The Demise of RDAs: An Opportunity to Restore Fiscal Health with a Vision for

Future Economic Development

California Contract Cities Association Annual Municipal Seminar

Indian Wells, California

May 18, 2012

Joseph P. Buchman

Burke Williams & Sorensen LLP444 S. Flower Street

Suite 2400Los Angeles, CA 90071

www.bwslaw.com

(213) 236-2872 (direct)(213) 236-2700 (fax)

jbuchman@bwslaw.com

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City Expenditures

• General Government– Legislative– Management and Support

• Public Safety– Police– Fire– Emergency Medical Services– Street Lighting

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• Transportation– Streets, Highways and Storm Drains– Public Transit– Airports– Ports and Harbors

• Community Development– Planning– Construction and Engineering Regulation

Enforcement

City Expenditures

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• Health– Solid Waste Disposal– Sewers

• Culture and Leisure– Parks and Recreation– Libraries

City Expenditures

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• Public Utilities– Water– Gas– Electricity

City Expenditures

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Summary of City Expenditures

Source: State Controller’s Cities Annual Report for Fiscal Year ending 6/30/2010 (11/11/2011).

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City Revenues • Tax Revenues

– General Property Taxes– Sales and Use Tax and Transactions and

Use Tax– Gross Receipts Tax– Business License Fees and Taxes– Utility Users Tax– Transient Occupancy Tax

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• Tax Revenues (Cont.)– Excise Taxes

• Development Tax• Admissions Tax• Parcel Tax• Documentary Transfer Tax

City Revenues

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• Tax Revenues (Cont.)– Special Taxes

• Mello-Roos• Community Facilities Districts• Police and Fire Protection• Libraries• Transportation

City Revenues

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• Tax Revenues (Cont.)– Special Benefit Assessment Districts

• Public Improvements: street, drainage, flood control, etc.

• Landscaping and Lighting• Business Improvement Districts • Infrastructure Financing Districts

City Revenues

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• Charges, Rates and Fees• Development Fees• Sewer Service Charges and Connection

Fees• Solid Waste Fees• Water Service Charges and Connection

Fees• Franchise Fees: Cable TV, Electricity,

Telephone, Gas and Oil

City Revenues

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• Charges, Rates and Fees (Cont.)• Fines and Forfeitures• Park and Recreation Fees• Airport• Ports and Harbors• Licenses and Permits

City Revenues

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• Intergovernmental Agencies– State Subventions– Federal and State Grants– County and Other Local Agencies Revenue

Sharing

City Revenues

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• Other Financing Sources– Revenues From Use of Money and Property– Gifts– Sale of Bonds– Leasing Public Property

City Revenues

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Summary of City Revenues

Source: State Controller’s Cities Annual Report for Fiscal Year ending 6/30/2010 (11/11/2011).

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City Revenues: Illustration

ServiceCharges

(water, sewer, refuse, etc.)

39%

Fees8% State &

Fed 10%

NotRestricted

36%

Debt Service

1%Taxes 3%

Lic & Permits 2%

Assessments 1%

x

Utility UserTax 4%

Sales Tax 10%

Property Tax11%

Other Tax 7%

Other 4%

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Revenue Losses• ERAF Shifts

– Educational Revenue Augmentation Funds

• Property Tax Shift from Cities, Counties and Special Districts to Schools Since 1992

• FY 2010-11 amount equals $7.5 billion.

– “SERAF” from Redevelopment Agencies

• FY 2010-11 SERAF total was $350 million

• VLF Loss (The “Triple Flip” to the “Flip Off”)

– SB 89 redirects all VLF revenue to law enforcement grants usable only for police services.

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Redevelopment Agencies

• Property Tax Increment Funding

• Expenditures for Community Redevelopment

• Agencies dissolved as of February 1, 2012

• Successor Agencies and Oversight Boards dealing with the aftermath

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ABX1 26 Dissolution Bill• January 10, 2011

– Governor Brown releases budget proposal, includes elimination of redevelopment.

• June 15– State Legislature passes ABx1 26 and 27.

• June 28– Legislature passes new budget bill, and forwards

ABx1 26 and 27 to Governor for signature. Governor signs, and the bills take effect immediately.

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ABX1 26 Dissolution Bill

• Froze redevelopment agency activities other than as necessary to meet “enforceable obligations.”

• Required preparation of Enforceable Obligation Payment Schedule within 60 days of Effective Date.

• Preliminary draft of Recognized Obligation Payment Schedule (“ROPS”) was to be provided to Successor Agency by September 30.

• Dissolution of Agencies to occur October 1, 2011, with a Successor Agency taking over with decisions to be made by an Oversight Board.

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ABX1 26 Dissolution Bill• July 18, 2011

– CRA and LOCC filed suit in California Supreme Court challenging ABx1 26 and 27.

• August 11– Supreme Court announced it would hear lawsuit,

and issued order staying portions of ABx1 26 and all of ABx1 27.

• December 29– Supreme Court upholds ABx1 26 and invalidates

ABx1 27. Pre- May 1, 2012 deadlines extended 4 months. All Redevelopment Agencies dissolve as of February 1, 2012.

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Redevelopment Agencies: Endgame• Oversight Boards

– Formation and duties defined in Health & Safety Code §§ 34179-34181.

– Oversight Board establishes the ROPS for the Successor Agency.

– Oversight Board charged with disposing of all assets and properties of the former RDA funded by tax increment revenues.

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Redevelopment Agencies: Endgame• Former RDA Properties and Assets

– City may retain properties and assets of the former RDA (HSC 34180(f)).

– Requires Compensation Agreement with other taxing entities for the agreed value of the property retained.

– If no agreement on the value of the property, then the county assessor is to determine fair market value as of January 1, 2011.

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Redevelopment Agencies: Endgame• Former RDA Properties and Assets

– Oversight Board may also direct the successor agency to transfer ownership of assets that were constructed and used for a governmental purpose to the appropriate public entity (HSC 34181(a)).

– May require compensation to the successor agency depending on any agreements governing the use of the asset.

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Redevelopment Agencies: Endgame• Former RDA Properties and Assets

– Governor’s Revised State Budget relies on RDA cash assets generating $1.4 billion for K-14 education in FY 2012-13 and estimates another $600 million in FY 2013-14.

– Budget Trailer Bill includes proposed AB x1 26 “Clean-Up” Legislation

– http://www.dof.ca.gov/budgeting/trailer_bill_language/business_transportation_and_housing/documents/%5B210%5D%20ABx1%2026%20Redevelopment%20Clean-Up%20and%20RDA%20Asset%20Disposition.pdf

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Redevelopment Agencies: Endgame• Proposed “Clean-Up” Legislation

– Successor Agency Administrative Cost Allowance

– “Enforceable Agreements” between City and Former RDA

– RDA Assets

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Redevelopment Agencies: Endgame• Proposed “Clean-Up” Legislation

– Successor Agency

• Separate Public Entity/Liabilities

• Has Two Governing Boards

• Can Sue and Be Sued

• Accountant For Due Diligence Review

• Can Issue Bonds to Refund RDA Bonds

• Can File Bankruptcy

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Redevelopment Agencies: Endgame• Proposed “Clean-Up” Legislation

– Oversight Board

• Not a Separate Public Entity

• Cannot Be Sued

• Can Contract For Administrative Support

• Decisions Supersede Those of Successor Agency Board and Staff

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Redevelopment Agencies: Endgame• Proposed “Clean-Up” Legislation

– Department of Finance

• 10 Days Notice Before Disposition of Assets

• Oversight Board’s Decision Not Effective For 5 Business Days, Plus Up to 60 more

• Clawback Authority