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Proposed Post-RDA Budget Trailer Bill Raises Major Concerns

Further Limits Local Control, Reduces Payments for Enforceable Obligations and Shifts Housing and Other Reserves to Benefit State

May 17, 2012

As the League and successor agencies await further clarification of how the approaching log jam over approval of local ROPS will be resolved by the Department of Finance (DOF) before the June 1 property tax distribution, DOF has distributed a proposed budget trailer bill that further erodes local control by successor agencies and oversight boards, requires payment of unencumbered cash and appears to reduce the June 1 payment to successor agencies for approved purposes to compensate for “underpayments” to local taxing agencies last December.

 

In contrast to AB 1585 (Pérez), which was the subject of extensive work by a special post-RDA task force appointed by Speaker John Pérez and deliberation by multiple Assembly committees, the proposed DOF budget trailer bill was developed without input from the League (or perhaps other stakeholders). While the proposal addresses some important problems caused by AB x1 26, it diverts any remaining unencumbered cash from the successor agencies (including housing funds), limits the authority of oversight boards to approve contracts, and gives the final approval of all matters to DOF. The bill’s prominent features include:

  1. Reduction in June 1 Property Tax Payment to Successor Agencies to Retroactively Pay for December 2011 “Underpayment” to Taxing Agencies. Directs county auditor-controllers to reduce June 1 payments to successor agencies to retroactively compensate local taxing agencies for alleged “underpayment” in December 2011 while AB x1 26 was not in effect due to the California Supreme Court’s stay in California Redevelopment Association v. Matosantos. While DOF estimated for the May Revise that approximately $1.5 billion in tax increment will be paid to local taxing agencies in FY 2011-12, of which $880 million (58 percent) will go to schools/state. This provision could result in a dramatic reduction in payments to successor agencies statewide for approved enforceable obligations on June 1 by up to $750 million.
     
  2. Empowers DOF with Final Decision Making Authority. Codifies DOF’s interpretation of its broad and final powers in all matters concerning enforceable obligations and the distribution of unencumbered cash assets not needed for such obligations. The bill specifically removes the powers of local oversight boards to approve contracts authorized by current law (e.g., contracts between a city and the successor agency) without DOF approval. Sets new deadline for submission of future ROPS by successor agencies (45 days in advance of property tax distribution date), and gives DOF up until five days before that date to remove an item from a ROPS before approval.
     
  3. Diversion of Unencumbered Cash Reserves, Including Housing Funds, to Implement Governor’s May Revise. Requires successor agencies to transfer all accumulated unencumbered cash reserves (estimated at $1.6 billion in FY 2012-13 by DOF), including affordable housing set-aside funds, to county auditor-controllers by dates certain in the upcoming fiscal year. Does not apply to bond reserves, grant funds, funds needed to pay approved enforceable obligations or real estate assets.
     
  4. Clawback of “Improper” Payments to Cities or Private Parties; Use of Sales or Property Tax to Reimburse Improper Payments. Provides clear authorization to DOF, State Controller or county auditor-controllers to claw-back payments that it deems to have been made “improperly” by redevelopment agencies or successor agencies. Includes the ability to off-set any amounts owed through deduction of a city’s sales tax or property tax payments (arguably unconstitutional provisions).
     
  5. Clarification on Bonds, Environmental Immunities and Housing
  • Bond Refunding and Spending Bond Proceeds. Authorizes successor agencies, with oversight board approval, to refund redevelopment tax allocation bonds and contract to expend funds (including bond proceeds) in compliance with an enforceable obligation (e.g., bonds).
  • Environmental Immunities. Transfers immunities under the Polanco Redevelopment Act formerly held by redevelopment agency to the successor agency with responsibility for brownfield assets.
  • Housing Provisions. Contains new definition of “housing assets” that allows successor housing agency to retain rents, loan repayments and payment from developers.  
  1. Legal Status of Successor Agency and Oversight Board Clarified. Clarifies that successor agency is a separate legal entity with separate legal name and power to sue and be sued. Provides that oversight boards are not separate entities, but that as the “second governing body” of the work of the successor agency that it has the right to control city employees that are assigned to work on the affairs of the successor agency.

The League general counsel will provide city attorneys with a more detailed summary of the draft bill. The bill language can be found on the DOF website.



 
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