BILL ANALYSIS �
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ASSEMBLY THIRD READING
AB 1275 (Torres)
As Amended April 25, 2011
Majority vote
HOUSING 7-0
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|Ayes:|Torres, Atkins, Bradford, | | |
| |Cedillo, Hueso, Jeffries, | | |
| |Miller | | |
| | | | |
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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,
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c) The agency assumes any obligations that impairs its
abilities to meet the existing obligations of the CRL.
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 CLR, 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 15.5% 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 Section 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.4th 902).
The Agency delegated its authority to the private developer by
agreeing:
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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
Agency's pledge to the private developer, without the prior
written consent of the developer.
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
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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
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
short, and requires a challenge in the public meeting in order
to take an action to validate a contract. The only redevelopment
agencies that are impacted by this bill would be those that
enter into illegal contracts under the CRL.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085
FN: 0000385