BILL ANALYSIS �
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: ab 2493
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: bloom
VERSION: 6/10/14
Analysis by: Mark Stivers FISCAL: yes
Hearing date: June 17, 2014
SUBJECT:
Redevelopment bond proceeds
DESCRIPTION:
This bill allows redevelopment successor agencies and housing
successors to commit remaining proceeds from redevelopment bonds
issued between January 1, 2011 and June 28, 2011 for previously
planned projects that are consistent with a region's sustainable
communities strategy.
ANALYSIS:
The End of Redevelopment
Historically, the Community Redevelopment Law allowed a local
government to establish a redevelopment area and capture all of
the increase in property taxes generated within the area
(referred to as "tax increment") over a period of decades. The
law requires redevelopment agencies to deposit 20% of tax
increment into a Low and Moderate Income Housing Fund (L&M Fund)
to be used to increase, improve, and preserve the community's
supply of low- and moderate-income housing available at an
affordable housing cost.
In 2011, the Legislature enacted two bills, AB 26X (Blumenfield)
and AB 27X (Blumenfield), Chapters 5 and 6, respectively, of the
First Extraordinary Session. AB 26X eliminated redevelopment
agencies and established procedures for winding down the
agencies, paying off enforceable obligations, and disposing of
agency assets. AB 26X established successor agencies, typically
the city that established the agency, to take control of all
redevelopment agency assets, properties, and other items of
value. Successor agencies are to dispose of an agency's assets
as directed by an oversight board, made up of representatives of
local taxing entities, with the proceeds transferred to the
county auditor-controller for distribution to taxing agencies
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within each county.
AB 26X 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, and thus become a
housing successor. If the host city or county chooses not to
become the housing successor, a local housing authority or the
state's Department of Housing and Community Development (HCD)
takes on that responsibility.
AB 27X allowed redevelopment agencies to avoid elimination if
they made payments to schools in the current budget year and in
future years. In December 2011, the California Supreme Court in
California Redevelopment Association v. Matosantos upheld AB 26X
and overturned
AB 27X. As a result, all of the state's roughly 400
redevelopment agencies dissolved on February 1, 2012, and
successor agencies began implementing AB 26X's provisions to
distribute former redevelopment assets and pay the remaining
obligations.
Subsequent legislation, AB 1484 (Budget Committee), Chapter 26,
Statues of 2012, allowed a successor agency to expend remaining
proceeds from non-housing redevelopment bonds issued before
January 1, 2011, for the purposes for which the bonds were sold
or to defease the bonds. AB 1484 also allowed a housing
successor to commit remaining proceeds of bonds backed by the
L&M Fund and issued for the purposes of affordable housing prior
to January 1, 2011.
SB 375
SB 375 (Steinberg), Chapter 728, Statutes of 2008, requires the
Air Resources Board (ARB) to provide each region that has a
metropolitan planning organization (MPO) with a greenhouse gas
(GHG) emission-reduction target for the automobile and
light-truck sector for 2020 and 2035, respectively. Each MPO,
in turn, is required to include within its regional
transportation plan a sustainable communities strategy (SCS) or
alternative planning scenario (APS) designed to achieve the ARB
targets for GHG emission reduction. Each MPO must submit its
SCS or APS to ARB for review. ARB must accept or reject the
MPO's determination that the SCS or APS submitted would, if
implemented, achieve the GHG emission-reduction targets.
AB 2493 (BLOOM) Page 3
This bill allows both successor agencies and housing successors
to commit remaining proceeds from non-housing and housing
redevelopment bonds, respectively, issued between January 1,
2011 and June 28, 2011, provided that the remaining proceeds are
approved by the oversight board and used for projects that meet
all of the following criteria:
The project is consistent with the region's SCS.
Two or more of the following "significant planning or
implementation actions" occurred on or before December 31,
2010:
The former redevelopment agency, the city, or the
planning commission approved an action directly related to
the planning or implementation of the project.
The project is included within an approved city or
redevelopment agency planning document.
The city, county, or project sponsor has expended more
than $25,000 on planning related activities for the project
within one fiscal year or $50,000 in total over multiple
fiscal years.
The successor agency or housing successor provides
documentation dated December 31, 2010, or earlier indicating
the intention to finance all or a portion of the project with
the future issuance of long-term debt or indicating that the
issuance of long-term redevelopment agency debt was planned by
December 31, 2010.
Each construction contract over $100,000 includes a provision
requiring that the contractor and all of that contractor's
subcontractors pay prevailing wage.
For each construction contract over $250,000, the successor
agency requires prospective contractors to submit a
standardized questionnaire and financial statements as part of
their bid package to establish the contractor's financial
ability and experience in performing large construction
projects.
In addition, the bill allows a successor agency or housing
successor to reimburse, with 2011 redevelopment non-housing or
housing bonds, respectively, any city that funded a project
meeting the first three criteria listed above with funds other
than redevelopment funds between June 28, 2011 and the effective
date of the bill, if the project meets the purpose for which the
bonds were issued.
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COMMENTS:
1.Purpose of the bill . According to the author, during the
first half of 2011, prior to the enactment of AB 26X,
approximately 50 redevelopment agencies legally issued bonds
to support public works projects such as infrastructure
construction and repair, new public facilities, and affordable
housing. Thirty-seven successor agencies and housing
successors have remaining bond proceeds that they are not
allowed to use. The Department of Finance has asserted that
these successors must defease the vast majority of the 2011
redevelopment bonds; however, over 90% of these bonds cannot
be defeased for 10 years. During this 10-year period, nearly
$1 billion will be spent on the debt-service payments for
these bonds, and the bond proceeds will continue to go unused.
If the proceeds were used for their intended purposes, the
construction of these projects would generate over $1.2
billion in statewide economic activity, more than the
debt-service payments during the 10-year period. With respect
to tax-exempt bonds (approximately 70% of the bonds in
question), using these bond proceeds for their intended
purpose will also ensure the continued tax-exempt status that
bondholders expect.
The bill further assures that successor agencies are only able
to use 2011 redevelopment bond proceeds for projects which
were actively planned prior to January 1, 2011. Agencies that
rushed to issue bonds in order to "lock up" funds for future
projects that they were not currently working on would not
benefit.
2.Defeasance vs. spending . The core issue presented by this
bill is whether remaining bond proceeds should be spent or
repaid as soon as possible. While many bonds cannot be repaid
for 10 years, spending the money means that the bonds will not
be repaid for up to 30 years, which of course entails
significant additional interest. Spending bond proceeds will
result in the completion of additional projects, many of which
are likely to be beneficial to the community, if not the
state, but this comes with an opportunity cost. Cities,
counties, special districts, and the state by way of the
school funding backfill will have fewer resources to spend on
other needs or priorities.
3.Actively planned projects . This bill limits the expenditure
of remaining bond funds to actively planned projects. A
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project must meet two of three specified criteria to qualify,
but the criteria are quite broad. For example, one criterion
is that the project be mentioned in a redevelopment agency or
city or county planning document. Many such documents include
dream projects that are years away. Another is that the city,
county, or redevelopment agency approved an action directly
related to the planning or implementation of the project. Any
action qualifies, no matter how minor. The committee may wish
to consider whether actively planned projects should be more
narrowly defined.
4.Only SCS-compliant projects may proceed . In addition to
limiting the expenditure of remaining bond proceeds to
projects that were actively planned before January 1, 2011,
the bill also limits expenditures to projects that are
consistent with a region's SCS. In other words,
non-SCS-compliant projects, whether previously planned or not,
are not eligible to receive funds. Apparently, this provision
was added to make the bill more consistent with SB 1129
(Steinberg).
As written, the successor agency or housing successor would
make the SCS consistency determination, subject to review by
the oversight board. The committee may wish to require that
the MPO that developed the SCS make the determination in order
to ensure an arms-length review.
5.Arguments in opposition . Opponents argue that allowing
successor agencies to use proceeds from bonds issued after the
governor announced his proposal to dissolve redevelopment
agencies improperly rewards agencies that deliberately acted
to circumvent the dissolution process, often by rushing to
sell bonds at above-market interest rates. $750 million in
bond proceeds is at stake, but the ultimate cost to schools,
counties, cities, and special districts is $2 billion when the
additional interest payments are included. Opponents prefer
to see the bond proceeds used to retire redevelopment debt so
that tax increment is more quickly available to all taxing
entities, including schools which otherwise the state's
General Fund must support. In other words, this bill requires
the whole state to pay for these 39 "Mardi Gras" agencies.
6.Chaptering conflicts . This bill has chaptering conflicts with
AB 471 (Atkins) [Chapter 1, Statutes of 2014], AB 1963
(Atkins), and SB 1129 (Steinberg). Because AB 471 is now law,
the conflict with that bill can be resolved easily be adding
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the changes to Health and Safety Code Section 34191.4 from AB
471 into this bill. The author will need to resolve these
chaptering conflicts before final passage.
7.Double referral . The Senate Rules Committee has referred this
bill to both this committee and the Committee on Governance
and Finance. To facilitate the referral, the author should
take any amendments he agrees with to the Governance and
Finance Committee.
RELATED LEGISLATION:
SB 1129 (Steinberg), among other things, authorizes a successor
agency to use the proceeds of bonds issued in 2011 for the
purposes for which the bonds were sold, if those purposes are
consistent with a sustainable communities strategy. In the
Assembly Local Government Committee.
Assembly Votes:
Floor:75-1
Appr: 16-0
H&CD: 7-0
LGov: 8-0
POSITIONS: (Communicated to the committee before noon on
Wednesday, June 11,
2014.)
SUPPORT: California Building Industry Association
City of Calexico
City of Culver City
City of Folsom
City of Galt
City of Glendale
City of La Quinta
City of Lynwood
City of National City
City of Oakdale
City of Riverbank
City of Santa Cruz
City of Santa Monica
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City of Signal Hill
City of Sonoma
City of Stanton
City of Ukiah
City of Union City
City of West Hollywood
City of Yorba Lina
Glendale Successor Agency
Housing California
League of California Cities
MuniServices
National City Chamber of Commerce
Northern California Carpenters Regional Council
Southwest California Legislative Council
Stanton Housing Authority
West Hollywood Chamber of Commerce
OPPOSED: California Special Districts Association
California State Association of Counties
County of Santa Clara