BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 499 (Huff)
Hearing Date: 01/17/2012 Amended: 04/11/2011
Consultant: Mark McKenzie Policy Vote: G&F 6-0
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BILL SUMMARY: SB 499, an urgency measure, would require that
calculations for redevelopment agency (RDA) payments to a
Supplemental Educational Revenue Augmentation Fund (SERAF) be
based upon the lesser of the following:
The property tax increment revenues allocated and paid
to the agency, or
The amount of taxes actually received by the agency
pursuant to limits in the redevelopment plan.
The bill also specifies that a redevelopment plan may contain a
provision that limits the amount of tax increment revenues
allocated to the RDA. Amounts collected in excess of this limit
would be allocated to other taxing agencies and would not be
considered redevelopment tax increment revenues. The bill
contains a legislative finding that its provisions are
declaratory of existing law.
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Fiscal Impact (in thousands)
Major Provisions 2012-13 2013-14 2014-15 Fund
Discharge of SERAF debtpotential foregone revenues of over
$4,000 General
------(see staff comments)-------
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
Community redevelopment agencies have historically used property
tax increment revenues to repay their debts: tax allocation
bonds, contracts with property owners and builders, and advances
and loans from their underlying cities and counties. Local
officials must set a limit on the amount of property tax
increment revenues that the redevelopment agency can receive
from its older redevelopment project areas.
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As part of the 2009-10 budget package, the Legislature enacted
ABx4 26 (Committee on Budget), Chapter 21, 4th Ex. Session of
2009, which shifted redevelopment revenues to the Supplemental
Education Revenue Augmentation Fund (SERAF): $1.7 billion in
2009-10, and $350 million in 2010-11. The SERAF money goes to
school districts that serve redevelopment project areas through
mechanisms that offset state General Fund obligations to schools
pursuant to the Proposition 98 minimum funding guarantee. The
Director the Department of Finance (DOF) determines each
redevelopment agency's proportional share of the SERAF shifts
based upon the State Controller's (SCO) fiscal year 2006-07
report on redevelopment agency finances. The statutory formula
specifies that half of the annual payment is based upon gross
tax increment and half is based upon tax increment net of
"pass-through" payments to other agencies. The Director of
Finance must notify local officials of their SERAF amounts by
November 15, 2009 and 2010, and redevelopment officials must pay
their proportional shares by May 10, 2010 and 2011,
respectively. If a redevelopment agency does not pay the
amounts due in full, or fails to make arrangements for payment
on the agency's behalf, the agency may not add or expand to
project areas, issue any new debt, or encumber or expend any
funds, except existing obligations.
Nine redevelopment agencies (CSU Channel Islands, Hercules,
Maywood, Monrovia, Parlier, Pittsburg, Placentia, Richmond,
Walnut) failed to make their full SERAF payments on May 10,
2010, resulting in a $41,021,627 shortfall to the State General
Fund. Recognizing an unusual fiscal situation, the Legislature
allowed Richmond to spread its SERAF payments over 30 years (SB
863, Senate Budget & Fiscal Review Committee, Chapter 722 of
2010).
The City of Walnut (Los Angeles County) set up its redevelopment
agency in 1979, and established the 3,700-acre Walnut
Improvement Area in 1981. Walnut will continue to receive
property tax increment revenues until 2032. The project area's
frozen base assessed valuation is $44.9 million; by 2009-10, the
total assessed valuation had grown to $2.35 billion. In 2006-07
(the year used to determine SERAF payments), the project area
generated nearly $22 million in property tax revenues. Because
of the project area's tax increment limit, however, the Walnut
Improvement Agency only receives $4 million as property tax
increment revenues. The rest of the money flows to the
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underlying local agencies, including school districts and the
County of Los Angeles.
When state officials calculated Walnut's share of SERAF payments
using statutory formulas, half of the payment was calculated
using the amount specified in the SCO report as "total tax
increment apportioned" to the Walnut Improvement Agency (gross
increment), while the other half was based upon the amount
specified as the "tax increment retained by the agency" (tax
increment net of pass-throughs). According to the Department of
Finance, Walnut's share of SERAF payments was calculated at
$4,842,161 for 2009-10 and $996,056 for 2010-11. Walnut
officials contend that their payments should only have been
$1,622,009 and $333,617, respectively, based on their belief
that the state should compute its SERAF obligations based on
what it actually receives, not on the amount that the project
area generates. In other words, Walnut officials argue that
since the amount of tax increment apportioned to the agency by
the county auditor-controller annually is only $4 million, this
figure should have been used as both gross tax increment and tax
increment net of pass-throughs when DOF made the SERAF
calculations. Since the agency failed to make its full SERAF
payments, there has been no further redevelopment activity in
the project area.
There has been contentious legal debate between state and local
officials over how the SERAF payments should have been
calculated. Regardless of the ongoing debate, the difference
between the total amount of SERAF payments billed to the Walnut
Improvement Agency and the amount paid is $3,882,591. SB 499
would settle the issue on the side of Walnut officials and other
agencies who have limits on the amount of tax increment they
receive, ensuring that the state will not benefit from the SERAF
payments that would have otherwise relieved General Fund
payments to schools.
Staff notes that the California Supreme Court, in California
Redevelopment Association v. Matosantos, upheld ABx1 26
(Blumenfield), Chapter 5, 1st Ex. Session of 2011, which
eliminated redevelopment agencies, and ruled invalid ABx1 27
(Blumenfield), Chapter 6, 1st Ex. Session of 2011, which would
have created a Voluntary Alternative Redevelopment Program,
through which an agency could avoid elimination if a city or
county met specified conditions to opt-in, including remitting a
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proportional share of approximately $1.7 billion in 2011-12, and
about $400 million ongoing, to supplement funding for education,
fire protection, and transit. As a result, all of the state's
roughly 400 redevelopment agencies must dissolve by February 1,
2012, in accordance with the Court's order. ABx1 26 established
procedures for winding down an agency, including "freezing"
redevelopment activity, transferring control of assets to a
successor entity (typically a city or county), paying off
enforceable obligations, and disposing of agency assets.
Unencumbered balances of redevelopment funds, including housing
funds, are to be remitted to county auditor-controllers for
distribution to cities, counties, special districts, and school
districts.
Absent this bill, staff assumes that the SERAF debt would
transfer to a successor agency as an enforceable obligation
following the dissolution of redevelopment agencies. SB 499
would likely result in a discharge of the $3.9 million
outstanding SERAF debt obligation owed by the Walnut Improvement
Agency and its successor agency. To the extent that other
agencies with tax increment limits failed to fully satisfy SERAF
obligations, the state General Fund impact could be even
greater.