ALAMEDA, Calif. — California’s budget negotiations appear to be building to a crescendo, raising the possibility that there may be a decision soon on proposals to extend temporary state taxes and to eliminate redevelopment agencies.
Gov. Jerry Brown, a Democrat, wants lawmakers to authorize a June ballot measure to extend temporary income, sales, and vehicle taxes that will otherwise expire at the end of June. Assuming support from the Legislature’s Democratic majorities, he needs votes from two Republicans in each chamber to reach the requisite majorities.
Both the Assembly and Senate scheduled unusual Friday morning sessions.
“We are still working hard with the members of the Republican party that have indicated a willingness to negotiate to try to bring a two-thirds bipartisan agreement together,” Senate President pro tempore Darrell Steinberg, D-Sacramento, told members of the capitol press corps Thursday morning.
“The discussions of the specifics are intensifying,” he added.
Republicans are said to be seeking concessions on pension reform, spending limits and a loosening of environmental regulations in exchange for their votes.
The fate of Brown’s budget proposal could also determine the fate of redevelopment.
The governor wants lawmakers to adopt legislation to dissolve the state’s 425 redevelopment agencies. The RDA’s tax-increment revenues would then be used to help balance the state’s fiscal 2012 budget, while flowing in future years to local agencies as part of Brown’s plans to realign revenues and responsibilities between state and local governments.
The Assembly was one vote shy of the two-thirds majority needed to ax redevelopment on March 16, but the bill remains on the calendar for reconsideration.
Redevelopment advocates have been lobbying furiously against the bill, and if it passes anyway they have signaled they will launch a scorched-earth legal campaign to fight it.
The California Redevelopment Association lobbying group released a legal analysis from Rutan & Tucker attorney William Marticorena, who wrote that Brown’s plan would expose local governments to lawsuits from disgruntled holders of outstanding tax-allocation bonds issued for redevelopment.
Brown administration officials insist that his plan to eliminate RDAs will protect the contractual rights of the holders of any debt issued by those agencies.
Marticorena, in his analysis, says the way the legislation treats the agencies’ outstanding debt is problematic in several ways.
Notably, he wrote, the pledge to repay debt from incremental property tax revenue generated from a specific redevelopment area appears to be replaced with promises to make such payments out of countywide property taxes.
“Bondholders which had previously possessed a pledged and prioritized interest in a geographic-specific income stream are now provided an undefined and non-prioritized interest in the county-wide comingled property tax fund,” Marticorena wrote.
“Bondholders possess additional risks under the statute, including lack of attachment remedies, bankruptcy of the successor agency, transformations of gross commitments into net commitments, and the regulatory risk that the Legislature will further degrade bondholder rights during the next financial crisis,” he continued.
The legislation’s unintended consequences, Marticorena wrote, “could not only be disastrous for bondholders, but for the government agencies and their successor agencies that issued the bonds, including awards of damages, attorneys’ fees, and reduced accessibility to the market on a going-forward basis for essential debt.”
Credit analysts so far have not expressed the same dramatic level of concern about the proposal to eliminate redevelopment.
“The bill protects bonds sold before Jan. 1, 2011, and it is our view that this provision will survive any rewrites — if the bill moves forward and becomes law,” Wells Fargo Securities senior analyst Natalie Cohen wrote in a comment published March 18.
The comment warned that there are greater risks tied to redevelopment debt issued during 2011, after Brown’s proposal became public and agencies began a stampede to issue bonds that, as Cohen noted, “have sold wide with 7%–10% tax-exempt coupons.”
