BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 1275 (Torres)
As Amended April 25, 2011
Hearing Date: July 5, 2011
Fiscal: No
Urgency: No
BCP
SUBJECT
Redevelopment: Agency Contracts
DESCRIPTION
This bill would provide that a contract or other instrument
entered into by a redevelopment agency may be declared by a
court to be null and void if the court determines that the
agency has: (1) exceeded their authority or abused its
discretion; (2) entered into a contract that violated the
agencies powers or obligations; or (3) assumed obligations that
impaired its ability to meet obligations under the Community
Redevelopment Law.
This bill would additionally prohibit a redevelopment agency
from delegating an obligation to decide, determine, or act to
another person, as specified, and make clarifying changes.
BACKGROUND
The California Constitution and the Community Redevelopment Law
(CRL) gives local officials the power to eradicate blight, and
requires those agencies to prepare, or cause to be prepared, and
approve a redevelopment plan for each project area.
Redevelopment officials have the power to divert property tax
increment revenues to pay for long-term debt, and, in order to
support affordable housing, existing law requires redevelopment
officials to annually set aside 20 percent of the gross amounts
of their property tax increment revenues into a Low and Moderate
Income Housing Fund.
This bill seeks to address issues raised in the case of Fontana
(more)
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Redevelopment Agency v. Torres (2007) 153 Cal.App.4th 902 where
the Fontana Redevelopment Agency (RDA) repeatedly failed to set
aside the required 20 percent of property tax increment
revenues, and, whose actions were validated by the lower courts.
That validation occurred through the filing of validating
lawsuits, which can be filed by public officials to validate
their actions, contracts, agreements, and bonds. Successful
validation suits arguably act to 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) Chapter 595, Statutes of
2006). In the case at issue regarding validation of a
settlement and $40 million bond, the Court of Appeals, Fourth
Appellate District, held:
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 Ten-Ninety to
pay off almost a billion dollars in interest. Any previous
findings made in 1981 that payments toward the
infrastructure benefited affordable housing were made under
the law and circumstances existing at the time, not in 2003
when the new tax allocation bonds were proposed. The
present and future benefits to affordable housing appear to
be nonexistent. Although defendants may not be able to
challenge earlier actions by Fontana RDA, they should be
able to curtail this most recent effort to evade the
statutory obligation to provide and promote affordable
housing. Fontana Redevelopment Agency v. Torres (2007) 153
Cal.App.4th 902, 915.
In response to the above case, this bill would provide that a
contract or other instrument entered into by an agency, or a
particular severable provision of the contract or other
instrument, may be declared by a court to be null and void if
the court determines that the agency has: (1) exceeded its
authority or abused its discretion; (2) entered into a contract
that violated the agency's powers or obligations; or (3) assumed
obligations that impaired its ability to meet obligations under
the CRL. This bill would make other changes regarding the
ability to delegate and ability to make and execute amendments
to contracts.
CHANGES TO EXISTING LAW
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1. Existing law , the Community Redevelopment Law, authorizes
the establishment of redevelopment agencies in communities in
order to address the effects of blight, as defined, in those
communities and requires those agencies to prepare, or cause
to be prepared, and approve a redevelopment plan for each
project area. (Health & Safety Code Sec. 33100 et seq.)
Existing law authorizes each agency to make and execute
contracts and other instruments necessary or convenient to the
exercise of its powers. (Health & Safety Code Sec. 33125.)
This bill would provide that the above authority to make and
execute contracts is subject to the limitations and
obligations imposed on an agency by the Community
Redevelopment Law.
This bill would additionally authorize an agency to make and
execute amendments to contracts and other instruments, subject
to the limitations and obligations imposed on an agency by the
Community Redevelopment Law, as may be necessary or convenient
to the exercise of its powers, including, but not limited to,
amendments to conform a contract or other instrument to the
redevelopment plan, an amended redevelopment plan, a current
state law or local ordinance, or to comply with a court order,
as specified.
This bill would provide that, notwithstanding Code of Civil
Procedure Sections relating to validating proceedings, a
contract or instrument entered into by an agency, or a
particular severable provision of that contract or instrument,
may be declared by a court to be null and void if the court
determines that the agency has done any of the following:
exercised the authority that is provided to the
agency in a manner that exceeded the agency's authority
or constituted an abuse of discretion by the agency;
entered into a contract or other instrument that, in
whole or in part, violated any powers granted to the
agency or obligations imposed on the agency; or
assumed any other obligations that impair its
ability to meet existing obligations.
2. Existing law provides that when a decision, determination,
or other action by the agency or legislative body is required,
neither the agency nor the legislative body shall delegate the
obligation to decide, determine, or act to another entity
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unless a provision of the Community Redevelopment Law
specifically provides for that delegation. (Health & Safety
Code Sec. 33121.5.)
This bill would additionally prohibit delegation of an
obligation to decide, determine, or act to person unless a
provision of the Community Redevelopment Law specifically
provides for that delegation.
COMMENT
1. Stated need for the bill
According to the author:
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, �] 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 �Community
Redevelopment Law] it could be made void by the courts.
In addition to the scenario outlined �] 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
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into more contracts. This bill will be �a] more important
tool once those contracts have been initiated and reviewed
to allow for challenges if appropriate.
2. Declaring contracts or instruments null and void
Under existing law, a public agency may bring an action in
superior court to determine the validity of a matter. If no
action is brought by a public agency, an interested person may
bring an action to determine validity within the same timeframe
(60 days from the "existence of any matter"). The Community
Redevelopment Law additionally provides that an action to
determine the validity of a redevelopment plan, or amendment to
a plan, may be brought within 90 days after the date of the
adoption of the ordinance adopting or amending the plan.
Challenges to those actions cannot be brought unless the alleged
grounds of noncompliance were presented to the agency, either
orally or in writing, before the close of the required public
hearing, and the person objected to the adoption of the plan
before the close of the hearing. This bill seeks to provide an
alternate method to challenge arguably illegal contracts that is
not subject to the administrative exhaustion requirement, or,
the above short statutes of limitations.
Specifically, this bill would provide that, notwithstanding the
above validation requirements, a court may declare a contract
null and void if the court determines that the agency has: (1)
exercised authority that exceed its authority or constituted an
abuse of discretion; (2) entered into a contract that violated
any powers granted to the agency or obligations imposed on the
agency; or (3) assumed any other obligations that impair its
ability to meet existing obligations under the Community
Redevelopment Law (CRL). The author notes that this provision
seeks to provide a process to challenge contracts that are
believed to be illegal in the courts and that, if a contract is
illegal, it could be made null and void.
The California Redevelopment Association, in opposition, notes
that the purpose of the restrictions in existing law is to
"provide certainty for bond purchasers and other agency
creditors who need to know agency pledges of tax increment to
repay bonds and other financial obligations are not subject to
legal challenge," and argues that absent assurance, bond
purchasers will be unwilling to buy bonds, that redevelopment
agencies have relied on these provisions for decades, and that
"�t]here is no discernable reason why redevelopment agency
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contracts should be treated differently from other public agency
contracts."
From a policy standpoint, statutes of limitation act to provide
certainty to all parties, but vary dramatically in terms of the
time at which an issue actually becomes final. Those various
statutes of limitations reflect a policy choice about when to
provide finality in a particular circumstance. The policy
question raised by this bill is whether the actions engaged in
by Fontana's RDA (which were validated) demonstrates a need to
address circumstances where an agency inappropriately exercises
its authority. Supporters, in response, assert:
The opposition's concern is unwarranted. AB 1275 does not
repeal or amend the validation statutes. It simply
clarifies that while RDA's have broad contractual powers,
they are only authorized to enter into 'lawful' contracts.
Thus, it encourages RDA's to lawfully exercise their
contractual powers, and to only attempt validation of
'lawful' contracts. This should provide added security for
lenders - i.e., that 'from the start' the agency is entering
into a lawful contract with the lender that neither exceeds
the agency's authority nor abuses its discretion. With that
added security, lenders should have more confidence that
their contracts will be honored and that a legitimate
validation judgment will not be later challenged. Moreover,
from a policy perspective, it is difficult to envision that
RDA's or lenders would support the notion that even an
"illegal" contract should be forever protected. To the
contrary, because redevelopment agencies have extraordinary
powers and can enter into extremely complex contracts that
may last for decades, commit billions of dollars in tax
increment, affect other needs of the community and lenders,
every effort should be made to ensure that such contracts
are lawful.
It should also be noted that, from a contracts standpoint, it is
also unclear how an agency would have authority to enter into a
contract that exceeded its authority. The ability to bring an
action to invalidate a contract that an entity did not have
authority to enter into would appear to be appropriate.
3. Changes relating to amendments
Under the CRL, redevelopment agencies have the statutory right
to make and execute contracts and other instruments necessary
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and convenient to the exercise of their powers. This bill would
revise that authority by stating that the right is "subject to
the limitations and obligations imposed on an agency by the
�CRL]." The bill would add a similar provision relating to
amendments to those contracts and other instruments, including,
among other things, amendments to conform a contract to the
redevelopment plan.
The California Redevelopment Association, in opposition,
contends that the above provision is unnecessary and that: "To
the extent that this authority suggests that a redevelopment
agency may unilaterally amend a contract with a third party to
conform it to a redevelopment plan, state law or local
ordinance, it would be unconstitutional under state and federal
constitutional provisions that prohibit laws impairing the
obligation of contract." Despite those concerns, it should be
noted that the new subdivision regarding amendments refers to
the ability to "�m]ake and execute amendments to contracts and
other instruments," thus requiring any amendments to not just be
made, but be executed by the agency. The requirement to
"execute" necessarily includes the agreement of all parties to
the contract (plus consideration for that agreement). The Ninth
Circuit similarly noted that:
In the absence of a definition . . . , we must assume
execution carries its normal legal meaning. The legal
definition of the term "execute" is: "To perform all
necessary formalities, as to make and sign a contract."
Black's Law Dictionary 509 (5th ed. 1979). Seva Resorts,
Inc. v. Hodel (1989) 876 F.2d 1394, 1398.
Supporters, in response to the opposition's concerns, similarly
assert:
. . . it is not the intent to require unilateral amendment
of an RDA contract. Section 2 expressly provides that an
agency 'may' . . . 'make and execute' amendments to
contracts. That language is consistent with existing law
which authorizes, but does not require, agencies to 'make
and execute' certain contracts. It is inherent in the term
contract or amendment to a contract that there is another
party to the contract, consideration, etc. Thus, the
amendment is not envisioned to be unilateral.
While redevelopment agencies arguably already have the ability
to make and execute amendments, the provision at-issue would
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specifically codify that the ability is subject to limitations
and obligations on the agency, and that the agency has the
ability to seek amendments that would conform the contract to
the redevelopment plan, state or local law, or court order.
4. Delegation
Under the CRL, when a decision, determination, or action is
required by the CRL, neither the agency nor legislative body may
delegate the obligation to decide, determine, or act to another
entity unless a provision of the CRL provides for that
delegation. This bill would additionally prohibit delegation to
another person, as specified, unless a provision of the CRL
provides for that delegation.
The California Redevelopment Association, in opposition,
contends that redevelopment agencies "frequently delegate to
their executive directors the authority to make routine
determinations, enter into contracts below a stated threshold,
approve time extensions in contracts, and many other routine
actions." Supporters, in response, contend that:
The intent of the amendment is simply to clarify that an
agency and its legislative body cannot delegate the making
of decisions, determinations, or other actions that must be
made by the legislative body or the agency to another entity
or "person" unless authorized to do so under the CRL. For
example, the CRL does not authorize an agency or its
legislative body to permit a developer (whether an entity or
a person) to decide when, whether and/or how to amend a
redevelopment plan or when and whether to issue bonds to
support a redevelopment project; nor are these the type of
decisions that could be delegated to staff. The term
'person' is not intended to restrict the delegation of
appropriate decisions to staff.
Accordingly, the author and sponsors should continue to work
with the opposition to see if the concerns regarding delegation
can be addressed. In support of the need to generally prohibit
delegation, the author's office asserts that the Fontana RDA
essentially delegated its authority to the will of the private
developer by agreeing:
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;
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to issue and sell tax allocation bonds "only at the
written request" of the private developer for purposes of
refinancing the debt;
to appoint bond counsel, bond underwriters, investment
bankers and other financial consultants as approved by the
private developer;
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;
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; and
to relinquish the agency's eminent domain powers with
respect to any property owned or acquired by the developer
within the project area.
Given those arguable abuses of the delegation power, and that
the section specifically allows delegation provided by the CRL,
the limitation on delegating to a "person" may be appropriate.
Should that delegation restriction act in a way that unduly
hinders the actions of redevelopment agencies, those agencies
should, instead, seek language specifically codifying the
instances where delegation may be appropriate. Those situations
can then be vetted by the Legislature to determine whether
delegation may be appropriate in those specific circumstances
(as opposed to the virtually unlimited circumstances currently
available).
Support : None Known
Opposition : California Redevelopment Association
HISTORY
Source : The Public Interest Law Project; Western Center on Law
& Poverty
Related Pending Legislation : None Known
Prior Legislation : None Known
Prior Vote :
Senate Committee on Governance & Finance (Ayes 6, Noes 0)
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Assembly Floor (Ayes 78, Noes 0)
Assembly Committee on Housing & Community Development (Ayes 7,
Noes 0)
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