Oversight Board Meeting of March 15, 2012

1. Oversight BoardMeeting of March 15, 2012 Steve Shupe Deputy County Counsel Counsel for County as Successor Agency and Sonoma County Community Development Commission

2. Overview of Presentation • Redevelopment Background • ABx1 26 and Supreme Court Decision • Oversight Board Powers & Duties • Brown Act (Public Meeting Rules) • Conflicts of Interest • Public Records Act • Legal Representation • Questions

3. Redevelopment Overview • California Redevelopment Law (CRL) • Allowed cities/counties to establish redevelopment agencies to combat physical and economic “blight”

4. Redevelopment Overview • How did it work? • Formation of project area • Redevelopment agency gets portion of increase in property tax revenue to fund redevelopment activities • Idea is that redevelopment increases property values and that increased property tax revenues are then “plowed back” into area to further revitalize it

5. Redevelopment Overview • Core idea was to use redevelopment funds as “seed” money to leverage private investment • Classic cases: • Purchase of blighted property by RDA and sale to private party to construct new development • Construction of public improvements that reduce blight and encourage economic revitalization • Emeryville in East Bay – a blighted area now a major shopping area

6. Redevelopment Overview • But RDAs perceived as harming taxing entities (counties, special districts, schools) by taking away property tax revenues • Used “traditionally” and sparingly until Prop. 13 enacted, which pinched budgets of cities and counties • CRL amended over time to address abuses: • Tightened definition of “blight” • Limited voluntary “pass-through” agreements • 20% of revenues must be spent on low & moderate income housing

7. 2011 RDA Legislation • State proposed RDA legislation last summer to help State budget problem – Why? • Prop. 98 requires the State to ensure that all schools receive a minimum amount of funding • In areas where RDAs existed, tax revenue that went to RDAs instead of schools had to be “backfilled” by the State • Over time, this “backfill” amount became significant

8. 2011 RDA Legislation • Some wanted to eliminate RDAs altogether, but eventually a compromise reached • Legislature passed two acts: • The first (ABx1 26) said that RDAs would be dissolved effective October 1, 2011 • The second (ABx1 27) said that an RDA could escape dissolution by making specified “voluntary” payments to the State • Estimated $1.7 billion to state in 1st FY, $400 million in later years

9. 2011 RDA Legislation • This “two-step” legislation designed to avoid violating Prop. 22, passed in 2010, which prohibited Legislature from requiring RDAs to “directly or indirectly” transfer property tax money to the State • Since payments “voluntary,” Legislature thought Prop. 22 not violated

10. CRA Lawsuit • Argued that ABx1 26 and ABx1 27 violated Prop. 22 • Said “pay or die” choice offered to RDAs violated Prop. 22’s prohibition on requiring RDAs to “directly or indirectly” transfer property tax money to the State

11. Supreme Court Decision • California Supreme Court decided case in late December • Agreed with CRA that ABx1 27 was unconstitutional, in that it required RDAs to send money to State in violation of Prop. 22 • Said that under the circumstances, payments were not really “voluntary”

12. Supreme Court Decision • But – Court also held that nothing in Prop. 22 said that the Legislature couldn't eliminate RDAs altogether, and since the Legislature had created them, the Legislature could eliminate them • So court upheld ABx1 26, the RDA Dissolution Act • Also extended all deadlines in ABx1 26 for a period of 4 months

13. Supreme Court Decision • End result was something neither the RDAs nor the Legislature intended or wanted • Dissolution of RDAs • No immediate payments to State

14. Dissolution Act Overview • ABx1 26 sets up a process for terminating and unwinding the affairs of RDAs • Not well-written, often ambiguous and internally inconsistent • Passed one day after introduction; no “vetting” of language • Two “prime directives” • Protection of holders of “enforceable obligations” against former RDAs • Best interests of the taxing entities • “Oversight boards shall have fiduciary responsibilities to holders of enforceable obligations and the taxing entities that benefit from distributions of property tax.” (34179(i))

15. Dissolution Act Overview • All RDAs dissolved as of February 1 • Assets/liabilities/operations transferred to “successor agency” – usually the city or county that created the RDA • Exception: Housing assets and functions of former RDAs transfer to sponsoring community or applicable housing authority

16. Dissolution Act Overview • For former Sonoma County RDA • County of Sonoma is the “successor agency” • Former RDA staff of Sonoma County Community Development Commission (CDC) assisting successor agency as staff under contract • Sonoma County Housing Authority, operated by CDC, took over housing assets and operations

17. Dissolution Act Overview • Vested with any remaining authority, rights, powers, duties and obligations of the former Redevelopment Agency • Inventory/validate assets and liabilities of the Agency • Make payments required to holders of enforceable obligations • Prepare draft Recognized Obligations Payment Schedule • Liquidate assets • Manage the affairs of the former Agency • Charged with expeditiously winding down the affairs of the former Redevelopment Agency – under direction of the Oversight Board

18. Dissolution Act Overview • The County Auditor-Controller also has a major role under the Dissolution Act • Perform or cause to be performed an agreed upon procedures audit of all former RDAs • Establish Redevelopment Property Tax Trust Funds for the benefit of the taxing entities • Calculate and administer Gross Tax Increment, Pass-Through amounts, and distributions to taxing entities • Monitor and distribute funds to successor agencies to pay enforceable obligations

19. Dissolution Act Overview • Although goal is to wind up affairs of RDAs, Dissolution Act recognizes that completion of ongoing projects may in some cases benefit taxing entities • How? By eliminating blight, property values increase, generating more property tax revenues for taxing entities over time • Oversight Board has power to decide whether to continue projects that will benefit taxing entities

20. Dissolution Act Overview • Act recognizes three categories of agreements of former RDAs • Bonds • Agreements with third parties (both private and public) • Agreements between RDA and sponsoring community (e.g., agreements between Sonoma County RDA and Sonoma County)

21. Dissolution Act Overview • Bonds get highest level of protection • Debt service payments on tax increment bonds get paid before other “enforceable obligations” • “Bond proceeds shall be used for the purposes for which bonds were sold unless the purposes can no longer be achieved, in which case, the proceeds may be used to defease the bonds.” (34169(i))

22. Dissolution Act Overview • “Enforceable Obligations” • “Any legally binding and enforceable agreement or contract that is not otherwise void as violating the debt limit or public policy” (34171(d)(1)(E)) • Includes agreements with private and public third parties • Successor agencies must “perform obligations required pursuant to any enforceable obligation” (34177(c))

23. Dissolution Act Overview • “Enforceable obligation” does not include any agreements, contracts, or arrangements between the city, county, or city and county that created the redevelopment agency and the former redevelopment agency. • “Agreements, contracts, or arrangements between the city or county, or city and county that created the redevelopment agency and the redevelopment agency are invalid and shall not be binding on the successor agency.” (34178(a))

24. Dissolution Act Overview • Oversight Board may • Terminate any “enforceable obligation” – but must make third party whole • Re-authorize any agreement between former RDA and sponsoring entity • But only if it concludes that doing so is in best interests of taxing entities

25. Dissolution Act Overview • Property taxes (former tax increment) will continue to be collected and paid to successor agency to the extent needed to pay off obligations of former RDA • Benefits to taxing entities from RDA dissolution will increase over time as debts of former RDAs are retired

26. Oversight Boards • “Each successor agency shall have an oversight board composed of seven members.” (34179(a)) • “The oversight board may direct the staff of the successor agency to perform work in furtherance of the oversight board's duties and responsibilities under this part.” (34179(c))

27. Why an Oversight Board? • Legislature concerned that governing board of sponsoring community might not give interests of taxing entities sufficient weight • “Oversight boards shall have fiduciary responsibilities to holders of enforceable obligations and the taxing entities that benefit from distributions of property tax and other revenues …” (34179(i))

28. Fiduciary Responsibilities • No definition in Dissolution Act • “A person who is required to act for the benefit of another person on all matters within the scope of their relationship; one who owes to another the duties of good faith, trust, confidence, and candor.” (Black’s Law Dictionary, 8th Ed. 2004)

29. Oversight Boards • “A majority of the total membership of the oversight board shall constitute a quorum for the transaction of business. A majority vote of the total membership of the oversight board is required for the oversight board to take action.” (34179(e)) • Majority of a quorum is not sufficient – 4 votes needed for any OB action

30. Oversight Boards • “The Department of Finance may review an oversight board action taken pursuant to the act adding this part.” (34179(h)) • OB decisions not effective for 3 days – in this time DOF may give notice of its request to review • DOF then has 10 days to approve OB decision or return it to OB for reconsideration • Modified OB decision must then be resubmitted to DOF for approval by DOF • Modified OB decision not effective until DOF approves

31. Oversight Boards • “Oversight board members shall have personal immunity from suit for their actions taken within the scope of their responsibilities as oversight board members” (34179(d))

32. Oversight Board Powers • Two categories of powers: • Oversight Board approval required for certain actions by successor agency (§34180) • Oversight Board “shall direct” the successor agency to take certain actions (§34181)

33. Oversight Board Powers • Oversight Board approval required for the following actions by successor agency: • “The establishment of new repayment terms for outstanding loans where the terms have not been specified prior to the date of this part” (34180(a))

34. Oversight Board Powers • “Refunding of outstanding bonds or other debt of the former redevelopment agency…” (34180(b)) • “Setting aside of amounts in reserves as required by indentures, trust indentures, or similar documents governing the issuance of outstanding redevelopment agency bonds” (34180(c))

35. Oversight Board Powers • “If [the county] wishes to retain any properties or other assets for future redevelopment activities, funded from its own funds and under its own auspices, it must reach a compensation agreement with the other taxing entities to provide payments to them in proportion to their shares of the base property tax … for the value of the property retained.” (34180(f)(1))

36. Oversight Board Powers • “Establishment of the Recognized Obligation Payment Schedule” (34180(g)) • ROPS is a key document … contains all obligations of former RDA over time and lists source of funds for paying those obligations, including administrative budget • Kathleen Kane of CDC will discuss the ROPS

37. Oversight Board Powers • “A request by the successor agency to enter into an agreement with the city, county, or city and county that formed the redevelopment agency that it is succeeding.” (34180(i)) • OB must approve the successor agency’s re-entering into agreements with the County • A number of other successor agency actions require OB approval but they are not relevant in the case of our RDA

38. Oversight Board Powers • “The oversight board shall direct the successor agency to do all of the following:” (34181) • “Dispose of all assets and properties of the former redevelopment agency that were funded by tax increment revenues of the dissolved redevelopment agency” (34181(a)) • But…..

39. Oversight Board Powers • “the oversight board may instead direct the successor agency to transfer ownership of those assets that were constructed and used for a governmental purpose, such as roads, school buildings, parks, and fire stations, to the appropriate public jurisdiction pursuant to any existing agreements relating to the construction or use of such an asset. Any compensation to be provided to the successor agency for the transfer of the asset shall be governed by the agreements relating to the construction or use of that asset. Disposal shall be done expeditiously and in a manner aimed at maximizing value.” (34181(a))

40. Oversight Board Powers • “The oversight board shall direct the successor agency to…” • “cease performance in connection with and terminate all existing agreements that do not qualify as enforceable obligations.” (34181(b)) • This has been done … our successor agency treating agreements between former RDA and County as void.

41. Oversight Board Powers • “The oversight board shall direct the successor agency to …” • “Transfer housing responsibilities and all rights, powers, duties, and obligations along with any amounts on deposit in the Low and Moderate Income Housing Fund to the appropriate entity.” (34181(c)) • Former County RDA transferred housing assets and responsibilities transferred to the CDC/Sonoma County Housing Authority.

42. Oversight Board Powers • “The oversight board shall direct the successor agency to…” • “Terminate any agreement, between the dissolved redevelopment agency and any public entity located in the same county, obligating the redevelopment agency to provide funding for any debt service obligations of the public entity or for the construction, or operation of facilities owned or operated by such public entity, in any instance where the oversight board has found that early termination would be in the best interests of the taxing entities.” (34181(d))

43. Oversight Board Powers • Several large agreements in this category • Sweetwater Springs Water District infrastructure improvements • Monte Rio Rec & Park District, Creekside Park improvements • OB can decide to terminate these agreements if OB finds such termination is in the best interests of the taxing entities

44. Oversight Board Powers • “The oversight board shall direct the successor agency to …” • “Determine whether any contracts, agreements, or other arrangements between the dissolved redevelopment agency and any private parties should be terminated or renegotiated to reduce liabilities and increase net revenues to the taxing entities, and present proposed termination or amendment agreements to the oversight board for its approval. The board may approve any amendments to or early termination of such agreements where it finds that amendments or early termination would be in the best interests of the taxing entities.” (34181(e)) • Termination must make counter-party to agreement whole

45. Best Interests of Taxing Entities • Dissolution Act does not explicitly define what constitutes the “best interests of taxing entities” • Direct financial benefit would meet this definition • Possibly indirect benefits to taxing entities can also considered

46. Ralph M. Brown Act • Enacted in 1953 in response to series of articles in SF Chronicle about secret government meetings • Section 54953(a) is heart of the law: • “All meetings of the legislative body of a local agency shall be open and public, and all persons shall be permitted to attend any meeting of the legislative body of a local agency, except as otherwise provided in this chapter.”

47. “Legislative Body” • Dissolution Act specifies that the Oversight Board is a legislative body subject to the Brown Act.

48. “Meetings” • The Brown Act’s definition of “meeting” is very broad. It is any congregation of a majority of the body’s members at the same time and place to hear, discuss, or deliberate on any item within the jurisdiction of the body or the jurisdiction to which it pertains.

49. “Meetings” • Brown Act definition of “meeting” is not restricted to formal meetings – if three members of a five-member board happen to meet downtown and start discussing board business, they are having a Brown Act “meeting.”

50. “Meetings” • Also prohibited are “serial” meetings (either in-person or via phone or e-mail) that do not involve a majority actually getting together in one place at one time. Thus ongoing telephone or e-mail communications among a majority of board members to establish a collective concurrence on an issue is a “meeting.”