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8.B
RESOLUTION (ID # 1519)
DOC ID: 1519
CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION
In Support/Opposition
From: James F. Penman
MlCC Meeting Date: 01/09/2012
Prepared by: Diane Mlynarski, (909) 384-
5355
Dept: City Attorney
Ward(s): All
Subject:
Resolution of the Mayor and Common Council of the City of San Bernardino Taking Certain
Actions Pursuant to Health & Safety Code Secion 34173 Agreeing to Serve as the Successor
Agency and the Successor Entity to the Redevelopment Agency of the City of San Bernardino.
Financial Impact:
Motion: Adopt Resolution.
Synopsis of Previous Council Action:
None.
Backl!round:
Details will be discussed on 01/09/12.
City Attorney Review:
Supportinl! Documents:
Updated: 1/5/2012 by Mayra Ochiqui
I - pa~ket Pg. 583
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RESOLUTION NO.
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RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF
SAN BERNARDINO TAKING CERTAIN ACTIONS PURSUANT TO HEALTH &
SAFETY CODE SECTION 34173 AGREEING TO SERVE AS THE SUCCESSOR
AGENCY AND THE SUCCESSOR ENTITY TO THE REDEVELOPMENT AGENCY
OF THE CITY OF SAN BERNARDINO
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WHEREAS, the Mayor and Common Council of the City of San Bernardino (the
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"Council") duly adopted an ordinance of the City of San Bernardino (the "City") to establish the
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Redevelopment Agency of the City of San Bernardino (the "Agency") in accordance with the
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requirements of the Community Redevelopment Law ("CRL"), and the Agency has continued to
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function since such time in the management and undertaking of redevelopment efforts and
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activities within Council-adopted Redevelopment Project Areas within the City; and
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WHEREAS, the Agency has existed since its establishment under the governance of the
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governing body known and identified as the Community Development Commission of the City
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of San Bernardino (the "Commission") for the purpose of combining the redevelopment
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functions and the housing functions of the Agency under a single governing body; and
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WHEREAS, the California Legislature adopted ABxl 26 and ABxl 27 on June 29, 2011,
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which legislation became effective upon the signing thereof by the Governor on said date which
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items of legislation identified as ABxl 26 added certain provisions to the Health & Safety Code
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identified at Part 1.85 of Division 24 of the Health & Safety Code commencing with Section
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34170 through and including Section 34191; and
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WHEREAS, a legal challenge to ABxl 26 and ABxl 27 was filed directly with the
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California Supreme Court in the action generally known as CRA v. Ana Matosantos, State
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Director of Finance, and a final decision was rendered by the California Supreme Court on
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December 29, 2011, declaring ABx I 26 to be constitutional and ABx 1 27 to be void as
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unconstitutional; and
WHEREAS, prior to the release of the Supreme Court decision the Agency through the
Commission was not able to enter into new agreements or to commit to actions in addition to
those prior contracts, obligations and other debts previously incurred or approved and entered
into by the Agency prior to the date that the California Supreme Court had issued a stay as to
certain implementation aspects of both ABxl 26 and ABxl 27; and
WHEREAS, ABxl 26 provides, as codified in Health & Safety Code Section 34173 and
reformed by the California Supreme Court, that the city or county that adopted an ordinance to
establish a redevelopment agency is determined to be the "successor agency" as provided in said
Section 34173 upon dissolution of the redevelopment agency on February I, 2012; and
WHEREAS, the recent California Supreme Court decision provides in footnote 25 that
the time for a city or county to elect not to serve as the successor agency shall have an extended
time after the issuance of the California Supreme Court decision and until January 13, 2012, to
elect not to serve as the successor agency; and
WHEREAS, it is critical to the implementation of the provisions of ABxl 26 that the
Council decide at this time whether to serve as the successor agency and the successor entity to
the Agency.
NOW, THEREFORE, IT IS HEREBY RESOLVED, DETERMINED AND ORDERED
BY THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO, AS
FOLLOWS:
Section 1. The Council hereby agrees to have the City of San Bernardino serve as the successor
agency to the Agency pursuant to Health & Safety Code Section 34173(d)(l). The Council
further directs the filing of this Resolution by the City Clerk with the Auditor-Controller of the
County San Bernardino forthwith.
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Section 2. The Council hereby designates the San Bernardino Economic Development
Corporation, a California non-profit corporation (the "SBEDC"), as the entity that shall assume
all obligations, liabilities and responsibilities for the administration of and preparation of actions
that may be required to be taken by the City or the Council at later dates for compliance with the
provisions of ABx1 26 during the current 2011-12 fiscal year and during all subsequent fiscal
years until otherwise directed by the Council. It is the intent of the Council that the SBEDC
shall assign staff and enter into contracts with consultants and legal counsel to prepare all such
subsequent actions that may be required of the City by electing to serve as the successor agency
and the successor entity to the Agency for the matters as approved pursuant to this Resolution.
Section 3. This Resolution shall take effect upon its adoption and execution in the manner as
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RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN
BERNARDINO TAKING CERTAIN ACTIONS PURSUANT TO HEALTH & SAFETY
CODE SECTIONS 34173 AGREEING TO SERVE AS THE SUCCESSOR AGENCY
AND THE SUCCESSOR ENTITY TO THE REDEVELOPMENT AGENCY OF THE
CITY OF SAN BERNARDINO
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5 I HEREBY CERTIFY that the foregoing Resolution was duly adopted by the Mayor and
6 Common Council of the City of San Bernardino at a
meeting thereof,
7 held on the day of
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Council Members: Aves
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10 MARQUEZ
II JENKINS
12 BRINKER
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SHORETT
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KELLEY
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16 JOHNSON
17 MC CAMMACK
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,2012, by the following vote, to wit:
Navs
Abstain
Absent
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Rachel G. Clark, City Clerk
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The foregoing Resolution is hereby approved this
day of
,2012.
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Patrick J. Morris, Mayor
City of San Bernardino
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Approved as to Form:
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James F. Penman, City Attorney
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By:
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DISSOLUTION OF REDEVELOPMENT AGENCIES PER THE DECEMBER 29, 2011
CALIFORNIA SUPREME COURT DECISION ON THE CONSTITUTIONALITY OF
AB X1 2
BACKGROUND:
In March, 2011, the City's Redevelopment Agency ("RDA") entered into a Project
Funding Agreement with the San Bernardino Economic Development Corporation
("SBEDC"), a previously-existing, non-profit corporation controlled by elected officials.
Pursuant to such Agreement, the SBEDC agreed to undertake designated capital
improvement projects, programs and activities and hold title to real property formerly
owned by the RDA in exchange for the pledge of current and future tax increment
revenues of the RDA. In June, 2011 legislation was signed into law that would either
dissolve redevelopment agencies or allow them to exist upon payment of certain sums to
the state. The League of Cities and California Redevelopment Association then
spearheaded a court challenge to such laws, asking the Supreme Court to find them
unconstitutional. On December 29, 2011, the California Supreme Court released its
opinion in the challenge filed by the California Redevelopment Association ("CRA") et al
versus Ana Matosantos, State Director of Finance, challenging the constitutionality of
ABx1 26 and ABx1 27 as adopted by the State Legislature on June 29, 2011. In
essence, the Supreme Court let stand the law requiring dissolution of all redevelopment
agencies (as of February 1, 2012) and struck down as unconstitutional the law allowing
redevelopment agencies to exist if they made payments of a portion of their tax increment
monies to the State.
Accordingly, as of February 1, 2012, redevelopment agencies are dissolved and
"successor agencies" take over the "winding down" of redevelopment agency obligations
(i.e. payment of its debts, fulfilling its contractual agreements and selling its property).
The current issue before the Mayor and Common Council is whether the City of San
Bernardino desires to be the "successor agency" to the RDA.'
Revised Dates for Performance oer Suoreme Court Decision:
1. The Supreme Court reformed and revised all but one effective date or deadline for
performance of an obligation under Health & Safety Code Sections 34170 to 34191
arising before May 1,2012, to take effect four (4) months later.
'As of January 5,2012 we are informed that League of California Cities and
California Redevelopment Association sponsored legislation extending the February 1,
2012 deadline to April 15, 2012 has been drafted and has Assembly and Senate authors.
We are also informed of a lawsuit brought by several cities pending in Sacramento
County that seeks to enjoin parts of AB x1 26, and a hearing re preliminary injunction in
that matter is set for January 27, 2012; however, we have not yet had the opportunity to
analyze such suit.
2. The one exception, Health & Safety Code Section 34173(d)(1), states that where
the city or county that formed the redevelopment agency elects NOT to serve as the
"successor agency," such city or county now has until January 13, 2012, to make the
necessary filing (rather than September 1, 2011, as originally enacted). Thus, if the
Mayor and Common Council decide that the City not become the successor
agency to the RDA, it must adopt a resolution stating as such and have it filed with
the County Auditor-Controller by January 13, 2012. If the Mayor and Common
Council decide that the City become the successor agency, then it may either take
no action ( in which case it becomes the successor agency by default) or adopt a
resolution stating as such.
3. Health & Safety Code Section 34173 - (a) designates the "successor agency"
(i.e., the City of San Bernardino) as the successor entity to the former Agency, and (b)
states that all authority, right, powers, duties, and obligations previously vested with the
former Agency under the Community Redevelopment Law are now vested with the
successor agency (i.e., the City of San Bernardino), unless the City "opts out" as stated
above.
4. Health & Safety Code Section 34174 - the successor agency shall have the
obligation for the payment of all enforceable obligations; nothing contained in this section
is intended to give rise to an event of default as to enforceable obligations. The RDA has
compiled a preliminary list of these "enforceable obligations" as required by law, and
such list includes the Project Funding Agreement with the SBEDC. This list will be
reviewed and approved by the successor agency, County Auditor-Controller, and an
Oversight Board. According to the SBEDC, the funds necessary to satisfy all of the
enforceable obligations likely exceed the tax increment funds that the County will provide.
Theoretically, under the law the County is to provide successor agencies with enough tax
increment monies to satisfy the "enforceable obligations" up to the successor agency's
allocated share of the tax increment money. It is unknown if, and how, obligations on the
list will be satisfied if the tax increment monies are insufficient to pay all such obligations
until such list (or parts thereof) is approved by the Auditor-Controller and Oversight Board;
however, once the list is so approved, AB X1 26 guarantees that all approved obligations
will be satisfied.
5. Health & Safety Code Section 34175 - all pledges of revenues from former
redevelopment agencies as to enforceable obligations shall be honored; nothing shall
affect any pledge of revenues, legality of the pledge or the revenues available to meet the
required payments under such pledge. Again, approved obligations are guaranteed to
be satisfied, but it is unclear as to whether unapproved or contingent (i.e "what if")
obligations will be satisfied. The County Auditor-Controller is to perform an audit of the
RDA's assets and liabilities by July 1, 2012.
6. Health & Safety Code Section 34176 - transfer of housing responsibilities. The
City of San Bernardino may elect to retain the housing assets and functions previously
performed by the Agency; then all rights, powers, duties and obligations, excluding
amounts in the Low & Moderate Income Housing Fund, shall be transferred to the City of
San Bernardino. If the City declines, housing assets and functions would be
administered by the County of San Bernardino. (Action need not be taken by the Mayor
and Common Council at the January 9,2012, meeting on this matter, but action must be
taken by February 1, 2012).
7. Health & Safety Code Section 341770) - successor agency to prepare a 6-month
administrative budget; may include arrangements for administrative and operation
services to be provided by the City of San Bernardino.
8. Health & Safety Code Section 34177(1) - before each 6-month period, the
successor agency to update its list of obligations. This list must be approved by the
Oversight Board and submitted to the County Auditor-Controller, the State Controller's
Office and the Department of Finance to be valid.
9. Health & Safety Code Section 34178 - invalidates agreements between the
Agency and the City of San Bernardino as a successor agency, but such agreements may
be submitted to the Oversight Board for approval. (See discussion below as to powers of
the Oversight Board.)
10. Health & Safety Code Section 34179 - Oversight Boards. The successor agency
shall have a 7 member Oversight Board; Oversight Board to be appointed by May 1,
2012, but will be required sooner to approve list of obligations by March 1,2012; to be
comprised of (i) one member appointed by the County Board of Supervisors; (ii) one
memberc appointed by the Mayor; (iii) one member appointed by the largest special
district by property tax share (need to verify property tax receipts for the designation of
such special district); (iv)c one member appointed by the County Superintendent of
Schools; (v) one member appointed by the Community College District Chancellor; (vi)
one member of the public appointed by the County Board of Supervisors; and (vii) one
member appointed by the Mayor from the Agency employees. The Oversight Board has
approval authority over nearly every aspect of successor agency operations and owes a
fiduciary duty to the obligees set forth in the list of obligations. As noted above, only 2 of
the 7 members of the oversight board are City-affiliated. The Oversight Board is
controlled by representatives of taxing agencies that stand to gain the tax increment
revenues that are not spent on Oversight Board-approved successor agency obligations.
CURRENT ISSUE: Decide If The City Will Be The Successor Aaencv To The RDA
If the City decides to become the successor agency, then it will receive from the
County tax increment monies to satisfy its approved pre-AB 1 X 26 obligations, a
preliminary list of which has already been prepared; however, the amount of the listed
obligations exceeds the anticipated tax increment funds expected from the County. The
City will also receive 5% of its anticipated tax increment money in this fiscal year to fund
employee retention/administration costs to administer the payment of the obligations.
This amount decreases to 3% the next fiscal year, and remains at 3% for each year
thereafter. ADA employees need not be automatically retained, but collective
bargaining agreements currently in place must be honored. The City will also be
required to dispose of RDA assets, including real property, as expeditiously as possible
and under terms to maximize gain as approved by the Oversight Board.
If the City decides not to become the successor agency, then it incurs no obligation
for the payment of the RDA's financial obligations effective February 1,2012.
Correspondingly, the City receives no tax increment funding and no funds for
administration. A "Designated Local Authority" ("DLA") is immediately formed consisting
of 3 persons from San Bernardino County selected by the Governor. This DLA serves as
a successor agency unless and until another local governmental entity chooses to serve
as successor agency. Liability for the RDA's obligations, by law, becomes the
responsibility of the DLA or successor agency to the extent of tax increment funds are
received.
Advantages of the City being a successor agency include (1) some, albeit minor,
local control over implementing existing redevelopment and capital improvement projects
with tax increment funding provided by the County, and (2) receipt of the 5% and 3%
allocation of tax increment for administration. For this fiscal year, 5% of tax increment
allocation would be about $2 million.
Disadvantages of the City being a successor agency include (1) potential liability
for unapproved or contingent obligations, (2) reduction in funding for administration after
June 30, 2012, and (3) high likelihood of unfunded litigation. Disputes with the County
Auditor-Controller and Oversight Board may arise over which of the listed obligations
should be approved (and hence paid), including payment of the listed obligations to the
SBEDC. Redevelopment attorneys statewide appear to be in agreement that AB X1 26
puts cities and counties in unchartered waters from a legal perspective, and that many
uncertainties exist as to how to implement the law. Because of such uncertainty and the
unusual strategy taken by the City to transfer its assets and obligations to the SBEDC, the
risk of litigation (probably unfunded litigation) for the RDA's successor agency is very
high; as such, the City may elect not to become a successor agency as a
litigation-avoidance strategy.
By way of example only, suppose that five years from now the air conditioning units at the
proposed Regal Theater stop working. Under the Regal/SBEDC Lease, the SBEDC, as
landlord, has the obligation to remedy such problem. To do so, the SBEDC relies on tax
increment funding received from the successor agency pursuant to the Project Funding
Agreement between the RDA (now the City as successor agency) and SBEDC. But if
the portion of the Project Funding Agreement that provides for such expenditure is not
listed on the list of obligations, or listed but not approved by the Oversight Board, tax
increment monies cannot be spent on such item. This gives Regal a breach of contract
claim against the SBEDC and gives the SBEDC a breach of contract claim against the
City as successor agency for breach of the Project Funding Agreement. In addition,
though it is unclear, it is certainly possible that if litigation ensues, the City, as successor
agency, would have to bear the costs of its own defense.
Other issues that may arise concern labor and employment. Again by way of example, if
the City becomes successor agency, our understanding is that the RDA employees
become City employees that will work under contract for the SBEDC, and at least some of
those employees may be covered by civil service. If that is the case, how do these
additional City employees "fit into" the City's employment structure? If there are City
layoffs, will the former RDA employees have "bumping rights," and, if so, when does time
in service for seniority purposes begin? In all likelihood, litigation would be necessary to
resolve these issues.
ENVIRONMENTAL IMPACT:
This item does not meet the definition of a "project" under Section 15378 of the California
Environmental Quality Act ("CEQA"), which states that a "Project" means the whole of an
action, which has a potential for resulting in either a direct physical change in the
environment, or a reasonably foreseeable indirect physical change in the environment.
FISCAL IMPACT:
Unknown. Regardless of whether the City is the successor agency, fiscal impact is
dependent upon tax increment revenue received from the County and which known and
contingent obligations re approved by the County Auditor-Controller and Oversight
Board.
RECOMMENDATION:
There are too many unknown variables in this situation, and the liability exposure is
significant if the City becomes the successor agency. However, if the City declines to
become the successor agency, the City will not receive the tax increment money it would
otherwise receive as the successor entity. The liability limitation in AB 26 will not fully
protect the City in our opinion for a variety of reasons.
Despite the validation action, the agency's transfer of property to a private nonprofit
corporation could cause the property transfers and any delegation or further transfer of
funds, assets, and authority to be set aside by a court if fraud in the establishment of the
private nonprofit corporation or the transfers mentioned above is proven.
For these reasons we are unable to recommend that the City become the successor
agency to the San Bernardino Economic Development Agency. Further, we cannot
recommend that the City designate the San Bernardino Economic Development
Corporation as the entity to assume the obligations, liabilities, and responsibilities for the
administration of and preparation of actions that may be required to be taken by the City
or the Council at later dates for compliance with the provisions of ABx1 1 26.
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Nor can we recommend that the SBEDC assign staff and enter into contracts with
consultants and legal counsel to prepare any subsequent actions that may be required of
the City. The preparation of subsequent actions and documents for the consideration of
the San Bernardino City Council is the duty of the San Bernardino City Attorney pursuant
to the City Charter and the employment of legal counsel to prepare such actions and
documents would be in violation of the San Bernardino City Charter in our opinion.
i-
es F. Penman, City Attorney
ECONOMIC DEVELOPMENT AGENCY
STAFF REPORT
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COMPLIANCE ISSUES WITH DECEMBER 29, 2011, CALIFORNIA SUPREME COURT
DECISION ON THE CONSTITUTIONALITY OF ABXl 26
BACKGROUND:
The Califomia Supreme Court released its opInIOn in the challenge filed by the California
Redevelopment Association ("CRA") versus Ana Matosantos, State Director of Finance, challenging
the constitutionality of ABxl 26 and ABxl 27 as adopted by the State Legislature on June 29, 2011.
These two items of legislation had the effect of (i) dissolving redevelopment agencies that were formed
by an ordinance adopted by a city or a county as set forth in ABxl 26, and (ii) p1ll'suant to ABxl 27,
providing for a voluntary payment mechanism whereby a city or a county could effectively continue
redevelopment activities through remittance of the payments required under ABx127.
The CRA relied extensively upon the prior voter approval of Proposition 22 as the Constitutional
safeguard in an eff0l1 to prevent this type of scheme fi'om being adopted as devised by the State
Legislature in the form of ABxl 26 and ABx127. The CRA argued that Proposition 22 thus required
both ABxl 26 and ABxl 27 to be declared as unconstitutional. However, the Supreme Court used this
very same Proposition 22 argument to the contrary and determined that (i) the Legislature had the
authority to dissolve redevelopment agencies, (ii) local public agencies, redevelopment agencies and
cities have no Constitutional right for continued existence except through the actions of the State
Legislature to allow any broadly defined "political subdivision" to continue to exist in the State, and
(iii) ABx I 27 was unconstitutional because it did in fact violate Proposition 22 and was not truly a
voluntary payment by cities and counties for the continued reinstatement of their respective
. redevelopment agencies.
Revised Dates for Performance per Supreme Court Decision:
I. Supreme Court reformed and revised each effective date or deadline for performance of an
obligation under Health & Safety Code Section 34170 to 34]91 arising before May 1,2012, to take
effect four (4) months later;
2. Health & Safety Code Section 34173( d)(1) - dealing with successor agencies where the city or
county that formed the redevelopment agency elects not to serve as the successor agency has until
January 13, 20]2, to make the necessary filing rather than September ], 2011, which was initially
extended to January I, 2012; this would not be applicable to the Agency unless the Mayor and
Common Council decided not to take such an action on January 9, 2012, being the next Mayor and
Common Council meeting prior to the January ]3,20]2, deadline;
3. Health & Safety Code Section 34173 - (a) designates the successor agency (I.e., the City of San
Bernardino) as the successor entity (I.e., the City of San Bernardino) to the former Agency; (b) all
authority, right, powers, duties, and obligations previously vested with the fonner Agency under the
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Meeting Date: 01109/2012
Agenda Ite," Numbe!':
Economic Development Agency Staff Report
CA Supreme Court Decision - Constitutionality of ABxl 26
Page 2
Connnunity Redevelopment Law are now vested with the successor agency (i.e., the City of San
Bernardino); per footnote 25 of the decision, the Mayor and Common Council must make a
detetmination as to successor agency status by January 13,2012, as required by Health & Safety Code
Section 34173( d)(1);
4. Health & Safety Code Section 34174 - successor agency shall have the obligation for the
payment of all enforceable obligations; nothing contained in this section is intended to give rise to an
event of default as to enforceable obligations;
5. Health & Safety Code Section 34175 - all pledges of revenues from former redevelopment
agencies as to enforceable obligations shall be honored; nothing shall affect any pledge of revenues,
legality of the pledge or the revenues available to meet the required payments under such pledge;
6. Health & Safety Code Section 34176 - transfer of housing responsibilities; City of San
Bernardino may elect to retain the housing assets and functions previously pelfolmed by the Agency;
then all rights, powers, duties and obligations, excluding amounts in the Low & Moderate Income
Housing Fund, shall be transferred to the City of San Bemardino; other provisions apply if the City of
San Bernardino does not elect to assume the housing responsibilities; decision of the City of San
Bernardino to retain housing functions may be only ministerial; action should be taken by the Mayor
and Common Council at the January 9, 2012, meeting on this matter; not clear which is the effective
date for this provision but the conservative approach would be to take this action at the same time that
the City of San Bemardino considers whether to be designated as the successor agency;
7. Health & Safety Code Section 34177(j) - successor agency to prepare a 6-month administrative
budget; may include arrangements for administrative and operation services to be provided by the City
of San Bemardino;
8. Health & Safety Code Section 34177(1) - before each 6-month period, City of San Bernardino
to prepare a Recognized Obligations Payment Schedule; 34177(1)(2)(A) fIrst Recognized Obligations
Payment Schedule now due by March 1,2012; must be approved by the oversight board and submitted
to the county auditor-controller, the State Controller's OffIce and the Depa11ment of Finance to be
valid;
9. Health & Safety Code Section 34178 - invalidates agreements between the Agency and the
City of San Bernardino but such agreements may be submitted to the oversight board for approval; see
later discussion as to powers of the oversight board;
10. Health & Safety Code Section 34179 - oversight boards; City of San Bernardino as the
successor agency shall have a 7 member oversight board; oversight board to be appointed by May I,
2012, but will be required sooner to approve the Recognized Obligations Payment Schedule by March
I, 2012; to be comprised of (i) one member appointed by the County Board of Supervisors; (ii) one
member appointed by the Mayor; (iii) one member appointed by the largest special district by prope11y
tax share (need to verifY property tax receipts for the designation of such special district); (iv) one
member appointed by the County Superintendent of Schools; (v) one member appointed by the
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P.\Agendu'.Comm DtVCOmllliBion~CDC 2QIHII.09.12 C'A SUrrtme Court I).:-.:i;\oo - ('onst'lUIionll1tj'of AR~J 26SRdoX COMMISSION MEETING AGENDA
Meeting Dale: 01/0912012
Agenda l1em Number:
Economic Development Agency StaffRepOlt
CA Supreme Court Decision - Constitutionality of ABxl 26
Page 3
Community College District Chancellor; (vi) one member of the public appointed by the County Board
of Supervisors; and (vii) one member appointed by the Mayor from the Agency employees.
Decision to become Successor Al!encv:
The City of San Bernardino will automatically be the successor agency to the Agency unless by
January 13, 2012, a resolution is adopted that rejects the successor agency function with such
resolution also being transmitted to the County Auditor-Controller by January 13, 2012. 1f tile City
were to reject the successor agency designation, then no other public agency is designated in ABxl 26
as the alternative successor agency. ABxl 26 provides in Health & Safety Code Section 34173(d)(2)
that any other local agency (i.e., a city, county 01' other special district located within the County) may
adopt a resolution electing to become the successor agency and filing such resolution with the County
Auditor-Controller. The County Auditor-Controller will then determine which local agency made the
earliest filing and then designate that plUticular local agency as the successor agency. Health & Safety
Code Section 34173( d)(3) provides a method for the creation of a "designated local authority" with the
Governor to appoint three (3) board members. Such "designated local authority" will then function as
the successor agency until another local agency adopts a resolution pursuant to Health & Safety Code
Section 341 73 (d)(2) to become the successor agency.
Limitation on Liability of Successor Al!encv:
Health & Safety Code Section 34173( e) provides the following assurances to a successor agency to
limit the liability of a local agency such as the City of San Bernardino while serving in the capacity of
the successor agency:
The liability of any successor agency, acting pursuant to the
powers granted under the act adding this part, :;hall be limited to
the extent of the total sum of property tax revenues it receives
pursuant to this part and the value of assets transferred to it as a
successor agency for CI dissolved redevelopment agency.
This limitation on liability afforded to the City of SlUl BernlU'dino acting as the successor agency
should provide the City with adequate assurances that the City General Fund and other City assets
would not be adversely impacted by serving in the role as the successor agency to the Agency.
Administrath'e Functions of Successor Al!encv:
The Agency staff has proposed that the SlUl Bemardino Economic Development Corporation, a
California non-profit corporation ("SBEDC"), undertake all administrative functions to prepare items
for action by the Council as the successor agency and to prepare all other administrative filings and
reports in the SlUne maImer as is presently conducted by the Agency staff redevelopment and bond
issue repOlting requirements and for Council action items when required. The SBEDC will not be
acting as the successor agency but will merely prepare action items for approval by the COllOCil as the
successor agency and by the oversight board when required.
._...u..~______________........~_._.._..._._.._____.._._..__.._._____.....______..._____._~____________.__..________________._____
.'.\A!;(nJJf.CoI1lWD~\.Coa.m.i>5i(m'.rDC; 20]2".QI-09.[2 C'A Sllpremc {'OOlIl De.:il!on - Conllitut;onllityof AR~I 26 SRd<< C01\1MISSION MEETING AGENDA
Meeting Date: Ol/09f2012
Agenda Item Numb,,':
Economic Development Agency Staff Report
CA Supreme Court Decision - Constitutionality of ABxl 26
Page 4
The Agency entered into a Project Funding Agreement in March 20 II with the SBEDC whereby the
SBEDC agreed to undertake designated projects, programs and activities on behalf of the Agency in
exchange for the pledge of the current and future tax increment revenues of the Agency. The SBEDC
will have the continued staff and financial resources to provide these administrative services even
though those individuals who are employees of the Agency will become the employees of the
successor agency, namely, the City. It is proposed that pursuant to subsequent actions of the Council
and the SBEDC, the details of these administrative procedures and reimbursement mechanisms will be
incorporated into an Implementation Agreement that will be submitted to the Council for consideration
to provide for reimbursement of these staffmg services to the successor agency (i.e., the City of San
Bernardino) for undertaking these administrative functions. Thus, the intent would be for the City to
incur no additional costs by assnming the role of successor agency to the Agency.
Benefits of Electine: or Reiectine: to be the Successor Ae:encv:
The following benefits will accrue to the City ifthe City becomes the successor agency to the Agency:
1. Receipt of a 5% administrative fee in the 20][-12 fiscal year and a 3% administrative fee
each year thereafter based upon the dollar amount of the tax increment revenues;
2. Ability to direct the implementation of those limited approvals that remain after the
adoption of ABxl 26;
3. Potential elimination of the $1,356,250 Note between the Agency and the City on the basis
of the City and the City and the successor agency becoming one and the same entity subject
to further review; may require oversight board approval;
4. Ability to include other City administrative and operational budget items in subsequent
fiscal year budget subject to approval by the oversight board;
5. Discretion to exercise those remaining powers that a successor agency may exercise in the
future with the approval of the oversight board.
Benefits of another local agency becoming the successor agency:
I. City has no further role whatsoever in the adlninistration of the ongoing obligations of the
Agency;
2. City would not need to devote any staff resources or have any actions of the Mayor and
Common Council to implement any further actions as allowed pursuant to ABxl 26;
3. City would have no potential liability whatsoever for the actions of another local agency
acting as the successor agency.
ENVIRONMENTAL IMPACT:
This item does not meet the definition of a "project" under Section 15378 of the California
Environmental Quality Act ("CEQA"), which states that a "Project" means the whole of an action,
which has a potential for resulting in either a direct physical change in the environment, 01' a
reasonably foreseeable indirect physical change in the environment.
__o________n_____h____'..__n_n_...............nn....__n___......___......nn_........__.__n.....____............__n............._...............___n.._......___._n....__..
P:I..\Scr.JliT('nlnl D~VCOllI'l'liB!<'n'('DC 20IZ'OJ-O)l.f2 C',\ 5\!p1crnc C(I'Jrt Dc,;,ion. r(>n\t;t(J!it'n~I;IY!lf An,! 26 SR doc COMI\1ISSION J\.1EETING AGENDA
Meeting nate: 01109/2012
AgendA Item Nnmber:
Economic Development Agency StaffRepOlt
CA Supreme Court Decision - Constitutionality of ABxl 26
Page 5
FISCAL IMPACT:
None. All staffing and the retaining of consultants and legal counsel will be incun'ed and paid by the
San Bernardino Economic Development Corporation to implement all aspects of the successor agency
and successor entity obligations ofthe City for redevelopment and housing functions.
RECOMMENDATION:
That the Mayor and Common Council adopt the Resolution formally accepting the status of successor
agency to the Agency.
~
..-------_......- ---- --.---..----------- ~----------- ------------------------ -"--- --------~----._-------..._----._+_. ---
P.\"~lr.d~I'('lImm Drl' ('C'mmi~!i"n'n}C 20]2'01-09.12 CA S\lr(,'m~ roortDrd;ioln - ('or.:litulit'"JJiI)' (If ADxl26 SRd,..... COMl\USSION MEETING AGENDA
Meeting Date: 01/09/2012
Agenda Item Number:
01
014
15
27
028
RESOLUTION NO.
2
RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF
SAN BERNARDINO TAKING CERTAIN ACTIONS PURSUANT TO HEALTH &
SAFETY CODE SECTION 34173 AGREEING TO SERVE AS THE SUCCESSOR
AGENCY AND THE SUCCESSOR ENTITY TO THE REDEVELOPMENT AGENCY
OF THE CITY OF SAN BERNARDINO
3
4
5
6
WHEREAS, the Mayor and Common Council of the City of San Bernardino (the
7
"Council") duly adopted an ordinance of the City of San Bernardino (the "City") to establish the
8
Redevelopment Agency of the City of San Bernardino (the "Agency") in accordance with the
9
10
requirements of the Community Redevelopment Law ("CRL"), and the Agency has continued to
11
function since such time in the management and undertaking of redevelopment efforts and
12
activities within Council-adopted Redevelopment Project Areas within the City; and
13
WHEREAS, the Agency has existed since its establishment under the governance of the
governing body known and identified as the Community Development Commission of the City
16
of San Bernardino (the "Commission") for the purpose of combining the redevelopment
17
functions and the housing functions of the Agency under a single governing body; and
18
WHEREAS, the California Legislature adopted ABd 26 and ABx1 27 on June 29, 2011,
19
which legislation became effective upon the signing thereof by the Governor on said date which
20
21
items of legislation identified as ABx1 26 added certain provisions to the Health & Safety Code
22
identified at Part 1.85 of Division 24 of the Health & Safety Code commencing with Section
23
34170 through and including Section 34191; and
24
WHEREAS, a legal challenge to ABx1 26 and ABx1 27 was filed directly with the
25
26
California Supreme Court in the action generally known as CRA v. Ana Matosantos, State
Director of Finance, and a final decision was rendered by the California Supreme Court on
December 29,2011, declaring ABx1 26 to be constitutional and ABx1 27 to be void as
0 1
2
3
4
5
6
7
8
9
10
11
12
13
0 14
15
27
028
unconstitutional; and
WHEREAS, prior to the release of the Supreme Court decision the Agency through the
Commission was not able to enter into new agreements or to commit to actions in addition to
those prior contracts, obligations and other debts previously incurred or approved and entered
into by the Agency prior to the date that the California Supreme Court had issued a stay as to
certain implementation aspects of both ABxl 26 and ABxl 27; and
WHEREAS, ABxl 26 provides, as codified in Health & Safety Code Section 34173 and
reformed by the California Supreme Court, that the city or county that adopted an ordinance to
establish a redevelopment agency is determined to be the "successor agency" as provided in said
Section 34173 upon dissolution of the redevelopment agency on February 1,2012; and
WHEREAS, the recent California Supreme Court decision provides in footnote 2S that
the time for a city or county to elect not to serve as the successor agency shall have an extended
time after the issuance of the California Supreme Court decision and until January 13, 2012, to
16
elect not to serve as the successor agency; and
17
18
WHEREAS, it is critical to the implementation of the provisions of ABxl 26 that the
19
Council decide at this time whether to serve as the successor agency and the successor entity to
20
the Agency.
21
NOW, THEREFORE, IT IS HEREBY RESOLVED, DETERMINED AND ORDERED
22
BY THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO, AS
23
24
FOLLOWS:
25
Section 1. The Council hereby agrees to have the City of San Bernardino serve as the successor
26
agency to the Agency pursuant to Health & Safety Code Section 34173(d)(I). The Council
further directs the filing of this Resolution by the City Clerk with the Auditor-Controller of the
County San Bernardino forthwith.
2
0
2
3
4
5
6
7
8
9
10
11
Section 2. The Council hereby designates the San Bernardino Economic Development
Corporation, a California non-profit corporation (the "SBEDC"), as the entity that shall assume
all obligations, liabilities and responsibilities for the administration of and preparation of actions
that may be required to be taken by the City or the Council at later dates for compliance with the
provisions of ABxl 26 during the current 2011-12 fiscal year and during all subsequent fiscal
years until otherwise directed by the Council. It is the intent of the Council that the SBEDC
shall assign staff and enter into contracts with consultants and legal counsel to prepare all such
subsequent actions that may be required of the City by electing to serve as the successor agency
and the successor entity to the Agency for the matters as approved pursuant to this Resolution.
Section 3. This Resolution shall take effect upon its adoption and execution in the manner as
12
13 required by the City Charter.
014 /II
15 /II
16
1/1
17
/II
18
19 /II
20 /II
21 /II
22
/II
23
24 /II
25 /II
26 /II
27 /II
028
3
o
2
RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN
BERNARDINO TAKING CERTAIN ACTIONS PURSUANT TO HEALTH & SAFETY
CODE SECTIONS 34173 AGREEING TO SERVE AS THE SUCCESSOR AGENCY
AND THE SUCCESSOR ENTITY TO THE REDEVELOPMENT AGENCY OF THE
CITY OF SAN BERNARDINO
3
4
5 I HEREBY CERTIFY that the foregoing Resolution was duly adopted by the Mayor and
6 Common Council of the City of San Bernardino at a
meeting thereof,
7 held on the day of ,2012, by the following vote, to wit:
8
Council Members: Aves Navs Abstain Absent
9
10 MARQUEZ
11 JENKINS
12 BRINKER.
13
SHORETT
0 14
KELLEY
15
16 JOHNSON
17 MC CAMMACK
18
27
028
19
Rachel G. Clark, City Clerk
20
21
The foregoing Resolution is hereby approved this
day of
,2012.
22
23
Patrick J. Morris, Mayor
City of San Bernardino
24
25 Approved as to Form:
26
t::.-.r~ ,,~/~
tJ ~,
.r'Y-/-
~t ~.~~._-
" ,
James F. Penman, City Attorney
~
By:
4
o
ECONOMIC DEVELOPMENT AGENCY
STAFF REPORT
----------------------
----------
COMPLIANCE ISSUES WITH DECEMBER 29, 2011, CALIFORNIA SUPREME COURT
DECISION ON THE CONSTITUTIONALITY OF ABX126
BACKGROUND:
The California Supreme Court released its opllllon in the challenge filed by the California
Redevelopment Association ("CRA") versus Ana Matosantos, State Director of Finance, challenging
the constitutionality of ABxl 26 and ABxl 27 as adopted by the State Legislature on June 29, 2011,
These two items of legislation had the effect of (i) dissolving redevelopment agencies that were formed
by an ordinance adopted by a city or a county as set forth in ABxl 26, and (ii) pursuant to ABxl 27,
providing for a voluntary payment mechanism whereby a city or a county could effectively continue
redevelopment activities through remittance of the payments required under ABx127.
o
The CRA relied extensively upon the prior voter approval of Proposition 22 as the Constitutional
safeguard in an effort to prevent this type of scheme from being adopted as devised by the State
Legislature in the form of ABxl 26 and ABx127. The C~ argued that Proposition 22 thus required
both ABxl 26 and ABxl 27 to be declared as unconstitutional. However, the Supreme Court used this
very same Proposition 22 argument to the contrary and detennined that (i) the Legislature had the
authority to dissolve redevelopment agencies, (ii) local public agencies, redevelopment agencies and
cities have no Constitutional right for continued existence except through the actions of the State
Legislature to allow any broadly defined ''political subdivision" to continue to exist in the State, and
(iii) ABxl 27 was unconstitutional because it did in fact violate Proposition 22 and was not truly a
voluntary payment by cities and counties for the continued reinstatClllent of their respective
'redevelopment agencies.
Revised Dates for Performance per Supreme Court DecisIon:
l. Supreme Court reformed and revised each effective date or deadline for performance of an
obligation under Health & Safety Code Section 34170 to 34191 arising before May I, 2012, to take
effect four (4) months later;
2. Health & Safety Code Section 34173(d)(I) - dealing with successor agencies where the city or
county that formed the redevelopment agency elects not to serve as the successor agency has until
January 13, 2012, to make the necessary filing rather than September I, 2011, which was initially
extended to January I, 2012; this would not be applicable to the Agency unless the Mayor and
Common Council decided not to take such an action on January 9, 2012, being the next Mayor and
Common Council meeting prior to the January 13, 2012, deadline;
3. Health & Safety Code Section 34173 - (a) designates the successor agency (I.e., the City of San
Bernardino) as the successor entity (I.e., the City of San Bernardino) to the former Agency; (b) all
authority, right, powers, duties, and obligations previously vested with the fonner Agency under the
o .;~;:;;;.;;;:;~;.--;:::,::;:;;;~;,;;;:;;;;.~;:;:;;;~:~::;.~:;;:.:~::~;;~;;;.;;.~;;.;;~;;.;:;....coMMlsSiONMEETINGAGENDA.......
Meeting Date: 0110912012
Agenda Item Number:
I
I
o
o
o
Economic Development Agency Staff Report
CA Supreme Court Decision - Constihdionalfty of ABxl 26
Page 2
Community Redevelopment Law are now vested with the successor agency (i.e., the City of San
Bernardino); per footnote 2S of the decision, the Mayor and Common Council must make a
determination as to successor agency status by January 13, 2012, as required by Health & Safety Code
Section 34173( d)(1);
4. Health & Safety Code Section 34174 - successor agency shall have the obligation for the
payment of all enforceable obligations; nothing contained in this section is intended to give rise to an
event of default as to enforceable obligations;
5. Health & Safety Code Section 34175 - all pledges of revenues from former redevelopment
agencies as to enforceable obligations shall be honored; nothing shall affect any pledge of revenues,
legality of the pledge or the revenues available to meet the required payments under such pledge;
6. Health & Safety Code Section 34176 - transfer of housing responsibilities; City of San
Bernardino may elect to retain the housing assets and functions previonsly perfonned by the Agency;
then all rights, powers, duties and obligations, excluding amounts in the Low & Moderate Income
Housing Fund, shall be transferred to the City of San Bernardino; other provisions apply if the City of
San Bernardino does not elect to assume the housing responsibilities; decision of the City of San
Bernardino to retain housing functions may be only ministerial; action should be taken by the Mayor
and Common Council at the January 9, 2012, meeting on this matter; not clear which is the effective
date for this provision but the conservative approach would be to take this action at the same time that
the City of San Bernardino considers whether to be designated as the successor agency;
7. Health & Safety Code Section 34177(j) - successor agency to prepare a 6-month administrative
budget; may include an'lll1gements for administrative and operation services to be provided by the City
of San Bernardino;
8. Health & Safety Code Section 34177(1) - before each 6-month period, City of San Bernardino
to prepare a Recognized Obligations Payment Schedule; 34177(IX2)(A) first Recognized Obligations
Payment Schedule now due by March 1,2012; must be approved by the oversight board and submitted
to the county auditor-controller, the State Controller's Office and the Department of Finance to be
valid;
9. Health & Safety Code Section 34178 - invalidates agreements between the Agency and the
City of San Bernardino but such agreements may be submitted to the oversight board for approval; see
later discussion as to powers of the oversight board;
10. Health & Safety Code Section 34179 - oversight boards; City of San Bernardino as the
successor agency shall have a 7 member oversight board; oversight board to be appointed by May I,
2012, but will be required sooner to approve the Recognized Obligations Payment Schedule by March
1,2012; to be comprised of (i) one member appointed by the County Board of Supervisors; (ii) one
member appointed by the Mayor; (Hi) one member appointed by the largest special district by property
tax share (need to verifY property tax receipts for the designation of such special district); (iv) one
member appointed by the County Superintendent of Schools; (v) one member appointed by the
P.\Altn4u'-Comm~YCornmfuIOIlKDC2012~1.09.12 CA surrtnle('OIlrt~~~::;:::~~:;~~.:~-~~:~'~;;;~;--COMMISSION MEETINGAGENDA-'"
Meeting Dole: 0110912012
Agenda Item Numbel':
o
Economic Development Agency Staff Report
CA Supreme Court Decision - Constitutionality of ABxI 26
Page 3
Community College District Chancellor; (vi) one member of the public appointed by the County Board
of Supervisors; and (vii) one member appointed by the Mayor from the Agency employees.
Decision to become Successor AI/encv:
The City of San Bernardino will automatically be the successor agency to the Agency unless by
January 13, 2012, a resolution is adopted that rejects the successor agency fimction with such
resolution also being transmitted to the County Auditor-Controller by January 13, 2012, If the City
were to reject the successor agency designation, then no other public agency is designated in ABxl 26
as the alternative successor agency. ABxl 26 provides in Health & Safety Code Section 34173( d)(2)
that any other local agency (i.e., a city, county or other special district located within the County) may
adopt a resolution electing to become the successor agency and filing such resolution with the County
Auditor-Controller. The County Auditor-Controller will then determine which local agency made the
earliest filing and then designate that particular local agency as the successor agency. Health & Safety
Code Section 34173( dX3) provides a method for the creation of a "designated local authority" with the
Governor to appoint three (3) board members. Such "designated local authority" will then fimction as
the successor agency until another local agency adopts a resolution pursuant to Health & Safety Code
Section 34173( dX2) to become the successor agency.
. Limitation on Liability of Successor Ae:encv:
o Health & Safety Code Section 34173(e) provides the following assurances to a successor agency to
limit the liability of a local agency such as the City of San Bernardino while serving in the capacity of
the successor agency:
The liability of any successor agency, acting plO'suant to the
powers granted under the act adding this part, shall be limited to
the extent of the total sum of property tax revenues if receives
pursuant to this part and the value of assets transferred to it as a
successor agency for a dissolved redevelopment agency.
This limitation on liability afforded to the City of San Bernardino acting as the successor agency
should provide the City with adequate assurances that the City General Fund and other City assets
would not be adversely impacted by serving in the role as the successor agency to the Agency.
Administrative Functions of Successor Ae:encv:
The Agency staff has proposed that the San Bernardino Economic Development Corporation, a
California non-profit corporation ("SBEDC"), undertake all administrative functions to prepare items
for action by the Council as the successor agency and to prepare all other administrative filings and
reports in the same manner as is presently conducted by the Agency staff redevelopment and bond
issue reporting requirements and for Council action items when required. The SBEDC will not be
acting as the successor agency but will merely prepare action items for approval by the Council as the
successor agency and by the oversight board when required.
o
--.------......-....-...-........---....--..-------.------------
r.~fIl44.i',('OIWD[)(;\'Commluioll.('DC 2012',()1..09.12 C'A SlIpr'meCwTt Dtdi!on. C'onsrilulioruJilyof ADlll 26SR.4o,: COMMISSION MEETING AGENDA
Meeling Dale: OIf()912012
Agenda Item Number:
o
Economic Development Agency Staff Report
CA Supreme COID't Decision - Constitutionality of ABxl 26
Page 4
The Agency entered into a Project Funding Agreement in Mazch 2011 with the SBEDC whereby the
SBEDC agreed to undertake designated projects, programs and activities on behalf of the Agency in
exchange for the pledge of the current and future tax increment revenues of the Agency. The SBEDC
will have the continued staff and financial resources to provide these administrative services even
though those individuals who are employees of the Agency will become the employees of the
successor agency, namely, the City. It is proposed that pursuant to subsequent actions of the Council
and the SBEDC, the details of these administrative procedures and reimbursement mechanisms will be
incolporated into an Implementation Agreement that will be submitted to the Council for consideration
to provide for reimbursement of these staffing services to the successor agency (i.e., the City of San
Bernardino) for undertaking these administrative functions. Thus, the intent would be for the City to
incur no additional costs by assuming the role of successor agency to the Agency.
Benefits of Electinl! or Relectlnl! to be the Successor Al!encv:
The following benefits will accme to the City if the City becomes the successor agency to the Agency:
I.
2.
0 3.
4.
5.
Receipt of a 5% administzative fee in the 2011-12 fiscal year and a 3% administrative fee
each year thereafter based upon the dollar amount of the tax increment revenues;
Ability to direct the implementation of those limited approvals that remain after the
adoption of ABxl 26;
Potential elimination of the $1,356,250 Note between the Agency and the City on the basis
of the City and the City and the successor agency becoming one and the same entity subject
to further review; may require oversight board approval;
Ability to include other City administrative and operational budget items in subsequent
fiscal year budget subject to approval by the oversight board;
Discretion to exercise those remaining powers that a successor agency may exercise in the
future with the approval of the oversight board.
Benefits of another local agency becoming the successor agency:
I. City has no further role whatsoever in the administzation of the ongoing obligations of the
Agency;
2. City would not need to devote any staff resources or have any actions of the Mayor and
Common Council to implement any further actions as allowed pursuant to ABxl 26;
3. City would have no potential liability whatsoever for the actions of another local agency
acting as the successor agency.
ENVIRONMENTAL IMP ACf:
This item does not meet the definition of a "project" under Section 15378 of the Califomia
Environmental Quality Act ("CEQA"), which states that a "Project" means the whole of an action,
which has a potential for resulting in either a direct physical change in the environment, or a
reasonably foreseeable indirect physical change in the environment.
o
-;~~~~;;-~MIm ~v com~:~:;~;';;;;~~;;-'~'~~';:;'~:'~~:-~i~;:~'~;~~;;:f~O~~~;;:'~~~~';~;;-~:-"COMMiSSJONMEiTiNGAGENDA-'-'-
Meeting Date: 0110912012
Agenda Ite.. Number:
o
o
o
Economic Development Agency Staff Report
CA Supreme Court Decision - Constitutionality of ABxl 26
Page 5
FISCAL IMPACT:
None. All staffing and the retaining of consultants and legal counsel will be incurred and paid by the
San Bernardino Economic Development Corporation to implement all aspects of the successor agency
and successor entity obligations of the City for redevelopment and housing functions.
RECOMMENDATION:
That the Mayor and Common Council adopt the Resolution fonnally accepting the status of successor
agency to the Agency.
fr;>..ht -.../
._-~-._............._._.._-_.__._._---------------------------
p.\Agflldas'r(lllUllDcvCClmminion'.mc 2011-01.09.12 ('ASupnmt{'ourtD<<hioft. ('ollJtitutiOl\Jlil}'orADJl:I26SRd~ COMMJSSION MEETINGAGENDA---
Meeting Date: 01/0912012
Agenda Item Nnmber:
o DISSOLUTION OF REDEVELOPMENT AGENCIES PER THE DECEMBER 29, 2011
CALIFORNIA SUPREME COURT DECISION ON THE CONSTITUTIONALITY OF
AB X1 2
BACKGROUND:
o
In March, 2011, the City's Redevelopment Agency ("RDA") entered into a Project
Funding Agreement with the San Bemardino Economic Development Corporation
("SBEDC"), a previously-existing, non-profit corporation controlled by elected officials.
Pursuant to such Agreement, the SBEDC agreed to undertake designated capital
improvement projects, programs and activities and hold title to real property formerly
owned by the RDA in exchange for the pledge of current and future tax increment
revenues of the RDA. In June, 2011 legislation was signed into law that would either
dissolve redevelopment agencies or allow them to exist upon payment of certain sums to
the state. The League of Cities and California Redevelopment Association then
spearheaded a court challenge to such laws, asking the Supreme Court to find them
unconstitutional. On December 29, 2011, the California Supreme Court released its
opinion in the challenge filed by the California Redevelopment Association ("CRA") et al
versus Ana Matosantos, State Director of Finance, challenging the constitutionality of
ABx1 26 and ABx1 27 as adopted by the State Legislature on June 29, 2011. In
essence, the Supreme Court let stand the law requiring dissolution of all redevelopment
agencies (as of February 1, 2012) and struck down as unconstitutional the law allowing
redevelopment agencies to exist if they made payments of a portion of their tax increment
monies to the State.
Accordingly, as of February 1, 2012, redevelopment agencies are dissolved and
"successor agencies" take over the "winding down" of redevelopment agency obligations
(i.e. payment of its debts, fulfilling its contractual agreements and selling its property).
The current issue before the Mayor and Common Council is whether the City of San
Bernardino desires to be the "successor agency. to the RDA.1
Revised Dates for Performance Der SUDreme Court Decision:
1 . The Supreme Court reformed and revised all but one effective date or deadline for
performance of an obligation under Health & Safety Code Sections 34170 to 34191
arising before May 1,2012, to take effect four (4) months later.
o
lAs of January 5,2012 we are informed that League of California Cities and
California Redevelopment Association sponsored legislation extending the February 1,
2012 deadline to April 15, 2012 has been drafted and has Assembly and Senate authors.
We are also informed of a lawsuit brought by several cities pending in Sacramento
County that seeks to enjoin parts of AB x1 26, and a hearing re preliminary injunction in
that matter is set for January 27, 2012; however, we have not yet had the opportunity to
analyze such suit.
o 2. The one exception, Health & Safety Code Section 34173(d)(1), states that where
the city or county that formed the redevelopment agency elects NOT to serve as the
"successor agency," such city or county now has until January 13, 2012, to make the
necessary filing (rather than September 1, 2011, as originally enacted). Thus, If the
Mayor and Common Council decide that the City not become the successor
agency to the RDA, It must adopt a resolution stating as such and have It flied with
the County Audltor-Controller by January 13, 2012. If the Mayor and Common
Council decide that the City become the successor agency, then It may either take
no action ( In which case It becomes the successor agency by default) or adopt a
resolution stating as such.
o
o
3. Health & Safety Code Section 34173 - (a) designates the "successor agency"
(i.e., the City of San Bernardino) as the successor entity to the former Agency, and (b)
states that all authority, right, powers, duties, and obligations previously vested with the
former Agency under the Community Redevelopment Law are now vested with the
successor agency (i.e., the City of San Bernardino), unless the City "opts out" as stated
above.
4. Health & Safety Code Section 34174 - the successor agency shall have the
obligation for the payment of all enforceable obligations; nothing contained in this section
is intended to give rise to an event of default as to enforceable obligations. The RDA has
compiled a preliminary list of these "enforceable obligations" as required by law, and
such list includes the Project Funding Agreement with the SBEDC. This list will be
reviewed and approved by the Successor agency, County Auditor-Controller, and an
Oversight Board. According to the SBEDC, the funds necessary to satisfy all of the
enforceable obligations likely exceed the tax increment funds that the County will provide.
Theoretically, under the law the County is to provide successor agencies with enough tax
increment monies to satisfy the "enforceable obligations" up to the successor agency's
allocated share of the tax increment money. It is unknown if, and how, obligations on the
list will be satisfied if the tax increment monies are insufficient to pay all such obligations
until such list (or parts thereof) is approved by the Auditor-Controller and Oversight Board;
however, once the list is so approved, AB X1 26 guarantees that all approved obligations
will be satisfied.
5. Health & Safety Code Section 34175 - all pledges of revenues from former
redevelopment agencies as to enforceable obligations shall be honored; nothing shall
affect any pledge of revenues, legality of the pledge or the revenues available to meet the
required payments under such pledge. Again, approved obligations are guaranteed to
be satisfied, but it is unclear as to whether unapproved or contingent (Le "what if")
obligations will be satisfied. The County Auditor-Controller is to perform an audit of the
RDA's assets and liabilities by July 1, 2012.
6. Health & Safety Code Section 34176 - transfer of housing responsibilities. The
City of San Bernardino may elect to retain the housing assets and functions previously
performed by the Agency; then all rights, powers, duties and obligations, excluding
amounts in the Low & Moderate Income Housing Fund, shall be transferred to the City of
o San Bernardino. If the City declines, housing assets and functions would be
administered by the County of San Bernardino. (Action need not be taken by the Mayor
and Common Council at the January 9,2012, meeting on this matter, but action must be
taken by February 1, 2012).
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7. Health & Safety Code Section 341 nO) - successor agency to prepare a 6-month
administrative budget; may include arrangements for administrative and operation
services to be provided by the City of San Bernardino.
8. Health & Safety Code Section 341 n(l) - before each 6-month period, the
successor agency to update its list of obligations. This list must be approved by the
Oversight Board and submitted to the County Auditor-Controller, the State Controller's
Office and the Department of Finance to be valid.
9. Health & Safety Code Section 34178 - invalidates agreements between the
Agency and the City of San Bernardino as a successor agency, but such agreements may
be submitted to the Oversight Board for approval. (See discussion below as to powers of
the Oversight Board.)
10. Health & Safety Code Section 34179 - Oversight Boards. The successor agency
shall have a 7 member Oversight Board; Oversight Board to be appointed by May 1,
2012, but will be required sooner to approve list of obligations by March 1, 2012; to be
comprised of (i) one member appointed by the County Board of Supervisors; (ii) one
memberc appointed by the Mayor; (Hi) one member appointed by the largest special
district by property tax share (need to verify property tax receipts for the designation of
such special district); (iv)c one member appointed by the County Superintendent of
Schools; (v) one member appointed by the Community College District Chancellor; (vi)
one member of the public appointed by the County Board of Supervisors; and (vii) one
member appointed by the Mayor from the Agency employees. The Oversight Board has
approval authority over nearly every aspect of successor agency operations and owes a
fiduciary duty to the obligees set forth in the list of obligations. As noted above, only 2 of
the 7 members of the oversight board are City-affiliated. The Oversight Board is
controlled by representatives of taxing agencies that stand to gain the tax increment
revenues that are not spent on Oversight Board-approved successor agency obligations.
CURRENT ISSUE: Decide If The City Will Be The Successor AGency To The RDA
If the City decides to become the successor agency, then it will receive from the
County tax increment monies to satisfy its approved pre-AB 1 X 26 obligations, a
preliminary list of which has already been prepared; however, the amount of the listed
obligations exceeds the anticipated tax increment funds expected from the County. The
City will also receive 5% of its anticipated tax increment money in this fiscal year to fund
employee retention/administration costs to administer the payment of the obligations.
This amount decreases to 3% the next fiscal year, and remains at 3% for each year
thereafter. ADA employees need not be automatically retained, but collective
bargaining agreements currently in place must be honored. The City will also be
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required to dispose of RDA assets, including real property, as expeditiously as possible
and under terms to maximize gain as approved by the Oversight Board.
If the City decides not to become the successor agency, then it incurs no obligation
for the payment of the RDA's financial obligations effective February 1, 2012.
Correspondingly, the City receives no tax increment funding and no funds for
administration. A "Designated Local Authority" ("DLA") is immediately formed consisting
of 3 persons from San Bemardino County selected by the Governor. This DLA serves as
a successor agency unless and until another local governmental entity chooses to serve
as successor agency. Liability for the RDA's obligations, by law, becomes the
responsibility of the DLA or successor agency to the extent of tax increment funds are
received.
Advantages of the City being a successor agency include (1) some, albeit minor,
local control over implementing existing redevelopment and capital improvement projects
with tax increment funding provided by the County, and (2) receipt of the 5% and 3%
allocation of tax increment for administration. For this fiscal year, 5% of tax increment
allocation would be about $2 million.
Disadvantages of the City being a successor agency include (1) potential liability
for unapproved or contingent obligations, (2) reduction in funding for administration after
June 30, 2012, and (3) high likelihood of unfunded litigation. Disputes with the County
Auditor-Controller and Oversight Board may arise over which of the listed obligations
should be approved (and hence paid), including payment of the listed obligations to the
SBEDC. Redevelopment attorneys statewide appear to be in agreement that AB X1 26
puts cities and counties in unchartered waters from a legal perspective, and that many
uncertainties exist as to how to implement the law. Because of such uncertainty and the
unusual strategy taken by the City to transfer its assets and obligations to the SBEDC, the
risk of litigation (probably unfunded litigation) for the RDA's successor agency is very
high; as such, the City may elect not to become a successor agency as a
litigation-avoidance strategy.
By way of example only, suppose that five years from now the air conditioning units at the
proposed Regal Theater stop working. Under the RegaVSBEDC Lease, the SBEDC, as
landlord, has the obligation to remedy such problem. To do so, the SBEDC relies on tax
increment funding received from the successor agency pursuant to the Project Funding
Agreement between the RDA (now the City as successor agency) and SBEDC. But if
the portion of the Project Funding Agreement that provides for such expenditure is not
listed on the list of obligations, or listed but not approved by the Oversight Board, tax
increment monies cannot be spent on such item. This gives Regal a breach of contract
claim against the SBEDC and gives the SBEDC a breach of contract claim against the
City as successor agency for breach of the Project Funding Agreement. In addition,
though it is unclear, it is certainly possible that if litigation ensues, the City, as successor
agency, would have to bear the costs of its own defense.
Other issues that may arise concern labor and employment. Again by way of example, if
the City becomes successor agency, our understanding is that the RDA employees
become City employees that will work under contract for the SBEDe, and at least some of
those employees may be covered by civil service. If that is the case, how do these
additional City employees "fit into" the City's employment structure? If there are City
layoffs, will the former RDA employees have "bumping rights," and, if so, when does time
o in service for seniority purposes begin? In all likelihood, litigation would be necessary to
resolve these issues.
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ENVIRONMENTAL IMPACT:
This item does not meet the definition of a "project" under Section 15378 of the California
Environmental Quality Act ("CEQA"), which states that a "Project" means the whole of an
action, which has a potential for resulting in either a direct physical change in the
environment, or a reasonably foreseeable indirect physical change in the environment.
FISCAL IMPACT:
Unknown. Regardless of whether the City is the successor agency, fiscal impact is
dependent upon tax increment revenue received from the County and which known and
contingent obligations re approved by the County Auditor-Controller and Oversight
Board.
RECOMMENDATION:
There are too many unknown variables in this situation, and the liability exposure is
significant if the City becomes the successor agency. However, if the City declines to
become the successor agency, the City will not receive the tax increment money it would
otherwise receive as the successor entity. The liability limitation in AB 26 will not fully
protect the City in our opinion for a variety of reasons.
Despite the validation action, the agency's transfer of property to a private nonprofit
corporation could cause the property transfers and any delegation or further transfer of
funds, assets, and authority to be set aside by a court if fraud in the establishment of the
private nonprofit corporation or the transfers mentioned above is proven.
For these reasons we are unable to recommend that the City become the successor
agency to the San Bernardino Economic Development Agency. Further, we cannot
recommend that the City designate the San Bernardino Economic Development
Corporation as the entity to assume the obligations, liabilities, and responsibilities for the
administration of and preparation of actions that may be required to be taken by the City
or the Council at later dates for compliance with the provisions of ABx1 1 26.
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Nor can we recommend that the SBEOC assign staff and enter into contracts with
consultants and legal counsel to prepare any subsequent actions that may be required of
the City. The preparation of subsequent actions and documents for the consideration of
the San Bernardino City Council is the duty of the San Bernardino City Attorney pursuant
to the City Charter and the employment of legal counsel to prepare such actions and
documents would be in violation of the San Bernardino City Charter in our opinion.
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es F. Penman, City Attorney