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RPVCCA_CC_SR_2012_02_21_06_Next_Steps_RDA_DissolutionCITY OF MEMORANDUM RANCHO PALOS VERDES TO: FROM: DATE: SUBJECT: REVIEWED: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL CAROL LYNCH,CITY ATTORNEY ROBIN HARRIS,DEPUTY CITY ATTORNEY ~ DENNIS McLEAN,DIRECTOR OF FINANCE &INFORMATION ~ TECHNOLOGY FEBRUARY 21,2012 NEXT STEPS IN REDEVELOPMENT AGENCY DISSOLUTION - HOUSING ASSETS AND FUNCTIONS CAROLYN LEHR,CITY MANAGER aJ2-- Staff Coordinators:Kathryn Downs,Deputy Director of Finance &Information l(D Technology Gregory Pfost,Deputy Community Development Director RECOMMENDATION Adopt Resolution No.2012-,electing for the City to retain the housing assets and functions previously performed by the Rancho Palos Verdes Redevelopment Agency and accepting the transfer of all rights,powers,duties,and obligations associated with the housing activities of the Redevelopment Agency. EXECUTIVE SUMMARY The City Council must decide whether to retain the housing assets and functions of the former Redevelopment Agency (RDA).If the City takes no action,the housing assets and functions will default to the County Housing Authority. Two loans totaling $6.7 million were owed to the former RDA.Repayment of these loans has not been included in the City's budget or Five-Year Financial Model,as repayment is not expected in the near term.Once repayment is received,it is unclear if the City or County Housing Authority,as applicable,will retain those proceeds to use for affordable housing;or if those proceeds will be distributed to the taxing entities.It is also unclear at this time,if retaining the functions of the former RDA will bring the City any additional affordable housing obligations.If the City does not inherit additional obligations,or those obligations are satisfied by the completed Mirandela senior housing project,then the City 6-1 NEXT STEPS IN REDEVELOPMENT AGENCY DISSOLUTION- HOUSING ASSETS AND FUNCTION February 21,2012 Page 2 of 5 may be retaining assets that could be used to satisfy the City's affordable housing obligations in the future. BACKGROUND This Staff Report addresses an outcome of the California Supreme Court's decision in California Redevelopment Association,et al.v.Matosantos,et al.(Case No.S194861), which is the litigation challenging AB X1 26 ("AB 26)and AB X1 27("AB 27").AB 26 and AB 27,which were signed by the Governor of California on June 29,2011,added Parts 1.8 and 1.85 to the Community Redevelopment Law. The Supreme Court largely upheld AB 26 (which provides for the windup and dissolution of redevelopment agencies),invalidated AB 27 (which provided for an alternative voluntary redevelopment program),and held that AB 26 may be severed from AB 27 and enforced independently.The Supreme Court generally revised the effective dates and deadlines for performance of obligations in Part 1.85 (the dissolution provisions)arising before May 1, 2012 to take effect four months later.As a result of the Supreme Court's decision,on February 1,2012,all redevelopment agencies were dissolved,and cities do not have the option of making remittance payments to enable the continued operation of redevelopment agencies.By prior City Council action on September 6,2011,the City is the successor agency for the Rancho Palos Verdes RDA. DISCUSSION Legal Analysis Health and Safety Code Section 34176(a)authorizes a city that created a redevelopment agency to elect to retain the housing assets and functions previously performed by the redevelopment agency.If the City elects to retain the responsibility for performing housing functions previously performed by the Agency,Section 34176(a),as adopted,provides that all rights,powers,duties,and obligations,excluding any amounts on deposit in the Low and Moderate Income Housing Fund (currently $206,881),shall be transferred to the City. Health and Safety Code Section 34176(b),as adopted,provides that if a city does not elect to retain the responsibility for performing housing functions previously performed by the redevelopment agency,all rights,powers,assets, liabilities,duties,and obligations associated with the housing activities of the redevelopment agency,excluding any amounts on deposit in the Low and Moderate Income Housing Fund,shall be transferred as follows: (1)where there is no local housing authority in the territorial jurisdiction of the former redevelopment agency,to the Department of Housing and Community Development;(2) where there is one local housing authoring in the territorial jurisdiction of the former redevelopment agency,to that local housing authority;and (3)where there is more than one local housing authority in the territorial jurisdiction of the former redevelopment agency,to the local housing authority selected by the city that authorized the creation of the redevelopment agency. 6-2 NEXT STEPS IN REDEVELOPMENT AGENCY DISSOLUTION- HOUSING ASSETS AND FUNCTION February 21,2012 Page 3 of 5 The Los Angeles County Housing Authority is in the territorial jurisdiction of the former RDA. Health and Safety 34176(c)provides that the entity assuming the housing functions formerly performed by the Agency may enforce affordability covenants and perform related activities pursuant to applicable provisions of the Redevelopment Law,including,but not limited to,Health and Safety Code Section 33418. Housing Assets The Low and Moderate Income Housing Fund of the former RDA hblds $206,881 of cash that is to De transferred to the County Auditor-Controller for distribution among the taxing entities.There is currently no option for the agency that takes the housing functions to retain this cash.However,legislation (SB 654)has been passed by the California Senate and forwarded to the Assembly that would allow this cash to be transferred to the agency retaining the housing functions. This fund also holds a loan receivable from AMCAL for the Mirandela senior housing project.The loan balance at December 31,2011 is $6,609,336,which includes accrued interest of $338,793.This loan is to be repaid annually from 50%of Net Available Cash Flow,after the payment to the developer is made.Net Available Cash Flow is defined as operating income,less:1)debt service on financing provided by a third-party commercial . lender;2)operating and maintenance expenses;3)deposits to the operating and replacement reserves;4)fees paid to partners of the developer (not to exceed $15,000 annually);and 5)audit fees.The loan balance immediately becomes due upon sale or refinancing of the project;or 55 years from the Certification of Completion (2066).Staff has received information from the developer indicating that repayment of the Agency loan will not likely begin for at least 30 years,unless the project is refinanced. Finally,the fund holds a $126,320 loan receivable from the purchaser of the Ravenspur affordable housing condominium unit sold in February 2011.This note is non-interest bearing;and becomes payable upon sale or refinancing of the unit. AB26 does not appear to allow the City to make separate determinations for each housing asset (e.g.one loan receivable is retained,and one is not). Housing Authority Option As another option,the City may create its own Housing Authority to retain the housing assets and functions of the former RDA.This option would be more practical if the former RDA owned housing assets or had active housing programs,as the Housing Authority would be used to retain control of the assets and programs and limit the City's liability.As the former RDA did not own affordable housing properties or operate affordable housing projects or programs,Staff does not recommend creating a separate Housing Authority to retain the housing assets and functions due to the anticipated additional administrative costs and staffing necessary to operate a separate Housing Authority. 6-3 NEXT STEPS IN REDEVELOPMENT AGENCY DISSOLUTION- HOUSING ASSETS AND FUNCTION February 21,2012 Page 4 of 5 Unresolved Issues It is unclear under AS 26 what constitutes a housing asset and what rights,powers,duties, obligations,and liabilities are associated with the housing assets and functions of former redevelopment agencies.These unresolved issues mayor may not be cleared up with future legislation.Unanswered questions include the following. >-Will the City,as the agency retaining housing functions,be entitled to keep proceeds of loan receivable payments? >-Or will these repayments be subject to distribution among all the taxing entities? >-Wil1 the City,as the entity retaining housing functions,be obligated to comply with the affordable housing requirements of Redevelopment Law,such as the 15% inclusionary requirement (i.e.an agency is required to provide a number of affordable housing units equivalent to 15%of the newly developed or substantially rehabilitated units in a project area)? >-Will the entity retaining housing functions have all the powers set forth in Redevelopment Law with respect to affordable housing,such as the authority to provide rental subsidies to low and moderate income households? Potential Advantages to Retaining Housing Functions and Assets -Meeting RHNA As the Council is aware,all cities in the State are mandated to adopt a General Plan for their city.The Housing Element is one of the seven mandatory elements contained within the General Plan and is the only Element that must be periodically updated as determined by the State.The City's current Housing Element was last updated in 2008 and was certified/approved by the State.A State certified Housing Element insures that the City has met specific State requirements of the Element and is important to reduce the potential for litigation against the City and its General Plan,which would arise if the Element was not certified by the State.As required by the State,the City will soon embark on its next Housing Element Update that will cover the planning period 2014 through 2021. As part of any Housing Element update,a Regional Housing Needs Assessment (RHNA)is conducted by SCAG to quantify the number of new housing units needed by income group within the SCAG region.The SCAG RHNA number is then disaggregated by SCAG to each city and county within the SCAG region.In preparation for the past two Housing Elements (2001 and 2008),City Staff was able to work closely with SCAG Staff to ensure that the City's assigned housing need number (RHNA)was appropriate for what could be satisfied during each of the respective planning periods.Then,in preparing the Housing Element update,the City used the SCAG assigned RHNA number to draft programs and policies within its Housing Element to meet the assigned housing need during the respective planning period.For example,as discussed in the 2008 adopted and certified Housing Element,the City was assigned a 60 unit housing need composed of 7 Extremely Low Income Units,9 Very Low Income Units,10 Low Income Units,11 Moderate Income Units,and 23 Above-Moderate Income Units.While meeting the Above Moderate (market- rate)Income Unit need during the planning period is typically not an issue in the City as the 6-4 NEXT STEPS IN REDEVELOPMENT AGENCY DISSOLUTION- HOUSING ASSETS AND FUNCTION February 21,2012 Page 5 of 5 development community typically produces enough new construction market-rate units each year to meet the need during the planning period,meeting the lower income housing unit requirement can be difficult for the City,especially if the City wer~to have no funds available to help produce affordable housing.One of the main reasons why the City was able to obtain certification of its past two Housing Elements was because it was able to provide a program within its Housing Element that showed how the City was moving forward with the expenditure of its RDA Affordable Housing funds and its In-lieu Affordable Housing Funds towards the Mirandela Senior Affordable Housing Project.As a result of the completion of that project,the City met all of its 2008 Housing Element's affordable housing need as described above. Thus,while it is still not clear if the City may be able to keep the Agency's current deposit of $206,881 in its Low and Moderate Income Housing Fund (see pending legislation SB654 discussion above),nor is it clear if and when the City would receive assets from the 2 loans receivable totaling $6.7 million,Staff believes that any opportunity to retain these funds for future use towards affordable housing programs that could not only meet an affordable housing need in the City,but also help contribute to programs within the City's upcoming Housing Element update and therefore contribute towards obtaining a State certified Housing Element would be beneficial to the City.While unfortunately there are still many unanswered questions as to exactly what is meant by the City retaining the housing assets and functions previously performed by the Agency and accepting the transfer of all rights, powers,duties,and obligations associated with the housing activities of the Agency,in the past,given the relatively small amount of funds,the management of the Agency's housing assets has not been a task that has required full-time dedicated staff members like other larger Redevelopment Agencies in the state,but instead has been absorbed into the activities of the Finance and Community Development Departments.Thus,since Staff does not anticipate any additional duties beyond that what it has experienced in the past, and there may be a substantial benefit to the City in meeting its affordable housing obligations by having the potential of retaining existing ($206,881)and future ($6.7 million) assets,Staff is recommending that the Council adopt the attached Resolution electing for the City to retain the housing assets and functions previously performed by the Rancho Palos Verdes RDA. FISCAL IMPACT AB 26 provides that cash on deposit in the Low and Moderate Income Housing Fund are to be turned over to the County Auditor-Controller for distribution to taxing entities.AB 26 does not appear to authorize a funding mechanism for performing housing functions previously performed by the Agency.The Agency was previously receiving about $230,000 annually of tax increment revenue to be used for Agency housing functions. Most recently,the accumulated tax increment was used to provide funding for the AMCAL Mirandela senior housing project.The FY11-12 Agency budget included an appropriation of $12,500 for a consultant to assist in the implementation of potential future Agency affordable housing programs;but no newaffordable housing projects have been planned at this time. 6-5 RESOLUTION NO.2012- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF RANCHO PALOS VERDES MAKING AN ELECTION IN CONNECTION WITH HOUSING ASSETS AND FUNCTIONS UNDER PART 1~85 OF DIVISION 24 OF THE CALIFORNIA HEALTH AND SAFETY CODE AND TAKING CERTAIN ACTIONS IN CONNECTION THEREWITH RECITALS: A.AS X1 26 and AS X1 27 were signed by the Governor of California on June 29,2011,making certain changes to the Community Redevelopment Law (Part 1 (commencing with Section 33000)of Division 24 of the California Health and Safety Code)(the "Redevelopment Law"),including adding Part 1.8 (commencing with Section 34161)("Part 1.8")and Part 1.85 (commencing with Section 34170)("Part 1.85"). S.The California Redevelopment Association and League of California Cities filed a lawsuit in the Supreme Court of California (California Redevelopment Association,et al.v.Matosantos,et al.(Case No.S194861))alleging that AS X1 26 and AS X1 27 are unconstitutional.On December 29,2011,the Supreme Court issued its opinion in the Matosantos case,largely upholding AS X1 26,invalidating AS X1 27,and holding that AS X1 26 may be severed from AS X1 27 and enforced independently. C.The Supreme Court generally revised the effective dates and deadlines for performance of obligations in Part 1.85 arising before May 1,2012,to take effect four months later. D.As a result of the Supreme Court's decision,the Rancho Palos Verdes Redevelopment Agency (the "Redevelopment Agency"),a redevelopment agency in the City of Rancho Palos Verdes (the "City"),created pursuant to the Redevelopment Law, was dissolved pursuant to Part 1.85 on February 1,2012. E.Health and Safety Code Section 34176(a)authorizes a city that created a redevelopment agency to elect to retain the housing assets and functions previously performed by the redevelopment agency.Pursuant to Section 34176(a),if a city elects to retain the responsibility for performing housing functions previously performed by the redevelopment agency,all rights,powers,duties,and obligations,excluding any amounts on deposit in the Low and Moderate Income Housing Fund,shall be transferred to the City. F.Health and Safety Code Section 34176(b)provides that if a city does not elect to retain the responsibility for performing housing functions previously performed by the redevelopment agency,all rights,powers,assets,liabilities,duties,and obligations associated with the housing activities of the redevelopment agency, excluding any amounts in the Low and Moderate Income Housing Fund,shall be 6-6 transferred as follows:(1)where there is no local housing authority in the territorial jurisdiction of the former redevelopment agency,to the Department of Housing and Community Development;(2)where there is one local housing authoring in the territorial jurisdiction of the former redevelopment agency,to that local housing authority;and (3) where there is more than one local housing authority in the territorial jurisdiction of the former redevelopment agency,to the local housing authority selected by the city that authorized the creation of the redevelopment agency. G.The Los Angeles County Housing Authority is in the territorial jurisdiction of the former Redevelopment Agency. H.Health and Safety 34176(c)provides that the entity assuming the housing functions formerly performed by the redevelopment agency may enforce affordability covenants and perform related activities pursuant to applicable provisions of the Redevelopment Law,including,but not limited to,Health and Safety Code Section 33418. I.The City Council desires to adopt this resolution in connection with the housing assets and functions previously performed by the Redevelopment Agency. NOW,THEREFORE,THE CITY COUNCIL HEREBY FINDS,DETERMINES, RESOLVES,AND ORDERS AS FOLLOWS: Section 1.The above recitals are true and correct and are a substantive part of this Resolution. Section 2.This Resolution is adopted pursuant to Health and Safety Code Section 34176. Section 3.Pursuant to Health and Safety Code Section 34176(a),the City Council hereby elects for the City to retain the housing assets,as allowed by law,and functions previously performed by the Redevelopment Agency and hereby accepts the transfer of all rights,powers,duties,and obligations associated with the housing activities of the Redevelopment Agency.The City Council reserves its right to rescind this election and to subsequently determine that all of the rights,powers,assets, liabilities,duties,and obligations associated with the housing activities of the Redevelopment Agency shall be transferred to the housing authority selected by the City. Section 4.The officers and staff of the City are hereby authorized and directed,jointly and severally,to make all notifications of the Council's election,as set forth in Section 3 hereof,as deemed necessary or advisable and to execute all documents and take all actions which they may deem necessary or advisable to effectuate this Resolution,and any such actions previously taken by such officers and staff are hereby ratified and confirmed. 6-7 Section 5.The adoption of this Resolution is not intended to and shall not constitute a waiver by the City of any right the City may have to challenge the legality of all or any portion of AS X1 26 through administrative or judicial proceedings. Section 6.This Resolution has been reviewed with respect to applicability of the California Environmental Quality Act ("CEQA"),the State CEQA Guidelines (California Code of Regulations,Title 14,Sections 15000 et seq.,hereafter the "Guidelines"),and the City's environmental guidelines.The City Council has determined that this Resolution is not a "project"for purposes of CEQA,as that term is defined by Guidelines Section 15378,because this Resolution is an organizational or administrative activity that will not result in a direct or indirect physical change in the environment.(Guidelines Section 15378(b)(5». Section 7.This Resolution shall take effect immediately upon its adoption. PASSED AND ADOPTED this 21 st day of February,2012. Mayor ATTEST: City Clerk 6-8