The California Supreme Court's decision in California Redevelopment Association (CRA) v. Matosantos (No. S194861), which upheld the legislative dissolution of redevelopment agencies under AB1X 26 and invalidated the "Voluntary Alternative Redevelopment Program Act" (AB1X 27), requires redevelopment agencies (RDAs) to wind down immediately. Cities and RDAs are clamoring for a legislative fix that would delay dissolution and allow time for the Legislature to consider narrower alternatives to the existing redevelopment framework. The likelihood of such a fix is uncertain. But unless it comes quickly, imminent deadlines mean that the disbanding of redevelopment will occur within a matter of weeks.
- The date upon which RDAs shall be dissolved, originally October
1, 2011 under the statute, is now February 1, 2012. In
addition, the California Supreme Court revised each effective date
or deadline in AB1X 26 for performance of an obligation arising
before May 1, 2012 to take effect four months later.
- RDA assets will be transferred to "successor
agencies" and other public entities. The agencies will
assume former RDAs' debt and housing obligations, and county
auditor-controllers will orchestrate the dissolution process under
the state's supervision. The state Department of Finance
and the state controller shall review and may modify certain
oversight board decisions. Funds formerly held by RDAs will
be deemed "property tax revenues" instead of "tax
increment."
- Ultimately, funds that are not required to service debt or make payments for RDA obligations will be transferred to county auditor-controllers and distributed to benefit cities, counties, special districts, and school and community college districts.
This update summarizes (1) the wind-down process for RDAs and successor agencies, (2) oversight and review of the RDA wind-down process, and (3) important compliance deadlines in 2012.
1. Wind-Down Process for RDAs and Successor Agencies
- Suspension of Redevelopment Activities.
Redevelopment activities that have been suspended since AB1X
26 was enacted in June 2011 remain prohibited. In general,
RDAs may not take any actions other than making payments for
enforceable obligations, performing existing contractual
obligations and setting aside required reserves. RDAs may not
incur new or restructure existing indebtedness or other
obligations; make loans or grants; trigger defaults; enter into
contracts; amend existing agreements; prepare draft EIRs; adopt or
amend redevelopment plans; approve programs or projects; or renew
or extend leases.
- Obligation Payments and Schedules.
- By August 27, 2011, each RDA was to have
prepared an Enforceable Obligation Payment Schedule (EOPS) stating
the RDA's monthly payment obligations for various
projects. The EOPS must be publicly adopted, posted on the
website of the city or county that formed the RDA (the
"sponsoring community"), and transmitted (by mail or
electronically) to the county auditor-controller, the state
controller, and the Department of Finance.
- No later than September 30, 2011, each RDA was
required to prepare a "preliminary draft" of the
"initial" Recognized Obligation Payment Schedule (ROPS)
and deliver it to the RDA's successor agency.
- By February 1, 2012, the successor agency must
review and readopt the RDA's EOPS, modifying it if necessary
and create a Redevelopment Obligation Retirement Fund.
- After the county auditor-controller certifies a draft ROPS
prepared by the successor agency, the oversight board must approve
the ROPS by March 1, 2012.
- By April 1, 2012
andstyle="TEXT-DECORATION:
underline">May 1, 2012 (and every December
1 and May 1 thereafter), the successor
agency must report to the county auditor-controller whether the
total amount of property tax available is sufficient to fund ROPS
obligations for next six-month fiscal period.
- The successor agency must submit the first ROPS to the state
controller and the Department of Finance by April 15,
2012. Until a ROPS becomes operative, only EOPS
payments shall be made.
- On May 1, 2012, only ROPS payments shall be
made.
- By August 27, 2011, each RDA was to have
prepared an Enforceable Obligation Payment Schedule (EOPS) stating
the RDA's monthly payment obligations for various
projects. The EOPS must be publicly adopted, posted on the
website of the city or county that formed the RDA (the
"sponsoring community"), and transmitted (by mail or
electronically) to the county auditor-controller, the state
controller, and the Department of Finance.
- Dissolution. Effective February 1,
2012, RDAs will be dissolved. Former RDAs will lose
"all authority to transact business or exercise power"
under the Community Redevelopment Law.
- Formation of Successor Agencies. After RDAs are
dissolved, successor agencies will form and assume former RDAs'
various enforceable obligations. A sponsoring community may
elect to be an RDA's successor agency. However, if the
sponsoring community declines, it must, under AB1X 26, adopt a
resolution to that effect and deliver it to the county
auditor-controller no later than January 13, 2012.
Where the sponsoring community declines, the first
"taxing entity" that submits to the county
auditor-controller a "duly authorized resolution"
electing to become the successor agency shall become the successor
agency. If no local agency elects to be the successor agency,
the governor shall appoint three county residents to serve as the
governing board of a "designated local authority," which
shall serve as the successor agency until a local agency elects to
become the successor agency.
Although not expressly required under AB1X 26, a sponsoring community that chooses to become an RDA's successor agency is advised to adopt an affirmative resolution to that effect and deliver it to the county auditor-controller no later than January 13, 2012.
- Former RDAs' Housing Assets. The sponsoring
community may elect to assume an RDA's housing functions;
retain ownership of the RDA's housing assets (excluding low-
and moderate-income housing funds); and assume the RDA's
related rights, powers, liabilities, duties and obligations.
Alternatively, if the sponsoring community declines to retain
such housing assets, the assets shall be transferred to the
designated local housing authority or the state Department of
Housing and Community Development. The recipient of the
former RDA's housing assets may use certain Community
Redevelopment Law housing powers to fulfill its housing
obligations. While not statutorily required, sponsoring
communities seeking to retain ownership of an RDA's housing
assets are advised to adopt a resolution declaring such intent by
January 13, 2012.
- Successor Agencies' Responsibilities.
Successor agencies shall administer the dissolution and wind down
of RDA activities, including making enforceable obligation payments
and disposing of former RDA property. Their most significant
responsibilities include:
- Holding Assets. Successor agencies shall receive
all assets, properties, contracts, leases, records, buildings and
equipment of former RDAs (apart from unspent affordable housing
funds) and control them, subject to the oversight board's
supervision.
- Making Payments. Former RDAs' pledges
regarding enforceable obligations are "to be
honored." Successor agencies must perform the actions
required by enforceable obligations and make required payments
regarding the former RDA's bonds, loans, employee pension
obligations, legal judgments or settlements, and binding and
enforceable contracts or agreements. With limited exceptions,
the agreements, contracts or arrangements between an RDA and its
sponsoring community are not considered enforceable obligations
binding upon successor agencies. Successor agencies must
prepare ROPS (discussed above), certified by the county
auditor-controller and subject to oversight board approval, for
each six-month period of the fiscal year that identifies the
sources of funds to pay the former RDA's enforceable
obligations.
- Collecting Revenues. Successor agencies must
enforce all rights of former RDAs by collecting loans, rents and
revenues that the RDA would have collected.
- Disposing of Former RDAs' Assets or
Properties. Successor agencies must dispose of former
RDAs' assets or properties funded by tax increment revenues
"expeditiously" and "in a manner aimed at maximizing
value." Sale proceeds not needed for approved projects
or to wind down RDA affairs shall be transferred to the county
auditor-controller to be distributed as property tax
proceeds. Alternatively, the oversight board may transfer
assets constructed and used for a governmental purpose (e.g.,
roads, schools, parks) to the appropriate public
jurisdiction. Compensation received for the asset transfer
shall be governed by the agreements relating to construction or use
of that asset.
- Distributing Housing Fund Balances. Existing
balances in low- and moderate-income housing funds shall be
distributed to schools, counties and special districts based on
calculations made by county auditor-controllers.
- Terminating or Renegotiating Contracts.
Successor agencies shall determine whether any contracts,
agreements or other arrangements between the dissolved RDA and any
private parties shall be terminated or renegotiated to "reduce
liabilities" and "increase net revenues of the taxing
entities."
- Monitoring "Clawback" Attempts. Where an RDA attempted to transfer assets to its sponsoring community or another public agency after January 1, 2011, such assets shall be returned to the RDA or successor agency and used for payment of obligations or distribution as property taxes if the state controller determines the transferred assets is not "contractually committed" to a third party for the "expenditure or encumbrance of those assets."
- Holding Assets. Successor agencies shall receive
all assets, properties, contracts, leases, records, buildings and
equipment of former RDAs (apart from unspent affordable housing
funds) and control them, subject to the oversight board's
supervision.
2. Wind Down Oversight and Review
- Oversight Boards. Certain successor agency
actions, such as making financial decisions, require oversight
board approval. Before May 1, 2012, each
successor agency must provide the Department of Finance with the
names of the members and chairperson of its seven-member oversight
board. With certain exceptions, the following entities may
each appoint one member: the county board of supervisors, the
mayor for the city that formed the RDA, the "largest special
district," and the county superintendent of education (if
elected) or county board of education (if the county superintendent
is appointed). In addition, the mayor or chair of the board
of supervisors may appoint one member representing employees of the
former RDA.
Where the RDA was formed by an entity that is both a charter city and county, the oversight board shall be composed of seven members as follows: three members appointed by the mayor and confirmed by the board of supervisors, one member appointed by the largest special district, one member appointed by the county superintendent of education, one member appointed by the chancellor of the California Community Colleges and one member representing employees of the former RDA appointed by the mayor and confirmed by the board of supervisors.
The governor may fill any vacant oversight board positions not filled by May 15, 2012 or left vacant for more than 60 days.
- Review of Oversight Board Actions. The
Department of Finance may review and modify certain oversight board
actions. In the event the department seeks to review an
action of an oversight board, the department shall have 10 days
from the request date to approve the action or return the action to
the oversight board for "reconsideration" and the
department's subsequent consideration of approval.
- County Auditor-Controller. The county
auditor-controller shall create and administer a Redevelopment
Property Tax Trust Fund for property tax revenues related to each
former RDA. Revenues equivalent to amounts that would have
been allocated as redevelopment tax increment shall be allocated
into this fund for servicing the former RDA's debt obligations.
Funds not necessary for such payments shall be distributed by
the county auditor-controller as property tax proceeds. In
addition, the county auditor-controller shall audit the various
ROPS. By May 16, 2012 and June 1,
2012[1] (and every January 16 and June 1
thereafter), the county auditor-controller must transfer an amount
of property tax revenues specified in the ROPS from the successor
agency's Trust Fund into the Redevelopment Obligation
Retirement Fund. By July 1, 2012, the county
auditor-controller shall audit each RDA in its county to determine
each RDA's assets and liabilities, passthrough payment
obligations to other agencies, and indebtedness. By
July 15, 2012, the county auditor-controller shall
provide the state controller's office a copy of all audits
performed. By October 1, 2012, the county
auditor-controller shall report to the state controller and the
director of finance the property tax revenues remitted to the
Redevelopment Tax Trust Fund, various agencies, and successor
agencies; sums paid to each city, county and special district; and
total amount allocated to schools.
- State Department of Finance and State Controller. The Department of Finance and the state controller shall have authority to monitor successor agencies' enforceable obligations payments and ensure compliance with the dissolution legislation. The Department of Finance and the state controller shall receive reports from the county auditor-controllers and the state controller may audit and review a county auditor-controller's actions. If the state controller requests a review of a given action, the state controller shall have 10 days from the request date to approve the action or return it to the county auditor-controller for reconsideration and the state controller's subsequent consideration of approval.
3. Important Deadlines in 2012
Deadline | Description | Authority |
August 27, 2011 | RDA must adopt an Enforceable Obligation Payment Schedule (EOPS). |
H & S Code § 34169(g); California Supreme Court order |
September 30, 2011 | RDA must prepare a "preliminary draft" of the "initial" Recognized Obligation Payment Schedule (ROPS) and deliver it to successor agency. |
H & S Code § 34169(h); California Supreme Court order |
January 13, 2012 | Sponsoring community declining to be an RDA successor agency must adopt a resolution to that effect and deliver it to the county auditor-controller. | H & S Code § 34173(d)(1), as revised by Matosantos |
January 13, 2012 | Sponsoring community electing to be an RDA successor agency is advised to adopt a resolution to that effect and deliver it to the county auditor-controller. | No statutory authority; this action is recommended in an abundance of caution. |
January 13, 2012 | Sponsoring community seeking to retain ownership of the housing assets of an RDA is advised to adopt a resolution declaring such intent. | No statutory authority; this action is recommended in an abundance of caution. |
February 1, 2012 | RDAs shall be dissolved. | H & S Code § 34169(h), as revised by Matosantos |
February 1, 2012 | Successor agency must review and readopt EOPS adopted by RDA, modifying it if necessary. | H & S Code § 34177(a)(1), as revised by Matosantos |
February 1, 2012 | Successor agency must create Redevelopment Obligation Retirement Fund, which it will administer. | H & S Code § 34170.5 |
March 1, 2012 | Oversight board must approve ROPs. Prior to approval, successor agency must prepare "initial draft" of ROPS, which the county auditor-controller must audit and certify. | H & S Code § 34177(l)(2)(A)-(C), as revised by Matosantos |
April 1, 2012, May 1, 2012* (see foot-note 2) |
Successor agency must report to county auditor-controller whether total amount of property tax available to agency is sufficient to fund ROPS obligations for next six-month fiscal period. (*Each December 1 and May 1 thereafter.) | H & S Code § 34183(b), as revised by Matosantos |
April 15, 2012 | Successor agency must submit first ROPS to the state controller and the Department of Finance. | H & S Code § 34177(l)(3), as revised by Matosantos |
May 1, 2012 | Successor agency must provide the Department of Finance with the names of the members and chairperson of its seven-member oversight board. | H & S Code § 34179(a) |
May 1, 2012 | Only payments listed in ROPS may be made; ROPS shall supersede the Statement of Indebtedness (which will no longer be prepared or have any effect). | H & S Code § 34177(a)(3), as revised by Matosantos |
May 15, 2012 | Governor may fill any vacant oversight board member position if not filled by May 15, 2012 or any member position vacant for more than 60 days. | H & S Code § 34179(b) |
May 16, 2012, June 1, [2] 2012* |
County auditor-controller transfers an amount of property tax revenues specified in the ROPS from the successor agency's Trust Fund into the successor agency's Redevelopment Obligation Retirement Fund. Successor agency makes certain ROPS payments style="FONT-FAMILY: Arial; FONT-SIZE: 11pt">(*each January 16 and June 1 thereafter). | H & S Code § 34183(a)(2), as revised by Matosantos |
July 1, 2012 | County auditor-controller must audit each RDA in its county to determine assets and liabilities, passthrough obligations and indebtedness. | H & S Code § 34182(a)(1)-(2), as revised by Matosantos |
July 15, 2012 | County auditor-controller must provide the state controller a copy of all audits performed. | H & S Code § 34182(b), as revised by Matosantos |
October 1, 2012 | County auditor-controller must report certain financial information to the state controller and the director of finance. | H & S Code § 34182(d) |
The RDA dissolution process leaves numerous questions and challenges parties to respond strategically in order to optimize asset values:
- If you have a contract with a former RDA, are the obligations
of that contract considered "enforceable obligations"
that remain binding on the successor agency?
- Which redevelopment actions undertaken by RDAs in 2011 are
susceptible to being unwound under ABX1 26?
- How much leeway will courts give successor agency oversight
boards to make decisions about former RDA assets? In the case
of conflicts in decisionmaking between the Department of Finance
and successor agencies, will reviewing courts give greater
deference to Department of Finance decisions because the department
is statutorily authorized to review and modify successor
agencies' decisions? Or will courts feel compelled to
defer to successor agencies because such agencies are more likely
to be the local land use authorities who have typically made land
use and land disposition decisions?
- What factors are most important for a sponsoring community to consider in determining whether to assume the role of a successor agency? And what should successor agencies consider in deciding whether to retain the former RDA's housing assets?
This update contains highlights of certain key provisions of AB1X 26 and is not exhaustive. Redevelopment agencies, successor agencies or other parties potentially affected by ABX1 26 are advised to contact counsel for more detailed and fact-specific advice.
Footnotes
[1, 2] These two deadlines are only two weeks apart because the California Supreme Court revised the first deadline (originally January 16, 2012) but left the second deadline (June 1, 2012) unchanged.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.