Redevelopment, the concept was fairly simply. Allow cities and counties to identify areas within their jurisdictions that have been abandoned, ignored or left in a state of deterioration as to create what commonly is referred to as “blight.” Also, create a funding mechanism, without raising taxes, to finance the revitalization of these blighted areas.
So how did this work? When a redevelopment agency (RDA) was formed, and area was identified that is blighted and was established as a “redevelopment area.” Once the area has been legally established, property taxes are frozen at a “base” level. As the area was redeveloped, property values would increase raising addition property tax revenues. The increment in property taxes from the base level was collected by the RDA and until June of 2011, State law allowed RDAs to pledge this tax increment to repay bonds and other types of debt incurred to initiate projects to improve the blighted redevelopment area.
To further explain, if property located in the redevelopment project area was assessed at $100,000 this year, the taxes paid by the property owner at the standard tax rate of 1 percent would be $1,000 pursuant to Proposition 13. If, as a result of new construction on the property, the property increases in assessed valuation to $500,000; the taxes paid at the same standard tax rate would be $5,000. The $4,000 increase is called “tax increment” and it is these funds that can become the revenue of the RDA. This type of financing is known as Tax Increment Financing (TIF).
The usual TIF approach involves going to the private bond market to convert the incremental revenue stream into up-front cash for capital projects within the larger redevelopment project area. Bonds are sold generating cash for project construction. Once the project is complete, a new assessment is completed on the property ($5,000 in taxes a year as indicated in the example). The frozen base ($1,000) continues to flow to pre-existing government coffers (city, county, schools, states, etc.). The increment (additional $4000) goes towards debt service on the bonds which were issued for the project. Once the bonds are paid off, the property taxes are “unfrozen” and the full tax base generated goes to existing government coffers (city, county, schools, state, etc.) No new taxes are requested and no existing taxes are used in the financing of the project. Monies collected in the redevelopment areas can only be spent in redevelopment areas.
Effective February 1, 2012, all redevelopment agencies in the State of California were dissolved pursuant to Assembly Bill x1 26 (AB 1X 26). As part of this dissolution, redevelopment agencies were required to establish a Successor Agency, which would be charged with handling any outstanding debts and winding down the activities of the former redevelopment agencies, under the direction of the Oversight Board. The City of Oakley, like most other cities, has been established as the Successor Agency to the Redevelopment Agency of the City of Oakley.
All RDA assets and obligations were transferred to the Successor Agencies. The Successor Agency was tasked with developing and reviewing lists of redevelopment “enforceable obligations.” This term includes payments for redevelopment bonds and loans with required repayment terms. Only those financial obligations included on these lists may be paid with revenues of the former RDA. The first list of redevelopment obligations was called the Enforceable Obligation Payment Schedule (EOPS); later versions of this list are called the Recognized Obligation Payment Schedule (ROPS).
Enforceable obligations consists of bonds, loans, payments required by governments (except pass-through payments), court judgments and settlements, legal contracts and agreements and contracts necessary for continued administration.
The ROPS is a formal description of all payments and obligations that the Successor Agency will make during a specific fiscal period. A new ROPS will be adopted every six months, and will be reviewed by the Oversight Board. Funds that are not required to service debt or make payments for RDA obligations will be transferred to county auditor-controllers and distributed to benefit cities, counties, special districts, and school and community college districts.
Funds that formerly would have been distributed to the RDA as tax increment are deposited into the Redevelopment Property Tax Trust Fund and used to pay obligations listed on the EOPS/ROPS. Any remaining funds in the trust fund—plus any unencumbered redevelopment cash and funds from asset sales—are distributed to the local agencies in the former RDA.
The successor agency’s activities are subject to review and approval by an Oversight Board. This board is to be comprised of seven people, with a makeup dictated by the Dissolution Act. An individual may simultaneously be appointed to up to five Oversight Boards and may hold an office in a city, county, special district, school district, or community college district. Members of the Oversight Boards will serve at the pleasure of the entity that appointed them and will not receive compensation or reimbursement of expenses. It is expected that members of the Oversight Board will serve until July, 2016. Membership of the Oversight Board includes:
- Two members appointed by the County Board of Supervisors;
- One member appointed by the largest special district (East Contra Costa Fire Protection District), in the RDA;
- One member appointed by the County Superintendent of Education;
- One member appointed by the Chancellor of the California Community Colleges;
- One RDA employee appointed by the Mayor;
- One member appointed by the Mayor.
The Dissolution Act requires the Oversight Board to direct the successor agency to determine whether contracts, agreements or other arrangements between the former RDA and private parties should be terminated or renegotiated to reduce the Successor Agency’s liabilities and to increase net revenues to the taxing entities.
The actions of the Oversight Board will in turn be overseen by the Director of the Department of Finance and may be subject to disapproval or modification.
The county auditor–controller administers each former RDA’s Redevelopment Property Tax Trust Fund (“trust fund”). Revenues equal to the amounts that would have been allocated as tax increment are placed into the trust fund for servicing the former RDA’s debt obligations, making pass–through payments1, and paying certain administrative costs. The auditor then distributes any trust funds not needed for these purposes—as well as any remaining redevelopment cash balances and the proceeds of asset sales—to the local governments in the area as property taxes.
On June 27, 2012 AB 1484 was signed into law and requires Successor Agencies to hire a licensed and experienced accounting firm approved by the county auditor-controller, to conduct due diligence reviews of both housing and non-housing assets of the former RDA.
Once the Successor Agency submits the Due Diligence Review the Oversight Board is required to hold a public comment session regarding the Due Diligence Review, to be followed by a meeting at which the Oversight Board makes its determinations regarding the report. The Oversight Board is authorized to request additional information from the Successor Agency to assist in its review, and subject to Department of Finance review and approval, is empowered to authorize the Successor Agency to retain specified assets and funds. If the Oversight Board makes such determination, it must identify to the Department of Finance the amount of the funds authorized for retention, the source of those funds, and the purposes for which the funds are being retained.
The Department of Finance has the authority to reject the determinations of the Oversight Board and to adjust the Due Diligence Report numbers. The Department of Finance may submit comments on the Housing Due Diligence Report and the Oversight Board determinations. The Successor Agency may contest Department of Finance findings and request a meet and confer session within five business days of receipt of the Department’s determination.
The DOF then has thirty days after the “meet and confer” is requested to amend or confirm its findings to the Successor Agency.
Maze & Associates has been selected by the Successor Agency of Oakley to provide this review and should be completed in late March of 2013.
Once a Successor Agency completes the requirements of the Due Diligence Review, DOF will issue a Finding of Completion that expands the authority of each agency in carrying out the wind down process. A Finding of Completion allows a Successor Agency to, among other things, retain real property assets of the dissolved RDA and utilize proceeds derived from bonds issued prior to January 1, 2011.
After receiving a finding of completion, each successor agency is required to submit a Long Range Property Management Plan detailing what it intends to do with its inventory of properties. Successor Agencies are not required to immediately dispose of their properties but are limited in terms of what they can do with the retained properties. Permissible uses include: sale of the property, use of the property to fill an enforceable obligation, retention of the property for future redevelopment, and retention of the property for governmental use. These plans must be filed by successor agencies within six months of receiving a finding of completion, and DOF will review these plans as submitted on a rolling basis.
AB x 1 26 calls for Oversight Boards to be in place until the sooner occurs; (1) the date that all indebtedness of the former Oakley Redevelopment Agency has been repaid, or (2) July 1, 2016, at which time the Oversight Board shall be dissolved and replaced by a single oversight board for all successor agencies within Contra Costa. This new county-wide Oversight Board will be appointed as follows:
- One member may be appointed by the county board of supervisors.
- One member may be appointed by the city selection committee established pursuant to Section 50270 of the Government Code.
- One member may be appointed by the independent special district selection committee established pursuant to Section 56332 of the Government Code.
- One member may be appointed by the county superintendent of education to represent schools if the superintendent is elected. If the county superintendent of education is appointed, then the appointment made pursuant to this paragraph shall be made by the county board of education.
- One member may be appointed by the Chancellor of the California Community Colleges to represent community college districts in the county.
- One member of the public may be appointed by the county board of supervisors.
- One member may be appointed by the recognized employee organization representing the largest number of successor agency employees in the county.
*1 Many redevelopment agencies made “pass–through payments” to local agencies to partly offset these agencies’ property tax losses associated with redevelopment.