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Last Minute Proposal re: RDA Pass-Throughs - June 15, 2012

 

Colleagues,

The following information was received from Dante Gemucio of Public Economics. It concerns a last-minute proposal that arose during trailer bill negotiations which could reduce or eliminate the non-property tax offset portion of RDA pass-through payments. In essence, the portion of the pass-through payments you receive for facilities now appears to be at risk.

Details are not clear yet, but we were able to confirm with Dept. of Finance that this was indeed a Legislative action. DOF states that the administration is not in support of this, but it apparently was used as a way for the Legislature to score an additional $250 million in property tax revenue.

Please see Dante’s analysis below. We will keep you informed of any new information as it comes in.

Regards,

Diane Brady

 

As you are probably aware, as part of the budget trailer bill negotiations, a proposal surfaced on Wednesday that in effect would change to revenue limit offset some (if not all) the facilities portion of former RDA pass-throughs. The proposal could not only reduce or eliminate a much needed source of local facilities funding for LEAs (part of the local match for State facilities grants). It could also threaten the fiscal status of the many LEAs that are using the facilities portion of RDA pass-throughs to repay COPs, lease revenue bonds, or capital leases, which PEI believes to total $1 to $2 billion statewide for K-12 districts, and up to $250 M statewide for CCDs.

DOF has gone on record as opposing the proposal (as CASH noted in yesterday’s alert, because “these payments are an existing legal obligation”). PEI believes LEAs should oppose the proposal for the same reason, and should contact their local Legislators urging them to vote no if any such proposal actually comes before them.

*The Proposal*

It’s not clear to me whether the proposal involves a *one-year* change for purposes of the ’12-13 State Budget, or a permanent change, or whether the proposal involves only pre-1994 *contractual agreements* or *both contractual and statutory pass-throughs*. PEI is working behind the scenes with LAUSD's attorneys and lobbyists, and they have not seen anything in writing.

I’m not sure who's making the proposal (so far attributed only to the “Legislative Leadership”). But it appears to involve distributions to affected taxing entities from the Redevelopment Property Tax Trust Fund for each former RDA. The proposal appears to change the status of some (or all) Pass-Throughs, which under ABX1 26 not only continue “as obligations of successor entities” (Successor Agencies), but per HSC 34183(a)(1) are *priority* obligations, distributed after allowances for County A-C admin, but *before* distributions to Successor Agencies.

*Under ABX1 26*

o Only the *residual balance* in the Trust Fund after the above distributions is distributed as additional property taxes to only those taxing entities within RDA boundaries

o For revenue limit LEAs, these Residual Distributions (Excess Revenues) are received for revenue limit offset

Under the pending proposal, apparently:

o Some or all Pass-Throughs may be distributed NOT as Pass-Throughs, but as additional property taxes, along with the Residual Distributions

o Both distributions may be to all taxing entities (“based on their AB 8 shares”), not just those within RDA boundaries

o For revenue limit LEAs, some or all the pass-throughs (recharacterized as additional property taxes per AB 8) may be received for revenue limit offset

According to one source, the effects of the pending proposal have been evaluated for one sample county, which the following results:

o Districts whose pass-through agreements [entitlements?) are “of equal or lesser value than their AB 8 disbursements” appear to be “covered,” i.e., meaning they presumably receive their pass-throughs as pass-throughs (e.g., without revenue limit offset)

o Districts whose pass-through agreements [entitlements?) are “in excess of their AB 8 share” have pass-throughs (?) reduced “by the amount by which their pass-throughs exceed their AB 8 distribution”

AB 8 shares or factors are technically each entity's share of countywide property taxes. But people in Sacramento also use the term to describe local ATI factors that show each entity's share of property taxes for each tax rate, which for a local entity are much higher than countywide factors. So again, it’s not clear exactly what’s been proposed.

*Irony*

It is ironic that ABX1 26 bends over backwards to protect the long term capital obligations of former RDAs, including bonds, loans, payments to former RDA employees, judgments or settlements, and legally binding contracts. Indeed, HSC 34183(c) states:

“The county treasurer may loan any funds from the county treasury that are necessary to ensure prompt payments of redevelopment agency debts”

And both pass-through agreements and AB 1290 pass-throughs are expressly recognized in contract or statute as “redevelopment agency debts” (as noted by DOF). Yet this proposal would apparently reduce or eliminate the facilities portion of some or all pass-throughs, including to LEAs, “”regardless of debt obligations LEAs have encumbered by securitizing their pass-throughs.”

*Conclusion*

It’s still not clear exactly what the proposal entails. But it IS clear that the proposal (i) could be) VERY harmful to LEAs fiscal status--especially those who rely on the facilities portion of their pass-throughs to pay COPs, lease revenue bonds, etc.—and (ii) could impair LEAs’ ability to provide local match dollars for future State facilities grants.

If you have any questions, please don’t hesitate to contact me.
Dante Gumucio, CEO
Public Economics, Inc.

dgumucio@pub-econ.com

714-647-6242 Phone
714-647-6232 FAX
714-307-1483 Cell

 




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