BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
SB 409 (Emmerson) - Disaster recovery project areas: enforceable
obligations.
Amended: April 9, 2013 Policy Vote: G&F 6-0
Urgency: No Mandate: No
Hearing Date: May 23, 2013 Consultant: Mark McKenzie
SUSPENSE FILE.
Bill Summary: SB 409 would define loans provided by cities or
counties to a redevelopment agency pursuant to a written
agreement entered into before January 1, 2011, for specified
public improvements in a disaster recovery project area as an
enforceable obligation. As a result, the proceeds of these
loans would not be subject to redistribution as former RDA
assets, and instead could be used for the original purpose of
the loans.
Fiscal Impact:
The General Fund impact related to the single loan that the bill
is intended to protect would be in the range of $4.5 million to
$5.4 million, which represents the amount that would be
allocated to schools under current law. Any reduction of
allocations to schools must be backfilled by the State General
Fund pursuant to the minimum funding guarantees related to
Proposition 98.
Potentially additional General Fund impacts to the extent that
other loans between local agencies and former RDA disaster
recovery project areas would be retained by a successor agency
rather than redistributed to local taxing entities, including
schools.
Background: Until 2011, the Community Redevelopment Law allowed
local officials to set up redevelopment agencies (RDAs), prepare
and adopt redevelopment plans, and finance redevelopment
activities using property tax increment generated in a project
area. When an RDA diverted property tax revenues from a school
district, the State General Fund backfilled the difference. In
addition, the Community Redevelopment Disaster Project Law
provided for an expedited process for the adoption of
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redevelopment plans after declared disasters in order accelerate
the recovery process.
In 2004, using this expedited process, 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, including the local water district going into
state receivership and ultimately being taken over by the
county, $9 million of the loan remains unspent and upgrades to
the area's water system, roads, and other public improvements
are incomplete.
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,
counties, and special districts 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 and established successor agencies to manage the process of
unwinding former RDAs' affairs. 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.
The DOF does not currently recognize the $10 million loan from
San Bernardino County to the Cedar Glen Disaster Recovery Area
from 2005 as an enforceable obligation. Instead of using the
loan's proceeds on the intended purpose of making public
infrastructure repairs, DOF has determined that the remaining
balance of the loan should be remitted to the county
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auditor-controller for distribution to other taxing entities.
DOF does note, however, that loan agreements between a local
agency and an RDA shall be deemed enforceable obligations
provided the oversight board makes a finding that the loan was
for legitimate RDA purposes and DOF issues a "finding of
completion."
Proposed Law: SB 409 would deem a loan from a city or county to
an RDA as an enforceable obligation subject to written repayment
terms if the loan agreement was entered into prior to January 1,
2011 and the purpose of the loan is to fund specified public
facilities and to provide specified utility connection subsidies
to low- and moderate-income residents of a disaster recovery
project area. The bill requires the loan proceeds to be used
for the purposes for which the loan was made, and authorizes the
successor agency to enter into agreements for expenditure of
loan proceeds.
SB 409 would also prohibit DOF, the State Board of Equalization,
the State Controller, or the county auditor-controller from
imposing any of the penalties and remedies in current law
related to a local agency's failure to remit loan proceeds as
part of the RDA dissolution process. In addition, the bill
would require that any remedies previously imposed upon a local
agency for failure to remit loan proceeds would be rescinded.
Lastly, the bill would prohibit DOF from withholding the
issuance of a "finding of completion" to a successor agency on
the basis of any failure to remit loan proceeds to the county
auditor-controller.
Staff Comments: This bill is intended to ensure that the loan
proceeds are retained and spent on their intended purpose of
upgrading water infrastructure and other public facilities in
the Cedar Glen project area, and the loan is repaid pursuant to
existing agreements. Absent the lengthy process surrounding the
county takeover of the defunct Arrowhead Manor Water Company
that served the area, it is likely that the loan proceeds would
have been encumbered for project expenditures prior to
legislative actions to dissolve RDAs. The County would like to
retain the proceeds for planned expenditures.
SB 409 appears to be narrowly crafted to address the loan
between San Bernardino County and the Cedar Glen project area,
since it would only apply to loans made by a city or county to a
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disaster recovery project area, and the proceeds must be spent
on specified public improvements and utility connection
subsidies within that project area. At this time, committee
staff is unaware of any other RDA loans to which the exception
would apply, so the fiscal impact noted above appears to be
limited to the one $9 million loan. However, to the extent that
there have been other such loans for disaster recovery project
area improvements that remain unspent, there could be additional
impacts to the General Fund and other local taxing entities.
Passage of this measure could also establish a precedent that
would result in other local governments seeking exceptions to
the redevelopment dissolution process.
Existing law clearly states that, with specified exceptions, any
agreements, contracts, or arrangements between a city or county
and a former RDA are not enforceable obligations. As such, DOF
has made a determination that the loan made by San Bernardino
County to the Cedar Glen Disaster Recovery Project Area is not
an enforceable obligation, and removed the loan from the most
recent Recognized Obligation Payment Schedule (ROPS). Early
this year, San Bernardino County filed suit in Sacramento
Superior Court seeking, among other things, that the court
recognize the loan to the Cedar Glen project area as an
enforceable obligation. The enactment of SB 409 would preempt a
resolution of this dispute by the courts.
Staff notes that although DOF has made a "final determination"
denying the loan as an enforceable obligation in the most
current ROPS, the County could still get a favorable
determination of the loan as an enforceable obligation through
the statutory process that allows for a "finding of completion"
by DOF. As part of this ongoing process, the oversight board
would need to make a finding that the loan was made for
legitimate redevelopment purposes and the County must comply
with other specified reporting requirements of that process. If
the loan is ultimately recognized as an enforceable obligation,
the County would be repaid through allocations of tax increment
through the ROPS process, but the improvements to the water
infrastructure and other public facilities would not occur,
absent further investment by the County. The Committee may wish
to consider whether this bill is premature, to the extent that
an administrative solution to the problem remains a possibility.
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Following the dissolution of RDAs, property tax revenues that
were previously diverted to redevelopment project areas are now
distributed to local taxing jurisdictions. Many local
jurisdictions are now receiving substantial increases in
property tax revenues for discretionary general expenditures
than they did prior to the dissolution of RDAs.