Redevelopment Dissolution: Key Finance Issues

Redevelopment Dissolution:Key Finance Issues

California Society of Municipal Finance Officers2012 Annual Conference

Anaheim, CaliforniaMarch 1, 2012

Jack NagleGoldfarb & Lipman LLP

1300 Clay Street, 11th FloorOakland, CA 94612

[email protected]

Key Finance Issues

• Successor Agency Start-Up Actions• Recognized Obligation Payment Schedule• The “New” Property Tax System For Dissolution• Working With The Auditor-Controller• Working With The Oversight Board• Bond-Related Issues

2goldfarb lipman attorneys

Successor Agency (SA) And Housing Successor Agency (HSA) Start-Up Actions


Transfer of Former RDA Assets Effective February 1, 2012

• By Operation Of Law (ABx1 26)• All Former RDA Funds and Non-Housing Assets To SA• Housing Assets (Other Than Housing Fund Balance) To

HSA– Defining/Determining A “Housing Asset”

• RDA Exit Memos To Memorialize Transferred Assets• Possible State Controller “Claw-backs” Of Assets

Transferred By Former RDA To Host Community Or Other Local Entity After January 1, 2011


Establishing SA Funds and Accounts

• Create SA Funds And Accounts Comparable To Former RDA Funds and Accounts (Including Housing Fund)

• Create Redevelopment Obligation Retirement Fund– To Receive Revenues To Pay Enforceable Obligations From

Auditor- Controller’ Redevelopment Property Tax Trust Fund (Trust Fund)

– Possible Sub-Accounts For Separate Project Areas Of Former RDA

goldfarb lipman attorneys 5

Actions To Segregate SA Assets And Liabilities From Normal Host Community Assets and Liabilities

• SA Liabilities Are Limited To Funds And Assets Received By SA

• Hold Assets In Name Of “City As Successor Agency To Former RDA”

• Do Not Pool Or Comingle SA Funds With Other City Funds


Recognized Obligation Payment Schedule (ROPS) And Administrative Budget


ROPS Contents

• Initial ROPS Covers January – June 2012• Future ROPS’s Are Forward Looking For Succeeding

Six-Month Periods• List Enforceable Obligations And Show Monthly

Expected Expenditures, Payee, Description/Purpose, Payment Source, And Affected Project Area

• Initial ROPS Also Shows “Lifetime” Expected Expenditures/Schedule For Enforceable Obligations


ROPS Enforceable Obligation Considerations

• ABx1 26 Invalidation Of Certain RDA/Host Community Contracts

• Show Affordable Housing Obligations• Treating Unencumbered Bond Proceeds/Bond

Covenants• Former RDA Property Remediation,

Management/Operation, and Disposition Costs• SA Administrative Cost Allowance• Project-Related Vs. General Dissolution Administration

Staff And Consultant Costs


Administrative Budget Timing/Contents

• No Set Preparation Date, But Logical To Prepare Soon To Obtain Oversight Board Approval

• Should Contain– Estimated SA General Dissolution Administration Costs

For Upcoming Six-Month Period– Proposed Payment Sources (Including Administrative

Cost Allowance)– Proposed Arrangements For Obtaining Administrative

Services


ROPS Procedural Steps

• March 1, 2012: Prepare/Post Draft of Initial ROPS

• April 15, 2012: Send Certified And Approved ROPS To State Controller And Department of Finance

• May, 1 2012: Deadline For Formation Of Oversight Board That Approves Certified ROPS

• July 1, 2012: Deadline For Completion Of External Audits As Basis For ROPS Certification

• Basic Flaw In ROPS Procedure Sequence As Contained in ABx1 26

• Use Of Amended Enforceable Obligation Payment Schedule (EOPS) Prior To Operative Date Of ROPS


The “New” Property Tax System For Redevelopment Dissolution


Overview of New System

• County Auditor-Controller (A-C) Determines Amount Of Property Taxes That Formerly Would Have Constituted Tax Increment and Deposits In Trust Fund

• A-C Makes Semi-Annual Distributions From Trust Fund As Described In Subsequent Slide

• A-C Receives From SA The Unencumbered Fund Balances Inherited From Former RDA And The Net Sales Proceeds From Former RDA Property Disposition– These Fund Balances and Land Sale Proceeds Are

Distributed By A-C Like Normal Property Taxes


Redevelopment Property Tax Trust Fund Distributions By Auditor-Controller

• First, To Pay A-C Administrative Costs• Second, To Pay Contract And Statutory Pass-Through

Obligations Of Former RDA• Third, To SA So That SA Can Pay Enforceable

Obligations On Approved ROPS (SA Places This Amount In Its Redevelopment Obligation Retirement Fund)

• Fourth, To Pay SA Administrative Cost Allowance• Fifth, To Pay Any Residual Balance To Local Taxing

Entities


Special Trust Fund Distribution Issues

• Dealing With A Shortfall In Amount Available To Pay Enforceable Obligations– SA Informs A-C of Potential Shortfall– A-C And State Controller Verify Shortfall– Distribution Priorities Are Modified To Assure

Adequate Funds To Pay Enforceable Obligations• Calculation And “True-Up” of Trust Funds Allocated

By A-C To Taxing Entities For Pass-Through Payments and From Residual Property Tax Receipts To Assure Appropriate Shares To Each Taxing Entity


Cash Flow Concerns From New System

• The New System May Create Cash Flow Issues For Some SA’s Due To– Transition From Current Annual Funding System To

Forward Looking Six-Month Period Funding System– Inability/Disincentives For Host Community To Provide

Cash Flow Advances For SA Obligations– Timing Quirks Caused By Mid-Year Supreme Court

Ruling And Court’s Setting of Revised Operational Dates


The Cash Flow Conundrum

17

Source: California Redevelopment Association Dissolution Implementation Committee

goldfarb lipman attorneys

Issues For Working With Auditor-Controller


Audit-Related Issue

• Cooperation With A-C In Preparation Of “Agreed Upon Procedures” Audit By External Auditor

• Will There Be An SA Close-Out Audit For Former RDA?

• Obtaining External Auditor “Certification” Of Initial ROPS


Other Auditor-Controller Cooperation Issues

• Remitting To A-C Any Unencumbered Fund Balances Received By SA From Former RDA On February 1, 2012

• Transferring Responsibility/Knowledge For Pass-Through Calculations And Payments

• Assuring Priority Of Payments For Bonds Secured By Pledge From Particular Project Area


Other Auditor-Controller Cooperation Issues (Continued)

• Reporting/Verifying Funding Shortfalls For Enforceable Obligations

• Reporting/Adjusting Actual Vs. Estimated Enforceable Obligation Payment Amounts– SA To Report Differences From One Period In

Subsequent ROPS– A-C May Audit Differences and Will Adjust Future

Amounts Paid To SA Accordingly• Preparing/Processing the Second ROPS For July –

December 2012 Period


Issues For Working With Oversight Board

• Concurrence On Enforceable Obligations And Approval Of Initial and Succeeding ROPS’s

• Approval For Continuation Of Certain Mid-Stream Projects (Including Re-Entry To Certain Agreements With Host Community)

• Approval Of SA Expenditures Of Unencumbered Bond Proceeds

• Strategy For Refunding Bonds Or Prepaying Other Obligations To Generate Net Savings

• Disposition Strategy For Former RDA Properties


Some Key Bond-Related Issues

• Assuring Sufficient Funds To SA To Pay Subsequent Period Bond Debt Service– Dealing With Uneven Spring/Fall Debt Service

Through The Semi-Annual ROPS System• Assuring Priority Of Funds To Secure Each Bond

Series– Dealing With System That Has Only One Trust Fund

For Each Former RDA• Addressing Ability For SA To Spend Unencumbered

Bond Proceeds For Intended Purpose


Redevelopment Dissolution: Key Finance Issues

Documents

Transcript of Redevelopment Dissolution: Key Finance Issues