BILL NUMBER: SB 409AMENDED BILL TEXT AMENDED IN SENATE APRIL 9, 2013 AMENDED IN SENATE APRIL 1, 2013 INTRODUCED BY Senator Emmerson FEBRUARY 20, 2013 An act to amend Sections 34171, 34178, and 34191.4 of, and to add Section 34004.2 to, the Health and Safety Code, relating to disaster recovery project areas. LEGISLATIVE COUNSEL'S DIGEST SB 409, as amended, Emmerson. Disaster recovery project areas: enforceable obligations. The Community Redevelopment Law authorizes the establishment of redevelopment agencies in communities to address the effects of blight, as defined. Existing law dissolved redevelopment agencies and community development agencies, as of February 1, 2012, and provides for the designation of successor agencies. Existing law imposes various requirements on successor agencies and subjects successor agency actions to the review of oversight boards. Existing law requires each oversight board to direct the successor agency to, among other things, cease performance in connection with and terminate all existing agreements that do not qualify as enforceable obligations, as defined. This bill would provide that a loan provided by a city, county, or city and county to a redevelopment agency that was entered into prior to January 1, 2011, for the purposes of funding the installation and construction of roadways, public improvements, and public utilities in a disaster recovery project area, and for the provision of residential water system or other utility connection subsidies to low- and moderate-income residents of that project area is an enforceable obligation and may be repaid, as specified. The bill would authorize a city, county, city and county, or housing authority acting in its capacity as the successor to a former redevelopment agency to retain and use those loan proceeds pursuant to the loan agreement and would require the return of any funds previously deposited into the Low and Moderate Income Housing Fund of the former redevelopment agency to the entity that assumed the housing functions of the former redevelopment agency. The bill would also prohibit the Department of Finance, the State Board of Equalization, the State Controller, and a county auditor-controller from imposing any statutory remedies upon a city, county, city and county, or a successor agency and would require the reversal, within 30 days of the effective date of this bill, of any statutory remedy previously imposed. The bill would also make conforming changes. Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. The Legislature hereby finds and determines all of the following: (a) The redevelopment and revitalization of areas devastated by flood, fire, hurricane, earthquake, storm, tidal wave, or other catastrophes is a matter of statewide concern. (b) In enacting the Community Redevelopment Disaster Project Law, the Legislature intended to facilitate the physical and economic recovery of areas devastated by natural disasters and other catastrophes. (c) The construction and installation of public improvements, including roadways, water systems, and other utilities in disaster recovery project areas is essential to the economic recovery of those areas and the health, safety, and welfare of persons who reside within and near those areas. (d) The construction and installation of public improvements, including roadways, water systems, and other utilities in disaster recovery project areas is essential to catalyze the establishment of business enterprises within and near those areas. (e) The redevelopment and revitalization of disaster recovery project areas will result in increased property tax, sales tax, and other revenues to local communities, local taxing entities including schools and community college districts, and the State of California. (f) The failure to permit successor agencies to use the proceeds of loans originated for the purpose of facilitating the redevelopment and revitalization of disaster recovery project areas would significantly delay, and potentially prevent, the revitalization of those areas and their return to productive economic use. (g) Public works projects planned for the Cedar Glen Disaster Recovery Project Area were delayed due to a private water company's financial problems after a devastating forest fire. As a result, water system and roadway improvement projects are not complete, and the proceeds of a loan provided by the County of San Bernardino to fund those public works and water system connection subsidies remain available for those purposes. (h) In 2003, the Old Fire destroyed 324 homes in the Cedar Glen community. Lack of an adequate water system and roadway access were determined to be primary causes of the devastation. (i) The County of San Bernardino established the Cedar Glen Disaster Recovery Project Area and adopted a plan to assist property owners,residentsresidents, and business owners to recover from the fire damage and eliminate blighted conditions that preexisted the fire and contributed to the scale of its damage. To assist in the recovery of the project area, the county provided a $10,000,000 loan using county general fund revenue to finance water system and roadway improvements and to fund water system connection fee subsidies for low- and moderate-income homeowners. (j) The Department of Housing and Community Development awarded a State of California Disaster Recovery Initiative grant to assist in the recovery. The terms of the grant required it to be spent by April 30, 2009. As a result of this requirement and delays that resulted from the water company's placement status in receivership, the expenditure of the county loan proceeds was delayed, and approximately $9,000,000 of the loan proceeds remain unspent. (k) The critical need for water system, roadway, and other public improvements remains unmet. (l) In connection with the wind-down of the affairs of the successor agencies, the Department of Finance has determined that the remaining proceeds loans made to redevelopment agencies operating in disaster recovery project areas may not be spent to fund the public improvements and related activities for which the loans were originated, and may not be returned to the public entities that originated those loans, but instead must be remitted to the county auditor-controller and distributed to affected taxing entities. (m) It is in the public interest and the interest of the health, safety, and welfare of persons residing in and near disaster recovery project areas to permit successor agencies to spend the remaining proceeds of loans originated to fund public improvements in those areas for the purposes for which the loans were originated, and to permit the loans to be repaid to the public entities that originated those loans. SEC. 2. Section 34004.2 is added to the Health and Safety Code, to read: 34004.2. (a) Notwithstanding subdivision (b) of Section 34191.4, or any other law, a loan provided by a city, county, or city and county to a redevelopment agency pursuant to a written agreement entered into prior to January 1, 2011, for the purpose of funding the installation and construction of roadways, public improvements, and public utilities in a disaster recovery project area, and for the provision of residential water system or other utility connection subsidies to low- and moderate-income residents of a disaster recovery project area, shall be deemed to be an enforceable obligation within the meaning of paragraph (1) of subdivision (d) of Section 34171, and may be repaid pursuant to the terms set forth in the written agreement notwithstanding any contrary provision of law. (b) Notwithstanding subdivision (d) of Section 34177 and Section 34179.6, or any other law, the proceeds of loans described in subdivision (a) shall be used for the purposes for which the loans were made, and the successor agency may retain the proceeds of those loans and enter into agreements for the expenditure of the loan proceeds for those purposes, including, but not limited to, agreements with the city, county, or city and county, that formed the redevelopment agency to which the successor agency has succeeded. These actions shall not be subject to review by the successor agency' s oversight board or by the Department of Finance. (c) Notwithstanding subdivision (d) of Section 34177 and Section 34179.6, or any other law, a city, county, city and county, or housing authority acting in its capacity as the successor to the housing functions of a former redevelopment agency, may receive and use that portion of the proceeds of loans described in subdivision (a) that had been deposited into the Low and Moderate Income Housing Fund of the former redevelopment agency to provide residential water system or other utility connection subsidies to low- and moderate-income residents of a disaster recovery project area, and the successor agency shall transfer those funds to the entity that assumed the housing functions of the former redevelopment agency for that purpose. These actions shall not be subject to review by the successor agency's oversight board or by the Department of Finance. (d) Notwithstanding any other law, the Department of Finance, the State Board of Equalization, the Controller, or the county auditor-controller shall not have the authority to impose any of the remedies described in subdivision (h) of Section 34179.6 in connection with any failure of a city, county, city and county, or successor agency to remit any portion of the proceeds of a loan described in subdivision (a) to the county auditor-controller. If the Department of Finance, the State Board of Equalization, the Controller, or the county auditor-controller have imposed any of the remedies described in subdivision (h) of Section 34179.6 in connection with any failure of a city, county, or city and county or the successor agency to remit any portion of the proceeds of a loan described in subdivision (a) to the county auditor-controller, then any remedy imposed, including, but not limited to, any reduction in, or offset of, sales and use tax or property tax allocations, any fine or penalty, and any reduction in the allocation of property tax to the successor agency shall be rescinded, and all reductions in or offsets to, any revenue, tax, or fund shall be returned to the city, county, or city and county or to the successor agency, as applicable, within 30 days following the effective date of the act adding this section. (e) Notwithstanding any other law, the Department of Finance shall not withhold the issuance of a finding of completion to a successor agency pursuant to Section 34179.7 on the basis of any failure of the city, county, or city and county or the successor agency to remit any portion of the proceeds of a loan described in subdivision (a) to the county auditor-controller. (f) For the purposes of this section, "disaster recovery project area" means a project area created pursuant to Part 1.5 (commencing with Section 34000). SEC. 3. Section 34171 of the Health and Safety Code is amended to read: 34171. The following terms shall have the following meanings: (a) "Administrative budget" means the budget for administrative costs of the successor agencies as provided in Section 34177. (b) "Administrative cost allowance" means an amount that, subject to the approval of the oversight board, is payable from property tax revenues of up to 5 percent of the property tax allocated to the successor agency on the Recognized Obligation Payment Schedule covering the period January 1, 2012, through June 30, 2012, and up to 3 percent of the property tax allocated to the Redevelopment Obligation Retirement Fund money that is allocated to the successor agency for each fiscal year thereafter; provided, however, that the amount shall not be less than two hundred fifty thousand dollars ($250,000), unless the oversight board reduces this amount, for any fiscal year or such lesser amount as agreed to by the successor agency. However, the allowance amount shall exclude, and shall not apply to, any administrative costs that can be paid from bond proceeds or from sources other than property tax. Administrative cost allowances shall exclude any litigation expenses related to assets or obligations, settlements and judgments, and the costs of maintaining assets prior to disposition. Employee costs associated with work on specific project implementation activities, including, but not limited to, construction inspection, project management, or actual construction, shall be considered project-specific costs and shall not constitute administrative costs. (c) "Designated local authority" shall mean a public entity formed pursuant to subdivision (d) of Section 34173. (d) (1) "Enforceable obligation" means any of the following: (A) Bonds, as defined by Section 33602 and bonds issued pursuant to Chapter 10.5 (commencing with Section 5850) of Division 6 of Title 1 of the Government Code, including the required debt service, reserve set-asides, and any other payments required under the indenture or similar documents governing the issuance of the outstanding bonds of the former redevelopment agency. A reserve may be held when required by the bond indenture or when the next property tax allocation will be insufficient to pay all obligations due under the provisions of the bond for the next payment due in the following half of the calendar year. (B) Loans of moneys borrowed by the redevelopment agency for a lawful purpose, to the extent they are legally required to be repaid pursuant to a required repayment schedule or other mandatory loan terms. (C) Payments required by the federal government, preexisting obligations to the state or obligations imposed by state law, other than passthrough payments that are made by the county auditor-controller pursuant to Section 34183, or legally enforceable payments required in connection with the agencies' employees, including, but not limited to, pension payments, pension obligation debt service, unemployment payments, or other obligations conferred through a collective bargaining agreement. Costs incurred to fulfill collective bargaining agreements for layoffs or terminations of city employees who performed work directly on behalf of the former redevelopment agency shall be considered enforceable obligations payable from property tax funds. The obligations to employees specified in this subparagraph shall remain enforceable obligations payable from property tax funds for any employee to whom those obligations apply if that employee is transferred to the entity assuming the housing functions of the former redevelopment agency pursuant to Section 34176. The successor agency or designated local authority shall enter into an agreement with the housing entity to reimburse it for any costs of the employee obligations. (D) Judgments or settlements entered by a competent court of law or binding arbitration decisions against the former redevelopment agency, other than passthrough payments that are made by the county auditor-controller pursuant to Section 34183. Along with the successor agency, the oversight board shall have the authority and standing to appeal any judgment or to set aside any settlement or arbitration decision. (E) Any legally binding and enforceable agreement or contract that is not otherwise void as violating the debt limit or public policy. However, nothing in this act shall prohibit either the successor agency, with the approval or at the direction of the oversight board, or the oversight board itself from terminating any existing agreements or contracts and providing any necessary and required compensation or remediation for such termination. Titles of or headings used on or in a document shall not be relevant in determining the existence of an enforceable obligation. (F) Contracts or agreements necessary for the administration or operation of the successor agency, in accordance with this part, including, but not limited to, agreements concerning litigation expenses related to assets or obligations, settlements and judgments, and the costs of maintaining assets prior to disposition, and agreements to purchase or rent office space, equipment and supplies, and pay-related expenses pursuant to Section 33127 and for carrying insurance pursuant to Section 33134. (G) Amounts borrowed from, or payments owing to, the Low and Moderate Income Housing Fund of a redevelopment agency, which had been deferred as of the effective date of the act adding this part; provided, however, that the repayment schedule is approved by the oversight board. Repayments shall be transferred to the Low and Moderate Income Housing Asset Fund established pursuant to subdivision (d) of Section 34176 as a housing asset and shall be used in a manner consistent with the affordable housing requirements of the Community Redevelopment Law (Part 1 (commencing with Section 33000)). (H) Loan agreements described in subdivision (a) of Section 34004.2. (2) For purposes of this part, "enforceable obligation" does not include any agreements, contracts, or arrangements between the city, county, or city and county that created the redevelopment agency and the former redevelopment agency. However, written agreements entered into (A) at the time of issuance, but in no event later than December 31, 2010, of indebtedness obligations, and (B) solely for the purpose of securing or repaying those indebtedness obligations may be deemed enforceable obligations for purposes of this part. Notwithstanding this paragraph, loan agreements entered into between the redevelopment agency and the city, county, or city and county that created it, within two years of the date of creation of the redevelopment agency, may be deemed to be enforceable obligations, and loan agreements described in subdivision (a) of Section 34004.2 shall be deemed to be enforceable obligations. (3) Contracts or agreements between the former redevelopment agency and other public agencies, to perform services or provide funding for governmental or private services or capital projects outside of redevelopment project areas that do not provide benefit to the redevelopment project and thus were not properly authorized under Part 1 (commencing with Section 33000) shall be deemed void on the effective date of this part; provided, however, that such contracts or agreements for the provision of housing properly authorized under Part 1 (commencing with Section 33000) shall not be deemed void. (e) "Indebtedness obligations" means bonds, notes, certificates of participation, or other evidence of indebtedness, issued or delivered by the redevelopment agency, or by a joint exercise of powers authority created by the redevelopment agency, to third-party investors or bondholders to finance or refinance redevelopment projects undertaken by the redevelopment agency in compliance with the Community Redevelopment Law (Part 1 (commencing with Section 33000)). (f) "Oversight board" shall mean each entity established pursuant to Section 34179. (g) "Recognized obligation" means an obligation listed in the Recognized Obligation Payment Schedule. (h) "Recognized Obligation Payment Schedule" means the document setting forth the minimum payment amounts and due dates of payments required by enforceable obligations for each six-month fiscal period as provided in subdivision (m) of Section 34177. (i) "School entity" means any entity defined as such in subdivision (f) of Section 95 of the Revenue and Taxation Code. (j) "Successor agency" means the successor entity to the former redevelopment agency as described in Section 34173. (k) "Taxing entities" means cities, counties, a city and county, special districts, and school entities, as defined in subdivision (f) of Section 95 of the Revenue and Taxation Code, that receive passthrough payments and distributions of property taxes pursuant to the provisions of this part. (l) "Property taxes" include all property tax revenues, including those from unitary and supplemental and roll corrections applicable to tax increment. (m) "Department" means the Department of Finance unless the context clearly refers to another state agency. (n) "Sponsoring entity" means the city, county, or city and county, or other entity that authorized the creation of each redevelopment agency. (o) "Final judicial determination" means a final judicial determination made by any state court that is not appealed, or by a court of appellate jurisdiction that is not further appealed, in an action by any party. SEC. 4. Section 34178 of the Health and Safety Code is amended to read: 34178. (a) Commencing on the operative date of this part, agreements, contracts, or arrangements between the city or county, or city and county that created the redevelopment agency and the redevelopment agency are invalid and shall not be binding on the successor agency; provided, however, that a successor entity wishing to enter or reenter into agreements with the city, county, or city and county that formed the redevelopment agency that it is succeeding may do so upon obtaining the approval of its oversight board. A successor agency or an oversight board shall not exercise the powers granted by this subdivision to restore funding for an enforceable obligation that was deleted or reduced by the Department of Finance pursuant to subdivision (h) of Section 34179 unless it reflects the decisions made during the meet and confer process with the Department of Finance or pursuant to a court order. (b) Notwithstanding subdivision (a), any of the following agreements are not invalid and may bind the successor agency: (1) A duly authorized written agreement entered into at the time of issuance, but in no event later than December 31, 2010, of indebtedness obligations, and solely for the purpose of securing or repaying those indebtedness obligations. (2) A written agreement between a redevelopment agency and the city, county, or city and county that created it that provided loans or other startup funds for the redevelopment agency that were entered into within two years of the formation of the redevelopment agency. (3) A joint exercise of powers agreement in which the redevelopment agency is a member of the joint powers authority. However, upon assignment to the successor agency by operation of the act adding this part, the successor agency's rights, duties, and performance obligations under that joint exercise of powers agreement shall be limited by the constraints imposed on successor agencies by the act adding this part. (4) A written loan agreement between a redevelopment agency and the city, county, or city and county that created it as described in subdivision (a) of Section 34004.2. SEC. 5. Section 34191.4 of the Health and Safety Code is amended to read: 34191.4. The following provisions shall apply to any successor agency that has been issued a finding of completion by the Department of Finance: (a) All real property and interests in real property identified in subparagraph (C) of paragraph (5) of subdivision (c) of Section 34179.5 shall be transferred to the Community Redevelopment Property Trust Fund of the successor agency upon approval by the Department of Finance of the long-range property management plan submitted by the successor agency pursuant to subdivision (b) of Section 34191.7 unless that property is subject to the requirements of any existing enforceable obligation. (b) (1) Notwithstanding subdivision (d) of Section 34171, upon application by the successor agency and approval by the oversight board, loan agreements entered into between the redevelopment agency and the city, county, or city and county that createdbythe redevelopment agency shall be deemed to be enforceable obligations provided that the oversight board makes a finding that the loan was for legitimate redevelopment purposes. (2) If the oversight board finds that the loan is an enforceable obligation, the accumulated interest on the remaining principal amount of the loan shall be recalculated from origination at the interest rate earned by funds deposited into the Local Agency Investment Fund. The loan shall be repaid to the city, county, or city and county in accordance with a defined schedule over a reasonable term of years at an interest rate not to exceed the interest rate earned by funds deposited into the Local Agency Investment Fund. The annual loan repayments provided for in the recognized obligations payment schedules shall be subject to all of the following limitations: (A) Loan repayments shall not be made prior to the 2013-14 fiscal year. Beginning in the 2013-14 fiscal year, the maximum repayment amount authorized each fiscal year for repayments made pursuant to this subdivision and paragraph (7) of subdivision (e) of Section 34176 combined shall be equal to one-half of the increase between the amount distributed to the taxing entities pursuant to paragraph (4) of subdivision (a) of Section 34183 in that fiscal year and the amount distributed to taxing entities pursuant to that paragraph in the 2012-13 base year. Loan or deferral repayments made pursuant to this subdivision shall be second in priority to amounts to be repaid pursuant to paragraph (7) of subdivision (e) of Section 34176. (B) Repayments received by the city,countycounty, or city and county that formed the redevelopment agency shall first be used to retire any outstanding amounts borrowed and owed to the Low and Moderate Income Housing Fund of the former redevelopment agency for purposes of the Supplemental Educational Revenue Augmentation Fund and shall be distributed to the Low and Moderate Income Housing Asset Fund established by subdivision (d) of Section 34176. (C) Twenty percent of any loan repayment shall be deducted from the loan repayment amount and shall be transferred to the Low and Moderate Income Housing Asset Fund, after all outstanding loans from the Low and Moderate Income Housing Fund for purposes of the Supplemental Educational Revenue Augmentation Fund have been paid. (3) Notwithstanding subdivision (b) or any other law, loan agreements described in subdivision (a) of Section 34004.2 shall be repaid pursuant to the terms set forth in the loan agreement. (c) (1) Bond proceeds derived from bonds issued on or before December 31, 2010, shall be used for the purposes for which the bonds were sold. (2) (A) Notwithstanding Section 34177.3 or any other conflicting provision of law, bond proceeds in excess of the amounts needed to satisfy approved enforceable obligations shall thereafter be expended in a manner consistent with the original bond covenants. Enforceable obligations may be satisfied by the creation of reserves for projects that are the subject of the enforceable obligation and that are consistent with the contractual obligations for those projects, or by expending funds to complete the projects. An expenditure made pursuant to this paragraph shall constitute the creation of excess bond proceeds obligations to be paid from the excess proceeds. Excess bond proceeds obligations shall be listed separately on the Recognized Obligation Payment Schedule submitted by the successor agency. (B) If remaining bond proceeds cannot be spent in a manner consistent with the bond covenants pursuant to subparagraph (A), the proceeds shall be used to defease the bonds or to purchase those same outstanding bonds on the open market for cancellation.