BILL ANALYSIS �
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Date of Hearing: April 27, 2011
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Norma Torres, Chair
AB 1275 (Torres) - As Amended: April 25, 2011
SUBJECT : Redevelopment agency contracts
SUMMARY : Clarifies the general powers of a redevelopment
agency and provides that a contract that a redevelopment agency
enters into can be declared null and void, by a court, if it
violates the Community Redevelopment Law (CRL) Specifically,
this bill :
1)Provides that a redevelopment agency or legislative body
cannot delegate its obligation to make a decision,
determination, or other action to a person.
2)Provides that a redevelopment agency can make and execute
contracts if they are subject to any limitations and
obligations imposed on the agency by the CRL.
3)Allows a redevelopment agency to amend a contract if it is
necessary to conform the contract to a redevelopment plan, an
amendment redevelopment plan, current state or local law, or
to comply with a court order, provided that it complies with
the CRL.
4)Provides that a contract entered into by a redevelopment
agency may be null and void, if any of the following, are
found by a court to be true:
a) The agency has exercised the authority provided by the
CRL in a manner that exceeds its authority or constitutes
an abuse of discretion;
b) The agency has entered into a contract that in whole or
in part violates any powers or obligations imposed by the
CRL; or
c) The agency assumes any obligations that impairs its
abilities to meet the existing obligations of the CRL
EXISTING LAW
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1)Allows an action may be brought to challenge the validity of
bonds and the redevelopment plan, the legality of any
proceedings taken in connection with establishing the agency,
its authority to transact business and exercise its powers,
designate a survey area, select a project area, formulate a
preliminary plan, find that the project area is predominately
urban, and deliver or sell bonds (Health and Safety Code
Section 33501).
2)Provides that an action to determine the validity of a
redevelopment plan or amendment to a redevelopment plan may be
brought within 90 days after the date of adoption of the
ordinance adopting or amending the plan (Health and Safety
Code Section 33501).
3)Prohibits a validation action to be brought to challenge an
agency's actions unless the objection is raised orally or in
writing by any person before the close of the public hearing
in which the action is being discussed (Health and Safety Code
Section 33501.2).
4)Allows the Attorney General or the Department of Finance to
challenge the validity of an ordinance adopting or amendment a
redevelopment plan (Health and Safety Code Section 33501).
5)Allows the Attorney General to challenge the validity of
redevelopment agencies actions if they were not raised in
writing or orally in the public meeting regarding the action
(Health and Safety Code Section 33501.2).
FISCAL EFFECT : None.
COMMENTS :
The Fontana Redevelopment Agency (agency) entered into a
contract with a private developer in 1982 to provide
infrastructure (school, storm drainage, sewer system) in its
Jurupa Hills project area. Although the agency was then
obligated to set aside 20% of the tax increment from the project
area for affordable housing, and the infrastructure project was
not directly related to the development of affordable housing as
required by the Community Redevelopment Law, the agency pledged
100% of its tax increment to repay the debt. It also amended
the contract between 1982 and 1992 to provide for a 15 %
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interest rate and created a debt scheme to enable the agency to
exceed the $135 million debt limitation established in its
amended redevelopment plan.
The agency's contract and amendments were validated by the San
Bernardino Superior Court in a series of validation actions
brought pursuant to Code of Civil Procedure �860 et seq. As a
result of this scheme, the agency's debt to a single developer
grew to over $1.3 billion of which, $988 million is interest.
The agency continues to spend virtually all of its revenues to
reduce that debt and no money at all has been paid to the
agency's affordable housing fund for the project area.
In 2003, as part of the same contract, the agency issued another
$40 million in bonds, the proceeds of which were to be used
exclusively to repay the developer's debt. It then sought to
validate issuance of the bonds. Despite the prior judgments
"validating" its illegal contract, the appellate court refused
to validate an ongoing illegality on the grounds that the agency
had far exceeded its debt limit, and its bond issuance failed to
provide that any of the proceeds would be deposited in the
affordable housing fund as required by Community Redevelopment
Law (Fontana Redevelopment Agency v. Torres (2007) 153 Cal.App.4
th 902).
The agency delegated its authority to the private developer by
agreeing:
1)To not amend the redevelopment plan in any way that would
adversely affect the agency's receipt of tax revenues or its
pledge of those tax revenues to the private developer;
2)To issue and sell tax allocation bonds "only at the written
request" of the private developer for purposes of refinancing
the debt;
3)To appoint bond counsel, bond underwriters, investment bankers
and other financial consultants as approved by the private
developer;
4)To not take any voluntary action that would adversely affect
the developer's right to receive all tax increment, without
the written consent of the developer or a valid court order;
5)To not issue any other indebtedness that would impair the
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agency's pledge to the private developer, without the prior
written consent of the developer; and
6)To relinquish the agency's eminent domain powers with respect
to any property owned or acquired by the developer within the
project area.
Purpose of this bill :
Redevelopment agencies actions are subject to various validation
procedures. In order for certain actions to be subject to
validation proceedings, there must always be an 'authorizing'
statute. The authorizing statute to validate redevelopment
plans, amendments, and related activities are subject to a
90-day statute of limitations. But validation actions brought
to validate other actions, like contracts, are still subject to
a 60-day statute of limitations pursuant to the validation
statutes. A challenge to validate an agency's action may not be
brought unless the specific objections were presented either
orally or in writing to the agency or the legislative body
before the close of the required public hearing and the person
bringing the challenge objected to the adoption of the plan or
amendment before the close of the public hearing. If a challenge
is made at the public hearing, than a person has standing to
bring an action to challenge the contract in the courts
This bill is intended to provide a process to challenge
contracts that are believed to be illegal in the courts. If a
contract was found to be illegal in that it violated a
redevelopment agency's obligations under the CRL it could be
made void by the courts.
In addition to the scenario outlined above in Fontana where the
redevelopment agency entered into an illegal contract, in the
recent months, some redevelopment agencies have amended their
redevelopment plans in anticipation of their possible
elimination. These amendments in some cases are intended to
allow agencies to increase their debt limitations and enter into
more contracts. This bill will be important tool once those
contracts have been initiated and reviewed to allow for
challenges if appropriate.
According to the author, this bill is intended to provide a tool
for challenging illegal contracts that do not comply with an
agency's obligations under the CRL. The existing process is
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short, and requires a challenge in the public meeting in order
to take an action to validate of a contract. The only
redevelopment agencies that are impacted by this bill would be
those that enter into illegal contracts under the CRL.
Arguments in support:
According to the Western Center on Law & Poverty, "redevelopment
agencies are currently permitted to enter into contracts and
other instruments in order to carry out a redevelopment plan.
They also are authorized to have certain contracts involving
significant financial obligations "validated" by the courts.
Validation of a contract can result in a contract becoming
"forever and finally binding," whether illegal or fiscally
irresponsible. AB 1275 would help ensure that agencies do not
abuse these powers. AB 1275 would clarify existing law, which
prohibits agencies and their legislative bodies from delegating
their obligations to any other person or entity. It also
clarifies that an agency's contracts and instruments must be
consistent with the Community Redevelopment Law."
REGISTERED SUPPORT / OPPOSITION :
Support
California Rural Legal Assistance Foundation
Western Center on Law & Poverty
Opposition
None on file.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085