As just about everyone in the real estate business knows, the California Supreme Court recently upheld AB 26, the law dissolving redevelopment agencies statewide. In the same decision, it overturned AB 27, a companion measure that would have allowed agencies to continue operating if they made payments to the state. Over the past month, prognostication about the broad impact of redevelopment’s demise has abounded in the press. Affordable housing production will slump, economic development will suffer, schools will get desperately needed funding, and so on.
Much less attention has been devoted to the nuts and bolts that have kept many developers up at night over the past month. Will the Planning Department take over the functions of the San Francisco Redevelopment Agency (“Agency”)? Will redevelopment plans still determine what gets built? Who will approve new projects in redevelopment areas? AB 26 created a bare-bones framework, providing for successor agencies to wind down existing redevelopment obligations. However, the creation of successor entities and details of implementation are left for local governments to implement. In this update, we cover San Francisco’s succession planning, which answers some, but by no means all, of these questions.
A Primer on AB 26.
AB 26 was passed in June of last year and provided for the dissolution of redevelopment agencies on October 1, 2011. The Supreme Court stayed dissolution, until it had time to hear a challenge to the law brought by the California Redevelopment Association. Because many of the statutory deadlines had passed by the time the Supreme Court upheld AB 26 in California Redevelopment Assn. v. Matasantos, it extended most of them by four months. Hence, all 400+ redevelopment agencies in the state will now cease to exist on Wednesday of next week.
While the agencies themselves will close up shop, AB 26 provides for existing obligations and assets to be taken over by successor agencies, in most cases the city or county that created the redevelopment agency. These successor agencies are to continue to make payments and perform existing obligations. Agency funds, including proceeds from the sale of agency assets, are to be transferred to the county auditor-controller and distributed to other government entities, including school districts, according to state funding formulas. Tax increment monies are to be deposited in county-administered trust funds, which will first be used to pay existing obligations with the surplus distributed as above.
AB 26 also provides for the creation of oversight boards to oversee the fiscal management of successor agencies. The oversight boards are to ensure that funds are properly allocated between existing obligations and the entities entitled to any excess redevelopment funds. In most jurisdictions, power on the oversight boards will be diffused among representatives from municipalities, counties, school boards, community colleges and special district.
However, AB 26 includes special rules for oversight boards in consolidated city-counties, of which there is only one in the state: San Francisco. Here, the mayor will have a total of four appointees. Three are unrestricted; the fourth must represent the employees of the San Francisco Redevelopment Agency. All mayoral appointees are subject to confirmation by the Board of Supervisors. The remaining three oversight board members are to be appointed by the Superintendent of Schools, the Chancellor of the California Community Colleges, and BART.
San Francisco’s Implementation of AB 26.
With just more than a month between the Matasantos decision and the dissolution of redevelopment agencies on February 1, the City has had little time to prepare for the post-redevelopment era. That said, it has acted quickly to make the transition as orderly as possible under the circumstances. The succession framework is being put into place, and the mayor’s appointments to the oversight board moved quickly through the confirmation process. While many details will take months to work out, we report here on those aspects of succession that are most likely to be of interest to private sector developers.
San Francisco’s Oversight Board
Earlier this month, Mayor Lee nominated his four appointees to the oversight board. These are: John Rahaim (Director, Planning Department), Olson Lee (Director, Mayor’s Office of Housing), Nadia Sesay (Director, Mayor’s Office of Public Finance), and Bob Muscat, Director, IFTPE Local 21, the union representing many Redevelopment Agency employees.) On Tuesday, the Board of Supervisors unanimously confirmed all four mayoral nominees.
At the same hearing, the Board of Supervisors passed a resolution (“Resolution”) sponsored by the Mayor and Supervisors Cohen, Kim, and Olague. The Resolution establishes the City as the successor to the Redevelopment Agency, provides for the transfer of Agency assets, and establishes the roles and responsibilities of various City departments in overseeing the wind-down of the Agency’s obligations.
For many with projects in active redevelopment areas, one of the first questions raised is what rules will govern their projects and who will approve them. Will projects now have to be approved by the Planning Commission? Will redevelopment land use controls be superseded by the Planning Code? Will redevelopment agreements with builders be revisited by the successor entity? According to the Resolution, the answer to all three questions is no. AB 26 itself provides defines “existing obligations” to “include any legally binding and enforcement agreement or contract.” These include the disposition and development agreements, owner participation agreements, and other agreements by which the Agency approved projects. The Resolution provides for the rights under these existing agreements to be placed under the jurisdiction of the City’s Department of Administrative Services, which will continue to implement them.
For projects that have yet to be approved, the land use controls in redevelopment plans and related documents will continue to govern development decisions in active project areas, as will the procedures established by the Agency. In the Mission Bay, Hunters Point Shipyard/Candlestick Point Redevelopment Areas, as well as portions of the Transbay Redevelopment Area, the oversight board will be vested with the power to grant approvals for projects, to modify existing land use controls and financing plans, and enter into new agreements to carry out the objectives of the redevelopment plans. However, the oversight board’s authority is circumscribed by state law. It cannot approve any changes that would increase the amount of tax increment revenue pledged to completion of these projects.
Of course, redevelopment plans are more than just zoning. They are comprehensive plans to create desirable neighborhoods with public amenities, infrastructure and affordable housing. While individual buildings can be built by private or non-profit developers under the rules set out in current plans, the public sector may not be able deliver supporting infrastructure where funding commitments have not already been made. This is likely to be less problematic in Mission Bay, where agreements with a master developer have been in place for some time. In others-the Transbay is a notable example-where such agreements are lacking, it is unclear how unfunded public open space, affordable housing, and streetscape improvements will get built. Plans may have to be scaled back, or, as it often does, the City may turn to increased impact fees to fill the gap.
In addition to the assurances it gives to private sector developers, the Resolution also announces the City’s intention to carry out its commitments to the Transbay Joint Powers Authority (“TJPA”), the agency overseeing the construction of the $4.1 billion Transit Center. Under prior agreements, the Agency pledged to deliver the tax increment generated from the sale and development of several prime development sites in the Transbay Redevelopment Area. The Resolution calls for all of the Agency’s obligations under these agreements to be transferred to the TJPA, a move that will require future approval from the Oversight Board.
Of course, we have touched on only on a few limited aspects of a situation that is rife with complexity. The City has clearly committed itself to make the transition to a post-redevelopment world as smooth as possible. However, many of the short- and long-term consequences of AB 26 simply aren’t known and can’t be predicted with any certainty. Best intentions aside, it will be a long and bumpy ride.
The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.
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