Topic: public finance
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.
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.
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)
GP ALERT: CA Supreme Court Upholds Legislation Disbanding Redevelopment Agencies
On December 29, 2011, the California Supreme Court upheld legislation that disbanded redevelopment agencies (RDAs) and allowed the State of California to take $1.7 billion in redevelopment funds, funneling it into the State’s General Fund. The court then struck down legislation that would have allowed redevelopment agencies to stay in business by paying a fee to the State. The combined effect of the ruling is that redevelopment agencies in California will no longer exist once the transition to successor agencies has been completed. RDA advocates have stated that this is the worst possible outcome for RDAs.
For more details and descriptions of the Redevelopment Bills at issue, view the full alert here.
Weekly Quick Hits
Dirtiest Cities in America – Forbes releases its list of dirtiest cities. (Forbes)
Google Abandons Effort to Make Cheap, Renewable Energy – Google’s ambitious plans to make renewable energy more affordable than coal have ended. (Fox News)
Jefferson County Receiver Lobbies for Continued Authority – The court-appointed receiver managing bankrupt Jefferson County’s sewer system warns of harm to the municipal bond market if a federal judge strips him of his authority. (Bloomberg)
A Step Backward for Hybrid Cars? – Federal officials launched a formal safety defect investigation into GM’s plug-in hybrid vehicle after crash tests on several Volts resulted in fires. (Los Angeles Times)
Weekly Quick Hits
Impact of Fiscal Woes in U.S. Cities – A study on the impact of the recession on local municipalities. (Infrastructurist.com)
Fixed Mortgage Rates at Historic Lows – The average rate on the 30-year fixed mortgage fell to 4%, and the average rate on the 15-year fixed mortgage fell to 3.31%, both historic lows. (The Washington Post)
The Dark Side of the “Green” City – An op-ed about Phoenix, Arizona’s attempt to be the greenest city in the U.S. (San Francisco Chronicle)
Senate Republicans Block Infrastructure Plan – Republicans in the Senate dealt President Obama the third in a string of defeats on his stimulus-style jobs agenda, blocking a $60 billion measure for building and repairing infrastructure such as roads and rail lines. (Associated Press)
Massachusetts Selling $600M in Sales-Tax Bonds to Fund School Construction Grants
The Massachusetts School Building Authority (MSBA) plans to issue $600 million in senior dedicated sales-tax bonds to fund grants to cities, towns and regional school districts for construction and renovation projects. The tax-exempt bonds will be secured by a first lien pledge of one-cent of Massachusetts’ 6.25 cents sales tax receipts.
California’s $1.8B Bond Sale Creates “Homegrown Economic Stimulus”
This week, California sold $1.8 billion in tax-exempt bonds. Preliminary yields ranged as low as 1.15% on three-year securities. 10-year bonds were priced to yield 3.51%, or 0.34 percentage point more than securities with a comparable maturity in a $2.5 billion sale in September 2011. 30-year bonds were offered at seven basis points more than in September. In addition to the $1.8 billion in tax-exempt bonds, California offered $200 million in taxable debt.
California’s Governor Brown called the bond sale a “Homegrown Economic Stimulus,” touting the ability of the state to put people to work through infrastructure jobs:
“When we invest in infrastructure, we provide a homegrown economic stimulus to create jobs and ensure our state is prepared for the challenges of the future,” said Governor Brown. “Investor confidence in California’s fundamental strengths, combined with an on-time, balanced budget, means that we can make important investments to boost the state’s economic recovery and put Californians back to work.”
The following summary, taken from the Office of Governor website, shows how certain of the bond proceeds, as well as existing fund balances, are being put to work:
- California Department of Transportation - Caltrans will be able to start 26 new projects, with a total (multi-year) construction cost of $1.2 billion. The projects, which are expected to create 30,000 jobs, are designed to increase traffic flow by adding lanes, widening roadways and installing traffic management systems.
- Local Streets and Roads – Approximately $38 million in bond proceeds will be used to start roughly 70 local street and road projects, including mainly general maintenance projects on local roads, such as sealing and resurfacing. Many cities and counties have combined these funds with other local or federal funds to complete larger road projects.
- K-12 School Construction – Existing funding for K-12 school construction will be fully expended by December 2011. The additional $1 billion provided in the fall 2011 bond sale will fund the start of approximately 450 new projects, which are anticipated to consist of approximately 250 modernization projects, 130 new construction projects and 70 other projects.
- California Community Colleges – Community Colleges will be able to start five new construction and modernization projects with the $24 million in additional bond proceeds.
Weekly Quick Hits
California Has $9 Billion Undeployed Infrastructure Bonds – California is holding unspent proceeds of approximately $9.1 billion in infrastructure bonds, which are costing the state approximately $630 million a year in debt service. (Los Angeles Times)
Infrastructure Bank Means Jobs – Senator Charles Schumer (D-NY) is championing a national infrastructure bank that he says could help build roads, fix bridges and create jobs. (Bloomberg BusinessWeek)
Infrastructure Deal Possible This Year – Transportation Secretary Ray LaHood stated last week that, because “the economy is so bad and so many are out of work,” a deal on infrastructure spending could come soon. (Reuters)
7 Billion People! – The world’s population is projected to reach 7 billion on October 31. (Boston Globe)
