2011 CA A 1585: Bill Analysis - Assembly Local Government Committee - 03/21/2012

BILL ANALYSIS
    Date of Hearing: March 21, 2012
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
    AB 1585 (John A. Perez) - As Amended: March 15, 2012

    SUBJECT: Redevelopment.

    SUMMARY: Makes changes to the process of dissolving redevelopment agencies (RDAs), including requiring the funds on deposit in the Low-and Moderate-Income Housing Fund (L&M Fund) of the former RDA to remain with the entity that assumes the housing functions rather than being distributed as property tax revenue.

    Specifically, this bill:

    1) Clarifies that the "administrative cost allowance" is 5% of the property tax, including property tax that was allocated to the former RDA and the successor agency for the 2011-2012 fiscal year.

    2) Specifies that employee costs associated with work on specific project implementation activities, including, but not limited to, construction inspection, project management, or actual construction, are not subject to the administrative cost allowance cap.

    3) Specifies that costs incurred to fulfill collective bargaining agreements for layoffs or terminations of city employees who performed work for the former RDA are enforceable obligations payable from property tax funds.

    4) Provides that obligations to employees that are transferred from the former RDA or successor agency to the entity assuming the housing functions are enforceable obligations payable from property tax funds.

    5) Requires the successor agency or designated local authority to enter into an agreement with the entity assuming the housing functions and to reimburse it for any costs of the employee obligations if an employee is transferred to the housing successor entity.

    6) Adds the following categories of enforceable obligations and requires their approval by the Oversight Board:

    a) Loans made by the former the city, county, or city and county that created the RDA to the RDA if the loan was made within two years of the date of the creation of a project area, if the loan was for the project area; and,

    b) Loans made from the city or county to the former RDA to make a payment to the State's Supplemental Educational Revenue Augmentation Fund (SERAF).

    1) Clarifies that repayment of SERAF loans made from the L&M Fund to the former RDA to be deposited into the L&M Fund maintained by the entity that assumes the housing functions.

    2) Requires the Oversight Board to do the following in order to deem other loan agreements from the city, county, or city and county to the former RDA an enforceable obligation:

    a) Makes a finding that the loan was for legitimate redevelopment purposes; and,

    b) Conditions its approval on the loan being repaid to the city, county, or city and county based on a defined schedule over a reasonable term, at an interest rate not to exceed the interest rate earned by funds deposited into the Local Agency Investment Fund.

    1) Provides that when listing the payment dates for enforceable obligations on the Recognized Obligation Payment Schedule (ROPS), the successor agency may list payments on an annual basis.

    2) Specifies that the successor agency is a legally distinct and separate body that acts by resolution, can sue and be sued, and can have additional powers that may be conferred upon it.

    3) Allows a city, county, or city and county, or joint powers authority that authorized the creation of the former RDA and elected not to be the successor agency to subsequently reverse that decision and serve as the successor agency.

    4) Requires any amounts on deposit in the L&M Fund of a former RDA to be transferred to the city, county, or city and county that elected to retain the responsibility for performing the housing functions of the former agency.

    5) Requires any amounts on deposit in the L&M Fund that are transferred to the L&M Fund of the succeeding housing entity to be maintained in a separate account and used for the purposes defined in the Community Redevelopment Law relating to authorized uses of the L&M Fund.

    6) Requires the entity that assumes the housing functions of the former RDA to enforce affordability covenants and other related activities as defined in Community Redevelopment Law.

    7) Requires, where there is no local housing authority that elected to accept authority for performing the housing functions, that any amounts on deposit in the L&M Fund be deposited in the State Low-and Moderate Income Housing Trust Fund (State Trust Fund), created by this measure, administered by the Department of Housing and Community Development (HCD), to be awarded on a competitive basis to projects within the counties in which it was collected.

    8) Requires, when awarding funds out of the State Trust Fund, that priority must be given to eligible projects that serve extremely low-, very low-, and low-income families and individuals.

    9) Defines "succeeding housing entity" as the entity that assumes responsibility for retaining the housing assets and functions previously performed by the RDA.

    10) Requires the succeeding housing entity to contract to expend at least 80% of the monies in the L&M Fund within two years of the date of receipt of those monies.

    11) Specifies that if within four years of the date of receipt of the L&M Fund monies the succeeding housing entity has not spent the monies, then the excess amount, minus the amount necessarily reserved for the ongoing monitoring and maintenance of affordable housing projects shall be transferred to the State Trust Fund for expenditure by HCD.

    12) Prohibits excess funds from being transferred to HCD if the succeeding housing entity applies for, and receives, a time extension waiver from HCD.

    13) Specifies if the waiver is granted the funds shall remain with the succeeding housing entity for an additional two years.

    14) Requires HCD in approving a waiver to consider, among other factors, all of the following:

    a) Whether the city, county, city and county, or housing authority has a site specific project plan with local approvals, including the issuance of building permits;

    b) Whether the project has secured financing; and,

    c) Evidence that some funds have been expended from the L&M Fund.

    15) Authorizes a succeeding housing entity to reapply at the end of the two-year period for a renewal of the previously granted waiver.

    16) Authorizes a succeeding housing entity to transfer all or a portion of the monies in the L&M Fund to another succeeding housing entity within the same county, to be spent on affordable housing if all of the following conditions are met:

    a) The funds will be spent on projects that primarily benefit low-income families or families that are below low income;

    b) Both succeeding housing entities involved in the transfer adopt a resolution detailing the need for the transfer of funds and the intended use of the funds by the receiving jurisdiction; and,

    c) The funds will be spent in compliance with the requirements outlined in comments #18-21.

    1) Requires the succeeding housing entity, within 45 days of the date this measure is enacted, or 45 days from the receipt of moneys from the L&M Fund, whichever is later, to notify HCD of the amount of money on deposit in the L&M Fund and the entity's plan for spending it.

    2) Requires, within two years from the date of notification to HCD, the succeeding housing entity to report to HCD the percentage of funds that it has entered into contract to spend.

    3) Requires at the end of four years the succeeding housing entity to report to HCD if there are any remaining moneys in the L&M Fund and to notify HCD if it will be applying for a waiver or transferring the excess funds to HCD.

    4) Requires that assets and properties of the former RDA, under the direction of the Oversight Board, be disposed of in an expeditious but orderly manner that preserves the value of the assets.

    5) Provides that the first ROPS for the period of January 1, 2012, through June 20, 2012, may, if necessary, include the following:

    a) The total amount of payments required for enforceable obligations over the next two six-month periods; and,

    b) In the case of debt obligations, the amount of the annual debt service reserve set-asides and any other amounts required under indenture or similar documents.

    1) Clarifies that the member of the Oversight Board representing special districts should represent the special district having the largest property tax share within the redevelopment project areas of the former RDA.

    2) Provides that when appointing a member of the Oversight Board from the employees of the former RDA, if the majority of the employees were city or county employees, then the appointment should be made from the organization that represents those employees.

    3) Provides that if there is no employee organization that represents the employees of the former RDA, city, or county, then the appointment should be made from among the employees of the successor agency.

    4) Provides that an employee that is appointed to the oversight board is deemed not to have a conflict of interest, solely due to his or her employment, in voting to approve a contract as an enforceable obligation.

    5) Requires all actions taken by an Oversight Board to be adopted by resolution.

    6) Allows the successor agency, subject to approval of the Oversight Board, to enter into a financing agreement, including issuing bonds, to fund required payments under an enforceable obligation that exceed the property tax revenue available to the successor agency when the payment is due.

    7) Provides that a successor agency is not permitted to create additional enforceable obligations except when necessary to pay the financing costs of existing enforceable obligations.

    8) Allows the successor agency, subject to Oversight Board approval, to temporarily increase the administrative cost allowance to carry out the requirements of an enforceable obligation, to cover litigation costs, or to maintain and preserve the value of assets while in the possession of the successor agency.

    9) Requires the Oversight Board to direct the successor agency to do the following:

    a) Compile a complete inventory of existing real property assets of the former RDA by project area; and,

    b) Include in the inventory the general categories of real property assets, the purpose for which the assets were originally acquired, the original purchase price of each asset, and the estimated current market value.

    1) Requires the Oversight Board, prior to disposing of any assets, to receive and review the inventory of assets prepared by the successor agency and adopt a policy or strategy for disposal or transfer of such assets that ensures it is done in an expeditious but orderly manner that preserves the value of the asset.

    2) Provides that in disposing of assets and properties, the Oversight Board may direct the successor agency to transfer ownership of assets that were constructed or used for a purpose integral to the operation of a governmental purpose, like parking facilities, to the appropriate public jurisdiction.

    3) Requires the auditor-controller to deposit the unitary and supplemental tax increment due to the former RDA into the Redevelopment Property Tax Trust Fund (Property Tax Trust Fund).

    4) Requires the auditor-controller, in making the first annual distributing from the Property Tax Trust Fund, to reserve any funds necessary to cover payments made in the second half of the calendar year, as described in the ROPS, that are in excess of the amount that is anticipated to be deposited in the Property Tax Trust Fund from the May or June allocation.

    5) Provides that in distributing property tax revenues associated with the payment of a retired recognized obligation, the auditor-controller should only distribute property tax to the extent that it is not currently required for the payments of other recognized obligations.

    6) Deletes the requirement that the California Law Revision Commission draft a Community Redevelopment Law clean-up bill by January 1, 2013.

    7) Includes an urgency clause.

    EXISTING LAW:

    1) Dissolves RDAs as of February 1, 2012.

    2) Requires RDAs prior to dissolution to continue to make all scheduled payments for enforceable obligations, perform obligations established pursuant to enforceable obligations, set aside required reserves, preserve assets, and to take all measures to avoid triggering a default under an enforceable obligation.

    3) Requires the RDAs, prior to dissolution, to prepare an enforceable obligation payment schedule, containing all payments obligated to be made and provide this to the county auditor-controller.

    4) Requires that unencumbered RDA funds be conveyed to the county auditor-controller for distribution to the taxing entities in the county, including cities, counties, a city and a county, school districts and special districts.

    5) Establishes successor agencies to the RDAs that would, except in certain situations, such as those involving an RDA based on a joint powers authority, be the entity that created the RDA.

    If no local agency elects to be the successor agency, a designated local authority is be formed, whose three members are be appointed by the Governor.

    6) Requires successor agencies to make payments on legally enforceable obligations using property tax revenues when no other funding source is available or when payment from property tax revenues is required by an enforceable obligation.

    7) Defines enforceable obligations for successor agencies to include, but not limited to:

    a) Bonds, including debt service, reserves, or other required payments;

    b) Loans borrowed by the agency for a lawful purpose including loans from the L&M Fund;

    c) Payments required by the federal government;

    d) Pre-existing obligations to the state or obligations imposed by state law;

    e) Legally enforceable payments to agencies' employees, including pension obligations and other obligations conferred through a collective bargaining agreement;

    f) Judgments and settlements entered into by a court or arbitration, retaining appeal rights;

    g) Legally binding contracts that do not violate the debt limit or public policy; or,

    h) Contracts necessary for administration of the agency, such as for office space, equipment and supplies, to the extent permitted.

    8) Provides that enforceable obligations would not include any agreements, contracts, or arrangements between the city, county, or city and county that created the RDA and the former RDA, except for loans made within two years of the RDA's creation.

    9) Requires successor agencies to take control of all assets, properties, contracts, books and records, buildings and equipment of the RDAs on February 1, 2012.

    10) Requires successor agencies to dispose of an RDA's assets as directed by the Oversight Board with the proceeds transferred to the county auditor-controller for distribution to taxing agencies within the county. Governmental facilities, such as roads, school buildings, and fire or police stations would be conveyed to the appropriate public jurisdiction.

    11) Requires the successor agencies to compensate the taxing agencies for the value of property and assets retained by the successor agencies in an amount proportional to the taxing agencies' share of the property tax.

    12) Creates the Redevelopment Obligation Retirement Fund and the Redevelopment Property Tax Trust Fund. Property tax revenues associated with each former RDA in each county will be deposited in the Property Tax Trust Fund which will be administered by the county auditor-controller.

    13) Requires the county auditor-controller to determine the amount of property tax increment that would have been allocated to each RDA and to deposit that amount in a Trust Fund.

    14) Requires the county auditor-controller to allocate funds from the Trust Fund in the following order:

    a) Local agencies, school districts and community college districts in the amount that would have been received by such agencies pursuant to statutory and contractual pass-through agreements;

    b) Redevelopment Obligation Retirement Fund for successor agencies' payments listed in the Recognized Obligation Payment Schedule and administration; and,

    c) Cities, the county, schools, community college districts, and enterprise special districts according to their in the proportional shares of what would have been received absent redevelopment and adjusted for pass-through agreements.

    FISCAL EFFECT:

    Unknown

    COMMENTS:

    1) In June of 2011 the Legislature passed and the Governor signed of ABX1 26 (Blumenfield) [Chapter 5, Statues of 2011 First Extraordinary Session] which set up the process for the dissolution of redevelopment agencies. There was also a companion measure, ABX1 27 (Blumenfield) [Chapter 6, Statues of 2011 First Extraordinary Session], which created an Alternative Voluntary Redevelopment Program for cities or counties to opt into.

    On July 18, 2011 the CA Redevelopment Association (CRA) and the League of CA Cities, along with other petitioners, sued the State via the Director of Department of Finance (Ana Matosantos) on the constitutionality of AB X1 26 and ABX1 27 and asked for a stay of these measures. On August 17, 2011 the California Supreme Court issued a modified order that stayed almost all provisions of both measures except Part 1.8 of the Health and Safety Code which suspended the activities of all RDAs and prohibited the issuance of new debt.

    On December 29, 2011 the Supreme Court issued its final judgment and denied CRA's petition for peremptory writ of mandate with respect to ABX1 26. However, the Court did grant CRA's petition with respect to AB X1 27; thereby throwing out all provisions related to the Alternative Voluntary Redevelopment Program, yet maintaining the Legislature's ability to dissolve RDAs pursuant to the provisions of ABX1 26. The Court also extended all of the statutory deadlines contained in Health and Safety Code, Division 24, Part 1.85 (Sections 34170-34191) and arising before May 1, 2012, by four months; thus moving the effective date for the dissolution of RDAs from October 1, 2011 to February 1, 2012.

    The Supreme Court's ruling meant all RDAs were subject to ABX1 26 and set in motion the process laid out in ABX1 26 for shutting down and disbursing their assets. The process focuses on two goals: (1) ensuring existing financial obligations are honored and paid; and (2) minimizing any additional RDA obligations so that more funds are available to transfer for other governmental purposes.

    On February 1, 2012, all redevelopment agencies in California were dissolved and the process for unwinding their financial affairs began. Given the scope of these agencies' funds, assets, and financial obligations, the unwinding process will take time. Prior to their dissolution, RDAs received over $5 billion in property tax revenues annually and had tens of billions of dollars of outstanding bonds, contracts, and loans.

    2) AB 1585 is a response to those concerns and attempts to facilitate a smooth wind-down of redevelopment agencies. This measure makes a variety of technical changes that are intended to ease the process of dissolution and provide greater direction to the successor agencies, Oversight Boards, and successor housing entities that are integral to the dissolution process. It also requires that the L&M funds that have been deposited by former RDAs continue to be used for affordable housing in the county in which they were collected.

    3) AB 1585 makes several significant changes to the provisions in ABX1 26 regarding L&M funds:

    a) Keeps the money on deposit in an L&M Fund with the successor housing entity to be spent on activities allowed under the housing provisions in the Community Redevelopment Law or, if there is no successor housing entity, requires the funds to be transferred to HCD;

    b) Requires the successor housing entity to expend 80% of the funds within two years and returns the funds to HCD within four years if the funds are not spent, but gives it the option to petition HCD for more time to spend the funds if specified criteria can be met;

    c) Designates the types of affordable housing projects that HCD can fund from monies that are transferred to the department from jurisdictions that decide not to keep the housing functions of the former RDA; and,

    d) Authorizes the voluntary transfer of L&M Funds between jurisdictions within the county if certain conditions are met.

    4) AB X1 26 specifies that, except for loan agreements made within the first two years of the life of the agency, or loans that relate to issued securities, it does not recognize other inter agency loans to be enforceable obligations. Instead, it effectively treats them as contributions of funds. AB 1585 adds the following to what can be considered an enforceable obligation: 1) loan agreements between the former RDA and the city, county, or city and county that created it, made within two years of the date of the creation of a project area, if the loan was for the project area; 2) loans made from the city or county to the former RDA to make a payment to SERAF; and,

    3) other loans subject to Oversight Board finding.

    5) ABX1 26 provides that the liability of the successor agency only extends as far as the money available from tax increment and former assets of the agency will fund. AB 1585 goes on to further clarify that the successor agency is a legally distinct and separate body that acts by resolution, can sue and be sued, and can have additional powers that can be conferred upon it.

    6) Suggested Amendments:

    a) AB 1585 specifies that the successor agency is a legally distinct and separate body that acts by resolution, can sue and be sued, and can have additional powers that may be conferred upon it. The Committee may wish to ask the author to clarify from whom the successor agency is separate. The amendment would read as follows:

    On page 6, lines 14 & 15 strike "A successor agency shall constitute a legally distinct and separate body" and insert:

    "For purposes of this article, a successor agency is a public entity separate from the entity or entities that authorized the creation of each redevelopment agency"

    b) AB 1585 allows a city, county, or city and county, or joint powers authority that authorized the creation of the former RDA and elected not to be the successor agency to subsequently reverse that decision and serve as the successor agency. The Committee may wish to ask the author to establish a timeline by which this decision would occur and clarify that any prior transactions of the successor agency will be recognized despite the change in who serves as the successor agency. The amendment would read as follows:

    On page 7, line 34 after "section." insert:

    "Any reversal of this decision shall not become effective for 60 day after notice has been given to the current successor entity and the oversight board and shall not invalidate any actions of the successor agency or the oversight board taken prior to the effective date of the transfer of responsibility."

    c) In order to ensure transparency and accountability in the actions of the successor agencies the Committee may wish to ask the author to add in the requirement that the successor agencies must follow the Brown Act and that there must be an annual audit of the successor agency's financial transactions and records. The amendments would read as follows:

    On page 6, line 18 after "it." insert:

    "All successor agencies shall be deemed to be a local entity for purposes of the Ralph M. Brown Act."

    On page 14, between lines 12 and 13 insert:

    "(m) Cause a postaudit of the financial transactions and records of the successor agency to be made at least annually by a certified public accountant."

    d) AB 1585 and existing law have conflicting provisions on how to deal with the transfer of housing assets. The Committee may wish to ask the author to clarify these provisions. The amendments would read as follows:

    On page 8, line 9 strike "powers, duties, and obligations" insert: "powers, assets, liabilities, duties, and obligations, excluding enforceable obligations of the successor agency," On page 8, line 21 after "obligation" insert: ", excluding enforceable obligations of the successor agency,"

    On page 20, line 14 after "agency" insert: ", other than those transferred pursuant to subdivision (d)"

    On page 20, line 28 after "powers" insert: "assets, liabilities,"

    On page 20, line 29 after "obligations" insert: ", excluding enforceable obligations of the successor agency, but"

    7) Support arguments: Supporters, including the CA Housing Consortium, argue that "AB 1585 would ensure that the L&M Funds that have been deposited by former RDAs continue to be used for their originally intended purpose, affordable housing. To strengthen that purpose, the bill requires that 80% of the funds must be spent within two years, which would allow the 10,000-19,000 affordable apartments and single-family homes at various stages of development to be completed, thereby creating a significant number of jobs in those communities. Any remaining funds would be redistributed back into the county in which they were collected, with priority given to affordable housing projects that serve low-, very low-, and extremely low- income families and individuals."

    Opposition arguments: Opposition, the County of Santa Clara Board of Supervisors, argues that "this measure undermines the structure of redevelopment reforms contained in the enacted Fiscal Year Budget. And while it seeks to clarify existing law, it would likely result in greater confusion and delay in the implementation of the orderly wind-down of redevelopment agencies throughout California. While we support certain technical provisions of the bill intended to ensure that existing Affordable Housing Funds are transferred to appropriate housing agencies, we can only do so in a bill that does not fundamentally alter the intended winding-down of redevelopment agencies."

    8) This measure was double referred to the Committee on Housing and Community Development where it passed out on a 5-0 vote on March 13, 2012.

    REGISTERED SUPPORT / OPPOSITION:

    Support

Abode Services Affirmed Housing Group Aging Services of California Allied Housing Bay Area Local Initiatives Support Corporation CA Housing Consortium CA Redevelopment Association Cambrian Center Century Housing Cities of Cerritos, Colton, Coronado, Fairfield, Lafayette, Lakewood, Moorpark, and Vista Community Housing partnership County of Monterey Daniel Solomon Design Partners EAH Housing Eden Housing, Inc. Housing Authority of Kings County Laurin Associates League of California Cities LifeSTEPS Mercy Housing California Palm Communities Resources for Community Development San Diego Housing Commission Seaview Lutheran Plaza Individual letters (15)

    Opposition

County of Santa Clara

    Analysis Prepared by: Katie Kolitsos / L. GOV. / (916) 319-3958