BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 409 HEARING: 4/3/13
AUTHOR: Emmerson FISCAL: Yes
VERSION: 4/1/13 TAX LEVY: No
CONSULTANT: Weinberger
DISASTER RECOVERY PROJECT AREAS' ENFORCEABLE OBLIGATIONS
Defines specified loans to former redevelopment agencies as
enforceable obligations.
Background and Existing Law
Until 2011, the Community Redevelopment Law allowed local
officials to set up redevelopment agencies (RDAs), prepare
and adopt redevelopment plans, and finance redevelopment
activities.
A redevelopment agency kept the property tax increment
revenues generated from increases in property values within
a redevelopment project area. As a re-development project
area's assessed valuation grew above its base-year value,
the resulting property tax revenues - the property tax
increment - went to the RDA instead of going to the
underlying local governments. When a redevelopment agency
diverted property tax revenues from a school district, the
State General Fund paid the difference.
Because of their extraordinary powers to generate public
capital and manage real estate, redevelopment agencies
could speed recovery after disasters. The Community
Redevelopment Disaster Project Law allowed local officials
to accelerate the adoption of redevelopment plans after
declared disasters (AB 189, Hauser, 1995).
Citing a significant State General Fund deficit, Governor
Brown's 2011-12 budget proposed eliminating RDAs and
returning billions of dollars of property tax revenues to
schools, cities, and counties to fund core services. Among
the statutory changes that the Legislature adopted to
implement the 2011-12 budget, AB X1 26 (Blumenfield, 2011)
dissolved all RDAs. The California Supreme Court's 2011
ruling in California Redevelopment Association v.
SB 409 -- 4/1/13 -- Page 2
Matosantos upheld AB X1 26, but invalidated AB X1 27
(Blumenfield, 2011), which would have allowed most RDAs to
avoid dissolution.
AB X1 26 established successor agencies to manage the
process of unwinding former RDAs' affairs. With limited
exceptions, the city or county that created each former RDA
now serves as that RDA's successor agency. Each successor
agency has an oversight board that is responsible for
supervising it and approving its actions. The Department
of Finance (DOF) can review and request reconsideration of
an oversight board's decisions.
One of a successor agency's primary responsibilities is to
make payments for a former RDA's enforceable obligations.
Each successor agency must, every six months, draft a list
of enforceable obligations that are payable during a
subsequent six month period. This recognized obligation
payment schedule (ROPS) must be adopted by the oversight
board and is subject to review by the county
auditor-controller and the DOF. Obligations listed on a
ROPS are payable from a Redevelopment Property Tax Trust
Fund, which contains revenues that would have been
allocated as tax increment to a former RDA. With specified
exceptions, state law excludes from the definition of
"enforceable obligation" any loans between the city,
county, or city and county that created the redevelopment
agency and the former redevelopment agency.
In 2004, using the expedited process established by the
Community Redevelopment Disaster Project Law, San
Bernardino County officials created the Cedar Glen Disaster
Recovery Project Area to help rebuild an area where a 2003
wildfire destroyed 324 structures. To assist in the area's
recovery, the County provided a $10 million General Fund
loan to finance water system and roadway improvements and
to fund water system connection fee subsidies for low- and
moderate-income homeowners. As a result of various delays,
$9 million of the loan remains unspent and upgrades to the
area's water system, roads, and other public improvements
are incomplete.
The DOF does not recognize the loan as an enforceable
obligation, preventing San Bernardino County Successor
Agency from spending the loan's proceeds. DOF is
requiring the Agency to remit the unspent loan proceeds to
SB 409 -- 4/1/13 -- Page 3
the county auditor-controller for distribution to other
taxing entities. San Bernardino County officials want the
Legislature to define some loans made to a disaster
recovery project area by the city or county that created
the area as enforceable obligations.
Proposed Law
Senate Bill 409 defines, as an enforceable obligation, a
loan provided by a city, county, or city and county to a
redevelopment agency pursuant to a written agreement
entered into before January 1, 2011, for installing and
constructing roadways, public improvements, and public
utilities in a disaster recovery project area, and for the
provision of residential water system and other utility
connection subsidies to low- and moderate-income residents.
SB 409 allows such loans to be repaid pursuant to the
terms set forth in the written agreement, notwithstanding
any contrary provision of law.
SB 409 requires that the specified loans must be used for
the purposes for which they were made, and allows a
successor agency to retain loan proceeds and enter into
agreements for spending the proceeds for those purposes.
The bill provides that these actions are not subject to
review by the successor agency's oversight board or by the
DOF.
SB 409 allows 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 to:
Receive and use the portion of the proceeds of
specified loans that had been deposited into the
former redevelopment agency's low and moderate income
housing fund (LMIHF).
Provide residential water system or other utility
connection subsidies to low- and moderate-income
residents of a disaster recovery project area.
The bill requires the successor agency to transfer loan
proceeds from the LMIHF to the entity that has assumed the
former RDA's housing functions and provides that these
actions are not be subject to review by the successor
agency's oversight board or by the DOF.
SB 409 -- 4/1/13 -- Page 4
SB 409 prohibits the Board of Equalization, the Controller,
or the county auditor-controller from imposing any of the
remedies described in state law in connection with a city,
county, city and county, or successor agency's failure to
remit any portion of the proceeds of a specified loan to
the county auditor-controller. The bill requires the BOE,
the Controller, or the county auditor-controller to rescind
any remedies imposed including:
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.
The bill requires that reductions in, or offsets to, any
revenue, tax, or fund must be returned to the city, county,
city and county, or successor agency within 30 days of the
bill's effective date.
SB 409 prohibits the DOF from withholding a finding of
completion from a successor agency on the basis of a city,
county, city and county, or successor agency's failure to
remit proceeds of a specified loan to the county
auditor-controller.
The bill defines a disaster recovery project area as a
redevelopment project area formed pursuant to the Community
Redevelopment Disaster Project Law.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Loans to a former RDA for
disaster recovery work should be subject to different
rules, under the RDA dissolution process, than the rules
that apply to loans for an RDA's discretionary economic
development activities. When a 2003 wildfire destroyed 75%
SB 409 -- 4/1/13 -- Page 5
of the homes in the San Bernardino County community of
Cedar Glen, the County formed the Cedar Glen Disaster
Recovery Project Area and provided a $10 million General
Fund loan to facilitate physical and economic recovery.
Loan funds were to be used to acquire and rebuild the
defunct water system and construct needed infrastructure,
such as road improvements, to provide a better fire
suppression system. The County and the former RDA started
construction using grant funds, bond funds and $1 million
of the loan. When the 2011 Supreme Court decision
dissolved all RDAs, $9 million of loan proceeds remained
unspent and available for subsequent phases of
construction. DOF does not recognize the loan as an
enforceable obligation and is requiring the County to remit
the unspent funds for distribution to other taxing
entities. The County has exhausted its administrative
remedies under state law. Without the remaining $9 million
of loan proceeds, the remaining phases of critical water
infrastructure and fire safety improvements will not be
completed. SB 409 helps communities recover from disasters
by requiring that some loans to disaster recovery project
areas must be recognized as enforceable obligations.
2. Next in line ? The Cedar Glen disaster recovery project
is not the only incomplete former RDA project to be
jeopardized by redevelopment agencies' dissolution. Local
officials throughout California would undoubtedly welcome
the opportunity to guarantee former tax increment funding
for their communities' in-complete former RDA projects.
Changing state law to help disaster recovery project areas
may invite a long line of similar proposals from other
local governments. For example, if loans made to disaster
recovery project areas are enforceable obligations, why
shouldn't loans made to project areas formed under special
statutes relating to military base conversion also be
enforceable obligations? SB 409 may lay the groundwork for
further expanding the statutory definition of enforceable
obligation to include other former RDA projects.
3. Zero-sum game . Allocating former RDAs' property tax
increment revenues is a zero-sum game; every reallocation
creates winners and losers. A successor agency with a loan
that qualifies as an enforceable obligation under SB 409's
expanded definition will receive larger allocations of
former property tax increment revenues. Other local
governments - including school districts - will receive
SB 409 -- 4/1/13 -- Page 6
smaller allocations than they would under current law. One
fiscal loser will be the State General Fund, which must
backfill the revenues that the schools won't get. Other
local taxing entities that will receive smaller allocations
under SB 409 include San Bernardino County and special
districts that include the Cedar Glen area within their
jurisdictions.
4. Litigate or legislate ? On February 27, 2013, San
Bernardino County filed suit in Sacramento Superior Court.
The County's petition in County of San Bernardino v. Ana
Matosantos seeks, among other things, to have the court
recognize the loan to the Cedar Glen project area as an
enforceable obligation. By amending state law to include
loans to disaster recovery project areas in the definition
of enforceable obligations, SB 409 would preempt a
potential resolution of this dispute by the courts.
5. Let's get technical . The Committee may wish to
consider amending SB 409 to make the following technical,
non-substantive changes to the bill's language:
On page 2, line15, after "residents" insert a
comma.
On page 3, line 4, after "a" insert "State of
California"
On page 3, line 21, after "safety" insert a comma.
On page 11, line 4, strike out "by"
On page 11, line 31, after the first "county"
insert a comma.
Support and Opposition (3/28/13)
Support : San Bernardino County.
Opposition : Unknown.