BILL ANALYSIS �
SB 1024
Page 1
SENATE THIRD READING
SB 1024 (Senate Budget and Fiscal Review)
As Amended June 25, 2012
Majority vote. Budget Bill Appropriation Takes Effect Immediately
SENATE VOTE :Vote not relevant
SUMMARY : Makes the statutory changes needed to achieve a total of
$3.3 billion of budget savings related to the dissolution of
redevelopment agencies (RDAs) as estimated in the Governor's May
Revision of the Budget. The bill includes a process to identify
excess redevelopment property tax revenues that should have been
allocated to schools this month, but was withheld by successor
agencies or county auditor controllers, and requires the rapid
allocation of those funds. The bill also requires an audit process
to identify and locate the assets of the former redevelopment
agencies and to require the return of cash balances for distribution
as property tax number. After successful completion of these
processes, successor agencies and their communities will be entitled
to retain most real estate assets of the former RDAs consistent with
a plan that they develop for their use, use excess RDA bond proceeds
for additional projects, and receive repayments of community loans
to the former RDAs over time. The bill also makes many additional
specific changes intended to facilitate the dissolution and winding
up process, better resolve disputes, and provide additional tools
and certainty. Furthermore, the bill provides for repayments of
loans from the Low and Moderate Income Housing Funds, defines
housing assets, and authorizes the expenditure of excess housing
bond proceeds for affordable housing purposes. Specifically, this
bill :
1)Establishes a due diligence review of successor agencies, to be
done by a licensed accountant, approved by the county auditor
controller, in order to make a determination of the unobligated
balances available for transfer to taxing entities.
2)Specifies that a due diligence review, at a minimum, shall include
the following:
a) The dollar value of assets transferred from the former
redevelopment agency (RDA) to the successor agency;
b) The dollar value of assets transferred after January 1,
2011, through June 30, 2012, by the RDA or successor agency to
SB 1024
Page 2
the city, county, or city and county which established the
former RDA (sponsoring entity), the purpose of the transfer and
whether it was required by an existing enforceable obligation;
c) The dollar value of any cash or cash equivalents transferred
after January 1, 2011, through June 30, 2012, by the RDA or
successor agency to any other public agency or private party,
the purpose of the transfer and whether it was required by an
existing enforceable obligation;
d) A review of expenditure and revenue accounting information
and identification of transfers and funding sources for the
2010-11 and 2011-12 fiscal years that reconciles balances,
assets, and liabilities of the successor agency on June 30,
2012 to those reported to the State Controller for the 2009-10
fiscal year;
e) A separate accounting balance for the Low and Moderate
Income Housing Fund; and,
f) A total of the net balances as prescribed, thus resulting in
a sum that shall be transferred to the county
auditor-controller and allocated to affected taxing entities.
3)Specifies the due diligence review conducted of the Low and
Moderate Income Housing Funds are due to the Department of Finance
(DOF), the county auditor-controller, the State Controller, and
the oversight board, by October 1, 2012, and specifies that the
review of the remaining fund and account balances are due December
15, 2012.
4)Requires the oversight board to conduct a public comment session
five business days prior to approving the determination of the
amount of cash and cash equivalents that are available for
disbursement to taxing entities pursuant to the findings in the
due diligence review.
5)Authorizes an oversight board to allow a successor agency to
retain specified assets or funds necessary to meet enforceable
obligations and requires the oversight board to notify DOF of
these changes and the purposes for which the funds are being
retained.
6)Authorizes DOF to adjust any amount associated with the
SB 1024
Page 3
determination and requires DOF to complete its review of the Low
and Moderate Income Housing Fund determinations by November 9,
2012, and the remainder of the funds and accounts by April 1,
2012.
7)Requires DOF to provide the oversight board and the successor
agency an explanation of its basis for overturning or modifying
any findings, determinations, or authorizations of the oversights
boards decisions regarding the determinations of the due diligence
review findings.
8)Authorizes a successor agency and sponsoring entity to request to
meet and confer with DOF to resolve any disputes regarding the
amounts or sources of funds identified as available for transfer
as determined by DOF; the decision and determinations may be
modified accordingly.
9)Requires each successor agency to transmit to the county
auditor-controller the amount of funds required pursuant to the
final determination of DOF within five working days of the final
determination and for the county auditor-controller to disburse
these funds to the taxing entities.
10)Provides that if DOF determines that the payment of the full
amount required by the final determination is not currently
feasible or would jeopardize the ability of the successor agency
to pay enforceable obligations in a timely manner, it may agree to
an installment payment plan.
11)Provides that if a successor agency fails to remit to the county
auditor-controller the sums established in the final
determination, and no payment plan was established, the funds may
be recovered through an offset of sales and use tax or property
tax allocations to any local agency to which the funds were
transferred in absence of an enforceable obligation and/or to the
city, county, city and county that created the former RDA and who
is also performing the duties of the successor agency.
12)Establishes the process for DOF and the county auditor-controller
to follow if they are using an offset to recover the funds.
13)Requires, if a legal action contesting a withholding of sales tax
or property tax is successful, that upon a final judicial
determination, the court to order the state or the county auditor-
SB 1024
Page 4
controller to pay the prevailing party a penalty equal to 10% of
the amount of funds found by the court to be improperly offset.
14)Provides a process for the reversal of the offset of sales or
property tax if necessary.
15)Provides that if the full payment is made, either through final
determination of the amount due or upon final judicial
determination, DOF shall issue a finding of completion of the
requirements to the successor agency.
16)Provides the following to a successor agency or sponsoring entity
upon the successor agency receipt of a finding of completion from
DOF:
a) The ability to retain real property formerly owned by the
RDA, in addition to governmental use property, after a long
range property management plan has been approved by DOF;
b) Repayment of loans made by the sponsoring entity to the
former RDA as prescribed; and,
c) The ability to spend remaining excess proceeds from bonds
issued prior to January 1, 2011, as prescribed.
17)Establishes a Community Redevelopment Trust Fund to serve as a
repository of the former redevelopment agency's real properties
(other than those used for governmental purposes) until a long
range property management plan can be prepared by the successor
agency.
18)Creates the process successor agencies shall follow when
developing their long range property management plans.
19)Specifies that if a sponsoring entity has been authorized to
receive repayment of loans to its former RDA, then 20% of the
repayment monies shall be transferred to the Low and Moderate
Income Housing Asset Fund of the entity that assumed the former
RDAs housing functions, to be spent on affordable housing.
20)Tolls the two year statute of limitations with respect to
adoptions, findings, and determinations of any former
redevelopment agency or its legislative body until DOF has issued
a finding of completion to the successor agency of the former RDA.
SB 1024
Page 5
21)Tolls the statute of limitation for bringing an action with
respect to the validity or legality of any issue, document, or
action related to the validity of bonds and the redevelopment plan
of any former RDA or its legislative body until DOF has issued a
finding of completion to the successor agency of the former RDA.
22)Requires a successor agency to submit a copy of the Recognized
Obligation Payment Schedule (ROPS) to the county administrative
officer, the county auditor-controller, and DOF at the same time
the successor agency submits it to the oversight board.
23)Requires, the county auditor- controller to make any objection to
the inclusion of an item on a ROPS prior to the ROPS being
approved by the oversight board.
24)Clarifies the process and timelines for a successor agency to
submit its ROPS to DOF.
25)Authorizes a successor agency to request an opportunity to meet
and confer with DOF over disputed items on the ROPS, such a
process may last up to 30 days.
26)Provides that if a successor agency does not submit a ROPS to DOF
within the specified timelines then the sponsoring entity that
created the RDA shall be subject to a civil penalty of $10,000 per
day for every day the ROPS is late. If a ROPS is more than 10
days late the successor agency will forego 25% of the maximum
administrative costs approved for that period.
27)Specifies if a successor agency fails to submit a ROPS within
five days of the date of the next property tax allocation DOF may
determine if any amount should be withheld by the county
auditor-controller for payments for enforceable obligations from
distribution to the taxing entities.
28)Prohibits a county auditor- controller from withholding any other
amounts from the property tax allocations as prescribed by the
redevelopment dissolution process, unless required by court order.
29)Prohibits a successor agency or oversight board from restoring
funding for an enforceable obligation that was deleted or reduced
SB 1024
Page 6
by DOF unless it reflects the decisions made during the meet and
confer process with DOF or pursuant to a court order.
30)Requires DOF to provide notice to the successor agency and the
county auditor-controller as to the reasons it is eliminating or
modifying any item on a ROPS prior to approval of the ROPS.
31)Authorizes DOF to agree to an amendment to a ROPS to reflect a
resolution of a disputed item, provided that it does not affect a
past allocation of property tax or create a liability for any
affected taxing entity.
32)Requires the county auditor-controller to report to DOF regarding
the property tax disbursement amounts and how each disbursement
was calculated.
33)Establishes a process for successor agencies or the county
auditor-controller, as needed, to make any required pass-through
payments that were not previously made by the former redevelopment
agency prior to its dissolution.
34)Requires, by July 9, 2012, the county auditor-controller to
determine the amount owed by the successor agency to taxing
entities from the 2011-12 tax increment allocation to the former
RDA that was not distributed to the taxing entities for the period
of January 1, 2012- June 30, 2012 and make a demand for payment of
these funds which shall be paid by July 12, 2012.
35)Specifies that if the county auditor-controller fails to
determine the amounts owed to the taxing entities and present a
demand for payment by July 9, 2012, to the successor agencies, DOF
or any affected taxing entity may request a writ of mandate to
require the county auditor-controller to immediately perform this
duty. Any failure to perform the duty will result in a civil
penalty of 10% of the amount owed to the taxing entities plus 1.5%
of the amount owed for each month that the duties are not
performed.
36)Provides that if the county auditor-controller fails to
distribute the full amount of funds received from the successor
agencies as required under the payment due July 9, 2012, then the
county shall not receive its distribution of sales and use tax
scheduled for July 18, 2012, until such actions are performed.
SB 1024
Page 7
37)Specifies that if, any successor agency that fails to make the
payment demanded and due to the county auditor-controller by July
9, 2012, then DOF or any affected taxing entity may file for a
writ of mandate to require the successor to immediately make this
payment. Failure to make the payment by July 12, 2012, shall be
subject to a civil penalty of 10% of the amount owed to taxing
entities plus .5% of the amount owed to the taxing entity for each
month that the payment is not made.
38)Creates a penalty for the city, county, or city and county which
created the redevelopment area of 10% of the amount the successor
agency has failed to pay by July 12, 2012, plus 1.5% of the amount
owed to the taxing entity per each month the payment is late. The
city, county, or city and county that created the redevelopment
area could also forego its distribution of sales tax, scheduled to
be distributed on July 18, 2012, until the payment is made by the
successor.
39)Provides that if the State Controller determines that a
non-housing asset was transferred by a successor agency to the
sponsoring entity after January 31, 2012, and that transfer did
not occur pursuant to a ROPS approved enforceable obligation, then
the non-housing asset shall be returned to the successor agency.
40)Requires the entity assuming the housing functions of the former
redevelopment (housing successor) to submit a list to DOF by
August 1, 2012, of all the housing assets that have been
transferred to it since February 1, 2012, and all remaining
housing assets that need to be transferred to the housing
successor. The list must contain an explanation of how each
property/asset meets the definition of housing asset. DOF will
have 30 days to object to any asset on the list and may have a
meet and confer process to discuss the asset with the housing
successor if there is objection to an item. Transfers for which
there is no objection (or the objection is withdrawn) shall not be
subject to further review.
41)Creates a new Low and Moderate Income Housing Asset Fund to be
maintained by each housing successor and requires that any monies
placed in the fund be spent consistent with the housing-related
provisions of the Community Redevelopment Law.
42)Defines "housing assets" of the former RDAs that are to be
transferred to the housing successor as follows:
SB 1024
Page 8
a) Any real property, interest in, or restriction on the use of
real property, and any personal property provided in
residences, that were acquired for low-and moderate-income
housing purposes, either by purchase or through a loan with any
source of funds;
b) Any funds that are encumbered by an enforceable obligation
to build or acquire low- and moderate-
c) income housing;
d) Any loan or grant receivable, funded from the Low and
Moderate Income Housing Fund, from homebuyers, homeowners,
nonprofits, or for-profit developers, and other parties that
require occupancy by persons of low or moderate income;
e) Any funds derived from rents or operation of properties for
low-and moderate-income housing purposes by other parties that
were financed with any source of funds;
f) A stream of rents or other payments from housing tenants or
operators of low-and moderate-income housing financed with any
source of funds that are used to maintain, operate, and enforce
the affordability of housing or for enforceable obligations
associated with low-and moderate -income housing; and,
g) Repayments of loans or deferrals owed to the Low and
Moderate Income Housing Fund by the former RDA to finance
payments made to the Supplemental Educational Augmentation
Revenue Fund (SERAF).
43)Authorizes repayments of any SERAF loans or deferrals to the
housing successor beginning in the 2013-14 fiscal year. For each
housing successor, the maximum repayment amount authorized each
fiscal year shall be equal to one-half of the increase between the
amount distributed to taxing entities from the Redevelopment
Property Tax Trust Fund in that fiscal year and the amount that is
distributed to taxing entities in the 2012-13 base year.
44)Authorizes a housing successor to direct the spending of the
proceeds of housing bonds that were issued for the purposes of
affordable housing and backed by the Low and Moderate Income
SB 1024
Page 9
Housing Fund prior to January 1, 2011; specifies that the proceeds
are the remainder after authorized enforceable obligations are
paid.
45)Establishes a process for the housing successor to identify
projects and direct expenditures from the remaining housing bonds.
46)Authorizes the transfer of all land use related plans and
functions of the former RDA to the sponsoring entity at its
request; however, prohibits the sponsoring entity from changing or
adding on to a project area, or take any action that would
increase the amount of tax increment obligated.
47)Requires that notice relating to any validation action of any
successor agency or former redevelopment agency be given to DOF
and the State Controller prior to the actions being filled.
48)Provides that all actions contesting any act taken or
determination or decisions made related to redevelopment
dissolution law be brought in superior court and be filled in the
County of Sacramento; and, includes up to $2 million subject to
allocation by DOF for the Sacramento County Superior Court for
workload specific to these actions.
49)Authorizes a successor agency to refund or refinance bonds or
other indebtedness as prescribed.
50)Includes, for the purposes of defining a city, county, or city
and county under this part, any entity included in an annual
financial report, any component unit, and any entity controlled by
and financially responsible or accountable to, a city, county, or
city and county.
51)Authorizes oversight boards to reduce the minimum threshold on
the administrative cost allowance.
52)Specifies that the cap on successor agency administrative cost
allowances excludes any litigation expenses related to assets or
obligations, settlements and judgments, and the costs of
maintaining assets prior to disposition.
53)Specifies that employee costs associated with work on a specific
project implementation shall not constitute administrative costs
SB 1024
Page 10
subject to the cost cap.
54)Authorizes a reserve to be held when required by the bond
indenture or when the next property tax allocation will be
insufficient to pay obligations due under the provisions of the
bond for the next payment due.
55)Specifies that costs incurred to fulfill collective bargaining
agreements for layoffs or terminations of city employees who
performed work for the former RDA are enforceable obligations
payable from property tax funds.
56)Provides that obligations to employees that are transferred from
the former RDA or successor agency to the entity assuming the
housing functions are enforceable obligations payable from
property tax funds.
57)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 specified employee
obligations if an employee is transferred to the housing successor
entity.
58)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.
59)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.
60)Requires the auditor-controller to deposit the unitary,
supplemental, and roll corrections applicable to tax increment
that would have been due to the former RDA into the Redevelopment
Property Tax Trust Fund (Property Tax Trust Fund).
61)Clarifies that an RDA or successor shall not make any future
deposits to the Low and Moderate Income Housing Fund.
62)Provides immunity to members of the designated local authorities
and oversight boards for actions taken related to this Budget Act.
SB 1024
Page 11
63)Allows a city, county, or city and county, or joint powers
authority that authorized the creation of the former RDA and
elected not to be the successor agency to subsequently reverse
that decision and serve as the successor agency.
64)Extends the provisions of the Polanco Redevelopment Act, for
purposes of clean-up plans and liability limits, to successor
agencies and authorizes those powers to be also transferred to a
housing successor entity at its request.
65)Clarifies that a successor agency is a separate public entity and
states that the liabilities of the former RDA shall not transfer
to the sponsoring entity.
66)Requires successor entities to follow the Ralph M. Brown Act.
67)Authorizes a sponsoring entity to loan or grant funds to a
successor agency for administrative costs, enforceable
obligations, or project-related expenses at the sponsoring
entities discretion, subject to oversight board approval.
Repayment of such loans shall be deemed an enforceable obligation.
68)Adds successor agencies to the list of "local public entities"
that can file for bankruptcy under federal law.
69) Makes conforming changes related to the delays caused by the
California Supreme Court's ruling in the case California
Redevelopment Association v. Matosantos (2011) 53 Cal. 4th 231.
70)Appropriates $22 million to DOF for its use or allocation to
other departments to implement the provisions of this Budget Act,
subject to legislative notification. This amount includes
providing up to $2 million for court costs as prescribed.
71)Contains an appropriation allowing this bill take effect
immediately upon enactment.
FISCAL EFFECTS : This bill makes the statutory changes needed to
achieve a total of $3.3 billion of budget savings related to the
dissolution of redevelopment agencies (RDAs) as estimated in the
Governor's May Revision of the Budget. This amount is composed of
two parts: 1) $1.5 billion in school funding from transfers of cash
balances that were held by the former RDAs; and, 2) $1.8 billion in
SB 1024
Page 12
school funding budgeted from ongoing property tax savings resulting
from the winding down of redevelopment.
COMMENTS :
1)Under the existing law former RDAs are required dissolve and
establish a successor agency to unwind the affairs of the RDA, and
make the necessary approved expenditures to pay off debts. Many
RDAs, prior to shut down in February 2012, made expenditures of
cash and transferred other cash assets that might in fact be
contrary to the provisions of AB 26 X1 (Blumenfield), Chapter 5,
Statutes of 2011-12 First Extraordinary Session. Current law
provides for a way to reclaim the assets through actions of the
State Controller, however, due to the budget cash shortage the
state needs to have these cash assets returned to the successor
agency for distribution to the taxing entities sooner than the
current process provides for. This will achieve $1.5 billion of
school funding from transfers of cash balances that were held by
the former RDAs.
2)Provisions regarding immediate payments are required because the
last property tax payments prior to RDA dissolution did not get
distributed properly; including the RDA failing to make the
pass-through payments. Taxing entities, including schools, are
out millions of dollars in past-through payments that should have
been made by the former RDA at the beginning of the year.
3)The trailer bill is directed at expediting and enhancing
collection and disbursement of the outstanding payments that are
due to taxing entities in an expedient manner:
a) It sets up a process to review financial records and
transactions that occurred between the former RDA or the
successor agency and other public or private entities that may
not have been authorized under the provisions established in AB
26 X1 and return those funds to the successor agencies for the
benefit of the taxing entities either through direct payment,
or an offset of sales or property tax if the successor agency
or sponsor entity fail to comply with the payment request; and,
b) It provides assurance to successor agencies and others that
offsets will not be used haphazardly by requiring a penalty to
be paid by the state or county if a sales tax or property tax
SB 1024
Page 13
offset is determined by a court to be improperly levied.
4)The trailer bill also works to provide more flexibility to the
process than what is authorized under existing law:
a) It creates the ability for successor agencies to fund other
projects not currently enforceable obligations with excess
remaining bonds proceeds;
b) It provides certainty to the transfer of assets, both
housing and non-housing after appropriate review;
a) It suspends the "fire sale" of redevelopment property and
enables communities to retain properties for
redevelopment-related purposes after cash balances are
recovered and settled;
b) It provides to local governments loan repayments made to
RDAs and those due to the Low and Moderate Income Housing
Funds; and,
c) It 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.
Analysis Prepared by : Christian Griffith / BUDGET / (916) 319-2099
FN: 0004246