Topic: redevelopment law
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.
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.
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.
CA Files Redevelopment Lawsuit Response
Yesterday, the State of California filed its response to a lawsuit filed by the California Redevelopment Association (CRA) and the League of California Cities challenging the constitutionality of ABX1 26 and ABX1 27 (See July 18 post, Public Finance Update: Lawsuit Challenging CA Redevelopment Bills Imminent).
The State agrees with the plaintiffs’ request to have the Supreme Court assume original jurisdiction on the case and calls for an expedited briefing schedule. However, the State opposes the request for a stay, claiming that a stay would “wreak havoc on the operation of the state” and requests that the Court deny the plaintiffs’ petition on the merits.
View the State’s formal response in its entirety here.
Breaking News: Cities Ask CA Supreme Court to Block Raid on Redevelopment Funds
A lawsuit filed today by the League of California Cities as well as the California Redevelopment Association (CRA) alleges that the California legislature’s action to dissolve redevelopment agencies in California unless they pay the State $1.7 billion violates a ballot measure (Proposition 22) approved by voters in November that prohibits the State from raiding local tax revenue. Further details can be found here.
Public Finance Update: Lawsuit Challenging CA Redevelopment Bills Imminent
The following appeared in Goodwin Procter’s July 18, 2011 Client Alert: Lawsuit Challenging Redevelopment Bills Imminent:
The California Redevelopment Association (CRA) recently announced that, in conjunction with the League of California Cities, it is nearing completion of a lawsuit that will challenge the constitutionality of Assembly Bill 26 (ABX1 26) and Assembly Bill 27 (ABX1 27), known as the “Redevelopment Bills.” Governor Jerry Brown recently signed the bills into law as part of California’s budget package.
ABX1 26: The “Dissolution Bill”
ABX1 26 eliminates all California redevelopment agencies (RDAs) as of October 1, 2011. As of the effective date of ABX1 26, (i.e., June 29, 2011), most RDA operations are suspended and RDAs are precluded from incurring additional debt or making payments on existing debt, with the exception of fulfilling enforceable obligations entered into prior to such effective date. “Enforceable obligations” are described in ABX1 26 as bonds, loans, payments required by the federal government or imposed by State law, judgments or settlements, and contracts necessary for the continued administration or operation of the RDA.
ABX1 26 provides for the designation of a successor agency to replace each dissolved RDA. Such successor agency – likely the city or county that created the RDA – will assume the RDA’s debts and obligations and expedite the winding down of the RDA’s affairs.
ABX1 26 also gives the Controller authority to recover certain assets that were transferred by an RDA after January 1, 2011. Many RDAs transferred property to local governments and other authorities in anticipation of the passage of the Redevelopment Bills. Any financing using RDA funds after January 1, 2011, may be reevaluated by the State to ensure that an RDA has not attempted to circumvent the legislation.
ABX1 27: The “Continuation Bill”
ABX1 27 permits an RDA to remain operable after October 1, 2011, notwithstanding ABX1 26, so long as the RDA adopts an ordinance (a “Continuation Ordinance”) by no later than November 1, 2011, declaring its intention to continue operations and promising to make certain annual payments to the State and certain other taxing agencies. The Department of Finance will calculate the appropriate amount that each RDA must deposit into an Educational Revenue Augmentation Fund and a Special District Allocation Fund in order to continue operating after October 1, 2011. According to the CRA, estimated payments for the 2011-12 fiscal year are expected to reach an aggregate $1.7 billion, and estimated payments for the 2012-13 fiscal year are expected to total $400 million.
Constitutional Challenge
The lawsuit is expected to be filed with the California Supreme Court in late July or early August 2011, and will seek an immediate stay of the Redevelopment Bills. It is impossible to predict whether, or to what extent, such stay will be granted. Until granted, however, the Redevelopment Bills remain current law.
The lawsuit is expected to argue that the Redevelopment Bills violate Proposition 22, adopted by California voters in November 2010, as well as Section 16 of Article XVI and certain other provisions of the California Constitution. Proposition 22 prohibits the State from redirecting funds allocated to transportation, redevelopment, or local government projects and services. Section 16 of Article XVI, among other things, requires all tax increment to be used to repay indebtedness incurred by an RDA to carry out a redevelopment project.
The CRA has stated that it does not expect final disposition of the lawsuit before the end of 2011, although it hopes for a ruling on the requested stay by mid-August.
Impact on RDA Bond Financings
Upon the passage by an RDA of a Continuation Ordinance, the RDA may legally continue its operations, including the issuance of bonds to finance redevelopment activities or refinance outstanding debt. Until the California Supreme Court decides the lawsuit, however, it is unlikely that any bond counsel will be willing to provide a “clean” opinion to support such debt issuance. Consequently, RDAs are effectively precluded from utilizing traditional tax-exempt financing vehicles until the Supreme Court issues its ruling.
Questions regarding the impact of the Redevelopment Bills on RDAs and the bond market may be directed to Lewis Feldman, Chair of Goodwin Procter’s Los Angeles office and head of the firm’s Public Finance Practice, at lfeldman@goodwinprocter.com.
Additional Resources:
CA Interest Groups Challenge Recently Passed RDA Legislation
Photo Credit: Flickr - by Generationbass.com
On June 28, California Governor Jerry Brown signed into law two bills (ABX1 26 and ABX1 27) that seek to either force California community redevelopment agencies (“RDAs”) to relinquish a portion of their revenues for certain municipal uses (e.g., education) or shut the RDAs down altogether. The California Redevelopment Association (CRA) and the League of California Cities have declared their intent to file suit challenging the legislation on constitutional grounds. The argument relies heavily on Proposition 22 passed by California voters in late 2010 which prohibits the State from borrowing or taking funds from redevelopment agencies.
Future of Redevelopment Agencies #cabudget
As part of a flurry of bills passed Wednesday, the California state Legislature approved companion bills that call for redevelopment agencies to make significant annual payments to school districts or be eliminated. While Governor Brown has decided to veto the Democratic budget bills, the redevelopment bills remain in limbo. If the bills ultimately pass, agencies can survive by paying their share of a statewide $1.7 billion school payment next year, along with a piece of a statewide $400 million payment every year thereafter.
ON THE CALENDAR: CA Redevelopment Association’s Annual Conference – Mar 30 – Apr 1
San Jose, CA – Redevelopment: Worth Fighting For is the California Redevelopment Association’s (CRA) annual three-day conference and EXPO, which started Wednesday, March 30. This year’s keynote speaker, Carl Guardino, President and CEO of Silicon Valley Leadership Group, will address “Re-positioning RDA’s: Can We ‘Mend it Rather than End It?’”
The conference takes on special importance this year in light of Governor Jerry Brown’s attempts to eliminate redevelopment agencies from the California budget.
