BILL ANALYSIS Ó
AB 1585
Page 1
Date of Hearing: March 14, 2012
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Norma Torres, Chair
AB 1585 (John A. Pérez) - As Amended: March 8, 2012
SUBJECT : Redevelopment
SUMMARY : Makes changes to the process of dissolving
redevelopment agencies (RDAs), including requiring the funds on
deposit in the Low-and Moderate-Income Housing Fund (L&M Fund)
of the former RDA to remain with the entity that assumes the
housing functions. Specifically, this bill :
1)Provides that employee costs associated with work on specific
project implementation activities, including, but not limited
to, construction inspection, project management, or actual
construction, are not subject to the administrative cost
allowance cap.
2)Adds the following to the definition of enforceable
obligations:
a) Costs incurred to fulfill collective bargaining
agreements for layoffs or terminations of employees who
performed work for the former RDA; and
b) Obligations to an employee that is transferred from the
former RDA to the entity assuming the housing functions.
1)Adds the following to the definition of enforceable
obligations requiring approval of the oversight board:
a) Loan agreements between the former RDA and the city,
county, or city and county that created it, made within two
years of the date of the creation of a project area, if the
loan was for the project area; and
b) Loans made from the city or county to the former RDA to
make a payment to the State's Supplemental Educational
Revenue Augmentation Fund (SERAF).
1)Requires the successor agency or designated local authority to
enter into an agreement with the entity assuming the housing
functions and to reimburse it for any costs of the employee
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obligations if an employee is transferred to the housing
successor entity.
2)Requires repayment of SERAF loans made from the L&M Fund to
the former RDA to be deposited into the L&M Fund maintained by
the entity that assumes the housing functions.
3)Provides that a loan agreement made between the former RDA and
the city, county, or city and county that created it will be
deemed an enforceable obligations if the Oversight Board does
the following:
a) Makes a finding that the loan was for legitimate
redevelopment purposes; and
b) Conditions its approval on the loan being repaid to the
city, county, or city and county based on a defined
schedule over a reasonable term, at an interest rate not to
exceed the interest rate earned by funds deposited into the
Local Agency Investment Fund.
1)Provides that when listing the payment dates for enforceable
obligations on the Recognized Obligation Payment Schedule
(ROPS), the successor agency may list payments on an annual
basis.
2)Specifies that the successor agency is a legally distinct and
separate body that acts by resolution, can sue and be sued,
and can have additional powers that can be conferred upon it.
3)Allows a city, county, or city and county, or joint powers
authority that authorized the creation of the former RDA and
chose not to be the successor agency to reverse that decision
and serve as the successor agency.
4)Provides that any amounts on deposit in the L&M Fund of a
former RDA will be transferred to the city, county, or city
and county that elected to retain the responsibility for
performing the housing functions of the former agency.
5)Requires any amounts on deposit that are transferred to the
L&M Fund to be maintained in a separate account and used for
the purposes defined in the Community Redevelopment Law
relating to authorized uses of the L&M Fund.
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6)Requires the entity that assumes the housing functions of the
former RDA to enforce affordability covenants and other
related activities as defined in Community Redevelopment Law.
7)Requires, where there is no local housing authority that
elected to accept authority for performing the housing
functions, that any amounts on deposit in the L&M Fund be
deposited in the State Low-and Moderate Income Housing Trust
Fund, administered by the Department of Housing and Community
Development (HCD), to be awarded on a competitive basis to
projects within the counties in which it was collected.
8)Requires, when awarding funds out of the State Low- and
Moderate-Income Housing Fund, priority that be given to
eligible projects that serve extremely low-, very low-, and
low-income families and individuals.
9)Requires the city, county, city and county, or other public
entity that assumes the housing functions of the former RDA to
expend or encumber at least 80% of the moneys in the L&M Fund
within four years or forfeit the remaining amount minus what
is needed for monitoring and maintenance of affordable housing
projects to the State Low-and Moderate -Income Housing Fund.
10)Allows a succeeding housing entity to apply for a waiver from
HCD to extend the amount of time to expend or encumber the
money in the L&M Fund by two years and to reapply again after
two years.
11)Requires that assets and properties of the former RDA, under
the direction of the oversight board, be disposed of in an
expeditious but orderly manner that preserves the value of the
assets.
12)Provides that the first ROPS for the period of January 1,
2012, through June 20, 2012, may, if necessary, include the
following:
a) The total amount of payments required for enforceable
obligations over the next two six-month periods; and
b) In the case of debt obligations, the amount of the
annual debt service reserve set-asides and any other
amounts required under indenture or similar documents.
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1)Clarifies that the member of the oversight board representing
special districts should represent the special district having
the largest property tax share within the redevelopment
project areas of the former RDA.
2)Provides that when appointing a member of the oversight board
from the employees of the former RDA, if the majority of the
employees were city or county employees, then the appointment
should be made from the organization that represents those
employees.
3)Provides that if there is no employee organization that
represents the employees of the former RDA, city, or county,
then the appointment should be made from among the employees
of the successor agency.
4)Provides that an employee that is appointed to the oversight
board is deemed not to have a conflict of interest in voting
to approve a contract as an enforceable obligation.
5)Requires all actions taken by an oversight board to be adopted
by resolution.
6)Requires the successor agency to get the approval of the
oversight board prior to entering into a financing agreement,
including issuing bonds, to fund payments under an enforceable
obligation that exceeds the property tax revenue available to
the successor agency during the payment period.
7)Provides that a successor agency is not permitted to create
additional enforceable obligations except when necessary to
pay the financing costs of existing enforceable obligations.
8)Requires the successor agency to get the approval of the
oversight board for temporary increases in the administrative
cost allowance to carry out the requirements of an enforceable
obligation, to cover litigation costs, or to maintain and
preserve the value of assets while in the possession of the
successor agency.
9)Requires the oversight board to direct the successor agency to
do the following:
a) Compile a complete inventory of existing real property
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assets of the former RDA by project area; and
b) Include in the inventory the general categories of real
property assets, the purpose for which the assets were
originally acquired, the original purchase price of each
asset, and the estimated current market value.
1)Requires the oversight board, prior to disposing of any
assets, to receive and review the inventory of assets prepared
by the successor agency and adopt a policy or strategy for
disposal or transfer of such assets that ensures it is done in
an expeditious but orderly manner that preserves the value of
the asset.
2)Provides that in disposing of assets and properties, the
oversight board may direct the successor agency to transfer
ownership of assets that were constructed or used for a
purpose integral to the operation of a governmental purpose,
like parking facilities, to the appropriate public
jurisdiction.
3)Requires the auditor-controller to deposit the unitary and
supplemental tax increment due to the former RDA into the
Redevelopment Property Tax Trust Fund (Fund).
4)Requires the auditor-controller, in distributing funds out of
the Fund, to reserve any funds necessary to cover payments
made in the second half of the calendar year, as described in
the ROPS, that are in excess of the amount that is anticipated
to be deposited in the Fund from the May or June allocation.
5)Provides that in distributing property tax revenues associated
with the payment of a retired recognized obligation, the
auditor-controller should only distribute property tax to the
extent that it is not currently required for the payments of
other recognized obligations.
6)Deletes the requirement that the California Law Revision
Commission draft a Community Redevelopment Law clean-up bill
by January 1, 2013.
7)Includes an urgency clause.
EXISTING LAW
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1)Dissolves RDAs as of October 1, 2011.
2)Requires RDAs to continue to make all scheduled payments for
enforceable obligations, perform obligations established
pursuant to enforceable obligations, set aside required
reserves, preserve assets, cooperate with successor agencies,
and take all measures to avoid triggering a default under an
enforceable obligation.
3)Requires RDAs to prepare an enforceable obligation payments
schedule containing all payments obligated to be made and
provide it to the county auditor-controller within 60 days of
the effective date of ABX1 26
4)Requires that unencumbered RDA funds be conveyed to the county
auditor-controller for distribution to the taxing entities in
the county, including cities, counties, a city and a county,
school districts, and special districts.
5)Establishes successor agencies to the RDAs that would, except
in certain situations, such as those involving an RDA based on
a joint powers authority, be the entity that created the RDA.
If no local agency elects to be the successor agency, a
designated local authority would be formed, made up of three
members that would be appointed by the Governor.
6)Requires successor agencies to make payments on legally
enforceable obligations using property tax revenues when no
other funding source is available or when payment from
property tax revenues is required by an enforceable
obligation.
7)Defines enforceable obligations for successor agencies to
include, but not be limited to:
a) Bonds, including debt service, reserves, or other
required payments;
b) Loans borrowed by the agency for a lawful purpose
including loans from the L&M Fund;
c) Payments required by the federal government;
d) Pre-existing obligations to the state or obligations
imposed by state law;
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e) Legally enforceable payments to agencies' employees,
including pension obligations and other obligations
conferred through a collective bargaining agreement;
f) Judgments and settlements entered into by a court or
arbitration, retaining appeal rights;
g) Legally binding contracts that do not violate the debt
limit or public policy; and,
h) Contracts necessary for administration of the agency,
such as for office space, equipment, and supplies, to the
extent permitted.
8)Provides that enforceable obligations do not include any
agreements, contracts, or arrangements between the city,
county, or city and county that created the RDA and the former
RDA.
9)Requires successor agencies to take control of all assets,
properties, contracts, books and records, and buildings and
equipment of the RDAs on October 1, 2011.
10)Requires successor agencies to dispose of RDAs' assets as
directed by the oversight board with the proceeds transferred
to the county auditor-controller for distribution to taxing
agencies within the county. Governmental facilities, such as
roads, school buildings, and fire or police stations would be
conveyed to the appropriate public jurisdiction.
11)Requires the successor agencies to compensate the taxing
agencies for the value of property and assets retained by the
successor agencies in an amount proportional to the taxing
agencies' share of the property tax.
12)Creates the Redevelopment Obligation Retirement Fund and the
Redevelopment Property Tax Trust Fund (Trust Fund). Property
tax revenues associated with each former RDA in each county
will be deposited in the Trust Fund which will be administered
by the county auditor-controller.
13)Requires the county auditor-controller to determine the
amount of property tax increment that would have been
allocated to each RDA and to deposit that amount in the Trust
Fund.
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14)Requires the county auditor-controller to allocate funds from
the Trust Fund in the following order:
a) Local agencies, school districts, and community college
districts in the amount that would have been received by
such agencies as their share of the property tax base and
that would have been paid pursuant to statutory and
contractual pass-through agreements;
b) Redevelopment Obligation Retirement Fund for successor
agencies' payments listed in the Recognized Obligation
Payment Schedule and administration; and,
c) Cities, the county, schools, community college
districts, and non-enterprise special districts in the
proportional shares of what would have been received absent
redevelopment and adjusted for pass-through agreements.
15)It shall be noted that in the Supreme Court's holding in
California Redevelopment Association v. Matosantos, Case No.
S19486, the Court extended all of the statutory deadlines
contained in Health and Safety Code Division 24, Part 1.85
(Sections 34170-34191) and arising before May 1, 2012, by four
months.
FISCAL EFFECT : Unknown.
COMMENTS :
In 2011, the Legislature approved and the Governor signed two
measures, ABX1 26 and ABX1 27 that would together dissolve
redevelopment agencies as they existed at the time and create a
voluntary redevelopment program on a smaller scale. In
response, the California Redevelopment Association and the
League of California Cities, along with other parties filed suit
challenging the two measures. The Supreme Court denied the
petition for peremptory writ of mandate with respect to ABX1 26.
However, the Court did grant CRA's petition with respect to ABX1
27. As a result, all redevelopment agencies were required to
dissolve as of February 1, 2012.
When the Legislature voted on ABX1 26 and ABX1 27, it envisioned
that a majority of redevelopment agencies would likely choose to
opt-in to the voluntary program leaving the state to oversee the
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dissolution of only a handful of agencies. Because of the
subsequent lawsuits and the Court's ruling, over 400
redevelopment agencies are now required to dissolve. The
dissolution process has raised some questions and concerns
regarding the implementation of ABX1 26. AB 1585 (John A.
Pérez) is a response to those concerns and attempts to
facilitate a smooth wind-down of redevelopment agencies. AB 1585
makes a variety of technical changes that are intended to ease
the process of dissolution and provide greater direction to the
successor agencies, oversight boards, and successor housing
entities that are integral to the dissolution process. It also
requires that the L&M funds that have been deposited by former
RDAs continue to be used for affordable housing in the county in
which they were collected.
Low-and Moderate-Income Housing Funds :
Redevelopment agencies were required to set aside 20% of the tax
increment collected in a project area to fund the creation,
preservation, or rehabilitation of affordable housing. In
spending these funds, redevelopment agencies were required to
meet the housing needs as outlined in their housing element.
The extent to which RDAs spent the L&M funds varied across
redevelopment agencies. Based on 2009-10 reports made to the
State Controller's Office, RDAs reported having in excess of
$1.4 billion in their L&M Funds. The Controller's Community
Redevelopment Agencies Annual Report for the fiscal year ending
June 30, 2010, shows a statewide aggregate "unreserved
designated" balance of $967 million and an "unreserved
undesignated" balance of $391 million in agencies L&M Funds.
The State Controller's Office is in the process of auditing the
redevelopment agencies for the 2010-11 fiscal year and is
required to submit the audit to the Legislature at the end of
April.
The Governor's original proposal (SB 77) to eliminate
redevelopment agencies would have allowed local jurisdictions to
keep the L&M funds. However, the bill that was ultimately
approved by the Legislature and signed by the Governor absorbed
that fund along with the other tax increment. At the time, the
belief was that allowing the L&M funds to be retained would be
interpreted as the state reallocating property tax and would
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require a two-thirds vote. Since then, Legislative Counsel has
determined that the L&M funds are assets of the redevelopment
agencies under Article XVI, Section 16 of the State Constitution
and not property taxes under Section 1 of Article XIII A.
AB 1585 makes several significant changes to the provisions in
ABX1 26 regarding L&M funds:
1)Keeps the money on deposit in an L&M Fund with the successor
housing entity to be spent on activities allowed under the
housing provisions in the Community Redevelopment Law or, if
there is no successor housing entity, requires the funds to be
transferred to HCD;
2)Requires the successor housing entity to expend or encumber
80% of the funds within four years but gives it the option to
petition HCD for more time to spend the funds; and
3)Designates the types of affordable housing projects that HCD
can fund from monies that are transferred to the department
from jurisdictions that decide not to keep the housing
functions of the former RDA.
Voluntary Transfer of Money between Jurisdictions within the
County:
Some jurisdictions have affordable housing projects that have
financing commitments from other sources and could begin
construction quickly but were relying on future tax increment to
fully fund the projects. Other jurisdictions have unencumbered
balances in their L&M funds that they may not intend to spend.
For example, the City of San Jose has indicated that it has
multiple projects that are largely financed but has no
unencumbered L&M funds because it consistently spent its
available balances on affordable housing. In the interest of
supporting the construction of affordable housing projects that
are "shovel ready," allowing jurisdictions within the same
county to transfer funds from their L&M funds rather than
sending those funds to HCD for distribution will expedite the
construction of affordable housing within the region. The
committee may wish to consider allowing a jurisdiction that does
not plan to spend its L&M Fund balances to transfer them to
another jurisdiction within the county with certain
restrictions, including:
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Require the jurisdiction that is receiving the funds to
make findings, based on substantial evidence on the record,
that each proposed use of funds will not exacerbate racial
or economic segregation;
Require the transferred funds to be used for low-income
or below housing;
Require both the transferring and the receiving
jurisdiction to adopt a resolution detailing the reason for
the transfer and how the funds will be used by the
receiving jurisdiction; and
Require funds to be expended in compliance with section
34176 (d).
Timeline for spending the L&M Funds:
In some jurisdictions, former redevelopment agencies had a poor
record of spending their affordable housing dollars. In an
attempt to ensure that any monies available to support
affordable housing are spent expeditiously by the successor
housing agency, the bill requires the funds to be expended or
encumbered within four years and creates an appeal process with
HCD for an extension. The committee may wish to consider
requiring the housing successor entity to contract to spend the
funds within two years while giving it four years to spend at
least 80% of the funds. The requirement to contract within two
years will provide a benchmark that the community can use to
evaluate the commitment of the housing successor entity to spend
the majority of the funds within four years.
The bill does not provide any criteria that HCD should consider
in determining whether or not to allow a successor housing
agency to retain the housing dollars past the four year mark.
The committee may wish to consider providing criteria that HCD
should consider when evaluating a housing successor agency's
intention to spend the funds within the next two years. Among
other criteria that HCD could develop, agencies should be
required to provide evidence that the housing successor entity
has a site specific project plan with local approvals including
the issuance of building permits, that the project has secured
financing, and evidence that some funds and have been expended
from the Low and Moderate Income Housing Fund.
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In order for HCD to evaluate a successor agency's compliance
with the timeline to spend the funds, successor housing entities
should be required to inform HCD within 45 days of receiving the
funds of the amount of funds on deposit. Successor housing
entities should also report to HCD after the two-year
requirement to contract and the four year requirement to spend
funds if they have complied.
State Low-and Moderate-Income Housing Fund:
If a city, county, or city and county, or housing authority
decides not to assume the housing functions of the former RDA,
or if a successor housing entity does not spend the amount on
deposit in the L&M Fund within the specified timeline, then the
funds are sent to HCD for distribution back into the county in
which they were collected. AB 1585 requires that the funds be
distributed with priority given to affordable housing projects
that serve low-, very-low and extremely low-income families and
individuals. The committee may wish to consider giving HCD some
direction as to what criteria should be used for redistributing
the funds. HCD operates several existing housing programs that
serve various income categories whose guidelines could be used
for redistributing these funds. This would likely reduce HCD's
cost and speed the redistribution of funds.
Defining Housing Assets:
In an attempt to avoid a "fire sale" of the property and assets
of the former RDA, AB 1585 attempts to inform the process by
requiring the successor entity to create a detailed list of the
assets. The list is intended to give the oversight board
responsible for disposing of the assets more direction and
includes the purpose for which the asset was purchased, the
original purchase price and the current fair market value.
Redevelopment agencies had flexibility in spending their 80%
funds and in some instances may have used those funds to
purchase parcels that ultimately became part of an affordable
housing project. Mixed-use developments may also have been
funded using the 80% funds for retail and the 20% for affordable
housing units. Neither AB 26 X1 or AB 1585 defines a "housing
asset" which could potentially result in some oversight boards
disposing of assets that have affordable housing.
As part of the information that AB 1585 requires the successor
agency to provide to the oversight board, describing the assets
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and properties, it would be useful to include the source of
funds (either 20% or 80%) that were used to purchase the asset
or property.
Related Legislation : SB 654 (Steinberg) would revise the
definition of enforceable obligation to include amounts on
deposit in the Low-and Moderate-Income Housing Fund of former
redevelopment agencies. This bill is currently in the Assembly
Committee on Rules.
Suggested Committee Amendments:
Amendment 1:
On page 9, amend (d), lines 5 through 25, as follows:
(d) If the city, county, or city and county, or housing
authority other public entity that performs housing functions
pursuant to this section has not both expended or encumbered
entered into a contract to expend at least 80 percent of the
moneys in the Low and Moderate Income Housing Fund within two
four years of receipt of those moneys, by the entity assuming
the housing responsibility pursuant to this part and has not
spent the monies in the Low and Moderate-Income Housing Fund
within four years of receiving the funds within spend all
excess amounts, minus the amount necessarily reserved for the
ongoing monitoring and maintenance of affordable housing
projects, shall be transferred to the State Low and Moderate
Income Housing Trust Fund, which is hereby created, for
expenditure by the Department of Housing and Community
Development for the purpose of increasing the supply of low- and
moderate-income housing in the county in which the funds were
collected, with priority given to extremely low, very low, and
low-income projects. Excess funds shall not be transferred to
the department if the succeeding housing entity applies for, and
receives, a waiver from the department. If a waiver is granted,
funds shall remain with the entity for an additional two years
from the date of waiver approval. In approving a waiver the
department should consider, the following criteria, including
but not limited, that the city, county, or city and county, or
housing authority has a site specific project plan with local
approvals including the issuance of building permits, that the
project has secured financing, and evidence that some funds have
been expended from the Low and Moderate Income Housing Fund. A
succeeding housing entity may reapply at the end of the two-year
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period for a renewal of the previously granted waiver.
Amendment 2 :
A city, county or city and county or housing authority may
transfer all or a portion of the funds in the Low and
Moderate-Income Housing Fund to another city, county, or city
and county, or housing authority within the county that the
funds were collected, to be spent on affordable housing,
provided the following conditions are met:
a) The jurisdiction accepting the funds must make findings,
based on substantial evidence in the record, the proposed
use of the funds will not exacerbate racial or economic
segregation;
b) The funds must be spent on projects to benefit families
or individuals at or below low-income;
c) Both the transferring jurisdiction and the receiving
jurisdiction must adopt a resolution detailing the need for
the transfer of funds and the intended use by the receiving
jurisdiction; and
d) The funds shall be expended in compliance with section
34176 (d)
Amendment 3:
Upon receipt of any moneys in the Low and Moderate Income
Housing Funds, the city, county, or city and county, or housing
authority, must within 45 days notify the department of the
amount of funds on deposit and the entities plan for spending
the funds. After two years the city, county, city and county, or
housing authority shall report to the department on the
percentage of funds that it has entered into contract to spend.
Within four years of receipt of the funds the city, county, city
and county, or housing authority shall report to the department
if funds still remain in the Low and Moderate Income Housing
Fund and if they desire a waiver as described in 34176 (d) or
if they will be transferring the money back to the department.
REGISTERED SUPPORT / OPPOSITION :
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Support
Abode Services, Fremont
Affirmed Housing Group
Aging Services of California
Allied Housing, Fremont
Bay Area Local Initiatives Support Corporation, San Francisco
Cambrian Center, San Jose
Century Housing, Culver City
City of Colton
City of Fairfield
City of Coronado
City of Lafayette
City of Lakewood
City of Moorpark
City of Vista
Community Housing Partnership, San Francisco
Daniel Solomon Design Partners, San Francisco
EAH Housing, San Rafael
Eden Housing, Inc. Hayward
Housing Authority of Kings County
Laurin Associates, Sacramento
Life Skills Training and Educational Programs, Fair Oaks
Mercy Housing, San Francisco
Monterey County Board of Supervisors
Palm Communities, Palm Desert
Resources for Community Development
San Diego Housing Commission
Four housing managers of affordable housing communities:
Casa de la Paloma, Glendale
Clark Terrace and Clark Terrace II, Norco
Mountain Vistas and Mountain Vistas II, Redding
Opposition
None on file.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085