Existing law dissolved redevelopment agencies and community development agencies as of February 1, 2012, and provides for the designation of successor agencies to wind down the affairs of the dissolved redevelopment agencies, subject to review by oversight boards, and to, among other things, make payments due for enforceable obligations and to perform obligations required pursuant to any enforceable obligation. Existing law requires the Department of Finance to issue a finding of completion to a successor agency upon confirmation by the county auditor-controller that specified payments have been fully made by the successor agency. Existing law defines enforceable obligation for these purposes to generally exclude any agreements, contracts, or arrangements between the city, county, or city and county that created the redevelopment agency and the former redevelopment agency. However, existing law provides that upon application by the successor agency and approval by the oversight board, loan agreements entered into between the redevelopment agency and the city, county, or city and county that created the redevelopment agency are deemed to be enforceable obligations provided that the oversight board makes a finding that the loan was for legitimate redevelopment purposes.

This bill would additionally provide that upon application by the successor agency and approval by the oversight board, loan agreements entered into between a redevelopment agency and the City of San Joaquin, where the outstanding principal balance of the loan is $1,250,000 or less, are enforceable obligations if the oversight board finds, among other things, that the loan was for legitimate redevelopment purposes, it was entered into more than 2 years after the creation of the former redevelopment agency and prior to January 1, 2011, and it is the only debt of the former redevelopment agency remaining to be paid on the recognized obligation payment schedule.

This bill would make legislative findings and declarations as to the necessity of a special statute for the City of San Joaquin.

Existing law dissolved redevelopment agencies and community development agencies as of February 1, 2012, and provides for the designation of successor agencies to wind down the affairs of the dissolved redevelopment agencies, subject to review by oversight boards, and to, among other things, make payments due for enforceable obligations and to perform obligations required pursuant to any enforceable obligation. Existing law requires the Department of Finance to issue a finding of completion to a successor agency upon confirmation by the county auditor-controller that specified payments have been fully made by the successor agency. Existing law defines enforceable obligation for these purposes to generally exclude any agreements, contracts, or arrangements between the city, county, or city and county that created the redevelopment agency and the former redevelopment agency. However, existing law provides that upon application by the successor agency and approval by the oversight board, loan agreements entered into between the redevelopment agency and the city, county, or city and county that created the redevelopment agency are deemed to be enforceable obligations provided that the oversight board makes a finding that the loan was for legitimate redevelopment purposes.

This bill would additionally provide that upon application by the successor agency and approval by the oversight board, loan agreements entered into between the a redevelopment agency and the city, county, or city and county that created the redevelopment agency City of San Joaquin, where the outstanding principal balance of the loan is $1,250,000 or less, are enforceable obligations if the oversight board finds, among other things, that the loan was for legitimate redevelopment purposes, it was entered into more than 2 years after the creation of the former redevelopment agency and prior to January 1, 2011, and it is the only debt of the former redevelopment agency remaining to be paid on the recognized obligation payment schedule.

Existing law dissolved redevelopment agencies and community development agencies as of February 1, 2012, and provides for the designation of successor agencies to wind down the affairs of the dissolved redevelopment agencies, subject to review by oversight boards, and to, among other things, make payments due for enforceable obligations and to perform obligations required pursuant to any enforceable obligation. Existing law requires the Department of Finance to issue a finding of completion to a successor agency upon confirmation by the county auditor-controller that specified payments have been fully made by the successor agency. Existing law defines enforceable obligation for these purposes to generally exclude any agreements, contracts, or arrangements between the city, county, or city and county that created the redevelopment agency and the former redevelopment agency. However, existing law provides that upon application by the successor agency and approval by the oversight board, loan agreements entered into between the redevelopment agency and the city, county, or city and county that created the redevelopment agency are deemed to be enforceable obligations provided that the oversight board makes a finding that the loan was for legitimate redevelopment purposes.

This bill would additionally provide that upon application by the successor agency and approval by the oversight board, loan agreements entered into between the redevelopment agency and the city, county, or city and county that created the redevelopment agency, where the outstanding principal balance of the loan is $1,250,000 or less, are enforceable obligations if the oversight board finds, among other things, that the loan was for legitimate redevelopment purposes, it was entered into more than 2 years after the creation of the former redevelopment agency and prior to January 1, 2011, and it is the only debt of the former redevelopment agency remaining to be paid on the recognized obligation payment schedule.

GOVERNOR'S VETO

GV Bill Id:AB 1412

Author:(Perea)

As Enrolled Ver:September 11, 2015

2/3 vote

SUMMARY: Allows for an expedited repayment schedule of an outstanding loan agreement entered into between a former redevelopment agency (RDA) and the City of San Joaquin, in specified conditions. Specifically, this bill:

1. Requires, upon application by the successor agency and approval by the oversight board, loan agreements entered into between the RDA and the City of San Joaquin, where the outstanding principal balance of the loan is $1.25 million or less, to be deemed to be enforceable obligations, if the oversight board makes all of the following findings:

   1. The loan was for legitimate redevelopment purposes;

   2. The loan was entered into more than two years after the creation of the former RDA, and prior to January 1, 2011;

   3. The loan was related to an indebtedness obligation;

   4. The loan is the only debt of the former RDA remaining to be paid on the Recognized Obligation Payment Schedule (ROPS); and,

   5. The amount distributed to the taxing entities pursuant to existing law in the previous fiscal year was less than $250,000.

2. Prohibits repayments of a loan pursuant to 1) above, from being subject to the requirements of existing law that specifies the calculation schedule and maximum repayment amounts of a loan.

3. Provides that the accumulated interest rate shall be recalculated from origination at the interested rate of 0.25%.

4. Finds and declares that a special law is necessary and that a general law cannot be made applicable, as specified, because of the special circumstances relating to the health and safety of the residents of the City of San Joaquin.

FISCAL EFFECT: According to the Senate Appropriations Committee, relative to current law, this bill would result in increased General Fund expenditures of approximately $650,535 through the 2022-23 Fiscal Year, followed by reduced General Fund expenditures through 2051-52. The net impact of this bill relative to the current loan repayment schedule would be a reduction of approximately $2.8 million in overall expenditures from the General Fund.

COMMENTS:

1. Bill Summary. This bill would allow a qualifying loan between a former RDA and the City of San Joaquin to be recognized as an enforceable obligation and accelerate repayment of that loan. In order to qualify, the outstanding balance of the loan must be $1.25 million or less and the oversight board must approve the application and make all of the following findings: a) The loan was for legitimate redevelopment purposes; b) the loan was entered into more than two years after the creation of the former RDA, and prior to January 1, 2011; c) the loan was related to a indebtedness obligation; d) the loan is the only debt of the former RDA remaining to be paid on the ROPS; and, e) the amount distributed to the taxing entities in the previous fiscal year was less than $250,000.

The bill specifies that the accumulated interest rate shall be recalculated from origination at the interest rate of 0.25% and is sponsored by the City of San Joaquin.

2. City of San Joaquin. According to the author, the City of San Joaquin has a population of just over 4,000 people, and is located in Fresno County. The city's projected General Fund revenues for Fiscal Year 2014-15 are $898,240. Median worker earnings in San Joaquin are 40% lower than the national average, and according to recent data, San Joaquin had a poverty rate of 51.7% and an unemployment rate of 31.3% in 2013.

3. Author's Statement. According to the author, "The City of San Joaquin and Successor Agency to the former San Joaquin Redevelopment Agency requested this bill because the City is owed over $1 million from a loan made to the former San Joaquin Redevelopment Agency. Under existing law, the loan cannot be repaid until 2050. The City is in dire need of repayment because the remaining amount due is larger than the City's annual budget. The loan repayment would fund much needed public services for the community, which has significantly lower median wages, higher poverty rates, and higher unemployment rates compared to the rest of the State and nation."

"Because DOF cannot authorize the Successor Agency to make payments on the outstanding loan in excess of the maximum amounts set in existing law, special legislation is required. AB 1412 will permit eligible sponsoring entity loans to be repaid faster, enabling successor agencies to be terminated earlier. Taxing entities and the general public will benefit because tax revenues will no longer be needed to fund the administrative activities of the successor agency, and instead will be distributed to affected taxing entities that provide services to the community, such as schools and local government agencies."

4. Loan Agreement and Repayment under Existing RDA Dissolution Law. The City of San Joaquin and the RDA entered into a loan agreement, dated February 11, 2010, whereby the city and the RDA recognized that the RDA had borrowed funds from the city for RDA programs and operations. The outstanding principal amount owed to the city under the loan agreement, as of February 1, 2012, (the date of dissolution of the former RDA), was $1,028,723. This loan agreement formalized loans made by the city to the RDA since 1998 to fund redevelopment programs and operations. In part, the loan helped the RDA pay off debts after bonds issued in 1997 went into default.

In a subsequent ratification and amendment to the loan agreement dated February 11, 2014, the parties to the agreement mutually agreed as follows: a) The parties acknowledged and agreed that the loan was for legitimate redevelopment purposes; b) the parties agree that the conditions precedent in the Dissolution Act for repayment of the loan have been met and that the loan agreement shall be deemed to be an "enforceable obligation"; and, c) the parties acknowledged and agreed that the repayment of amounts owing to the city under the loan agreement shall be subject to the limitations and restrictions set forth in Health and Safety Code 34191.4 (b) [specifies provisions that apply to a successor agency that has been issued a finding of completion by the Department of Finance (DOF) and the process for repayment of loan agreements].

The Successor Agency was issued a finding of completion by DOF on March 8, 2013. On April 24, 2013, the Successor Agency applied for and the Oversight Board approved the loan agreement, and made a finding that the loan of funds to the RDA under the loan agreement was for legitimate purposes. The loan agreement was subsequently approved by DOF on January 28, 2015. The approved terms of the loan agreement allow for the payment of $1,028,723 bearing an interest rate of 0.249% as determined by the current LAIF rate.

Under existing law, the loan is estimated by the city to not be fully repaid until the year 2050. If the provisions of this bill took effect, the city estimates that the loan will be repaid by Fiscal Year 2021-22.

The city notes that the Successor Agency sent a letter to and met with DOF requesting that they consider allowing the Successor Agency to make payments on the outstanding loan in excess of the maximum annual amounts set by the formula in existing law. However, DOF denied the Successor Agency's request, stating that they do not have the authority to allow for any other repayment amount outside of what is defined in the statute.

5. Arguments in Support. The sponsor argues that the bill "is important to the City and a win-win for all as payment acceleration of the loan repayment schedule will bring greater cash flow more quickly to both the City and the affected taxing entities…..with a General Fund of less than $1 million, any added revenue to the City is heartily welcome…this legislation will help complete the wind-down process regarding the former RDA."

6. Arguments in Opposition. None on file.

GOVERNOR'S VETO MESSAGE:

This bill establishes a separate process to allow the successor agency to the City of San Joaquin's former redevelopment agency to repay a specific loan owed by the former redevelopment agency to the city.

Today, I have signed SB 107, which provides a more general process to facilitate successor agencies' repayment of loans which cities and counties made to their former redevelopment agencies. I believe this latter process is more appropriate and should be sufficient.

Analysis Prepared by: Debbie Michel / L. GOV. / (916) 319-3958 FN: 0002448

 THIRD READING  

Bill No: AB 1412

Author: Perea (D), et al.

Amended: 4/30/15 in Assembly

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 6/17/15

AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach, Pavley

SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/27/15

AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen

ASSEMBLY FLOOR: 76-0, 5/26/15 (Consent) - See last page for vote

SUBJECT: Redevelopment: successor agencies to redevelopment agencies

SOURCE: City of San Joaquin

DIGEST: This bill allows the successor agency to the City of San Joaquin’s former redevelopment agency (RDA) to accelerate the repayment of loan debts owed by the former RDA to the city.

ANALYSIS: Existing law allows a former RDA’s successor agency, upon receiving a finding of completion issued by the Department of Finance, to place loan agreements between the former RDA and its sponsoring entity on its Recognized Obligation Payment Schedule (ROPS), as an enforceable obligation, provided the successor agency’s oversight board makes a finding that the loan was for legitimate redevelopment purposes.

This bill allows for an expedited repayment schedule of a loan agreement between a former RDA and the City of San Joaquin, subject to specified conditions. Specifically, this bill:

1. Requires, upon application by the successor agency and approval by the oversight board, loan agreements entered into between the RDA and the City of San Joaquin, where the outstanding principal balance of the loan is $1.25 million or less, to be deemed to be enforceable obligations, if the oversight board makes all of the following findings:

   1. The loan was for legitimate redevelopment purposes, and was entered into more than two years after the creation of the former RDA, and before January 1, 2011.

   2. The loan was related to an indebtedness obligation and is the only debt of the former RDA remaining to be paid on the ROPS.

   3. The amount of former tax increment revenues distributed to the taxing entities pursuant to existing law in the previous fiscal year was less than $250,000.

2. Prohibits repayments of a loan described above, from being subject to existing law that specifies the calculation schedule and maximum repayment amounts of a loan.

3. Directs that the accumulated interest rate must be recalculated from origination at the interested rate of .25 percent.

Background

Until 2011, the Community Redevelopment Law allowed local officials to set up RDAs, prepare and adopt redevelopment plans, and finance redevelopment activities. 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, ABX1 26 (Blumenfield, Chapter 5, Statutes of 2011-12 First Extraordinary Session) dissolved all RDAs. The California Supreme Court's 2011 ruling in California Redevelopment Association v. Matosantos upheld ABX1 26, but invalidated ABX1 27 (Blumenfield, Chapter 6, Statutes of 2011-12 First Extraordinary Session), which would have allowed most RDAs to avoid dissolution.

ABX1 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. One of the successor agencies' primary responsibilities is to make payments for enforceable obligations, which are statutorily-defined legally binding and enforceable commitments entered into by former RDAs.

State law generally excludes from the definition of "enforceable obligation" any agreements, including loan agreements, between the city, county, or city and county that created a former RDA and the former RDA. However, if a successor agency complies with state laws requiring 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 the Department of Finance (AB 1484, Assembly Budget Committee, Chapter 26, Statutes of 2012). A successor agency that receives a finding of completion can repay loans made to a former RDA by the city or county that created it, if the successor agency's oversight board finds that the loan was for legitimate redevelopment purposes. State law specifies timelines, maximum repayment amounts, and interest rate calculations that apply to these loan repayments

The City of San Joaquin and its RDA entered into a loan agreement, dated February 11, 2010, whereby the City and the RDA recognized that the RDA had borrowed funds from the City for RDA programs and operations. The outstanding principal amount owed to the City under the loan agreement, as of February 1, 2012, (the date of dissolution of the former RDA), was $1,028,723. This loan agreement formalized loans made by the City to the RDA since 1998 to fund redevelopment programs and operations. In part, the loan helped the RDA pay off debts after bonds issued in 1997 went into default.

DOF issued a finding of completion for the successor agency on March 8, 2013. On April 24, 2013, the successor agency’s oversight board approved the loan agreement, and made a finding that the loan of funds to the RDA under the loan agreement was for legitimate redevelopment purposes. The loan agreement was subsequently amended on February 11, 2014, and the new loan agreement was approved by DOF on January 28, 2015. The approved terms of the loan agreement allow for the payment of $1,028,723 bearing an interest rate of 0.249% as determined by the current Local Agency Investment Fund rate.

San Joaquin city officials estimate that, under current law, the loan will not be fully repaid until 2050. Faced with ongoing economic and fiscal challenges, city officials want the Legislature to allow the successor agency to repay the loan more rapidly.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee, relative to current law, this bill will result in increased General Fund expenditures of approximately $650,535 through the 2022-23 fiscal year, followed by reduced General Fund expenditures through 2051-52. The net impact of this bill relative to the current loan repayment schedule would be a reduction of approximately $2.8 million in overall expenditures from the General Fund.

SUPPORT: (Verified 8/27/15)

City of San Joaquin (source)

OPPOSITION: (Verified 8/27/15)

None received

ASSEMBLY FLOOR: 76-0, 5/26/15

AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins

NO VOTE RECORDED: Bloom, Chávez, Harper, Mathis

Prepared by: Brian Weinberger / GOV. & F. / (916) 651-4119

8/31/15 9:05:46

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

AB 1412 (Perea) - Redevelopment: successor agencies to redevelopment agencies

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

AB 1412 would authorize the accelerated repayment of a loan between the City of San Joaquin and the City’s former redevelopment agency (RDA), under specified conditions.

Fiscal Impact:

Relative to current law, this bill would result in increased General Fund expenditures of approximately $650,535 through the 2022-23 fiscal year (see below), followed by reduced General Fund expenditures through 2051-52. The net impact of the bill relative to the current loan repayment schedule would be a reduction of approximately $2.8 million in overall expenditures from the General Fund.

The estimated short-term increased General Fund expenditures related to the accelerated loan repayment schedule would be as follows:

• $72,254 in 2015-16

• $76,129 in 2016-17

• $80,081 in 2017-18

• $84,112 in 2018-19

• $88,224 in 2019-20

• $92,418 in 2020-21

• $96,695 in 2021-22

• $60,626 in 2022-23.

These amounts represent the portion of Redevelopment Property Tax Trust Fund (RPTTF) revenues dedicated to loan repayment through 2022-23 that would otherwise be allocated to school entities, absent the bill. In general, any reductions in amounts allocated to schools from the RPTTF as a result of accelerating loan repayments must be backfilled from the state General Fund, while any increased allocations to schools from the RPTTF as a result of avoided future loan payments would reduce General Fund expenditures, pursuant to the Proposition 98 minimum funding guarantees.

Background:

Historically, the Community Redevelopment Law has allowed a local government to establish RDAs and capture all of the increase in property taxes that is generated within the project area beyond the base year value (referred to as “tax increment”) over a period of decades. Prior to their dissolution pursuant to ABx1 26 (Blumenfield) Chap 5/2011, RDAs used tax increment financing (including the school share), oftentimes issuing long-term debt in the form of tax allocation bonds, to address issues of blight, construct affordable housing, rehabilitate existing buildings, and finance development and infrastructure projects.

Existing law establishes procedures for winding down RDA activity, including a requirement that successor agencies dispose of former RDAs’ assets under direction of an oversight board. Successor agencies are required to make any payments related to enforceable obligations, as specified in an adopted biannual recognized obligation payment schedule (ROPS), and remit unencumbered balances of RDA funds to the county auditor-controller for distribution to local taxing entities in the county. The Department of Finance (DOF) reviews each ROPS to determine if the listed payments meet the statutory criteria for repayment, and has the authority to disallow any payments that do not meet those criteria.

State law generally excludes from the definition of "enforceable obligation" any agreements, including loan agreements, between the city, county, or city and county that created a former redevelopment agency and the former redevelopment agency. However, if a successor agency complies with state laws requiring 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 the Department of Finance (AB 1484, Assembly Budget Committee, 2012). A successor agency that receives a finding of completion can repay loans made to a former redevelopment agency by the city or county that created it, if the successor agency's oversight board finds that the loan was for legitimate redevelopment purposes. State law specifies timelines, maximum repayment amounts, and interest rate calculations that apply to these loan repayments

The City of San Joaquin and its redevelopment agency entered into a loan agreement, dated February 11, 2010, whereby the City and the RDA recognized that the RDA had borrowed funds from the City for RDA programs and operations. The outstanding principal amount owed to the City under the loan agreement, as of February 1, 2012, (the date of dissolution of the former RDA), was $1,028,723. This loan agreement formalized loans made by the City to the RDA since 1998 to fund redevelopment programs and operations. In part, the loan helped the RDA pay off debts after bonds issued in 1997 went into default.

DOF issued a finding of completion for the successor agency on March 8, 2013. On April 24, 2013, the successor agency’s oversight board approved the loan agreement, and made a finding that the loan of funds to the RDA under the loan agreement was for legitimate redevelopment purposes. The loan agreement was subsequently amended on February 11, 2014, and the new loan agreement was approved by DOF on January 28, 2015. The approved terms of the loan agreement allow for the payment of $1,028,723 bearing an interest rate of 0.249% as determined by the current Local Agency Investment Fund rate. San Joaquin city officials estimate that, under current law, the loan will not be fully repaid until 2051-52.

Proposed Law:

AB 1412 allows for an expedited repayment schedule of a loan agreement between a former RDA and the City of San Joaquin, subject to specified conditions. Specifically, the bill:

• Requires, upon application by the successor agency and approval by the oversight board, loan agreements entered into between the RDA and the City of San Joaquin, where the outstanding principal balance of the loan is $1.25 million or less, to be deemed to be enforceable obligations, if the oversight board makes all of the following findings:

  • The loan was for legitimate redevelopment purposes, and was entered into more than two years after the creation of the former RDA, and before January 1, 2011.

  • The loan was related to an indebtedness obligation and is the only debt of the former RDA remaining to be paid on the ROPS.

  • The amount of former tax increment revenues distributed to the taxing entities pursuant to existing law in the previous fiscal year was less than $250,000.

• Prohibits repayments of a loan described above, from being subject to existing law that specifies the calculation schedule and maximum repayment amounts of a loan.

• Directs that the accumulated interest rate must be recalculated from origination at the interest rate of 0.25 percent.

Related Legislation:

AB 113 (Budget Committee), currently pending in the Senate Budget and Fiscal Review Committee, is a budget trailer bill that would make numerous changes to the RDA dissolution statutes, among other local government provisions.

Recommended Amendments:

This bill and AB 113 both propose to amend Health and Safety Code §34191.4. Staff recommends that the bill be amended to avoid chaptering conflicts with the proposed trailer bill.

-- END --

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Robert M. Hertzberg, Chair

2015 - 2016 Regular

CITY OF SAN JOAQUIN’S REDEVELOPMENT LOAN REPAYMENT

Allows the successor agency to the City of San Joaquin’s former redevelopment agency to accelerate the repayment of loan debts owed by the former agency to the city

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. 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. 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. One of the successor agencies' primary responsibilities is to make payments for enforceable obligations, which are statutorily-defined legally binding and enforceable commitments entered into by former RDAs.

State law generally excludes from the definition of "enforceable obligation" any agreements, including loan agreements, between the city, county, or city and county that created a former redevelopment agency and the former redevelopment agency. However, if a successor agency complies with state laws requiring 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 the Department of Finance (AB 1484, Assembly Budget Committee, 2012). A successor agency that receives a finding of completion can repay loans made to a former redevelopment agency by the city or county that created it, if the successor agency's oversight board finds that the loan was for legitimate redevelopment purposes. State law specifies timelines, maximum repayment amounts, and interest rate calculations that apply to these loan repayments

The City of San Joaquin and its redevelopment agency entered into a loan agreement, dated February 11, 2010, whereby the City and the RDA recognized that the RDA had borrowed funds from the City for RDA programs and operations. The outstanding principal amount owed to the City under the loan agreement, as of February 1, 2012, (the date of dissolution of the former RDA), was $1,028,723. This loan agreement formalized loans made by the City to the RDA since 1998 to fund redevelopment programs and operations. In part, the loan helped the RDA pay off debts after bonds issued in 1997 went into default.

DOF issued a finding of completion for the successor agency on March 8, 2013. On April 24, 2013, the successor agency’s oversight board approved the loan agreement, and made a finding that the loan of funds to the RDA under the loan agreement was for legitimate redevelopment purposes. The loan agreement was subsequently amended on February 11, 2014, and the new loan agreement was approved by DOF on January 28, 2015. The approved terms of the loan agreement allow for the payment of $1,028,723 bearing an interest rate of 0.249% as determined by the current Local Agency Investment Fund rate.

San Joaquin city officials estimate that, under current law, the loan will not be fully repaid until 2050. Faced with ongoing economic and fiscal challenges, city officials want the Legislature to allow the successor agency to repay the loan more rapidly.

Proposed Law

Assembly Bill 1412 allows for an expedited repayment schedule of a loan agreement between a former redevelopment agency (RDA) and the City of San Joaquin, subject to specified conditions. Specifically, the bill:

• Requires, upon application by the successor agency and approval by the oversight board, loan agreements entered into between the RDA and the City of San Joaquin, where the outstanding principal balance of the loan is $1.25 million or less, to be deemed to be enforceable obligations, if the oversight board makes all of the following findings:

  • The loan was for legitimate redevelopment purposes, and was entered into more than two years after the creation of the former RDA, and before January 1, 2011.

  • The loan was related to an indebtedness obligation and is the only debt of the former RDA remaining to be paid on the Recognized Obligation Payment Schedule (ROPS).

  • The amount of former tax increment revenues distributed to the taxing entities pursuant to existing law in the previous fiscal year was less than $250,000.

• Prohibits repayments of a loan described above, from being subject to existing law that specifies the calculation schedule and maximum repayment amounts of a loan.

• Directs that the accumulated interest rate must be recalculated from origination at the interested rate of .25 percent.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. The City of San Joaquin confronts significant economic and fiscal challenges. By allowing San Joaquin’s successor agency to make loan payments that exceed the maximum amounts allowed by existing law AB 1412 will increase revenues that are available to support vital public services in the city, which has significantly lower median wages, higher poverty rates, and higher unemployment rates compared to the rest of California and the United States. Because the City’s loan is the only remaining enforceable obligation of the former RDA’s successor agency, accelerating the loan repayment will allow the wind-down of the former RDA’s affairs to be completed much sooner than it would be under existing law.

2. Zero-sum game. Allocating former RDAs’ property tax increment revenues is a zero-sum game; every reallocation creates winners and losers. Under AB 1412’s provisions, the San Joaquin RDA’s successor agency will receive a larger allocation of former property tax increment revenues over the next several years than it would under current law. Other local governments – including school districts – will receive 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.

3. Next in line? Changing state law to address the City of San Joaquin’s need for accelerated RDA loan repayment may invite similar proposals from other local governments. There are undoubtedly other cities that would like to benefit from a more rapid repayment of their former RDAs’ debts. While AB 1412’s provisions require the successor agency’s oversight board to make finding that underscore relatively unique characteristics of the San Joaquin loan, like the fact that it is the successor agency’s only remaining enforceable obligation, the bill may lay the groundwork for future requests to change loan repayment provisions to suit other communities’ unique circumstances.

4. Special legislation. The California Constitution prohibits special legislation when a general law can apply (Article IV, §16). AB 1412 contains findings and declarations explaining the need for legislation that applies only to the City of San Joaquin.

Assembly Actions

Assembly Local Government Committee: 9-0

Assembly Housing & Community Development Committee: 6-0

Assembly Appropriation Committee: 15-0

Assembly Floor: 76-0

Support and Opposition

(6/11/15)

Support: City of San Joaquin.

Opposition: Unknown.

-- END --

Date of Hearing: May 20, 2015

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Jimmy Gomez, Chair

ABPCA Bill Id:AB 1412

Author:(Perea) – As Amended Ver:April 30, 2015

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY: This bill allows for an expedited repayment schedule of an outstanding loan agreement entered into between a former redevelopment agency (RDA) and the City of San Joaquin, in specified conditions. Specifically, this bill:

1. Requires, upon application by the successor agency and approval by the oversight board, loan agreements entered into between the RDA and the City of San Joaquin, where the outstanding principal balance of the loan is $1.25 million or less, to be deemed to be enforceable obligations, if the oversight board makes all of the following findings:

   1. The loan was for legitimate redevelopment purposes, and was entered into more than two years after the creation of the former RDA, and prior to January 1, 2011.

   2. The loan was related to an indebtedness obligation and is the only debt of the former RDA remaining to be paid on the Recognized Obligation Payment Schedule (ROPS).

   3. The amount distributed to the taxing entities pursuant to existing law in the previous fiscal year was less than $250,000.

2. Prohibits repayments of a loan described above, from being subject to existing law that specifies the calculation schedule and maximum repayment amounts of a loan, but continues to require that 20% of a loan repayment be transferred to the Low and Moderate Income Housing Asset Fund.

3. Provides that the accumulated interest rate shall be recalculated from origination at the interested rate of .25 percent.

FISCAL EFFECT:

Annual State costs of approximately $50,000 (GF) for up to ten years to backfill schools. Accelerating the loan repayment will result in a temporary reduction in property tax revenues distributed to other local taxing entities, including schools. Under Proposition 98, the General Fund would be required to backfill the resulting property tax losses to schools.

COMMENTS:

1. Purpose. According to the author, "The City of San Joaquin and Successor Agency to the former San Joaquin Redevelopment Agency requested this bill because the City is owed over $1 million from a loan made to the former San Joaquin Redevelopment Agency. Under existing law, the loan cannot be repaid until 2050. The City is in dire need of repayment because the remaining amount due is larger than the City's annual budget. The loan repayment would fund much needed public services for the community, which has significantly lower median wages, higher poverty rates, and higher unemployment rates compared to the rest of the State and nation. Because DOF cannot authorize the Successor Agency to make payments on the outstanding loan in excess of the maximum amounts set in existing law, special legislation is required."

2. Background. The City of San Joaquin and the Redevelopment Agency entered into a loan agreement, dated February 11, 2010, whereby the City and the RDA recognized that the RDA had borrowed funds from the City for RDA programs and operations. The outstanding principal amount owed to the City under the loan agreement, as of February 1, 2012, (the date of dissolution of the former RDA), was $1,028,723. This loan agreement formalized loans made by the City to the RDA since 1998 to fund redevelopment programs and operations. In part, the loan helped the RDA pay off debts after bonds issued in 1997 went into default.

The Successor Agency was issued a finding of completion by DOF on March 8, 2013. On April 24, 2013, the Successor Agency applied for and the Oversight Board approved the loan agreement, and made a finding that the loan of funds to the RDA under the loan agreement was for legitimate purposes. The loan agreement was subsequently amended on February 11, 2014, and the new loan agreement was approved by DOF on January 28, 2015. The approved terms of the loan agreement allow for the payment of $1,028,723 bearing an interest rate of 0.249% as determined by the current Local Agency Investment Fund rate.

Under existing law, the loan is estimated by the City to not be fully repaid until the year 2050. Under this bill, the City estimates that the loan will be repaid by fiscal year 2021-22.

The City notes that the Successor Agency sent a letter to and met with DOF requesting that they consider allowing the Successor Agency to make payments on the outstanding loan in excess of the maximum annual amounts set by the formula in existing law. However, DOF denied the Successor Agency's request, stating that they do not have the authority to allow for any other repayment amount outside of what is defined in the statute.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing: April 29, 2015

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

Ed Chau, Chair

ABPCA Bill Id:AB 1412

Author:(Perea) – As Introduced Ver:February 27, 2015

SUBJECT: Redevelopment: successor agencies to redevelopment agencies

SUMMARY: Allows for an expedited repayment schedule of an outstanding loan agreement entered into between a former redevelopment agency (RDA) and a city or county, in specified conditions. Specifically, this bill:

1. Requires, upon application by the successor agency and approval by the oversight board, loan agreements entered into between the RDA and the city, county, or city and county that created the RDA, where the outstanding principal balance of the loan is $1.25 million or less, to be deemed to be enforceable obligations, if the oversight board makes all of the following findings:

   1. The loan was for legitimate redevelopment purposes;

   2. The loan was entered into more than two years after the creation of the former RDA, and prior to January 1, 2011;

   3. The loan was related to an indebtedness obligation;

   4. The loan is the only debt of the former RDA remaining to be paid on the Recognized Obligation Payment Schedule (ROPS); and,

   5. The amount distributed to the taxing entities pursuant to existing law in the previous fiscal year was less than $250,000.

2. Prohibits repayments of a loan pursuant to 1), above, from being subject to the requirements of existing law that specifies the calculation schedule and maximum repayment amounts of a loan.

3. Provides that the accumulated interest rate shall be recalculated from origination at the interested rate of .25 percent.

EXISTING LAW:

1. Dissolves RDAs as of February 1, 2012 and institutes a process for winding down their activities (Health and Safety Code Section 34170).

2. Allows a city or county that authorized the creation of an RDA to elect to retain the housing assets and functions previously performed by the RDA.

3. Requires the entity assuming the housing functions of the former RDA to submit to the Department of Finance (DOF) by August 1, 2012, a list of all housing assets, as specified.

4. Allows the entity that assumed the housing functions to designate the use of and commit indebtedness obligation proceeds that remain after the satisfaction of enforceable obligations that have been approved in a ROPS and that are consistent with the indebtedness obligation covenants.

5. Requires the proceeds to be derived from indebtedness obligations that were issued for the purposes of affordable housing prior to January 1, 2011, and were backed by the Low- and Moderate-Income Housing Fund (Health and Safety Code Section 34176).

6. Allows the successor agency, upon receiving the finding of completion, to:

1. Retain dissolved redevelopment agency assets;

2. Place loan agreements between the former redevelopment agency and sponsoring entity on the ROPS, as an enforceable obligation, provided the oversight board makes a finding that the loan was for legitimate redevelopment purposes; and,

3. Utilize proceeds derived from bonds issued prior to January 1, 2011, in a manner consistent with the original bond covenants.

7. Provides that if the oversight board finds that the loan is an enforceable obligation, that the accumulated interest on the remaining principal amount of the loan shall be recalculated from the origination at the interest rate earned by funds deposited into the Local Agency Investment Fund (LAIF), and requires the loan to be repaid to the city, county, or city and county in accordance with a defined schedule over a reasonable term of years at an interest rate not to exceed the interest rate earned by funds deposited into the LAIF.

8. Requires annual loan repayments provided for in the ROPS to be subject to all the following limitations:

1. Loan repayments shall not be made prior to the 2013-14 fiscal year. Beginning in the 2013-14 fiscal year, the maximum repayment amount authorized each fiscal year for repayments made and paragraph (7) of subdivision (e) of Section 34176 combined shall be equal to one-half of the increase between the amount distributed to the taxing entities pursuant to paragraph (4) of subdivision (a) of Section 34183 in that fiscal year and the amount distributed to taxing entities pursuant to that paragraph in the 2012-13 base year, provided, however, that calculation of the amount distributed to taxing entities during the 2012-13 base year shall not include any amounts distributed to taxing entities pursuant to the due diligence review process. Loan or deferral repayments shall be second in priority to amounts to be repaid pursuant to paragraph (7) of subdivision (e) of Section 34176;

2. Repayments received by the city, county, or city and county that formed the RDA shall first be used to retire any outstanding amounts borrowed and owed to the Low- and Moderate-Income Housing Fund of the former RDA for purposes of the Supplemental Educational Revenue Augmentation Fund (SERAF) and shall be distributed to the Low- and Moderate-Income Housing Fund; and,

3. Twenty percent of any loan repayment shall be deducted from the loan repayment amount and shall be transferred to the Low- and Moderate-Income Housing Asset Fund, after all outstanding loans from the Low- and Moderate-Income Housing Fund for purposes of the SERAF have been paid.

(Health and Safety Code Section 34191.4)

9. Requires, after DOF issues a finding of completion, the successor agency to prepare a long-range property management plan that addresses the disposition and use of the real properties of the former redevelopment agency, and requires the report to be submitted to the oversight board and DOF for approval no later than six months following the issuance to the successor agency of the finding of completion (Health and Safety Code Section 34191.5).

FISCAL EFFECT: Unknown.

COMMENTS:

Background: In 2011, the Legislature approved and the Governor signed two measures, ABX1 26 and ABX1 27 that together dissolved redevelopment agencies as they existed at the time and created a voluntary redevelopment program on a smaller scale. In response, the California Redevelopment Association (CRA), League of California Cities, along with other parties, filed suit challenging the two measures. The Supreme Court denied the petition for peremptory writ of mandate with respect to ABX1 26. However, the Court did grant CRA's petition with respect to ABX1 27. As a result, all RDAs were required to dissolve as of February 1, 2012.

When RDAs were dissolved, successor agencies were established to wind up the RDAs' obligations. Successor agencies were required to effectuate the transfer of an RDA's housing functions and assets to a "housing successor." Cities and counties were given the option of acting as housing successors and taking over the housing assets of their jurisdiction's RDA. If they did not wish to take on this role, the local housing authority was required to act as housing successor. A housing successor is authorized to designate the use of and commit indebtedness obligation proceeds that remain after the satisfaction of enforceable obligations that have been approved in a ROPS and that are consistent with the indebtedness obligation covenants.

Affordable housing: Prior to their dissolution, redevelopment generated up to $1 billion a year for affordable housing in the state. Redevelopment agencies were required to set- a-side 20% of tax increment generated in a project area to increase, improve, or rehabilitate affordable housing for low, very-low, and moderate income families and individuals. Existing law requires twenty percent of any loan repayment provided for in the ROPS to be deducted from the loan repayment amount and transferred to the Low- and Moderate-Income Housing Asset Fund, after all outstanding loans from the Low- and Moderate-Income Housing Fund, for purposes of the SERAF, have been paid.

Purpose of this bill: According to the author, "the City of San Joaquin has sponsored AB 1412 because it has a $1 million loan that cannot be repaid until 2050 under existing law. AB 1412 would allow the loan to be repaid by 2022 (estimated). The City’s annual General Fund budget is less than $1 million, so additional revenues are greatly needed to fund services for its citizens, who have higher rates of poverty and unemployment compared to the rest of the State.

Eligible sponsoring entity loans will be repaid faster without a maximum annual loan repayment amount, enabling successor agencies to be terminated earlier. Tax revenues will no longer be needed to fund the administrative activities of the successor agency, and instead will be distributed to affected taxing entities that provide services to the community, such as schools and local government agencies."

The sponsor of the bill, the City of San Joaquin, argues that the bill "is important to the City and a win-win for all as payment acceleration of the loan repayment schedule will bring greater cash flow more quickly to both the City and the affected taxing entities…with a General Fund of less than $1 million, any added revenue to the City is heartily welcome…this legislation will help complete the wind-down process regarding the former RDA."

Loan agreement and repayment under existing RDA dissolution law: The City of San Joaquin and the RDA entered into a loan agreement, dated February 11, 2010, whereby the City and the RDA recognized that the RDA had borrowed funds from the City for RDA programs and operations. The outstanding principal amount owed to the City under the loan agreement, as of February 1, 2012, (the date of dissolution of the former RDA), was $1,028,723. This loan agreement formalized loans made by the City to the RDA since 1998 to fund redevelopment programs and operations. In part, the loan helped the RDA pay off debts after bonds issued in 1997 went into default.

In a subsequent ratification and amendment to the loan agreement dated February 11, 2014, the parties to the agreement mutually agreed as follows: (1) The parties acknowledged and agreed that the loan was for legitimate redevelopment purposes; (2) the parties agree that the conditions precedent in the Dissolution Act for repayment of the loan have been met and that the loan agreement shall be deemed to be an "enforceable obligation"; and, (3) the parties acknowledged and agreed that the repayment of amounts owing to the City under the loan agreement shall be subject to the limitations and restrictions set forth in Health and Safety Code 34191.4 (b) [specifies provisions that apply to a successor agency that has been issued a finding of completion by DOF and the process for repayment of loan agreements].

The Successor Agency was issued a finding of completion by DOF on March 8, 2013. On April 24, 2013, the Successor Agency applied for and the Oversight Board approved the loan agreement, and made a finding that the loan of funds to the RDA under the loan agreement was for legitimate purposes. The loan agreement was subsequently approved by DOF on January 28, 2015. The approved terms of the loan agreement allow for the payment of $1,028,723 bearing an interest rate of 0.249% as determined by the current LAIF rate.

Under existing law, the loan is estimated by the City to not be fully repaid until the year 2050. If the provisions of AB 1412 took effect, the City estimates that the loan will be repaid by fiscal year 2021-22.

The City notes that the Successor Agency sent a letter to and met with DOF requesting that they consider allowing the Successor Agency to make payments on the outstanding loan in excess of the maximum annual amounts set by the formula in existing law. However, DOF denied the Successor Agency's request, stating that they do not have the authority to allow for any other repayment amount outside of what is defined in the statute.

Accelerated loan repayment: This bill would allow a qualifying loan between a former RDA and its sponsoring city or county to be recognized as an enforceable obligation and accelerate repayment of that loan. In order to qualify, the outstanding balance of the loan must be $1.25 million or less and the oversight board must approve the application and make all of the following findings: (1) The loan was for legitimate redevelopment purposes; (2) the loan was entered into more than two years after the creation of the former RDA, and prior to January 1, 2011; (3) the loan was related to a indebtedness obligation; (4) the loan is the only debt of the former RDA remaining to be paid on the ROPS; and, (5) the amount distributed to the taxing entities in the previous fiscal year was less than $250,000.

The bill exempts repayment of the loan from portions of existing law related to the maximum annual loan repayment amount based on growth in the Redevelopment Property Tax Trust Fund revenues, and the requirement that 20% of any loan repayment shall be deducted from the loan repayment amount and transferred to a Low- and Moderate-Income Housing Asset Fund. The bill specifies that the accumulated interest rate shall be recalculated from origination at the interest rate of .25%.

Staff comment: AB 1412 would, during the term of the proposed accelerated repayment plan, prioritize the repayment of the City of San Joaquin’s loan ahead of payments to other taxing entities such as the county and school districts. Under existing law, the loan would not enter repayment until 2025, and would be paid off by 2050. Under AB 1412, it would enter repayment in 2016 and would be paid off by approximately 2022. Accelerating the loan repayment will result in a temporary reduction in property tax going to the other taxing agencies, including schools, during the time of the loan repayment. However, according to the author, accelerated repayment will eventually increase funds disbursed to affected taxing entities by about $5.2 million, primarily from not having to pay over two decades' worth of administrative costs for the successor agency (as it is required to terminate its existence within one year of the final debt payment), as well as from accumulating less interest on the loan. 

AB 1484 (Committee on Budget), Chapter 26, Statutes of 2012, addressed numerous issues related to the dissolution of RDAs. Among other things, it clarified certain matters associated with the dissolution of RDAs and addressed substantive issues related to administrative processes, affordable housing activities, use of existing bond proceeds, and the disposition or retention of former RDA assets. It also placed loan agreements between the former RDA and the sponsoring entity on the ROPS as an enforceable obligation, and specified repayment terms, including that 20% of the loan repayment amount be transferred to the Low- and Moderate-Income Housing Asset Fund.

This bill also creates an exemption for the City of San Joaquin from the requirement that 20% of any loan repayment be deducted from the loan repayment amount and transferred to the Low- and Moderate-Income Housing Asset Fund. As applied to the City, this would be approximately $215,000 that would go to the City's General Fund, as opposed to the Low- and Moderate-Income Housing Asset Fund.

Affordable housing lost significant funding after RDA dissolution, and the 20% transfer ensures that at least some housing asset funds are used for their intended purpose. The City states that the amount of taxing entity savings will be minimally impacted if the bill is amended to require 20% of the loan repayment amount to be deposited into the Low- and Moderate-Income Housing Asset Fund. The Committee may wish to consider whether it is appropriate to exempt the City of San Joaquin from this requirement.

Committee amendments: The Committee may wish to accept the following amendments:

1. An amendment narrowing the bill to only apply to the City of San Joaquin.

2. An amendment providing that the City of San Joaquin is not exempt from provisions in existing law that require 20% of any loan repayment to be deducted from the loan repayment amount and transferred to the Low and Moderate Income Housing Asset Fund, after all outstanding loans from the Low and Moderate Income Housing Fund for purposes of the Supplemental Educational Revenue Augmentation Fund have been paid.

Double-referral: This bill was double-referred to the Assembly Local Government Committee, where it passed 9-0 on April 15, 2015.

REGISTERED SUPPORT / OPPOSITION:

Support

City of San Joaquin (Sponsor)

Opposition

None on file

Analysis Prepared by: Rebecca Rabovsky / H. & C.D. / (916) 319-2085

Date of Hearing: April 15, 2015

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Brian Maienschein, Chair

ABPCA Bill Id:AB 1412

Author:(Perea) – As Introduced Ver:February 27, 2015

SUBJECT: Redevelopment: successor agencies to redevelopment agencies.

SUMMARY: Allows for an expedited repayment schedule of an outstanding loan agreement entered into between a former redevelopment agency (RDA) and a city or county, in specified conditions. Specifically, this bill:

1. Requires, upon application by the successor agency and approval by the oversight board, loan agreements entered into between the RDA and the city, county, or city and county that created the RDA, where the outstanding principal balance of the loan is $1.25 million or less, to be deemed to be enforceable obligations, if the oversight board makes all of the following findings:

   1. The loan was for legitimate redevelopment purposes;

   2. The loan was entered into more than two years after the creation of the former RDA, and prior to January 1, 2011;

   3. The loan was related to an indebtedness obligation;

   4. The loan is the only debt of the former RDA remaining to be paid on the Recognized Obligation Payment Schedule (ROPS); and,

   5. The amount distributed to the taxing entities pursuant to existing law in the previous fiscal year was less than $250,000.

2. Prohibits repayments of a loan pursuant to 1), above, from being subject to the requirements of existing law that specifies the calculation schedule and maximum repayment amounts of a loan.

3. Provides that the accumulated interest rate shall be recalculated from origination at the interested rate of .25 percent.

EXISTING LAW:

1. Dissolves redevelopment agencies and institutes a process for winding down their activities.

2. Allows a city or county that authorized the creation of an RDA to elect to retain the housing assets and functions previously performed by the RDA.

3. Requires the entity assuming the housing functions of the former RDA to submit to the Department of Finance (DOF) by August 1, 2012, a list of all housing assets, as specified.

4. Allows the entity that assumed the housing functions to designate the use of and commit indebtedness obligation proceeds that remain after the satisfaction of enforceable obligations that have been approved in a ROPS and that are consistent with the indebtedness obligation covenants.

5. Requires the proceeds to be derived from indebtedness obligations that were issued for the purposes of affordable housing prior to January 1, 2011, and were backed by the Low- and Moderate-Income Housing Fund.

6. Allows the successor agency, upon receiving the finding of completion, to:

1. Retain dissolved redevelopment agency assets;

2. Place loan agreements between the former redevelopment agency and sponsoring entity on the ROPS, as an enforceable obligation, provided the oversight board makes a finding that the loan was for legitimate redevelopment purposes; and,

3. Utilize proceeds derived from bonds issued prior to January 1, 2011, in a manner consistent with the original bond covenants.

7. Provides that if the oversight board finds that the loan is an enforceable obligation, that the accumulated interest on the remaining principal amount of the loan shall be recalculated from the origination at the interest rate earned by funds deposited into the Local Agency Investment Fund (LAIF), and requires the loan to be repaid to the city, county, or city and county in accordance with a defined schedule over a reasonable term of years at an interest not to exceed the interest rate earned by funds deposited into the LAIF.

8. Requires annual loan repayments provided for in the ROPS to be subject to all the following limitations:

1. Loan repayments shall not be made prior to the 2013-14 fiscal year. Beginning in the 2013-14 fiscal year, the maximum repayment amount authorized each fiscal year for repayments made and paragraph (7) of subdivision (e) of Section 34176 combined shall be equal to one-half of the increase between the amount distributed to the taxing entities pursuant to paragraph (4) of subdivision (a) of Section 34183 in that fiscal year and the amount distributed to taxing entities pursuant to that paragraph in the 2012-13 base year, provided, however, that calculation of the amount distributed to taxing entities during the 2012-13 base year shall not include any amounts distributed to taxing entities pursuant to the due diligence review process. Loan or deferral repayments shall be second in priority to amounts to be repaid pursuant to paragraph (7) of subdivision (e) of Section 34176;

2. Repayments received by the city, county, or city and county that formed the RDA shall first be used to retire any outstanding amounts borrowed and owed to the Low- and Moderate-Income Housing Fund of the former RDA for purposes of the Supplemental Educational Revenue Augmentation Fund (SERAF) and shall be distributed to the Low- and Moderate-Income Housing Asset Fund; and,

3. Twenty percent of any loan repayment shall be deducted from the loan repayment amount and shall be transferred to the Low- and Moderate-Income Housing Asset Fund, after all outstanding loans from the Low- and Moderate-Income Housing Fund for purposes of the SERAF have been paid.

1. Requires, after DOF issues a finding of completion, the successor agency to prepare a long-range property management plan that addresses the disposition and use of the real properties of the former redevelopment agency, and requires the report to be submitted to the oversight board and DOF for approval no later than six months following the issuance to the successor agency of the finding of completion.

FISCAL EFFECT: This bill is keyed fiscal.

COMMENTS:

1. Bill Summary. This bill would allow a qualifying loan between a former RDA and its sponsoring city or county to be recognized as an enforceable obligation and accelerate repayment of that loan. In order to qualify, the outstanding balance of the loan must be
   $1.25 million or less and the oversight board must approve the application and make all
   of the following findings: (1) The loan was for legitimate redevelopment purposes; (2) the loan was entered into more than two years after the creation of the former RDA, and prior to January 1, 2011; (3) the loan was related to a indebtedness obligation; (4) the loan is the only debt of the former RDA remaining to be paid on the ROPS; and, (5) the amount distributed to the taxing entities in the previous fiscal year was less than $250,000.

The bill exempts repayment of the loan from portions of existing law related to the maximum annual loan repayment amount based on growth in the Redevelopment Property Tax Trust Fund revenues, and the requirement that 20% of any loan repayment shall be deducted from the loan repayment amount and transferred to a Low- and Moderate-Income Housing Asset Fund. The bill specifies that the accumulated interest rate shall be recalculated from origination at the interest rate of .25%.

This bill is sponsored by the City of San Joaquin.

2. City of San Joaquin. According to the author, the City of San Joaquin has a population of just over 4,000 people, and is located in Fresno County. The City's projected General Fund revenues for fiscal year 2014-15 are $898,240. Median worker earnings in San Joaquin are 40% lower than the national average, and according to recent data, San Joaquin had a poverty rate of 51.7% and an unemployment rate of 31.3% in 2013.

3. Author's Statement. According to the author, "The City of San Joaquin and Successor Agency to the former San Joaquin Redevelopment Agency requested this bill because the City is owed over $1 million from a loan made to the former San Joaquin Redevelopment Agency. Under existing law, the loan cannot be repaid until 2050. The City is in dire need of repayment because the remaining amount due is larger than the City's annual budget. The loan repayment would fund much needed public services for the community, which has significantly lower median wages, higher poverty rates, and higher unemployment rates compared to the rest of the State and nation."

"Because DOF cannot authorize the Successor Agency to make payments on the outstanding loan in excess of the maximum amounts set in existing law, special legislation is required. AB 1412 will permit eligible sponsoring entity loans to be repaid faster, enabling successor agencies to be terminated earlier. Taxing entities and the general public will benefit because tax revenues will no longer be needed to fund the administrative activities of the successor agency, and instead will be distributed to affected taxing entities that provide services to the community, such as schools and local government agencies."

4. Loan Agreement and Repayment under Existing RDA Dissolution Law. The City of San Joaquin and the Redevelopment Agency entered into a loan agreement, dated February 11, 2010, whereby the City and the RDA recognized that the RDA had borrowed funds from the City for RDA programs and operations. The outstanding principal amount owed to the City under the loan agreement, as of February 1, 2012, (the date of dissolution of the former RDA), was $1,028,723. This loan agreement formalized loans made by the City to the RDA since 1998 to fund redevelopment programs and operations. In part, the loan helped the RDA pay off debts after bonds issued in 1997 went into default.

In a subsequent ratification and amendment to the loan agreement dated February 11, 2014, the parties to the agreement mutually agreed as follows: (1) The parties acknowledged and agreed that the loan was for legitimate redevelopment purposes; (2) the parties agree that the conditions precedent in the Dissolution Act for repayment of the loan have been met and that the loan agreement shall be deemed to be an "enforceable obligation"; and, (3) the parties acknowledged and agreed that the repayment of amounts owing to the City under the loan agreement shall be subject to the limitations and restrictions set forth in Health and Safety Code 34191.4 (b) [specifies provisions that apply to a successor agency that has been issued a finding of completion by DOF and the process for repayment of loan agreements].

The Successor Agency was issued a finding of completion by DOF on March 8, 2013. On April 24, 2013, the Successor Agency applied for and the Oversight Board approved the loan agreement, and made a finding that the loan of funds to the RDA under the loan agreement was for legitimate purposes. The loan agreement was subsequently approved by DOF on January 28, 2015. The approved terms of the loan agreement allow for the payment of $1,028,723 bearing an interest rate of 0.249% as determined by the current LAIF rate.

Under existing law, the loan is estimated by the City to not be fully repaid until the year 2050. If the provisions of AB 1412 took effect, the City estimates that the loan will be repaid by fiscal year 2021-22.

The City notes that the Successor Agency sent a letter to and met with DOF requesting that they consider allowing the Successor Agency to make payments on the outstanding loan in excess of the maximum annual amounts set by the formula in existing law. However, DOF denied the Successor Agency's request, stating that they do not have the authority to allow for any other repayment amount outside of what is defined in the statute.

5. Policy Considerations. The Committee may wish to discuss the following policy considerations:

   1. Low- and Moderate-Income Housing Asset Fund. In addition to expediting the loan repayment schedule by creating an exemption from the repayment schedule in existing law, this bill also creates an exemption from the section in existing law that requires 20% of any loan repayment to be deducted from the loan repayment amount and requires that money to be transferred to the Low- and Moderate-Income Housing Asset Fund, after all outstanding loans from the Low- and Moderate-Income Housing Fund for purposes of the SERAF have been paid.

   2. Narrow the Scope. The provisions of the bill apply to any loan agreement that meets the criteria specified in the bill. However, it is unclear whether there are other cities or counties that have a similar issue and would be captured under the bill's provisions. The Committee may wish to consider making the bill specific to only the City of San Joaquin.

6. Arguments in Support. The sponsor argues that the bill "is important to the City and a win-win for all as payment acceleration of the loan repayment schedule will bring greater cash flow more quickly to both the City and the affected taxing entities…..with a General Fund of less than $1 million, any added revenue to the City is heartily welcome…this legislation will help complete the wind-down process regarding the former RDA."

7. Arguments in Opposition. None on file.

8. Double-Referral. This bill is double-referred to the Housing and Community Development Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

City of San Joaquin [SPONSOR]

Opposition

None on file

Analysis Prepared by: Debbie Michel / L. GOV. / (916) 319-3958