BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 986 (Dutton) - Redevelopment successor agencies: bond
proceeds.
Amended: April 24, 2012 Policy Vote: G&F 8-0
Urgency: Yes Mandate: No
Hearing Date: May 24, 2012 Consultant: Mark McKenzie
SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
Bill Summary: SB 986 would authorize successor agencies to use
the proceeds of bonds issued by former redevelopment agencies
prior to January 1, 2011 to fulfill an enforceable obligation of
the former agency or enter into new enforceable obligations
funded by those bond proceeds until December 31, 2014, as
specified.
Fiscal Impact: Unknown, likely minor General Fund impact related
to authorizing successor agencies to refinance bond debt.
Background: Historically, the Community Redevelopment Law has
allowed a local government to establish redevelopment agencies
(RDAs) 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.
Prior to their dissolution pursuant to ABx1 26 (Blumenfield)
Chap 5/2011, RDAs issued bonds to pay for acquiring and
developing property and building public infrastructure to
redevelop blighted areas. Former RDAs' long-term debt is mostly
in the form of tax allocation bonds, which are payable from
property tax increment revenues. When RDAs were abruptly
dissolved pursuant to ABx1 26, many held balances of
unencumbered bond proceeds that were intended to fund future
redevelopment activities, but were not needed to meet those
RDAs' existing obligations.
Existing law requires successor agencies to dispose of former
RDAs' assets, at an oversight board's direction, pursuant to
specific statutory requirements. Successor agencies are
required to make any payments related to enforceable
obligations, as specified in an adopted recognized obligation
payment schedule (ROPS) and remit unencumbered balances of RDA
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funds to the county auditor-controller for distribution to local
taxing entities in the county. Successor agencies must use bond
proceeds for the purposes for which the bonds were sold unless
those purposes cannot be achieved, in which case the proceeds
can be used to defease the bonds. Successor agencies cannot
enter into new enforceable obligations.
Proposed Law: SB 986 would require successor agencies to use
bond proceeds derived from bonds sold before January 1, 2011 for
the purposes for which the bonds were sold to either perform an
enforceable obligation entered into by the former RDA, or to
perform an enforceable obligation entered into by the successor
agency before January 1, 2015. If the purposes for which bonds
that were sold cannot be achieved, SB 986 requires a successor
agency to use the bond proceeds to either defease the bonds or
purchase outstanding bonds on the open market for cancellation.
SB 986 authorizes a successor agency's oversight board to
approve the establishment of an enforceable obligation before
January 1, 2015, with respect to proceeds from bonds sold prior
to January 1, 2011. An oversight board may approve an
enforceable obligation if the obligation is reasonably in
furtherance of the purposes for which the bonds were sold, and
it is consistent with one or more of the following:
The obligation is required in order to meet a federal or state
matching funds requirement in which those funds have already
been committed.
The obligation is required in order to meet the requirements
for the expenditure of a local general obligation bond
approved by the voters.
The obligation is required to complete a project specific to
critical public infrastructure that is in, or provides benefit
to, the project area of the former redevelopment agency and
the evidence of the benefit to the community in proceeding
with the obligation substantially outweighs the resulting
delay in the distribution of tax increment to the impacted
taxing entities.
The following projects would not be eligible as "critical public
infrastructure" for purposes of establishing a new enforceable
obligation, as specified: an automobile dealership; a golf
course, racetrack, speedway, or other racing venue; a stadium,
coliseum, arena, ballpark, or other facility used by a
professional sports franchise; gambling or gaming related
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projects; or retail, entertainment, or other private purpose
project unrelated to public works.
Related Legislation: The following bills have identified uses
for former RDA assets that differ from those identified in SB
986:
SB 1056 (Hancock), which expands the definition of
"enforceable obligation" to include financial obligations
related to a project funded with both tax increment and
federal school construction bonds.
SB 1151 (Steinberg), which creates an alternative process by
which communities can use their former redevelopment agencies'
assets for economic development and housing purposes.
SB 1156 (Steinberg), which allows a Community Development and
Housing Joint Powers Authority, and some counties, to use tax
increment financing and other local revenues to finance
specified local economic development activities.
SB 1335 (Pavley), which allows a successor agency to retain
former RDA land that is a brownfield site for the purpose of
hazardous substance remediation or removal.
AB 1585 (Perez), which makes numerous amendments to the
statutes governing the redevelopment dissolution process.
Staff Comments: By allowing successor agencies to spend
additional bond proceeds on projects rather than on retiring
outstanding debts, SB 986 grants a larger share of former RDA
assets to successor agencies and a smaller share to other local
governments, including school districts, than they would receive
under current law. In addition to this bill and the related but
competing legislative proposals noted above, the Governor's
proposed budget assumes that ending redevelopment will provide
$1 billion in 2011-12 and $1.1 billion in 2012-13 in increased
property taxes for K-14 school districts and offset a comparable
amount of General Fund education expenses. Any proposal that
reserves a portion of former RDA assets for other purposes,
including this bill, would reduce the amount of funding
available to offset General Fund education spending and
exacerbate the projected state budget deficit.
To make it easier for successor agencies to retire former RDAs'
bonds, SB 986 lets successor agencies use unencumbered bond
proceeds to buy bonds on the open market. Allowing successor
agencies to explore a wider range of options for retiring RDA
bonds may benefit local taxing entities and the State General
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Fund to the extent that refunding bonds does not extend the term
of the debt, saves debt service in each payment year, and
allocates the savings to local taxing entities.
Proposed committee amendments would delete provisions
authorizing a successor agency to enter into new enforceable
obligations.