BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 1129|
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THIRD READING
Bill No: SB 1129
Author: Steinberg (D), et al.
Amended: 5/27/14
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 4-2, 4/9/14
AYES: Wolk, DeSaulnier, Hernandez, Liu
NOES: Knight, Vidak
NO VOTE RECORDED: Beall
SENATE APPROPRIATIONS COMMITTEE : 5-2, 5/23/14
AYES: De Le�n, Hill, Lara, Padilla, Steinberg
NOES: Walters, Gaines
SUBJECT : Redevelopment: successor agencies to redevelopment
agencies
SOURCE : Author
DIGEST : This bill amends several statutes governing
redevelopment agencies (RDAs) dissolution. This bill makes
several changes to the statutes governing the dissolution of
RDAs. Among other things, this bill (1) authorizes an RDA
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 specified "sustainable communities
strategy" (SCS); (2) deems an agreement entered into by an RDA
prior to June 30, 2011 that commits funds to state highway
infrastructure improvements as an enforceable obligation; and
(3) revises the process for disposal of former RDA properties
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through a long-range property management plan (LRPMP) by
eliminating a requirement for compensation agreements governing
the distribution of property proceeds.
ANALYSIS : Until 2011, the Community Redevelopment Law allowed
local officials to set up RDAs, prepare and adopt redevelopment
plans, and finance redevelopment activities. As a redevelopment
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. The RDA kept the property tax increment
revenues generated from increases in property values within a
redevelopment project area.
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
26X1 (Blumenfield, Chapter 5, Statutes of 2011, First
Extraordinary Session) dissolved all RDAs. The California
Supreme Court's 2011 ruling in California Redevelopment
Association v. Matosantos upheld AB 26X1, but invalidated AB
27X1 (Blumenfield, Chapter 6, Statutes of 2011, First
Extraordinary Session), which would have allowed most RDAs to
avoid dissolution.
AB 26X1 established successor agencies to manage the process of
unwinding former RDAs' affairs. With the exception of seven
cities that chose not to serve as successor agencies, 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.
I. Enforceable obligations and finding of completion . One of
the successor agencies' primary responsibilities is to make
payments for enforceable obligations entered into by former
RDAs. The statutory definition of an "enforceable
obligation" includes bonds, specified bond-related payments,
some loans, payments required by the federal government,
obligations to the state, obligations imposed by state law,
legally required payments related to RDA employees, judgments
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or settlements, and other legally binding and enforceable
agreements or contracts.
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 DOF. Obligations listed on a ROPS
are payable from a Redevelopment Property Tax Trust Fund,
which contains the revenues that would have been allocated as
tax increment to a former RDA.
If a successor agency complies with state laws that require
it to remit specified RDA property tax allocations and cash
assets identified through a "due diligence review" process,
it receives a "finding of completion" from DOF (AB 1484,
Assembly Budget Committee, Chapter 26, Statutes of 2012).
Approximately 300 successor agencies have received a finding
of completion.
This bill:
1. Requires that a successor agency's oversight board
must approve any action to remove an enforceable
obligation from a ROPS for a successor agency that has
received a finding of completion.
2. Allows a successor agency that has received a finding
of completion to enter into, or amend existing, contracts
and agreements or otherwise administer projects in
connection with long-term enforceable obligations, if the
contract, agreement, or project will not commit new tax
funds, or will not otherwise adversely affect the flow of
tax increment to taxing agencies.
3. Specifies that this provision applies to the
substitution of private developer capital in a disposition
and development agreement that has been deemed an
enforceable obligation.
4. Sets a deadline of January 1, 2016 for the State
Controller to review RDA activities to determine whether
an asset transfer between an RDA and a city or county
occurred after January 1, 2011, or after January 31, 2012,
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if the transfer was made pursuant to an enforceable
obligation on a valid ROPS, as specified.
5. Requires DOF to provide written confirmation within 45
days that an enforceable obligation as approved in a ROPS
is final and conclusive.
II. LRPMPs and compensation agreements . Existing law allows a
successor agency that has received a finding of completion to
retain a former RDA's real property and interests in real
property, with specified exceptions. A successor agency must
prepare a LRPMP that addresses the disposition and use of a
former RDA's real property. Existing law specifies elements
that must be included in LRPMPs and prohibits the transfer of
property to a successor agency, city, county, or city and
county unless a successor agency's oversight board and DOF
approve a LRPMP. To date, DOF has approved more than 90
plans submitted by successor agencies. A city, county, or
city and county that wishes to retain any properties or other
assets for future redevelopment activities, funded from its
own funds and under its own auspices, must reach a
compensation agreement with the other taxing entities to
provide payments to them in proportion to their shares of the
base property tax, as determined pursuant to state law, for
the value of the property retained.
This bill:
1. Declares that the requirement to reach a compensation
agreement does not apply to the disposition of properties
pursuant to a LRPMP.
2. Prohibits DOF from requiring a compensation agreement
or agreements as part of the approval of a LRPMP.
3. Specifies that DOF must only consider whether a LRPMP
makes a good faith effort to address the requirements set
forth in state law.
4. Requires DOF to approve LRPMPs as expeditiously as
possible.
5. Deletes a requirement that successor agencies must
dispose of former RDAs' properties if DOF does not approve
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the agency's LRPMP by January 1, 2015.
6. States that DOF is not required to review any actions
relating to the disposition of property after a LRPMP has
been approved.
III. Bond proceeds . Existing law allows a successor agency that
receives a finding of completion to use bond proceeds derived
from bonds issued on or before December 31, 2010, for the
purposes for which the bonds were sold. 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
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.
This bill:
1. Includes within the definition of "enforceable
obligation" an agreement entered into between the RDA
prior to June 30, 2011, if the agreement relates to state
highway infrastructure improvements to which the RDA
committed funds.
2. Allows a successor agency to use proceeds of bonds
issued by a former RDA in 2011, upon approval of the
oversight board, if:
The proceeds are used in a manner that is
consistent with the purposes for which the bonds were
sold, and
The oversight board, in consultation with the
appropriate metropolitan planning organization,
determines that the use of the bond proceeds is
consistent with the SCS adopted by the metropolitan
planning organization.
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Comments
Purpose of the bill . Local officials have identified
ambiguities and obstacles in current law which prevent them from
completing vital economic development projects that began before
RDAs were dissolved. Because state law does not provide
successor agencies any flexibility to adjust contracts for
enforceable obligations in ways that do not affect tax
increment, successor agencies may be unable to finance or
complete long-term phased development projects that are already
underway. State law offers successor agencies no good options
for disposing of billions of dollars of unspent RDA bond
proceeds. If the interest rates that a successor agency earns
on securities it buys to defease bonds are significantly lower
than the interest payments on the bonds, the agency will lose
money on the transaction. As a result, successor agencies may
choose to retain hundreds of millions of dollars of bond
proceeds for extended periods of time, while paying debt
service, without producing any new infrastructure or economic
development. Some local officials see the requirement to enter
into compensation agreements with other taxing entities for real
property retained by a successor agency as an impediment to
their ability to use these publicly owned properties for
economic development purposes. By eliminating these types of
ambiguities and obstacles, this bill will support the completion
of numerous development projects that have already received
millions of dollars of public investments, support state policy
goals, and benefit residents throughout California.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Unknown General Fund (GF) losses, in the millions or tens of
millions, over several fiscal years, to the extent this bill
allows successor agencies to use the proceeds of bonds issued
in 2011 for redevelopment activities, and prevents the DOF
from denying enforceable obligations without oversight board
approval. Both of these provisions will reduce the amount of
residual property tax revenues directed to schools, the
magnitude of which is unknown. Approximately 50% of tax
increment revenues necessary to pay off the debt used for
continued redevelopment activity will be diverted from
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schools. In general, any property tax proceeds diverted from
schools results in an equivalent GF cost, pursuant to
Proposition 98's minimum funding guarantees.
Unknown GF losses, perhaps in the hundreds of thousands, by
specifying that RDA agreements entered into prior to June 30,
2011 that include highway improvements are legitimate
enforceable obligations. Former RDA revenues dedicated to
such a project will not be distributed to local taxing
agencies, including schools, pursuant to the dissolution
process. In general, any property tax proceeds diverted from
schools results in an equivalent GF cost, pursuant to
Proposition 98's minimum funding guarantees. The number of
projects to which this provision will apply is unknown, but
staff assumes there will be few.
Revisions to the process for disposing of former RDA
properties through the LRPMP process, particularly the
deletion of requirements for compensation agreements, will
result in benefits for some local governments at the expense
of other local governments that will have otherwise received a
portion of proceeds from the sale of former RDA properties,
potentially including schools. The magnitude of these revenue
shifts among local agencies is unknown, but likely
substantial. As noted above, any losses to schools will have
a corresponding increase in state GF spending pursuant to
Proposition 98.
SUPPORT : (Verified 5/27/14)
California Infill Builders Federation
California Rural Legal Assistance Foundation
Cities of Buena Park, Camarillo, Compton, Culver City, Folsom,
Fountain Valley, Fremont, Garden Grove, Glendale, Highland,
Huntington Beach, La Mirada, Lemoore, Pasadena, Redding,
Redwood City, Ridgecrest, Santa Cruz, Santa Monica, Selma,
Sonoma, Tulare, Vista, West Hollywood, and Westminster
Fremont Successor Agency
Glendale City Employees Association
Glendale Successor Agency
Housing California
Inland Action
League of California Cities
Non-Profit Housing Association of Northern California
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Organization of SMUD Employees
San Bernardino Public Employees Association
San Luis Obispo County Employees Association
Western Center on Law and Poverty
OPPOSITION : (Verified 5/27/14)
California State Association of Counties
Los Angeles County Board of Supervisors
Santa Clara County Board of Supervisors
ARGUMENTS IN SUPPORT : The City of Ridgecrest states this bill
"will free-up available funding to produce quality projects with
high-paying construction jobs, expedite the approval and
implementation of long range property management plans enabling
affected communities to complete local projects, and provide
additional certainty for agencies receiving a finding of
completion."
ARGUMENTS IN OPPOSITION : The California State Association of
Counties states this bill "seeks to make changes to three
components of the dissolution process: enforceable obligations,
long range property management plans and compensation
agreements, and use of bond proceeds for debt issued in 2011.
Because each of these directly affects the allocation of
property tax revenues and we know that the allocation of
property tax revenues is a zero-sum game, SB 1129 will have
fiscal consequences for affected taxing entities, including
counties."
AB:k 5/27/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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