Development Committee: 7-0
Assembly Local Government Committee: 8-0
Assembly Appropriations Committee: 17-0
Assembly Floor: 75-0
Support and Opposition (6/30/11)
Support : California Professional Firefighters; Fire
Fighters Local 1186; San Diego City Fire Fighters; Stockton
Professional Firefighters, Local 456; Western Center on Law
& Poverty.
Opposition : Unknown.