Former Redevelopment Agency
On February 1, 2012 all Redevelopment Agencies within the State of California were dissolved. Below is an overview of ABx1 26, the Assembly Bill that dissolved Redevelopment Agencies (RDA’s) and provides for the wind-down of redevelopment activities.
In his 2011-12 fiscal year budget, California Governor Jerry Brown proposed eliminating the state’s RDAs to help address the state’s ongoing budget deficit. In June 2011, the Legislature passed, and the Governor signed, two bills in response to his proposal:
1. ABx1 26 prevented RDAs from engaging in new activities and dissolved the agencies effective October 1, 2011. This legislation also outlined the process for winding-down the RDAs’ financial affairs, and set forth a mechanism to distribute any net funds from the RDAs to other local taxing agencies.
2. ABx1 27 would have allowed RDAs to opt-in to an alternative redevelopment program to avoid dissolution. The agencies would have had to agree to transfer annual payments to school and community college districts to continue their functions.
The California Redevelopment Association, the League of California Cities and other parties filed petitions with the Supreme Court challenging both ABx1 26 and ABx1 27 on constitutional grounds. The Supreme Court imposed a partial stay on the implementation of the two pieces of legislation and reviewed the issues on an expedited basis.
On December 29, 2011, the California Supreme Court upheld the constitutionality of ABx1 26 and struck down ABx1 27 as unconstitutional. It also extended some of the deadlines and dates stipulated in ABx1 26 by four months because of the delay caused by the litigation. As a result of the Supreme Court’s decision in California Redevelopment Association versus Matosantos, California’s approximately 400 RDAs were dissolved on February 1, 2012. The assets and liabilities (excluding housing assets) of RDAs have now been transferred to Successor Agencies pursuant to ABx1 26. A separate Successor Housing Agency manages the RDA’s housing assets.
On August 18, 2011, in accordance with State law, the City of Coalinga Redevelopment Agency adopted the Enforceable Obligation Payment Schedule (EOPS). Please see attached for the EOPS as adopted. Please direct all questions regarding the EOPS to the Coalinga Finance Department by calling 559-935-1533.
The state Legislature authorized the formation of redevelopment agencies through approval of the Community Redevelopment Law (CRL). The CRL allowed local governments to form redevelopment agencies to “prepare and carry out plans for the improvement, rehabilitation and redevelopment of blighted areas.” Once an area had been designated as “blighted,” RDAs could acquire real property, dispose of the property by lease or sale, clear land, construct infrastructure necessary for building on project sites, and undertake improvements to public facilities in designated project areas.
In 1952, California voters approved a constitutional amendment that allowed RDAs to use tax increment financing to fund their redevelopment plans. Tax increment financing allowed redevelopment agencies to capture increased property tax revenue in their project areas to fund their activities.
Once a project area was designated and a redevelopment plan was adopted, a base year was set for property tax revenues. All of the other taxing entities in the project area (e.g, school districts, county governments, flood control districts, library districts, etc.) had their property tax revenue frozen at this base year level. Any increased tax revenue above the base year level went to the redevelopment agency until the redevelopment project ended.
Over time, this meant that property tax revenue going to many local jurisdictions stayed frozen while the amount of tax increment collected by RDAs grew. The redevelopment agencies were entitled to receive the additional revenue for the life of the redevelopment project, which typically lasted for decades.
The RDAs used tax increment revenue to issue bonds that financed their redevelopment activities. The tax increment and bond proceeds generally could only be spent within the boundaries of the project area (with very limited exceptions for affordable housing and public works). Neither the establishment of a redevelopment project area, nor the issuance of bonds required approval of the other taxing entities.
Over the years, RDAs issued billions of dollars in debt and entered into numerous agreements and contracts to carry out redevelopment activities. ABx1 26 attempts to honor those debt obligations and other legally enforceable contracts, but the bill stopped RDAs from pursuing any new activities that might continue to divert increment dollars away from other local taxing entities.
In 1976, the Legislature directed redevelopment agencies to set aside 20% of the tax increment collected in a project area to be used by the agency to increase, improve, and preserve the community’s supply of affordable housing. It required that funding be used predominantly within the project area. This 20% set aside was held in a Low and Moderate Income Housing Fund.
Under ABx1 26, the former RDA’s housing functions and most of its housing assets were transferred to a “Successor Housing Agency,” separate from the RDA successor agencies. Housing assets that transfer to the Successor Housing Agency include property, rental payments, bond proceeds, lines of credit, certain loan repayments, and other housing-related revenue sources. The unencumbered balance in the former RDA’s Low and Moderate Income Housing Fund, however, does not transfer to the Successor Housing Agency. ABx1 26 directs the county auditor-controller to distribute the unencumbered balance in the housing fund as property tax proceeds to the affected local taxing entities. However, there are efforts under consideration by the Legislature to transfer the Low and Moderate Income Housing Funds to the Successor Agency and thus preserve these funds for affordable housing development.
While tax increment finance was a boon to redevelopment agencies, it had the potential to limit the amount of property tax revenues distributed to other taxing agencies in the RDA project areas. Because of this, the Legislature allowed local taxing entities to receive a share of the tax increment. Many RDAs made payments “to local agencies to partly offset these agencies’ property tax losses associated with redevelopment.” The transfer of funds was called a “pass-through payment” because they “pass-through” the RDA before going to the taxing entity.
Before 1994, RDAs were allowed to negotiate with local jurisdictions to determine the amount of tax increment that local taxing agencies would receive. These arrangements “sometimes were negotiated as part of a settlement of a dispute over the legality of a proposed project area.” In some cases, RDAs agreed to negotiate up to “100% pass-through payments to the county and special districts, meaning that these agencies received their entire share of the property tax in pass-through payments.” Most school districts had less incentive to negotiate pass-through agreements since, under state law, “the state reimbursed them for any lost property tax revenue.” However, the reimbursement costs paid by the state “grew rapidly to hundreds of millions of dollars per year.”
Assembly Bill 1290 “replaced negotiated agreements with a schedule of payments,” meaning that RDAs could no longer craft special pass-through agreements with local agencies. Previously negotiated pass-through agreements were still enforced, but AB 1290 prohibited the creation of new agreements. Instead, they had to follow an established formula that delineated pass-through payment amounts for each local taxing jurisdiction. These payments were distributed to all local agencies based on each jurisdiction’s pre-determined proportionate share.
The pass-through payments are relevant to the RDA dissolution process because different interpretations of ABx1 26 can effect whether a taxing entity will continue to receive the same amount of pass-through payments as it did prior to ABx1 26’s enactment.