BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 654 (Steinberg)
Hearing Date: 01/17/2012 Amended: 01/11/2012
Consultant: Mark McKenzie Policy Vote: T&H 9-0
_________________________________________________________________
____
BILL SUMMARY: SB 654, an urgency measure, would allow a city,
county, or city and county of a dissolving redevelopment agency
(RDA) to retain the funds on deposit in the agency's low- and
moderate-income housing fund and expand the types of agency
loans from the host city or county that are considered
enforceable obligations, as specified.
_________________________________________________________________
____
Fiscal Impact (in thousands)
Major Provisions 2012-13 2013-14 2014-15 Fund
Local retention of RDA One-time loss of up to $700,000 inGeneral
housing funds savings (see staff comments)
_________________________________________________________________
____
STAFF COMMENTS: This bill meets the criteria for referral to
the Suspense File.
Historically, the Community Redevelopment Law has allowed a
local government to establish redevelopment agencies and capture
all of the increase in property taxes that is generated within
the project area beyond the base year value (referred to as "tax
increment") over a period of decades. The law requires
redevelopment agencies to deposit 20 percent of tax increment
into a Low and Moderate Income Housing Fund (L&M fund) to
increase, improve, and preserve the community's supply of low-
and moderate-income housing available at an affordable cost.
As part of the 2011-12 budget package, the Legislature enacted
ABx1 26 (Blumenfield) and ABx1 27 (Blumenfield), Chapters 5 and
6, respectively, of the First Extraordinary Session. ABx1 26
eliminated redevelopment agencies and 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
SB 654 (Steinberg)
Page 1
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. In
defining "enforceable obligations," ABx1 26 included a loan
agreement between an agency and its host city or county that was
executed within two years of the date of creation of the
redevelopment agency. ABx1 26 also included provisions allowing
the host city or county of a dissolving redevelopment agency to
retain the housing assets and functions previously performed by
the agency, except for funds on deposit in the agency's L&M
fund. If the host city or county chooses not to retain these
assets and functions, a local housing authority or the
Department of Housing and Community Development (HCD) must
assume them. ABx1 27 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 proportional share of
approximately $1.7 billion in 2011-12, and about $400 million
ongoing, to supplement funding for education, fire protection,
and transit.
On December 29, 2011, the California Supreme Court, in
California Redevelopment Association v. Matosantos, upheld ABx1
26 and ruled that ABx1 27 was invalid. 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.
SB 654, an urgency measure, would make changes to statutes
enacted by ABx1 26, the redevelopment agency elimination bill.
Specifically, this bill would:
Authorize a city, county, or city and county that authorized
the creation of a redevelopment agency to retain the funds on
deposit in a dissolving agency's L&M fund and require the city
or county to expend those funds in compliance with the housing
provisions of the Community Redevelopment Law.
Authorize the local housing authority to retain L&M funds and
housing responsibilities if the successor entity opts-out of
these activities.
Require HCD to retain these funds and activities, if neither
the successor entity nor the local housing authority retains
responsibility.
Require, rather than permit, an entity assuming the housing
functions of an agency to enforce affordability covenants on
affordable housing properties.
SB 654 (Steinberg)
Page 2
Expand the definition of an "enforceable obligation" to
include two additional types of loan agreements between an
agency and its host city or county: 1) a loan that was
executed within two years of the date of creation of a project
area, if the loan is specific to that project area; and 2) a
loan to fund the agency's 2009-10 SERAF payment to schools.
This bill is intended to preserve the outstanding balances in
the L&M funds maintained by redevelopment agencies throughout
the state for affordable housing. In the absence of this
legislation, those funds not otherwise dedicated to existing
obligations will be liquidated and distributed as property tax
revenues to cities, counties, special districts, and schools.
The Controller's Community Redevelopment Agencies Annual Report
for the fiscal year ending June 30, 2010 shows a statewide
aggregate L&M Fund Balance of approximately $5.02 billion, of
which $3.66 billion is "reserved" for expenditure, $967 million
is "unreserved designated" (which reflects tentative plans or
intent), and $391 million is "unreserved undesignated" or
unencumbered.
SB 654 would prevent the general reallocation of approximately
$1.36 billion in unreserved L&M funds to local governments,
including schools. This figure could increase if it is later
determined that amounts reported by redevelopment agencies as
"reserved" are not enforceable obligations. To the extent this
bill prevents these revenues from flowing to schools following
the dissolution of redevelopment agencies statewide, there would
be a corresponding loss of General Fund savings. These funds
would otherwise offset General Fund obligations to schools,
pursuant to the Proposition 98 minimum funding guarantee.
Assuming approximately 50% of local property tax revenues are
allocated to schools, this bill would result in a one-time loss
of as much as $700 million. The actual magnitude of lost
savings is unknown at this time, and would depend upon the
actual amounts of unreserved L&M funds that would otherwise be
allocated to K-14 schools, absent this bill.
Staff notes that SBx1 8 (Committee on Budget and Fiscal Review),
which was vetoed last year, included the same provisions
proposed by SB 654, among other things. Governor Brown's veto
message indicated that "it would be premature to consider the
modifications proposed in this bill" in light of the pending
litigation over SBx1 26 and SBx1 27. Governor Brown's initial
SB 654 (Steinberg)
Page 3
proposal to eliminate redevelopment agencies, which was included
as part of the proposed 2011-12 Budget, would have allowed
cities and counties to retain L&M fund balances of a dissolving
agency.
Revised 1/23/2012