CC SR 20150818 D - Resolution Opposing AB 113CITY OF RANCHO PALOS VERDES
MEMORANDUM
TO: HONORABLE MAYOR & CITY COUNCIL MEMBERS
FROM: CAROLYNN PETRO, AMP, DEPUTY CITY MANAGER
DATE: AUGUST 18, 2015
SUBJECT: RESOLUTION OPPOSING ASSEMBLY BILL NO. 113
(AB 113) REGARDING REDEVELOPMENT DISSOLU-
TION
REVIEWED BY: DOUG WILLMORE, CITY MANAGER Vv""t
Project Manager: Kit Fox, AICP, Senior Administrative Analyst go
RECOMMENDATION
Adopt Resolution No. 2015-_, thereby opposing Assembly Bill No. 113 (AB 113)
regarding redevelopment dissolution; which would adversely affect the City's $12 million
loan to the former redevelopment agency.
BACKGROUND
Beginning with the introduction of the governor's budget earlier this year, the Department
of Finance (DOF) has been attempting to modify the State's redevelopment dissolution
statutes (the "Dissolution Law"). In particular, DOF has attempted to overturn recent
superior court decisions that favor cities with respect to the definition of a loan between a
city and its former redevelopment agency (i.e., the Watsonville case) and the application
of the historical Local Agency Investment Fund (LAIF) rate for the calculation of the
accrued interest on these loans (i.e., the Glendale case).
Although the FY 2015-16 State budget was adopted without the provisions desired by
DOF, these provisions are now included in the budget trailer bill, Assembly Bill No. 113
(AB 113), which will be taken up again in the State Legislature in the final weeks of its
current term. The City Council has gone on record in the past as being opposed to the
earlier version of the budget trailer bill.
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MEMORANDUM: Resolution Opposing AB 113
August 18, 2015
Page 2
The League of California Cites (League) is now asking cities to consider adopting
resolutions formally opposing AB 113. Therefore, Staff presents such a resolution for the
City Council's consideration at tonight's meeting.
DISCUSSION
AB 113, a budget trailer bill which was amended on June 18, 2015 and July 9, 2015,
reverses and revises key provisions of the Dissolution Law offered to local agencies as
incentives for resolving issues with the DOF and obtaining a "Finding of Completion."
These were promises that were made to cities in AB 1484 of 2012. Agencies that
received a Finding of Completion were rewarded with the ability to have previous city -
agency loans repaid at interest rates benchmarked against a conservative fund, the Local
Agency Investment Fund ("LAIF"), managed by the State Treasurer. Now that 85% of the
successor agencies in the State have made the concessions to the Department of
Finance necessary to obtain these findings, AB 113 seeks to change the rules.
The two provisions of AB 113 causing the most concern to cities are:
1. Reversing the Watsonville superior court decision, which upheld the very common
(and lawful) practice in which a city and its redevelopment agency agreed that the
city would pay for public improvements or services needed to implement the
redevelopment project and be repaid by the redevelopment agency with tax
increment funds; and,
2. Reversing the Glendale superior court decision, which upheld the City of
Glendale's interpretation of AB 1484 whereby accrued interest on loans between
the redevelopment agency and the city that were reinstated after receiving a
Finding of Completion was calculated based on historical LAIF rates as of loan
origination.
Reversal of these two court decisions will cost many cities substantially more money than
will be saved by successor agencies from any purported beneficial provisions included in
AB 113.
In addition, the Department of Finance, through AB 113, seeks to insulate itself from legal
challenge to the decisions it makes about how to implement the law by (1) exempting
itself from the Administrative Procedures Act; and (2) denying successor agencies
funding for legal representation to challenge the Department of Finance in court.
Since the introduction of AB 113, the DOF has made a series of misleading and
incomplete statements to cities and the Legislature on the impacts of AB 113. Most
recently on August 3, 2015, DOF sent an email to numerous successor agencies
PAI
MEMORANDUM: Resolution Opposing AB 113
August 18, 2015
Page 3
describing the purported "administrative benefits" afforded to successor agencies in AB
113. DOF is mainly referring to:
1. The change from a bi-annual to an annual filing of the Recognized Obligation
Payment Schedule (ROPS); and
2. The opportunity to participate in the Last and Final ROPS process.
As the Department of Finance notes in its August 3rd email, these proposals will
purportedly reduce the administrative workload of city staff. For many cities, the potential,
but difficult to quantify, benefits of reducing the administrative workload of complying with
the Dissolution Law, are far out -weighed by the serious negative fiscal impacts of other
provisions of AB 113, which the Department of Finance fails to mention in its August 3rd
email.
With respect to the City of Rancho Palos Verdes, AB 113 will have an approximate
$340,537 adverse financial impact with respect to the accrued interest owed the City on
its $12,047,891 loan (principal and interest at June 30, 2015) to its former redevelopment
agency. Based on the current Dissolution Law, it has been the City's position that historic
LAIF rates would be applied over the life of the loan (i.e., since 1990) in order to calculate
the interest owed to the City. The Department of Finance has maintained that the
appropriate LAIF rate is the LAIF rate that was in effect at the time the Oversight Board
made a finding that the loan was made for legitimate redevelopment purposes. As
indicated above, in the Glendale case the superior court disagreed with the Department
of Finance's position. Pursuant to AB 113, the interest rate to be applied is 3% (which
will change to 4% if the successor agency has a last and final ROPS). Based upon the
difference in calculating the accrued interest on the City loan using a 3% interest rate as
opposed to historical LAIF rates, the City estimates that instead of receiving roughly
$5,300,000 in interest it will receive just under $5,000,000.
As indicated above, AB 113 would also effectively overturn the Watsonville decision.
Pursuant to AB 113, city -agency loans will only be honored where the city transferred
money to the former agency for use by the former agency and the former agency was
obligated to repay the money it received pursuant to a required repayment schedule.
Thus, AB 113 disallows loans whereby a city directly paid for public improvements or
services and was to be repaid with tax increment funds. However, AB 113 also includes
a provision stating that the adoption of AB 113 will not result in the denial of a loan that
was approved by the Department of Finance prior to the effective date of AB 113.
Therefore, AB 113 in its current form negatively impacts the interest calculation on the
City loan, but does not jeopardize the entire City loan because it has already received
approval from the Department of Finance.
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MEMORANDUM: Resolution Opposing AB 113
August 18, 2015
Page 4
CONCLUSION
In conclusion, Staff recommends that the City Council adopt Resolution No. 2015-_,
opposing AB 113. If adopted, Staff will transmit this resolution to our State legislators and
the League.
ALTERNATIVES
In addition to the Staff recommendation, the following alternative action is available for
the City Council's consideration:
Do not adopt the proposed resolution. The City Council is already on record as
opposing the earlier version of the trailer bill.
FISCAL IMPACT
There is no fiscal impact associated with the adoption of this resolution.
Attachments:
• Draft Resolution No. 2015-_ (page 5)
• August 3rd e-mail from DOF (page 8)
MALegislative Issues\RDA Dissolution\20150818_StaffRpt CC.docx
al
RESOLUTION NO. 2015-
A RESOLUTION OF THE CITY COUNCIL OF RANCHO
PALOS VERDES OPPOSING ASSEMBLY BILL NO. 113
(AB 113) REGARDING REDEVELOPMENT DISSOLUTION
THE CITY COUNCIL OF THE CITY OF RANCHO PALOS VERDES DOES FIND
AS FOLLOWS:
WHEREAS, in 2011 the Legislature enacted AB 1X 26 which dissolved
redevelopment agencies formed under the Community Redevelopment Law; and,
WHEREAS, in 2012 the Legislature amended AB 1X 26 by enacting AB 1484
which required successor agencies to make three payments for the benefit of taxing
entities; and,
WHEREAS, AB 1484 included certain statutory provisions that were intended to
provide incentives for the prompt and accurate submittal of these three payments by the
successor agencies to the former redevelopment agencies; and,
WHEREAS, one of these incentives allowed a successor agency's oversight board
to approve the reinstatement of loan agreements, including the payment of accrued
interest, between the city or county and the former redevelopment agency which had
previously had been made unlawful by the terms of AB 1X 26; and,
WHEREAS, subsequent to the enactment of AB 1484, approximately 85% of
successor agencies made the three payments required by AB 1484 and received
Findings of Completion; and,
WHEREAS, the oversight boards of many of these successor agencies approved
the reinstatement of loan agreements at the interest rate provided for in AB 1484 only to
have those actions disapproved by the Department of Finance; and,
WHEREAS, the Sacramento County Superior Court has rejected the Department
of Finance's interpretation of the phrase "loan agreement" and method of calculating the
interest rate (i.e., the Watsonville and Glendale cases); and,
WHEREAS, the Department of Finance, in AB 113, is attempting to reverse and
revise these key provisions of the dissolution laws offered to local agencies as incentives
for making the required payments and resolving other issues with the Department of
Finance; and,
WHEREAS, in addition to undoing the promises made to local agencies in AB
1484, AB 113 contains several provisions that would tip the balance on matters of
interpretation of dissolution laws even further by exempting the Department of Finance
from the Administrative Procedures Act and eliminating language in the law that was
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previously agreed to by the Department of Finance and the Legislature in 2012 that
enabled successor agencies to fund legal representation in the only due process forum
where Department of Finance staff decisions could be reviewed—Sacramento County
Superior Court.
NOW, THEREFORE, the City Council of the City of Rancho Palos Verdes does
hereby resolve as follows:
Section 1. As locally elected legislators, we are committed to abiding by the
promises we make. We urge the State Legislature to do the same by defeating AB 113
which breaks the promises the Legislature made to local agencies in the enactment of
AB 1484.
Section 2. One of the purposes of our court system is to adjudicate the meaning
and application of statutory enactments. We urge the State Legislature to accept the
decisions of the Sacramento County Superior Court in the Watsonville (definition of "loan
agreement") and Glendale (methodology for calculating interest rate) cases and defeat
AB 113, which seeks to reverse both of these court decisions.
Section 3. We further urge the State Legislature to defeat AB 113 because it
unfairly denies access to the court system for successor agencies by disallowing funding
for legal representation.
Section 4. With respect to the City of Rancho Palos Verdes, AB 113 will have
an approximate $340,537 adverse financial impact with respect to the accrued interest
owed the City on its $12,047,891 loan (principal and interest at June 30, 2015) to its
former redevelopment agency. Based on the current AB 1484, it has been the City's
position that historic Local Agency Investment Fund (LAIF) rates would be applied over
the life of the loan (i.e., since 1990) in order to calculate the interest owed to the City. The
Department of Finance has maintained that the appropriate LAIF rate is the LAIF rate that
was in effect at the time the Oversight Board made a finding that the loan was made for
legitimate redevelopment purposes. As indicated above, in the Glendale case the
Sacramento County Superior Court disagreed with the Department of Finance's position.
Pursuant to AB 113, the interest rate to be applied is 3%. Based upon the difference in
calculating the accrued interest on the City loan using a 3% interest rate as opposed to
historical LAIF rates, the City estimates that instead of receiving roughly $5,300,000 in
interest it will receive just under $5,000,000.
Section 5. The provisions of AB 113 that are described as "streamlining" do not
offset the negative impact of the provisions discussed in this resolution.
Resolution No. 2015 -
Page 2 of 3
no
PASSED, APPROVED and ADOPTED this __th day of August 2015.
Mayor
ATTEST:
City Clerk
State of California )
County of Los Angeles ) ss
City of Rancho Palos Verdes )
I, Carla Morreale, City Clerk of the City of Rancho Palos Verdes, hereby
certify that the above Resolution No. 2015-_, was duly and regularly passed and
adopted by the said City Council at a regular meeting thereof held on August _, 2015.
City Clerk
Resolution No. 2015 -
Page 3 of 3
7
From: Kathryn Downs
To: Kit Fox
Subject: FW: AB 113 Clarifications
Date: Tuesday, August 04, 2015 4:20:01 PM
From: LGU[mailto:LGU@LISTSERV.DOF.CA.GOV] On Behalf Of Redevelopment Administration
Sent: Monday, August 03, 2015 10:54 AM
To: LGU@LISTSERV.DOF.CA.GOV
Subject: AB 113 Clarifications
Dear Successor Agency,
The California State Department of Finance (Finance) has received numerous inquiries from
Successor Agencies (SAs) related to the administrative benefits afforded to SAs contained in
Assembly Bill 113. Unfortunately, while we understand many of the proposals such as the
Annual Recognized Obligation Payment Schedule (ROPS) and the Last and Final ROPS
processes will significantly reduce your administrative workload and provide a pathway to
less state oversight, Assembly Bill 113 is still pending in the legislature.
Until Assembly Bill 113 is enacted, you are unable to take advantage of the bill's
administrative benefits. Finance is aware of the many beneficial changes Assembly Bill 113
proposes and is prepared to act quickly in carrying out our role when the bill passes.
Finance will notify successor agencies when they can utilize the benefits provided by that
measure. Until then, existing law governs and successor agencies are reminded of the
following:
• Successor agencies should not list remaining 2011 bond proceeds on the ROPS 15-
166 (housing and non -housing), unless the proceeds are encumbered by an
enforceable obligation that existed prior to June 28, 2011.
• Public parking lots are not eligible for transfer to the former redevelopment agency's
(RDA) sponsoring city as a government purpose property.
• Former tax increment on pension and state water project override levies that are not
needed for payment on a SAs indebtedness obligations cannot flow to the levying
taxing entity and should continue to flow to SAs.
• Agreements between cities and their former RDA related to highway improvement
projects are still not enforceable obligations.
• Final and Conclusive requests are limited to those obligations that possess an
irrevocable pledge of property tax and where the allocation of property tax revenue is
expected to occur over time.
• Successor agencies still need to submit a bi-annual ROPS.
• City/RDA loan repayments are limited to the repayment formula outlined in HSC
section 34191.4 (b) (2) (A).
0 •
Thank you,
Department of Finance
Redevelopment Agency Administration
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