California Planning & Development Report
The Supreme Court’s redevelopment ruling last Thursday didn’t just kill redevelopment agencies. By upholding AB 1x 26 — the kill-redevelopment bill — the court ruling also triggered an entire funeral procession that will shut the agencies down and transition their debt and their assets to other agencies.
That process is sure to trigger more controversy, and probably lots more litigation, as cities try to protect assets they transferred away from RDAs last year.
Other agencies, such as the state, counties, and school districts, will try to grab hold of those assets.
The ruling puts each county’s auditor-controller in the middle of this process. But AB 1x 26 essentially represents a state takeover of tax-increment funds that are not required to pay debt by giving enormous power in the process to the Dept. of Finance. AB 1x 26 assigns different responsibilities to five different players in the funeral procession.
These are:
1. Successor Agencies — which will usually be the underlying entity that created the Agencies in the first place (normally a city, but sometimes a county)
2. Oversight Boards — for each Redevelopment Agency, which will mostly be controlled by counties and schools.
3. Each county’s auditor-controller — who is responsible for collecting and dispersing property taxes.
4. The state Dept. of Finance.
5. The State Controller.
Here’s what AB 1x 26 calls on these entities to do:
Upon dissolution of theRedevelopment Agency, all assets and liabilities of the Agency revert to the “Successor Agency,” typically a city. At first the city would still be required to pay debt and other “legally enforceable obligations.” But the city can’t continue to operate as the Redevelopment Agency would. The auditor-controller and especially the Oversight Board has most of the power in determining what to do.
By March 1, each county’s auditor-controller is supposed to do an audit of each Agency’s assets and required payments and provide those audits to the State Controller by March 15. This schedule was originally based on the assumption that the Agencies would vanish on Oct. 1, not Dec. 29.
It is unlikely that the auditor-controllers can stick to this schedule. But this step is really important, because the auditor-controllers in each county have to create a “Redevelopment Obligation Trust Fund,” where the funds required to meet Agency obligations will be placed.
In other words, the city will not get the tax-increment money. The tax-increment funds required to pay Agency debt and other obligations will be placed in a trust fund. The rest will be distributed to taxing agencies as regular property tax is – which is typically something like 50 percent to schools, 33 percent to school districts, 15 percent to cities, and a sprinkling to special districts. (This varies throughout the state.)
Meanwhile, an Oversight Board must be created for every Agency. Each Oversight Board will have seven members: two by the mayor, two by the county board of supervisors, one by the special districts in the former Redevelopment Agency, one by the county school superintendent, and one by the local community college chancellor. Obviously, in every county, and even in large cities, there will be many Oversight Boards with overlapping memberships.
This is supposed to be representative of all the agencies that share property tax. But it should be obvious that counties and schools will run this show.
And run the show they do – up to a point. The city prepares a debt- and-obligation schedule, which is reviewed by an auditor selected by the auditor-controller, as well as an administrative budget.
The Oversight Board approves both. The Oversight Board is also charged with disposing of Agency assets. Government buildings get turned over to the appropriate government agency. The proceeds of other asset sales are divided among the taxing agencies proportionally. They decide whether Redevelopment Agency affordable housing money will go back to the cities or go to the housing authorities instead.
But the Oversight Committee is not the final word.
This is a really important point in seeing how the state is truly taking control of Agency funds. Both the State Controller and the Dept. of Finance play an important role in overseeing the Oversight Committees, as follows:
• The “Redevelopment Obligation Repayment Schedule” prepared by every city must be approved not only by the Oversight Committee but also by both the Dept. of Finance and the State Controller.
• The Dept. of Finance has the power to overturn any action by any Oversight Committee. You can see all the different messy situations that could arise:
• Cities could start paying off obligations they see as binding, only to be overturned by somebody else when the repayment schedule is reviewed by the Oversight Committee or by the state, which means the cities would have to get the money back or cover the cost.
• No matter where the cities land on the repayment obligations, the three review entities — the Oversight Committee, the Dept. of Finance, and the State Controller — could get into big fights over which repayments should be made. The State Controller will be more independent of short-term revenue concerns than the other two entities. If this holds up decisions on who get repaid, this could cause concern about California in the bond market.
• The other taxing entities could start suing the cities on some of the asset transfers they made away from Agencies (this is almost certain to happen).
• Naïve oversight committees could go into “fire sale” mode on former Agency assets, which could have a significant impact on urban property values in the whole state. • The Oversight Comittees and the Dept. of Finance could get into protracted, ugly battles, even litigation, over the question of whether and how to dispose of assets.
In case you are wondering, this whole process starts … now. Yes, the redevelopment establishment is back in Sacramento this week trying to get a new bill passed. In the meantime, surely the Dept. of Finance and the counties, the two big financial losers in redevelopment, will start pushing to create the Oversight Committees immediately, and they are starting to lean on county auditor-controllers to start the Redevelopment Agency audits right away.
For 20 years, the California Planning & Development Report has published a periodical on planning and development issues that is read by planners, land-use lawyers, developers, environmentalists, citizen activists and others interested and involved in the process of planning and development in California.
