New Laws Impact Redevelopment Wind-Down Process

October 2015

On September 22, 2015, Governor Brown signed two redevelopment bills of interest to school districts.  Senate Bill 107 (“SB 107”) provides comprehensive clean-up and clarification to portions of the redevelopment agency (“RDA”) dissolution or “wind-down” process.  Assembly Bill 2 (“AB 2”) aims to revive limited redevelopment activities by allowing certain underprivileged communities to divert property tax revenue towards revitalization projects, although school district tax revenue is specifically excluded and will not be diverted.  Certain provisions of SB 107 take effect immediately, with remaining provisions becoming effective throughout 2016 and 2017.  AB 2 takes effect on January 1, 2016.

By way of background, as part of the 2011 Budget Act, the California Legislature approved the dissolution of the state’s RDAs.  After a period of litigation, RDAs were officially dissolved as of February 1, 2012.  To help facilitate the winding down process at the local level, successor agencies were established to manage redevelopment projects currently underway, make payments on enforceable obligations, and dispose of redevelopment assets and properties.  Each successor agency has an oversight board that supervises its work.  The oversight board is comprised of representatives of the local agencies that serve the redevelopment project area: the city, county, special districts, and K-14 educational agencies.

SB 107 amends various provisions of the Health and Safety Code relating to the RDA dissolution process.  Among a number of significant changes, SB 107 does the following:

  • Oversight Board Consolidation.  Previous law required local oversight boards to consolidate into county-wide oversight boards by July 1, 2016.  For example, any county with more than 40 oversight boards will consolidate to 5 county-wide oversight boards.  Currently, many school districts have members serving on local oversight boards, allowing for increased input on successor agency actions.  SB 107 delays this transition until July 1, 2018, providing two additional years for local oversight board control of successor agencies. 
  • Termination of Successor Agencies.  Existing law allowed a successor agency to automatically terminate once all of its debt had been paid off or retired.  School districts have expressed concern that certain successor agencies may terminate before fully satisfying their pass-through payment obligations.  SB 107 slows down this termination process, requiring the successor agency to submit a request to the oversight board to formally dissolve, with a copy to the county auditor-controller.  The oversight board then has 30 days to approve the request, make certain required findings, and forward the request to the Department of Finance for further review.  Although the premature termination of pass-through payments remains an issue for some school districts, SB 107 provide new opportunities for local agency input on pass-through payment impacts and other issues prior to successor agency dissolution.

  • Annual Recognized Obligation Payment Schedule (“ROPS”).  Beginning in February 2016, the ROPS process, in which successor agencies submit a list of the enforceable obligations for funding every six months, will switch to an annual reporting schedule.  Under SB 107, successor agencies will only be required to submit ROPS once a year beginning on February 1, 2016 and each February 1st thereafter, with the Department of Finance ruling no later than April 15th in each year.  This will create a more streamlined process, but may impact school districts that have entered into settlement agreements and other arrangements with successor agencies that rely on a semi-annual payment schedule under the prior ROPS structure. 
  • New Enforceable Obligations Recognized.  SB 107 expands the definition of “enforceable obligations” to include three new categories: (1) loan agreements between cities and former RDAs (created prior to June 28, 2011) solely for the purpose of refunding or repaying outstanding loans or development obligations; (2) contracts related to improving state highway infrastructure; and (3) agreements to repay a grant or loan from a federal agency.  This change poses no immediate impact to school districts, but could modify the amount of residual redevelopment funds that will remain available for distribution to taxing entities as part of the dissolution process. 

AB 2 allows for the creation of a community revitalization investment authority (“Authority”), a local public body with jurisdiction to carry out a community revitalization plan. Creation of an Authority is limited to those communities that continue to suffer from conditions of unemployment, high crime rates, deteriorated or inadequate infrastructure, and lack of affordable housing.  The Authority is similar to an RDA in that it will allow a community to allocate property tax increment of consenting local entities towards affordable housing, crime prevention, waste clean-up, and job creation.  The Authority will not be able to divert property tax shares from school districts, however, because school districts are specifically excluded under this statutory scheme.  The Authorities are modeled on now-defunct RDAs, but with increased fiscal accountability and oversight, as well as a larger required contribution to low-income housing. 

School districts in redevelopment areas—especially those still receiving pass-through payments under law or contract—should review their current arrangements with successor agencies and oversight boards given the changes under SB 107.  If you have any questions regarding this matter, please call one of our six offices.

F3 NewsFlash prepared by Peter K. Fagen, Kathleen J. McKee, Kelley A. Owens and John W. Norlin.
Peter is a Partner in the F3 San Diego office.
Kathy is a Partner in the F3 San Diego office.
Kelley is a Senior Associate in the F3 San Diego office.
John is Special Counsel in the F3 San Diego office.

This F3 NewsFlash is a summary only and not legal advice.  We recommend that you consult with legal counsel to determine how this legal development may apply to your specific facts and circumstances.  Information on a free NewsFlash subscription can be found at www.f3law.com.

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