BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 2493 (Bloom) - Redevelopment successor agencies: bond
proceeds.
Amended: July 1, 2014 Policy Vote: T&H 9-1; G&F 4-1
Urgency: No Mandate: No
Hearing Date: August 4, 2014
Consultant: Mark McKenzie
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 2493 would allow redevelopment successor
agencies, and entities performing the housing functions of
former redevelopment agencies (RDAs), to spend bond proceeds
from bonds issued by former RDAs between January 1, 2011 and
June 28, 2011 for specified projects that were planned for
development prior to 2011.
Fiscal Impact: Significant General Fund impacts, most of which
would occur beginning in 2021 and through 2041, as a result of
allowing for continued debt repayment on bonds issued in 2011
from tax increment that would otherwise be redistributed to
taxing entities if the bonds were defeased. Absent the bill,
estimated bond debt service savings after defeasement would
escalate to as high as $99 million in 2026, and decline to
approximately $42 million by 2041 (the typical 30 year term of
most of these bonds). This bill would prevent these amounts
from being distributed to local agencies that receive a portion
of the property tax, including schools. Since the General Fund
must backfill any amounts that would otherwise go to schools
under Proposition 98's minimum funding guarantees, this bill
would result in future General Fund impacts that could reach the
tens of millions, reaching a peak in 2026 and declining
thereafter. (Staff notes that this does not account for any
potential economic benefits resulting from allowing the
completion of projects funded by the 2011 bonds)
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.
AB 2493 (Bloom)
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Prior to their dissolution pursuant to ABx1 26 (Blumenfield)
Chap 5/2011, RDAs used tax increment financing, oftentimes
issuing long-term debt in the form of tax allocation bonds, to
address issues of blight, construct affordable housing,
rehabilitate existing buildings, and finance development and
infrastructure projects. 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 establishes procedures for winding down RDA
activity, including a requirement that successor agencies
dispose of former RDAs' assets under direction of an oversight
board. Successor agencies are required to make any payments
related to enforceable obligations, as specified in an adopted
biannual recognized obligation payment schedule (ROPS), and
remit unencumbered balances of RDA funds to the county
auditor-controller for distribution to local taxing entities in
the county. The DOF reviews each ROPS to determine if the
listed payments meet the statutory criteria for repayment, and
has the authority to disallow any payments that do not meet
those criteria. Successor agencies must use bond proceeds
derived from bonds issued prior to January 1, 2011 for the
purposes for which the bonds were sold. If those purposes
cannot be achieved, the proceeds can be used to defease the
bonds. Successor agencies cannot enter into new enforceable
obligations.
Existing law, AB 1484 (Budget Committee), Chap 26/2012, requires
DOF to provide a successor agency with a "finding of completion"
after the agency remits specified RDA property tax allocations
and unencumbered cash assets to the county auditor-controller
through a due diligence process. Once the successor agency
receives a finding of completion, the agency is authorized to,
among other things, expend bond proceeds in excess of the
amounts needed to satisfy approved enforceable obligations in a
manner consistent with the original bond covenants. Bond
proceeds in excess of the amounts needed to satisfy approved
enforceable obligations must be expended in a manner consistent
with the original bond covenants. If remaining bond proceeds
cannot be spent in a manner consistent with the bond covenants,
the proceeds must be used to defease the bonds or to purchase
those same outstanding bonds on the open market for
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cancellation. Defeasing bonds is a method of retiring bond debt
by buying and holding risk-free U.S. Treasury securities in an
amount that is sufficient to cover all principal and interest
payments on the outstanding bonds.
SB 375 (Steinberg) Chap 728/2008, requires the Air Resources
Board (ARB) to provide each region that has a metropolitan
planning organization (MPO) with a greenhouse gas 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) designed to achieve the ARB targets
for greenhouse gas emission reduction. Each MPO must submit its
SCS to ARB for review. ARB must accept or reject the MPO's
determination that the implementation of a submitted SCS
submitted would achieve the greenhouse gas emission reduction
targets.
Proposed Law: AB 2493 would authorize RDA successor agencies and
housing successors to use bond proceeds derived from bonds
issued between January 1, 2011 and June 28, 2011 for the
projects that meet the following criteria, as determined by a
resolution of the oversight board:
The project must be consistent with the applicable
regional SCS or alternative planning strategy, as
specified.
Two or more of the following significant planning or
implementation actions must have occurred on or before
December 31, 2010:
o An action approved by the governing body of
the city, county, city and county, the board of the
former RDA, or the planning commission directly
related to the planning or implementation of the
project.
o The project is included within an approved
city, county, city and county, or RDA planning
document, including, an RDA five-year implementation
plan, capital improvement plan, master plan, or other
planning document.
o The expenditure by the city, county, city and
county, or project sponsor, of more than $25,000 on
planning related activities for the project within one
fiscal year, or $50,000 in total, over multiple fiscal
years.
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The successor agency must provide documentation, dated
on or before December 31, 2010, indicating the intention to
finance all or a portion of the project with the future
issuance of long-term debt, or documentation showing that
the issuance of long-term RDA debt was being planned on or
before that date.
Each construction contract over $100,000 must include a
provision that prevailing wage will be paid by the
contractor and all of that contractor's subcontractors.
For each construction contract over $250,000, the
successor agency must require prospective contractors to
establish the contractor's financial ability and experience
in performing large construction projects, as specified.
AB 2493 also authorizes a successor agency to reimburse city
and/or county expenditures that funded a project that meets
these criteria from the proceeds of 2011 bonds, if those
expenditures occurred between June 28, 2011 and the bill's
effective date.
Related Legislation: SB 1129 (Steinberg), which is currently
pending in the Assembly Appropriations Committee, would allow
bond proceeds derived from bonds issued during the year 2011 to
be used for the purposes for which the bonds were issued upon
approval of the oversight board, among other things.
Staff notes that this bill has chaptering conflicts with SB
1129, which must be addressed before final passage.
Staff Comments: According to the Legislative Analyst's Office,
in the first six months of 2011, RDAs issued about $1.5 billion
in tax allocation bonds, a level of debt issuance greater than
during all 12 months of 2010 ($1.3 billion). About two-thirds
of the bond issuances in 2011 had interest rates greater than 7
percent, compared with less than one-quarter of bond issuances
in 2010. In fact, RDAs issued more tax allocation bonds with
interest rates exceeding 8 percent during the first six months
of 2011 than they had in the previous ten years. While some of
these bond sales were deliberate attempts by RDAs to preempt the
Governor's proposal to eliminate redevelopment, by establishing
debt obligations that would tie up property tax increment
revenues well into the future, many of those bond sales were
intended for projects that had been in the planning stages long
before the Governor announced his intentions.
AB 2493 (Bloom)
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As a result of the dissolutions statutes' requirements that
prohibit successor agencies form spending bond proceeds issued
prior to 2011, successor agencies are often forced to retain
those proceeds for extended periods of time while paying debt
service, with interest, out of tax increment, without producing
any new infrastructure or economic development. Much of the
debt that was issued in 2011 cannot be defeased or refinanced
until 2021. Proponents indicate that up to $1 billion in debt
service payments will have been paid from tax increment by that
time. AB 2493 would allow successor agencies and housing
successors to spend proceeds from bonds issued in the first half
of 2011 on projects that are consistent with the SCS and meet
other specified criteria. This would essentially allow for an
extension of redevelopment activity for at least 20 years to
continue the debt service on these projects. As a result,
successor agencies and housing successors would continue to
incur administrative costs associated with the continued
repayment.
Staff notes that the author has provided information indicating
that bill would allow for the expenditure of $435 million of the
estimated $715 million in unspent 2011 RDA bond proceeds by 35
cities that have projects meeting the criteria established by
the bill. It should be noted that while the analysis provided
seems rigorous, these figures have not been independently
verified.
Since the majority of bonds issued in 2011 cannot be defeased
until 2021, the state fiscal impacts of this bill would not
occur until that date, and would extend for an additional 20
years in most cases. Since this bill would ensure continued
debt service for 20 years from tax increment that would
otherwise be distributed to local taxing agencies, AB 2493 would
result in increased General Fund expenditures to offset tax
increment payments that would otherwise go to schools, absent
the bill.