Topic: California
New Hope for PACE Program
A recent federal district court ruling in California has revived the Property Assessed Clean Energy (PACE) program, a policy that allows municipalities to issue bonds to property owners as a way to finance the upfront costs of energy-efficient improvements such as solar panels. The program has been lifeless since July 2010, when the Federal Housing Finance Agency (FHFA) ordered Fannie Mae and Freddie Mac not to underwrite mortgages with PACE loans, as PACE liens are senior to home mortgages.
The court cited the FHFA’s failure to solicit public comment and ordered the FHFA to conduct hearings and open a “full-blown” rule-making process on the PACE program.
While PACE legislation has been adopted in 28 states, only three series of bonds have been issued to date. Advocates are hopeful that this new ruling will bring homeowners one step closer to finding a financing solution for clean energy projects. In California, there is extra reason for hope as legislators have taken an additional step to facilitate the issuance of PACE bonds. Enacted in October 2011, SB 555 expands the definition of PACE bonds to include bonds secured by a tax levied by community facilities districts, thus making clean energy projects acceptable improvements under the Mello-Roos Act.
For more information on the PACE program’s developments, see “Powerful Solar Financing Program for Homeowners Gets Reprieve,” in Forbes.
9 Proposed Modifications Under AB 1585 – Trailer Legislation for AB 26
John Perez, California State Assembly Speaker, recently introduced AB 1585, a companion bill to SB 654, which would expand the term “Enforceable Obligations” and change the allocation of housing funds as outlined under AB 26.
9 Modifications Under AB 1585:
- Would permit temporary increases in administrative costs to cover litigation and asset preservation efforts of the successor agencies, without limiting the amounts or temporary time period.
- Would add three new agreements to the list of City-Agency contracts that are otherwise null: a loan made within two years of a project area being formed if the loan was for that project area; certain SERAF loans; and other loans between City-Agency “established” so long as the oversight board determines that the loan was for legitimate redevelopment purposes, had economic substance, and was based on reasonable repayment terms. It is unclear whether this provision relates to loans created after the effective date of AB 26 or before.
- Would transfer the Low Income Housing Fund to the successor housing agency to be used as set forth in the Community Redevelopment Act.
- Would require (rather than permit) the successor housing agency to enforce affordability covenants.
- If 80% of Low Income Housing Fund moneys are not expended or encumbered within three years, the excess amount (less amounts reserved for ongoing monitoring and maintenance) would be allocated to the county auditor to be used for housing purposes.
- If the redevelopment agency staff is actually city staff, then the union member on the oversight board would be a representative of the union representing the city staff.
- The oversight board would have to approve long-term bond issues (for any financing arrangement that requires payments more than is received in any year).
- The successor agency would have to inventory all real property assets by project area. The oversight board would be required to adopt a policy or strategy for the disposal or transfer of such assets.
- The successor agency would be permitted to reserve funds from the January 16 allocation to cover costs arising in the second half of the calendar year that will not be disbursed in subsequent allocations.
The bill is currently in draft form, but is expected to be sent to committee soon. We will continue to monitor AB 1585 as it progresses through the Legislature.
Construction of Mojave Desert Solar Project Underway
The pros and cons of solar fields will be on bright display in Ivanpah Valley, CA, during the coming months. BrightSource Energy plans to construct a $2 billion solar project that will include 173,500 mirrors erected over more than 3,500 acres (approximately 6 square miles) of public land. The mirrors are expected to generate 370 MWs of solar power – enough to power 140,000 residences at peak usage levels.
While this project appears to be a laudable ally in the battle against global warming, it does not come without some controversy. In order to build the new plant, BrightSource has razed several acres of indigenous vegetation and displaced numerous species of desert-dwelling wildlife. Public parks, including Joshua Tree, Death Valley and the Mojave National Preserve, will be affected by the development. Some experts say that the development could kill many of the desert tortoises that reside in the area, a species whose existence is already threatened.
An article about the trade-offs related to the BrightSource solar power project can be found in the Los Angeles Times.
Three Named to L.A. Successor Agency
When the City of Los Angeles voted against becoming the Successor Agency to the Community Redevelopment Agency of Los Angeles (CRA/LA), it fell to Governor Jerry Brown to choose the three local residents to fill the roll of Successor Agency. Under the provisions of ABx1 26, which dissolved all California redevelopment agencies as of February 1, the new appointees will form a “designated local authority” that will assume certain duties associated with the terminated CRA/LA. These duties include disposing of agency assets, paying existing bond debt and assuming control over the previous redevelopment agency staff.
Governor Brown appointed Timothy McOsker, Nelson Rising and Mee Semcken to serve as the Successor Agency to the CRA/LA.
For more information about each of the appointees, as well as the appointees in Merced, Stanislaus and Ventura Counties, please see the Governor’s press release here.
Real Estate Development and the Demise of California’s RDAs
As everyone is now so keenly aware, the California Supreme Court upheld Assembly Bill ABX1 26 (“AB 26”), which provides for the termination of all California redevelopment agencies (“RDAs”). On February 1, 2012, RDAs were effectively, dissolved and all Enforceable Obligations were transferred to Successor Agencies. For those real estate stakeholders in existing relationships with RDAs – specifically those holders of notes or bonds tied to a redevelopment project, a development agreement with an RDA, or a loan with the RDA, or an owner of property located in an RDA project area that is under contract to be acquired – the impact can be immediate.
Please see Goodwin Procter’s white paper, “Real Estate Development and the Demise of California’s RDAs” for information on AB 26 and the aftermath of the California Supreme Court decision.
Governor Brown to Streamline CEQA
The California Environmental Quality Act (CEQA), the law that requires California’s public agencies to identify the significant environmental impacts of their actions and take steps to avoid or mitigate these impacts, is becoming more “nimble.” On January 25, Governor Jerry Brown released a package of CEQA reforms designed to streamline the approval process that big projects must face when analyzing future environmental impacts. The Governor argues that such reforms are necessary to facilitate job creation and boost renewable energy.
The reforms, which provide guidelines for the implementation of SB 226 (signed last October), will reduce the time and cost associated with large infill projects by eliminating repetitive studies of environmental effects already addressed in other planning documents. In addition, the reforms will also exempt from CEQA’a regulations solar projects located on existing rooftops and parking lots.
The new rules also follow regulations Governor Brown released this month that implement AB 900 (signed last September). Under the new guidelines, large projects that have been challenged in court will get an expedited review. These projects will move directly to the Court of Appeal, which will be required to issue a decision on the merits in a short time frame. According to the Governor, ”CEQA reforms in SB 226 and AB 900 will reduce repetitive documentation and expedite litigation timelines while preserving informed decision-making and mitigation of environmental harm.”
SB 654 Passes in Senate, Moves to Assembly
SB 654 survived a Senate vote late Tuesday, Feb. 1. The bill would allow California cities that had community redevelopment agencies to spend its affordable housing set-aside funds. Although several other bills seeking to extend the life of redevelopment agencies have failed, SB 654 now moves to the Assembly. If the bill passes, local governments will be permitted to spend an estimated $1.4 billion for housing projects.
More information can be found here.
Moody’s Downgrades Redevelopment Agency Bonds
In light of the pending elimination of California redevelopment agencies, Moody’s Investors Service has downgraded $11.6 billion of tax allocation bonds. According to Moody’s, all bonds rated above Baa2 will be lowered by one rating degree.
As industry participants struggle to comply with ABx1 26, which calls for the elimination of all redevelopment agencies in California, concerns have been raised regarding the timely payment of debt service for outstanding bonds secured by tax increment. Although Moody’s noted in its release the intent expressed in ABx1 26 to honor existing obligations through creation of successor agencies charged with fulfilling existing bond contracts, the rating agency also noted that much uncertainty exists. Such uncertainty stems from the audit requirements and sheer complexity of the law, as well as the challenges associated with the reallocation of tax increment revenue, which “may initially conflict with existing bond indentures.”
Moody’s also indicated that future downgrades could be possible. For instance, should a judge find that compliance with bond documents is subordinate to other objectives of ABx1 26, or should the legislation be implemented in a way that does not preserve timely debt service payments, redevelopment agency bond ratings could be reduced even further.
City of LA Votes Against Becoming Successor Agency to CRA/LA
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In a lengthy session this week, the City Council of the City of Los Angeles, CA voted against assuming the obligations of the Community Redevelopment Agency of Los Angeles (CRA/LA) to become the successor agency under the provisions of ABx1 26.
The passing of ABx1 26 and the subsequent fallout has put several projects into a precarious position, including 10 projects in Los Angeles County show in the graphic on the left.
An article about the Council’s decision can be found in today’s Los Angeles Times. To hear the discussion about the Council’s decision and the next steps, watch the on-demand video of the meeting here.
Weekly Quick Hits – Redevelopment Fall-Out Edition
In light of the California Supreme Court’s decision regarding ABx1 26 and ABx1 27, which permits the dissolution of redevelopment agencies to proceed, we have aggregated some of the news items on that topic from third-party sources.
Rescuing Redevelopment – An Op-Ed in the Los Angeles Times that advocates adopting a bill to extend the time period for abolishing redevelopment agencies and salvage the positive features of the community redevelopment law. (Los Angeles Times)
Unintended Consequences of New RDA Bills – This Op-Ed explores the unintended consequences of new bills that may reignite some of the alleged ills that were ostensibly eliminated by the Supreme Court’s ruling. (Silicon Valley Mercury News)
RDA Doors and Benefits Close – In addition to funding, California redevelopment agencies provided stimulus for jobs and economic development that now must be recovered through another mechanism. (Contra Costa Times)
On Hold: Projects Hit the Brakes with Redevelopment Decision – This article discusses the many projects that are now stalled following the court’s ruling to allow the shutdown of redevelopment agencies. (Bakersfield Californian)
