New Law Includes Dec. 31 Deadline for Agencies with Outstanding Payments Due under a Due Diligence Review

After several attempts, the California Department of Finance successfully pushed forward new legislation to update the law governing the dissolution of local redevelopment agencies. SB 107, signed by Gov. Brown on September 22 and effective immediately, creates additional requirements and deadlines for the dissolution of former redevelopment agencies. Some amendments are simple clarifications. Others significantly change the current practices of successor agencies, such as new or extended deadlines or types of expenses that can be recovered by a successor agency.

A few of the highlights of the legislation include:

A new provision targets successor agencies that have outstanding payments due under a Due Diligence Review. SB 107 mandates that those successor agencies must either pay the balance in full or enter into a payment plan with DOF no later than Dec. 31, 2015. Failure to pay the balance in full or enter into a payment plan by this deadline will prohibit a successor agency from ever receiving a finding of completion. Without a finding of completion, a successor agency cannot adopt a long-range property management plan for the disposal of properties or take advantage of the abbreviated property disposition process in the new law. Existing law allows the successor agency to dispose of properties individually to third parties, with oversight board and DOF approval, beginning Jan. 1. Without a finding of completion, a successor agency will never be able to re-enter into loan agreements between the former redevelopment agency and city

Litigation expenses are no longer exempt from a successor agency’s administrative budget. Under SB 107, litigation expenses must be paid out of the successor agency’s administrative cost allowance. Cities may loan money to successor agencies to cover litigation expenses; however, city loans will only be repaid if the successor agency succeeds in litigation. If the successor agency does not succeed, the city loan is deemed a “grant.”

Additional restrictions on allowable successor agency expenses. The measure expands the definition of “enforceable obligation” to include the repayment of federal grants or loans made to a city or county that loaned those funds to a redevelopment agency.

100 percent of the proceeds of bonds purchased with the former redevelopment agency’s low- and moderate- income housing fund, sometimes referred to as “housing bonds,” can be used. A portion of the proceeds of non-housing bonds issued after Jan. 1, 2011 may also be used, but the percentage of those proceeds is dependent on whether the successor agency has received a Last and Final Recognized Obligation Payment Schedule and the date of issuance of those bonds. If a successor agency has not received a Last and Final ROPS, it may only use 5 percent of the proceeds of non-housing bonds. Successor agencies that are in active litigation are not eligible for a Last and Final ROPS.

Beginning with fiscal year July 1, 2016 – June 30, 2017, ROPS will only be submitted annually, on Feb. 1 of each year. DOF will issue determinations on the annual ROPS by April 15. Annual ROPS can only be amended once and no later than Oct. 1. Local oversight boards will continue to review successor agency actions for an additional two years until July 1, 2018, after which time countywide oversight boards will provide direction and approval to local successor agencies.

Definition of “governmental purpose properties” expanded to include public parking garages and lots  so long as the revenue from these properties does not exceed operation and maintenance costs. If a Successor agencies has an approved LRPMP it may be amend  once to add these governmental use properties.

Successor agencies with a finding of completion may still re-enter into loan agreements previously entered into between the redevelopment agency and city, but SB 107 narrows the definition of loan agreements. Loan agreements in which the city loaned money or transferred real property to the redevelopment agency for a lawful purpose may be re-entered by the successor agency. Reimbursement agreements in which the city contracted with a third party on behalf of the former redevelopment agency are now limited to only those agreements for the development of infrastructure in connection with a redevelopment project as identified in a redevelopment project plan, and SB 107 caps reimbursement repayments at $5 million.

SB 107 excludes from the definition of “winding down” work associated with design, demolition, construction and site remediation, unless such work is required by an enforceable obligation. This provision could cause confusion for successor agencies with enforceable obligations that require this type of work, and whether those enforceable obligations require such work within the meaning of SB 107.

DOF is not subject to the Administrative Procedures Act. As such, DOF is not required to adopt regulations governing its involvement with the wind-down process. Instead, DOF may continue its current practice of adopting informal policies and frequently-asked-questions to provide guidance to successor agencies.