Topic: redevelopment
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.
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.
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.
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)
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.
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