Amended in Senate April 9, 2013

Amended in Senate April 1, 2013

Senate Bill No. 409

Introduced by Senator Emmerson

February 20, 2013

An act to amend Sections 34171, 34178, and 34191.4 of, and to add Section 34004.2 to, the Health and Safety Code, relating to disaster recovery project areas.

LEGISLATIVE COUNSEL’S DIGEST

SB 409, as amended, Emmerson. Disaster recovery project areas: enforceable obligations.

The Community Redevelopment Law authorizes the establishment of redevelopment agencies in communities to address the effects of blight, as defined. Existing law dissolved redevelopment agencies and community development agencies, as of February 1, 2012, and provides for the designation of successor agencies. Existing law imposes various requirements on successor agencies and subjects successor agency actions to the review of oversight boards. Existing law requires each oversight board to direct the successor agency to, among other things, cease performance in connection with and terminate all existing agreements that do not qualify as enforceable obligations, as defined.

This bill would provide that a loan provided by a city, county, or city and county to a redevelopment agency that was entered into prior to January 1, 2011, for the purposes of funding the installation and construction of roadways, public improvements, and public utilities in a disaster recovery project area, and for the provision of residential water system or other utility connection subsidies to low- and moderate-income residents of that project area is an enforceable obligation and may be repaid, as specified. The bill would authorize a city, county, city and county, or housing authority acting in its capacity as the successor to a former redevelopment agency to retain and use those loan proceeds pursuant to the loan agreement and would require the return of any funds previously deposited into the Low and Moderate Income Housing Fund of the former redevelopment agency to the entity that assumed the housing functions of the former redevelopment agency. The bill would also prohibit the Department of Finance, the State Board of Equalization, the State Controller, and a county auditor-controller from imposing any statutory remedies upon a city, county, city and county, or a successor agency and would require the reversal, within 30 days of the effective date of this bill, of any statutory remedy previously imposed. The bill would also make conforming changes.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature hereby finds and determines all
of the following:

(a) The redevelopment and revitalization of areas devastated
by flood, fire, hurricane, earthquake, storm, tidal wave, or other
catastrophes is a matter of statewide concern.

(b) In enacting the Community Redevelopment Disaster Project
Law, the Legislature intended to facilitate the physical and
economic recovery of areas devastated by natural disasters and
other catastrophes.

(c) The construction and installation of public improvements,
including roadways, water systems, and other utilities in disaster
recovery project areas is essential to the economic recovery of
those areas and the health, safety, and welfare of persons who
reside within and near those areas.

(d) The construction and installation of public improvements,
including roadways, water systems, and other utilities in disaster
recovery project areas is essential to catalyze the establishment of
business enterprises within and near those areas.

(e) The redevelopment and revitalization of disaster recovery
project areas will result in increased property tax, sales tax, and
other revenues to local communities, local taxing entities including
schools and community college districts, and the State of
California.

(f) The failure to permit successor agencies to use the proceeds
of loans originated for the purpose of facilitating the redevelopment
and revitalization of disaster recovery project areas would
significantly delay, and potentially prevent, the revitalization of
those areas and their return to productive economic use.

(g) Public works projects planned for the Cedar Glen Disaster
Recovery Project Area were delayed due to a private water
company’s financial problems after a devastating forest fire. As a
result, water system and roadway improvement projects are not
complete, and the proceeds of a loan provided by the County of
San Bernardino to fund those public works and water system
connection subsidies remain available for those purposes.

(h) In 2003, the Old Fire destroyed 324 homes in the Cedar
Glen community. Lack of an adequate water system and roadway
access were determined to be primary causes of the devastation.

(i) The County of San Bernardino established the Cedar Glen
Disaster Recovery Project Area and adopted a plan to assist
property owners, begin delete residents end delete begin insert residents, end insert and business owners to
recover from the fire damage and eliminate blighted conditions
that preexisted the fire and contributed to the scale of its damage.
To assist in the recovery of the project area, the county provided
a $10,000,000 loan using county general fund revenue to finance
water system and roadway improvements and to fund water system
connection fee subsidies for low- and moderate-income
homeowners.

(j) The Department of Housing and Community Development
awarded a State of California Disaster Recovery Initiative grant
to assist in the recovery. The terms of the grant required it to be
spent by April 30, 2009. As a result of this requirement and delays
that resulted from the water company’s placement status in
receivership, the expenditure of the county loan proceeds was
delayed, and approximately $9,000,000 of the loan proceeds remain
unspent.

(k) The critical need for water system, roadway, and other public
improvements remains unmet.

(l) In connection with the wind-down of the affairs of the
successor agencies, the Department of Finance has determined
that the remaining proceeds loans made to redevelopment agencies
operating in disaster recovery project areas may not be spent to
fund the public improvements and related activities for which the
loans were originated, and may not be returned to the public entities
that originated those loans, but instead must be remitted to the
county auditor-controller and distributed to affected taxing entities.

(m) It is in the public interest and the interest of the health,
safety, and welfare of persons residing in and near disaster recovery
project areas to permit successor agencies to spend the remaining
proceeds of loans originated to fund public improvements in those
areas for the purposes for which the loans were originated, and to
permit the loans to be repaid to the public entities that originated
those loans.

SEC. 2.  

Section 34004.2 is added to the Health and Safety
Code, to read:

34004.2.  

(a) Notwithstanding subdivision (b) of Section
34191.4, or any other law, a loan provided by a city, county, or
city and county to a redevelopment agency pursuant to a written
agreement entered into prior to January 1, 2011, for the purpose
of funding the installation and construction of roadways, public
improvements, and public utilities in a disaster recovery project
area, and for the provision of residential water system or other
utility connection subsidies to low- and moderate-income residents
of a disaster recovery project area, shall be deemed to be an
enforceable obligation within the meaning of paragraph (1) of
subdivision (d) of Section 34171, and may be repaid pursuant to
the terms set forth in the written agreement notwithstanding any
contrary provision of law.

(b) Notwithstanding subdivision (d) of Section 34177 and
Section 34179.6, or any other law, the proceeds of loans described
in subdivision (a) shall be used for the purposes for which the loans
were made, and the successor agency may retain the proceeds of
those loans and enter into agreements for the expenditure of the
loan proceeds for those purposes, including, but not limited to,
agreements with the city, county, or city and county, that formed
the redevelopment agency to which the successor agency has
succeeded. These actions shall not be subject to review by the
successor agency’s oversight board or by the Department of
Finance.

(c) Notwithstanding subdivision (d) of Section 34177 and
Section 34179.6, or any other law, a city, county, city and county,
or housing authority acting in its capacity as the successor to the
housing functions of a former redevelopment agency, may receive
and use that portion of the proceeds of loans described in
subdivision (a) that had been deposited into the Low and Moderate
Income Housing Fund of the former redevelopment agency to
provide residential water system or other utility connection
subsidies to low- and moderate-income residents of a disaster
recovery project area, and the successor agency shall transfer those
funds to the entity that assumed the housing functions of the former
redevelopment agency for that purpose. These actions shall not be
subject to review by the successor agency’s oversight board or by
the Department of Finance.

(d) Notwithstanding any other law, the Department of Finance,
the State Board of Equalization, the Controller, or the county
auditor-controller shall not have the authority to impose any of the
remedies described in subdivision (h) of Section 34179.6 in
connection with any failure of a city, county, city and county, or
successor agency to remit any portion of the proceeds of a loan
described in subdivision (a) to the county auditor-controller. If the
Department of Finance, the State Board of Equalization, the
Controller, or the county auditor-controller have imposed any of
the remedies described in subdivision (h) of Section 34179.6 in
connection with any failure of a city, county, or city and county
or the successor agency to remit any portion of the proceeds of a
loan described in subdivision (a) to the county auditor-controller,
then any remedy imposed, including, but not limited to, any
reduction in, or offset of, sales and use tax or property tax
allocations, any fine or penalty, and any reduction in the allocation
of property tax to the successor agency shall be rescinded, and all
reductions in or offsets to, any revenue, tax, or fund shall be
returned to the city, county, or city and county or to the successor
agency, as applicable, within 30 days following the effective date
of the act adding this section.

(e) Notwithstanding any other law, the Department of Finance
shall not withhold the issuance of a finding of completion to a
successor agency pursuant to Section 34179.7 on the basis of any
failure of the city, county, or city and county or the successor
agency to remit any portion of the proceeds of a loan described in
subdivision (a) to the county auditor-controller.

(f) For the purposes of this section, “disaster recovery project
area” means a project area created pursuant to Part 1.5
(commencing with Section 34000).

SEC. 3.  

Section 34171 of the Health and Safety Code is
amended to read:

34171.  

The following terms shall have the following meanings:

(a) “Administrative budget” means the budget for administrative
costs of the successor agencies as provided in Section 34177.

(b) “Administrative cost allowance” means an amount that,
subject to the approval of the oversight board, is payable from
property tax revenues of up to 5 percent of the property tax
allocated to the successor agency on the Recognized Obligation
Payment Schedule covering the period January 1, 2012, through
June 30, 2012, and up to 3 percent of the property tax allocated to
the Redevelopment Obligation Retirement Fund money that is
allocated to the successor agency for each fiscal year thereafter;
provided, however, that the amount shall not be less than two
hundred fifty thousand dollars ($250,000), unless the oversight
board reduces this amount, for any fiscal year or such lesser amount
as agreed to by the successor agency. However, the allowance
amount shall exclude, and shall not apply to, any administrative
costs that can be paid from bond proceeds or from sources other
than property tax. Administrative cost allowances shall exclude
any litigation expenses related to assets or obligations, settlements
and judgments, and the costs of maintaining assets prior to
disposition. Employee costs associated with work on specific
project implementation activities, including, but not limited to,
construction inspection, project management, or actual
construction, shall be considered project-specific costs and shall
not constitute administrative costs.

(c) “Designated local authority” shall mean a public entity
formed pursuant to subdivision (d) of Section 34173.

(d) (1) “Enforceable obligation” means any of the following:

(A) Bonds, as defined by Section 33602 and bonds issued
pursuant to Chapter 10.5 (commencing with Section 5850) of
Division 6 of Title 1 of the Government Code, including the
required debt service, reserve set-asides, and any other payments
required under the indenture or similar documents governing the
issuance of the outstanding bonds of the former redevelopment
agency. A reserve may be held when required by the bond
indenture or when the next property tax allocation will be
insufficient to pay all obligations due under the provisions of the
bond for the next payment due in the following half of the calendar
year.

(B) Loans of moneys borrowed by the redevelopment agency
for a lawful purpose, to the extent they are legally required to be
repaid pursuant to a required repayment schedule or other
mandatory loan terms.

(C) Payments required by the federal government, preexisting
obligations to the state or obligations imposed by state law, other
than passthrough payments that are made by the county
auditor-controller pursuant to Section 34183, or legally enforceable
payments required in connection with the agencies’ employees,
including, but not limited to, pension payments, pension obligation
debt service, unemployment payments, or other obligations
conferred through a collective bargaining agreement. Costs incurred
to fulfill collective bargaining agreements for layoffs or
terminations of city employees who performed work directly on
behalf of the former redevelopment agency shall be considered
enforceable obligations payable from property tax funds. The
obligations to employees specified in this subparagraph shall
remain enforceable obligations payable from property tax funds
for any employee to whom those obligations apply if that employee
is transferred to the entity assuming the housing functions of the
former redevelopment agency pursuant to Section 34176. The
successor agency or designated local authority shall enter into an
agreement with the housing entity to reimburse it for any costs of
the employee obligations.

(D) Judgments or settlements entered by a competent court of
law or binding arbitration decisions against the former
redevelopment agency, other than passthrough payments that are
made by the county auditor-controller pursuant to Section 34183.
Along with the successor agency, the oversight board shall have
the authority and standing to appeal any judgment or to set aside
any settlement or arbitration decision.

(E) Any legally binding and enforceable agreement or contract
that is not otherwise void as violating the debt limit or public
policy. However, nothing in this act shall prohibit either the
successor agency, with the approval or at the direction of the
oversight board, or the oversight board itself from terminating any
existing agreements or contracts and providing any necessary and
required compensation or remediation for such termination. Titles
of or headings used on or in a document shall not be relevant in
determining the existence of an enforceable obligation.

(F) Contracts or agreements necessary for the administration or
operation of the successor agency, in accordance with this part,
including, but not limited to, agreements concerning litigation
expenses related to assets or obligations, settlements and
judgments, and the costs of maintaining assets prior to disposition,
and agreements to purchase or rent office space, equipment and
supplies, and pay-related expenses pursuant to Section 33127 and
for carrying insurance pursuant to Section 33134.

(G) Amounts borrowed from, or payments owing to, the Low
and Moderate Income Housing Fund of a redevelopment agency,
which had been deferred as of the effective date of the act adding
this part; provided, however, that the repayment schedule is
approved by the oversight board. Repayments shall be transferred
to the Low and Moderate Income Housing Asset Fund established
pursuant to subdivision (d) of Section 34176 as a housing asset
and shall be used in a manner consistent with the affordable
housing requirements of the Community Redevelopment Law (Part
1 (commencing with Section 33000)).

(H) Loan agreements described in subdivision (a) of Section
34004.2.

(2) For purposes of this part, “enforceable obligation” does not
include any agreements, contracts, or arrangements between the
city, county, or city and county that created the redevelopment
agency and the former redevelopment agency. However, written
agreements entered into (A) at the time of issuance, but in no event
later than December 31, 2010, of indebtedness obligations, and
(B) solely for the purpose of securing or repaying those
indebtedness obligations may be deemed enforceable obligations
for purposes of this part. Notwithstanding this paragraph, loan
agreements entered into between the redevelopment agency and
the city, county, or city and county that created it, within two years
of the date of creation of the redevelopment agency, may be
deemed to be enforceable obligations, and loan agreements
described in subdivision (a) of Section 34004.2 shall be deemed
to be enforceable obligations.

(3) Contracts or agreements between the former redevelopment
agency and other public agencies, to perform services or provide
funding for governmental or private services or capital projects
outside of redevelopment project areas that do not provide benefit
to the redevelopment project and thus were not properly authorized
under Part 1 (commencing with Section 33000) shall be deemed
void on the effective date of this part; provided, however, that such
contracts or agreements for the provision of housing properly
authorized under Part 1 (commencing with Section 33000) shall
not be deemed void.

(e) “Indebtedness obligations” means bonds, notes, certificates
of participation, or other evidence of indebtedness, issued or
delivered by the redevelopment agency, or by a joint exercise of
powers authority created by the redevelopment agency, to
third-party investors or bondholders to finance or refinance
redevelopment projects undertaken by the redevelopment agency
in compliance with the Community Redevelopment Law (Part 1
(commencing with Section 33000)).

(f) “Oversight board” shall mean each entity established pursuant
to Section 34179.

(g) “Recognized obligation” means an obligation listed in the
Recognized Obligation Payment Schedule.

(h) “Recognized Obligation Payment Schedule” means the
document setting forth the minimum payment amounts and due
dates of payments required by enforceable obligations for each
six-month fiscal period as provided in subdivision (m) of Section
34177.

(i) “School entity” means any entity defined as such in
subdivision (f) of Section 95 of the Revenue and Taxation Code.

(j) “Successor agency” means the successor entity to the former
redevelopment agency as described in Section 34173.

(k) “Taxing entities” means cities, counties, a city and county,
special districts, and school entities, as defined in subdivision (f)
of Section 95 of the Revenue and Taxation Code, that receive
passthrough payments and distributions of property taxes pursuant
to the provisions of this part.

(l) “Property taxes” include all property tax revenues, including
those from unitary and supplemental and roll corrections applicable
to tax increment.

(m) “Department” means the Department of Finance unless the
context clearly refers to another state agency.

(n) “Sponsoring entity” means the city, county, or city and
county, or other entity that authorized the creation of each
redevelopment agency.

(o) “Final judicial determination” means a final judicial
determination made by any state court that is not appealed, or by
a court of appellate jurisdiction that is not further appealed, in an
action by any party.

SEC. 4.  

Section 34178 of the Health and Safety Code is
amended to read:

34178.  

(a) Commencing on the operative date of this part,
agreements, contracts, or arrangements between the city or county,
or city and county that created the redevelopment agency and the
redevelopment agency are invalid and shall not be binding on the
successor agency; provided, however, that a successor entity
wishing to enter or reenter into agreements with the city, county,
or city and county that formed the redevelopment agency that it
is succeeding may do so upon obtaining the approval of its
oversight board. A successor agency or an oversight board shall
not exercise the powers granted by this subdivision to restore
funding for an enforceable obligation that was deleted or reduced
by the Department of Finance pursuant to subdivision (h) of Section
34179 unless it reflects the decisions made during the meet and
confer process with the Department of Finance or pursuant to a
court order.

(b) Notwithstanding subdivision (a), any of the following
agreements are not invalid and may bind the successor agency:

(1) A duly authorized written agreement entered into at the time
of issuance, but in no event later than December 31, 2010, of
indebtedness obligations, and solely for the purpose of securing
or repaying those indebtedness obligations.

(2) A written agreement between a redevelopment agency and
the city, county, or city and county that created it that provided
loans or other startup funds for the redevelopment agency that
were entered into within two years of the formation of the
redevelopment agency.

(3) A joint exercise of powers agreement in which the
redevelopment agency is a member of the joint powers authority.
However, upon assignment to the successor agency by operation
of the act adding this part, the successor agency’s rights, duties,
and performance obligations under that joint exercise of powers
agreement shall be limited by the constraints imposed on successor
agencies by the act adding this part.

(4) A written loan agreement between a redevelopment agency
and the city, county, or city and county that created it as described
in subdivision (a) of Section 34004.2.

SEC. 5.  

Section 34191.4 of the Health and Safety Code is
amended to read:

34191.4.  

The following provisions shall apply to any successor
agency that has been issued a finding of completion by the
Department of Finance:

(a) All real property and interests in real property identified in
subparagraph (C) of paragraph (5) of subdivision (c) of Section
34179.5 shall be transferred to the Community Redevelopment
Property Trust Fund of the successor agency upon approval by the
Department of Finance of the long-range property management
plan submitted by the successor agency pursuant to subdivision
(b) of Section 34191.7 unless that property is subject to the
requirements of any existing enforceable obligation.

(b) (1) Notwithstanding subdivision (d) of Section 34171, upon
application by the successor agency and approval by the oversight
board, loan agreements entered into between the redevelopment
agency and the city, county, or city and county that created begin delete by end delete the
redevelopment agency shall be deemed to be enforceable
obligations provided that the oversight board makes a finding that
the loan was for legitimate redevelopment purposes.

(2) If the oversight board finds that the loan is an enforceable
obligation, the accumulated interest on the remaining principal
amount of the loan shall be recalculated from origination at the
interest rate earned by funds deposited into the Local Agency
Investment Fund. The loan shall be repaid to the city, county, or
city and county in accordance with a defined schedule over a
reasonable term of years at an interest rate not to exceed the interest
rate earned by funds deposited into the Local Agency Investment
Fund. The annual loan repayments provided for in the recognized
obligations payment schedules shall be subject to all of the
following limitations:

(A) Loan repayments shall not be made prior to the 2013-14
fiscal year. Beginning in the 2013-14 fiscal year, the maximum
repayment amount authorized each fiscal year for repayments
made pursuant to this subdivision and paragraph (7) of subdivision
(e) of Section 34176 combined shall be equal to one-half of the
increase between the amount distributed to the taxing entities
pursuant to paragraph (4) of subdivision (a) of Section 34183 in
that fiscal year and the amount distributed to taxing entities
pursuant to that paragraph in the 2012-13 base year. Loan or
deferral repayments made pursuant to this subdivision shall be
second in priority to amounts to be repaid pursuant to paragraph
(7) of subdivision (e) of Section 34176.

(B) Repayments received by the city, begin delete county end delete begin insert county, end insert or city and
county that formed the redevelopment agency shall first be used
to retire any outstanding amounts borrowed and owed to the Low
and Moderate Income Housing Fund of the former redevelopment
agency for purposes of the Supplemental Educational Revenue
Augmentation Fund and shall be distributed to the Low and
Moderate Income Housing Asset Fund established by subdivision
(d) of Section 34176.

(C) Twenty percent of any loan repayment shall be deducted
from the loan repayment amount and shall be transferred to the
Low and Moderate Income Housing Asset Fund, after all
outstanding loans from the Low and Moderate Income Housing
Fund for purposes of the Supplemental Educational Revenue
Augmentation Fund have been paid.

(3) Notwithstanding subdivision (b) or any other law, loan
agreements described in subdivision (a) of Section 34004.2 shall
be repaid pursuant to the terms set forth in the loan agreement.

(c) (1) Bond proceeds derived from bonds issued on or before
December 31, 2010, shall be used for the purposes for which the
bonds were sold.

(2) (A) Notwithstanding Section 34177.3 or any other
conflicting provision of law, bond proceeds in excess of the
amounts needed to satisfy approved enforceable obligations shall
thereafter be expended in a manner consistent with the original
bond covenants. Enforceable obligations may be satisfied by the
creation of reserves for projects that are the subject of the
enforceable obligation and that are consistent with the contractual
obligations for those projects, or by expending funds to complete
the projects. An expenditure made pursuant to this paragraph shall
constitute the creation of excess bond proceeds obligations to be
paid from the excess proceeds. Excess bond proceeds obligations
shall be listed separately on the Recognized Obligation Payment
Schedule submitted by the successor agency.

(B) If remaining bond proceeds cannot be spent in a manner
consistent with the bond covenants pursuant to subparagraph (A),
the proceeds shall be used to defease the bonds or to purchase
those same outstanding bonds on the open market for cancellation.