2011 CA A 1585: Bill Analysis - Assembly Local Government Committee - 03/21/2012
Date of Hearing: March 21, 2012
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
AB 1585 (John A. Perez) - As Amended: March 15, 2012
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
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
a) Makes a finding that the loan was for legitimate redevelopment
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
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
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
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
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
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
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
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
9) Requires the Oversight Board to direct the successor agency to do the
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
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.
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
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
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
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
e) Legally enforceable payments to agencies' employees, including pension
obligations and other obligations conferred through a collective bargaining
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
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
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
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
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
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
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
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;
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
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
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
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
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:
Affirmed Housing Group
Aging Services of California
Bay Area Local Initiatives Support Corporation
CA Housing Consortium
CA Redevelopment Association
Cities of Cerritos, Colton, Coronado, Fairfield, Lafayette,
Lakewood, Moorpark, and Vista
Community Housing partnership
County of Monterey
Daniel Solomon Design Partners
Eden Housing, Inc.
Housing Authority of Kings County
League of California Cities
Mercy Housing California
Resources for Community Development
San Diego Housing Commission
Seaview Lutheran Plaza
Individual letters (15)
County of Santa Clara
Analysis Prepared by: Katie Kolitsos / L. GOV. / (916) 319-3958
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