California Redevelopment Agencies & Their Successor Agencies
This article provides the answers to the most frequently asked questions regarding the elimination of California Redevelopment Agencies in general and the Brea Redevelopment Agency, in particular.
How were California Redevelopment Agencies Eliminated?
As part of the state’s plan to shore up its 2011-2012 budget, Governor Brown proposed elimination of redevelopment agencies in order to capture those funds to help solve the deficit and to secure additional revenues for the state in perpetuity. The state legislature approved two bills that ultimately eliminated more than 400 California Redevelopment Agencies on February 1, 2012, including of course, the Brea Redevelopment Agency (RDA).
What bout Proposition 22, which was supposed to protect local revenues?
In November 2010, voters overwhelmingly passed Proposition 22 to protect against the state raids of local revenues. For many years, the State of California has looked to local government, particularly redevelopment agencies, as a handy source of revenue to grab whenever it needed to solve state budget deficits. As an example, Brea Redevelopment was required to send $10.8 million to the state just in the last two years alone.
In response to Proposition 22, Governor Brown proposed a bill (ABX1 26), that would eliminate Redevelopment Agencies (RDA's) entirely unless the agencies made “ransom payments” to continue operation, which he proposed in another bill (ABX1 27). Both bills were passed by the legislature as part of the FY 2011-2012 state budget. The California Redevelopment Association (CRA) and the League of California Cities filed a lawsuit that challenged the constitutionality of both bills.
In CRA v. Matosantos, the court upheld ABX1 26 (the redevelopment “elimination” bill), but struck down ABX1 27 (that would have allowed agencies to remain in operation as long as they made payments to the state). The ruling also meant that the state will not be entitled to receive the full $1.7 billion it had assumed as part of last year’s budget solution, creating a current year state budget gap that will have to be addressed.
What’s involved in ending the Agency for Brea?
A lot of work is required for at least four more years in order to comply with the new legislation.
The City of Brea is now also the Brea Redevelopment Successor Agency as required by the new legislation. As the Successor Agency, the city will take over the duties and obligations of the Brea Redevelopment Agency and will be responsible for “winding down” the agency over the next four years.
In preparation for this possibility, Brea officials began planning for this worst case scenario in 2010. A transition plan is being implemented and efforts to minimize the impacts and unintended consequences of the legislation are ongoing.
All financial transactions associated with redevelopment dissolution are handled by the successor agency and the county auditor-controller.
The bill also set up a complex system for review of future expenditures needed to “wind down” redevelopment projects. The Successor Agency was required to compile a Recognized Obligation Payment Schedule and form of a Successor Agency Oversight Board. The board must be formed by May 1, 2012.
What is the role of the Oversight Board?
The Oversight Board consists of a total of seven representatives from the affected local taxing agencies; County Department of Education, the North Orange County Community College District, the County of Orange, the City of Brea, and the Orange County Sanitation District.
The oversight board has a fiduciary responsibility to holders of obligations of the former RDA and to the taxing entities that would benefit from the distribution of revenues generated by the liquidation of RDA assets. Assembly Bill ABX1 26 gives the oversight board considerable authority over the former RDA’s financial affairs. In addition to approving the successor agency’s administrative budget, the oversight board adopts the ROPS, the central document that identifies the financial obligations of the former RDA that the successor agency may pay over the next six months.
Actions of an oversight board do not go into effect for three business days. During this time, the State Department of Finance (DOF) may request a review of the oversight board’s action. The DOF, in turn, has 10 days to approve the oversight board’s action or return it to the oversight board for reconsideration.
What is an Enforceable Obligation Payment Schedule? What about the Recognized Obligation Payment Schedule (ROPs)?
As the Brea RDA Successor Agency, the City of Brea was tasked with developing a list of redevelopment “enforceable obligations.” This term includes debt payments for redevelopment bonds and loans with required repayment terms, but typically excludes payments for projects not currently underway. Only those financial obligations included on these lists may be paid with revenues of the former RDA.
The first list of redevelopment obligations is called the Enforceable Obligation Payment Schedule (EOPS). Later versions of this list are called the Recognized Obligation Payment Schedule (ROPS). Each ROPS covers a span of six months.
How is the Successor Agency funded?
Subject to the approval of the oversight board, the legislation specifies that successor agencies may spend $250,000, or up to 5% of its former tax increment revenues for administrative expenses in FY 2011-2012 and $250,000, or up to 3% in future years.
Funds for successor agency administration may be supplemented with money from other revenue sources, such as loan repayments.
What happens to the projects and programs supported by the Brea Redevelopment Agency? Is there still money to fund some existing projects?
ABX1 26 requires redevelopment agencies to relinquish its fund balance and future tax increment revenues. Some ongoing programs like home buyers assistance loans stopped immediately. But other “pre-existing obligations, such as projects already under contract” need further review. We are waiting for further clarification from the state regarding use of our bond funds. The big question going forward is whether we will be allowed to use bond funds for three major projects that are already underway:
- Downtown Parking Structure
- The Tracks at Brea trail
- Community Facility at Birch Hills Golf Course
We hope to be allowed to complete these projects under the city as the Successor Agency.
How did you prepare for the end of RDA? Do you have a plan for approaching affordable housing?
We planned ahead by tapering off our administrative budget over the past two years and reassigning some staff positions. Brea has a City Inclusionary Housing Ordinance, which requires new residential developments of 20 units or more to offer 10% of the units as affordable. When this is not practical, the developer contributes “in-lieu” fees to the city’s Housing Trust Fund, which can be used for future affordable housing projects. Currently, this fund has a balance of $1.7 million which is untouched by ABX1 26. We will be able to use loan payoffs from previous home buyer assistance loans for future affordable housing programs.
How do you sum up the contribution of the agency to the Brea community?
Certainly, the landscape of Brea would be vastly different without the work of the agency. Simply put, Brea is the community it is today in large part because of the Brea Redevelopment Agency and the leadership of the current and former Agency Board members (city councilmembers).
Over the nearly 40 years since it was established, projects funded and coordinated by the Brea Redevelopment Agency have provided many community benefits. Thousands enjoy benefits from agency projects as they participate in activities at the Community Center, play at the Sports Park, shop at the Brea Mall, the Marketplace or Brea Downtown, visit the Civic and Cultural Center, and Brea Olinda High School. Over 750 workforce housing units are now home to fellow residents. Daily life is better because of positive community improvement created at the local government level.
In Brea, the Redevelopment Agency was used prudently and successfully to fulfill its core mission to revitalize the community. There is plenty of three-dimensional evidence that RDA funding has been used exactly as intended here and it has served Brea well. Following is a list of important public spaces that have been built or modernized with the assistance of RDA funding for continued productive service:
- Brea Civic and Cultural Center
- Brea Community Center
- Brea Sports Park
- Fire Station # 2 in the Downtown
- Fire Station #3 at Kraemer and Lambert
- City Hall Park
- Brea Museum and Heritage Center
- Senior Center
- Pioneer Hall
People enjoy improved lifestyles and the community is made stronger by participation in activities close to home. These are intangible benefits that derive from the city’s inventory of quality facilities and programs made possible through RDA.