BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1275 HEARING: 6/22/11
AUTHOR: Torres FISCAL: No
VERSION: 4/25/11 TAX LEVY: No
CONSULTANT: Detwiler
REDEVELOPMENT AGENCIES' CONTRACTS
Allows new challenges to redevelopment agencies' contracts.
Background and Existing Law
The California Constitution and the Community Redevelopment
Law give local officials access to extraordinary powers to
eradicate blight. One extraordinary power is the ability
of redevelopment officials to divert property tax increment
revenues to pay for long-term debt. Local officials must
adopt detailed redevelopment plans that include limits on
the amounts of bonded debt. Redevelopment officials must
annually set aside 20% of the gross amounts of their
property tax increment revenues into a Low and Moderate
Income Housing Fund to support affordable housing.
Public officials can file validating lawsuits, asking the
courts to validate their actions, contracts, agreements,
and bonds. Successful validation suits reassure private
investors and public agencies that their decisions are
reliable. For redevelopment decisions, opponents have 60
days to oppose validating suits; 90 days for decisions that
adopt or amend redevelopment plans (SB 1206, Kehoe, 2006).
The State Department of Housing and Community Development
(HCD) used to audit redevelopment agencies' affordable
housing programs.
The Fontana Redevelopment Agency (San Bernardino County)
contracted with a developer to build public works in the
Jurupa Hills redevelopment project area. Through a series
of agreements, the Agency pledged 100% of its property tax
increment revenues to repay the developer at 15% interest.
A 2001 HCD audit concluded that the Agency owed $14
million to its affordable housing fund and another $53
AB 1275 -- 4/25/11 -- Page 2
million to the Jurupa Hills affordable housing fund. In a
settlement agreement with HCD, the Agency paid $6.1 million
to its affordable housing fund, but nothing to the Jurupa
Hills affordable housing fund. By 2002-03, the Agency owed
the developer nearly $1.3 billion, while the annual tax
increment was about $9.1 million.
In 2003, Fontana officials issued another $40 million in
redevelopment bonds and filed a lawsuit to validate the HCD
settlement agreement and the new debt. A local resident
and a community group opposed the validation suit, but the
superior court found in the Agency's favor. In 2007, the
District Court of Appeals rejected validating both the HCD
settlement agreement and the bond issue. The appellate
court said that:
What the record inescapably demonstrates is Fontana
RDA's lack of compliance with the required 20 percent
contribution for affordable housing since 1987.
Instead all tax increment revenues appear to be
diverted to �the builder] to pay off almost a billion
dollars in interest.
Affordable housing advocates point to the trouble they had
in getting the courts to enforce redevelopment laws. They
want the Legislature to make it easier to contest
redevelopment decisions which violate state law.
Proposed Law
Assembly Bill 1275 allows a court to declare a
redevelopment agency's contracts or instruments to be null
and void if the court determines that the agency has:
Exercised its authority in a manner that exceeds
its authority or constitutes an abuse of discretion;
Entered a contract or instrument that violated the
agency's statutory powers or obligations; or,
Assumed other obligations that impair its ability
to meet existing obligations.
AB 1275 allows redevelopment agencies to amend contracts
and other instruments to conform to redevelopment plans,
amended redevelopment plans, state laws, or local
ordinances, or to conform with a court order issued
pursuant to the bill's provisions.
AB 1275 -- 4/25/11 -- Page 3
The bill prohibits redevelopment agencies and their city
councils or county boards of supervisors from delegating
their obligation to decide, determine, or act to another
person, unless specifically allowed by redevelopment law.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Redevelopment officials' powers
to eradicate blight are truly extraordinary in that the
ability to use eminent domain and to finance projects with
property tax increment funds are beyond the ordinary powers
of the cities or counties that run redevelopment agencies.
Using their extraordinary powers, redevelopment officials
have literally changed the way that California's
communities look --- mostly for the better. Most
redevelopment officials sincerely want to promote local
economic development and provide affordable housing.
However, as the 2007 Fontana case documented, glaring and
sometimes egregious examples stain the redevelopment
record. A redevelopment agency's bad behavior can continue
for decades without corrective challenges. Building on
that experience, AB 1275 gives a court the power to declare
a redevelopment contract or other instrument "null and
void" if the court determines that the agency went too far.
Redevelopment agencies' extraordinary powers justify the
bill's extraordinary exception to the practice of
validating public decisions.
2. More uncertainty won't help . If blighted areas were
secure places for private investors, there wouldn't be a
need for redevelopment projects. Uncertain returns on
their capital scare away private investors who can't afford
the risk. When redevelopment agencies step in with their
extraordinary powers to shoulder much of that risk, central
cities and older suburbs become more attractive to private
capital. By inviting a court to invalidate a contract even
after a successful validation suit, AB 1275 injects
unnecessary uncertainty into what have been reliable
decisions. Bond purchasers and other agency creditors will
shy away from redevelopment projects if their investments
may be subject to unpredictable legal challenges, even
AB 1275 -- 4/25/11 -- Page 4
years later. The Committee may wish to consider whether AB
1275 will dampen private investors' willingness to risk
their capital to redevelop blighted communities.
3. Double-referred . The Senate Rules Committee ordered a
double-referral for AB 1275, first to the Senate Governance
& Finance Committee which has policy jurisdiction over most
bills affecting redevelopment, and then to the Senate
Judiciary Committee which reviews bills affecting contract
litigation.
Assembly Actions
Assembly Housing & Community Development Committee: 7-0
Assembly Floor: 78-0
Support and Opposition (6/16/11)
Support : Western Center on Law & Poverty.
Opposition : California Redevelopment Association.