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Redevelopment Funds:
Map to the Buried Treasure
December 16, 2009
Kathleen McKee
Fagen Friedman & Fulfrost, LLP
Redevelopment Funds:
Buried Treasure for School
Districts?
• Is there a redevelopment area within
your school district’s boundaries?
• How much revenue does it deliver to
the district annually?
• Is the district paid its “fair share” of
pass-through payments?
• Answers to these questions may lead to
uncovering buried treasure…
Back Story
Origins of Redevelopment
• In the beginning…post World War II cities
• “The decay of large areas in American
cities, notably in the central sections, is
one of the major problems of today. Blight
and slums have spread over an estimated
one-fourth of the urban America.” Los
Angeles Town Hall Report, p. 1, March
1944
Community Redevelopment Act
• Authorized creation of redevelopment
agencies throughout California in order to
remove and prevent the recurrence of
blight, create jobs and low-to-moderate
income housing in redevelopment areas
and attract private investment to
accomplish those goals.
• Article XVI, Section 16 of the California
Constitution
What is a Redevelopment
Agency?
• Local government agency with…
• authority to take on and solve the problems of
urban blight, joblessness, low/moderate income
housing.
• authority to acquire real property including, if
necessary, power to use eminent domain
• authority to finance their operations by
borrowing from federal or state governments
and sell bonds
• other powers
The Process
•
Local government agency (City) decides an area of its city is blighted and
would benefit from redevelopment – stimulation of the local economy, bring
in low/moderate cost housing, address problem of blight
•
Forms a Redevelopment Agency (RDA) and designates a certain area a
Redevelopment Area
•
Redevelopment Agency can be a separate agency under the authority of
the City or it can be the City Council acting as a Redevelopment Agency
Examples:
San Diego – City Council - separate redevelopment agencies, i.e., CCDC –
Centre City Development Corporation;
Coronado – City Council - same people sit as the redevelopment agency
•
•
•
RDA decides on certain projects and either finances the construction itself
or tries to attract private developers to construct them
Financing Redevelopment Projects
• Originally, no financing (or federal funds)
• Community Redevelopment Law (Health and
Safety Code Section 33000 et seq. and
amendment to state Constitution) 1951-52
• Added authority for tax-increment financing.
Allows redevelopment agencies to receive and
spend property tax revenues from the increase
in assessed value that has occurred after
adopting a redevelopment project
The Tax Increment
•
•
A & B: Tax revenue received by
local taxing agencies before the
redevelopment area is established
E: As property is sold, and as
new construction (private and
public) occurs in the
redevelopment project area, the
assessed value of the property
goes up. This causes tax revenue
to increase even though the tax
rate does not change. The
increased tax money is known as
"tax increment." It is used by the
redevelopment agency to pay the
expenses of improving the area
and eliminating blight.
Adapted from:
http://www.ci.ranchocucamonga.ca.us/rda/newsletter/oct/rdainfo5.htm##1
How does “Tax Increment”
impact school districts?
• RDAs issue bonds for financing the construction of
approved projects in redevelopment project areas.
• Assessed valuation of taxable property in the project
area increases as it is improved.
• Increased taxes used first to pay for the project and then
divided among local taxing agencies (including school
districts) and the RDA.
• Initially, RDAs divert the increased portion of property
taxes, the “tax increment,” to pay the bond indebtedness
used to finance construction.
Tax Increment (cont.)
• Once the bond indebtedness is repaid (often many
years later), a portion of the tax increment reverts to the
local taxing agencies, including school districts, as
“pass-through” payments
• School district whose attendance areas lie within the
boundaries of a designated redevelopment area is
entitled to receive portions of the increased tax
revenues
• Schools (and other local taxing agencies, i.e., water
districts) experience the financial impact of the growth
(increased numbers of students
SAMPLE MAP: Established Redevelopment
Project Area Within Boundary of City
Adapted from: http://www.ci.rancho-cucamonga.ca.us/rda/newsletter/oct/rdainfo5.htm##1
Determining how much tax increment
Two significant considerations
1. Pre and Post 1994 Pass-Through Payments (AB 1290)
Prior to 1994
• negotiated pass-through agreements or election of 2% payments
under former Health and Safety Code § 33676(a).
Post 1994
• AB 1290 – no new pass-through agreements in new project areas
adopted or added after January 1, 1994
• Existing pre-1994 agreements remain in effect unless expired by
their own terms.
• For redevelopment projects after 1994, pass-through entitlements
are determined by HSC §§ 33607.5 and 33607.7
Determining how much tax increment
(cont.)
2. Revenue Limit Offsets (after 1992)
•
RDA funds statutorily subject to revenue limit offsets under
Education Code (“Ed Code”) § 42238, unless used for facilities
purposes
•
Ed Code § 42238(h)(6) exempts RDA monies from offset if the
monies are used for facilities
•
“[A]ny amount received under Health & Safety Code§ 33401 or §
33676 that is used for land acquisition, facility construction,
reconstruction, or remodeling, or deferred maintenance."
•
“[A]ny amount received pursuant to § 33492.15, paragraph (4) of
subdivision (a) of § 33607.5 or § 33607.7 of the HSC that is
allocated exclusively for educational facilities."
Before the bond is paid…
• Early years: School districts do not receive tax increments, but new
projects still affect them (increased numbers of students to house
and educate)
• Mitigation: Share of diverted RDA tax increment supposed to be
balanced by an equal increase in state aid.
• Operations Impacts: Intent of increase in state aid is to balance the
effect on operational budgets.
• Facilities Impacts: Not mitigated by funds from the state, so school
districts are entitled to certain statutory payments from RDAs,
including
After the bond is paid…
 pass-through entitlements from negotiated
agreements prior to 1994;
 2% payments pursuant to former HSC 33676;
and,
 after 1994, the AB 1290 pass-through
entitlements contained in the Health & Safety
Code Code.
FCMAT California School Information Services Alert, May 30, pp. 1-2.
What is due to your district?
• After the bond is paid, school districts should be
receiving their full share of tax increment
• BUT whether the bond has been paid off or not…
• Verify your district’s entitlement to RDA funds
• Begin the Treasure Hunt
• Unearth long forgotten documents (most of them at least
15-20 years old)
• Time has passed, superintendents, school board
members, staff have moved on
• Records have been buried or lost
THE BIG DIG
 Past records are critical to the District’s entitlement
 What to look for:
 Pass-Through Agreements (and any amendments
or separate agreements)
 Original Redevelopment Plan and amendments
 Law suits, settlement agreements
 Maps/Legal Descriptions
 Where to look:
 District archives
 City clerk’s office
 Redevelopment Agency
What next?
• Have your documents reviewed by appropriate experts
•
•
Legal counsel
Financial experts – certain firms specialize in redevelopment analysis
• If the conclusion is that you are owed money, decide your
next step with care and attention to unique factors in your
district
Is the Agency failing to provide payments?
Is the Agency miscalculating payments?
Can the District renegotiate an existing pass-through agreement?
Concerned about already receiving developer fees for that area?
Important Questions to Ask
If your school district is part of more than one
redevelopment area…
• Where in the district are the redevelopment areas
located?
•When were the redevelopment plans adopted?
•Do you have pass-through agreements for one or all of
the areas?
•What is the district’s percentage share of tax increment
for each area? (Ex. Area 1: 53%, Area 2: 10%)
Important Questions to Ask
If your district wants to use RDA funds for building a school
not located within the boundaries of the redevelopment
project area…
Pre-1994
• Do you have a pre-1994 pass-through agreement?
• Does the pass-through agreement contain “use” provisions?
Post 1994 (SB 1290)
• Will the funds be used to construct a school attended by
students in the redevelopment project area?
• Will the funds be used to construct a school attended by
students generated by the redevelopment?
Important Questions to Ask
If your district wants to use RDA funds for costs
other than constructing classrooms…
• Are you limited by provisions of a pass-through
agreement?
• Are the costs still related to “school facilities”?
- Routine maintenance and repairs?
- Class size reduction efforts?
- Land acquisition?
Important Questions to Ask
If your district has an old (pre-1994) pass-through
agreement but its language conflicts with new laws…
Does your pass-through agreement address:
Changes to law?
Modification/Termination?
Has the Agency amended the project area:
To add new territory?
To change debt or funding limit provisions?
Maximize your district’s benefit
from redevelopment projects
• Some upfront cost for analysis
• Potential gains from the past
• Potential gains for the future
Thank You!