Real Estate and Land Use

May 21, 2012

Redevelopment Update—Budget Trailer Bill Targets the Wind-Down of California’s Redevelopment Agencies

Last week the California Department of Finance released the trailer bill language for this year’s Governor’s proposed budget. “Trailer bills” are budget implementation bills and often include changes to existing law. This year’s trailer bill package includes a variety of significant provisions targeted at the 400+ successor agencies created when all redevelopment agencies were dissolved. A summary of the key redevelopment trailer bill proposals and our recommended next steps are set forth below.

Redevelopment trailer bill proposal	What does this mean for my organization? What action do I need to take?
New limitation on successor agencies’ ability to fund litigation, including settlements and judgments.	Existing litigation with successor agencies, including existing or proposed settlements and judgments with successor agencies, could be adversely affected and even defunded. Your organization should immediately take stock of all pending litigation matters that involve a successor agency, including existing settlements and judgments, and should be aware of the successor agencies’ funding sources and proposals. It may be necessary to renegotiate existing agreements.
Additional limitation on the definition of “enforceable obligation” to exclude certain planned obligations.	In order to retain funding, all successor agencies are required to identify the agencies’ “enforceable obligations.” If your project or contract does not appear as an enforceable obligation on the required schedules, it might not be funded. The trailer bill language targets plans and projects for which a commitment may have been issued, but for which no third-party contract yet exists. You should review your project pipeline to determine whether you could be affected by this change.
Clarifies the legal status of successor agencies and oversight boards: Successor agencies are separate public entities that can sue and be sued. Successor agencies do not merge with sponsoring cities. Oversight boards are “second governing bodies” and not separate public entities.	This clarification provides some certainty to parties that deal with successor agencies and oversight boards. No action is necessary.
Diverts existing unencumbered funds, including affordable housing set aside-funds.	The trailer bill requires successor agencies to transfer unencumbered cash reserves and unencumbered affordable housing set-aside funds to the county auditor-controller. The diversion of these funds is significant for future affordable housing projects. You should review your project pipeline to determine whether your project could be affected by this diversion of funds.
Formally transfers Polanco Act liabilities and immunities to successor agencies.	This clarification would resolve an open legal question about the status of existing Polanco Act cleanups, but does not address future remediation of brownfield sites. If you are interested in remediating or eventually developing a brownfield site, you should explore alternative ways to limit future liability.
Limits local control. Gives more power to county auditor—controllers, the Department of Finance, and the state Controller.	As power to implement AB 1X 26 is transferred to county and state agencies and departments, the ability of your local successor agency to fund your project may be compromised. If you have an ongoing relationship with a successor agency, it is imperative that your organization remain an active participant in the affairs of the agency. You should follow the development of payment schedules, participate actively in meetings of the oversight board, and develop relationships with county and state-level key contacts.