CARLSBAD, Calif. — The air of uncertainty surrounding California’s redevelopment agencies and their bonds is not likely to be resolved until early next year, according to panelists who spoke Thursday at The Bond Buyer’s California Public Finance Conference.
The state’s Supreme Court is expected to rule Jan. 15 on the constitutionality of two bills passed by the Legislature as part of the budget process in June that impact the RDAs, according to panelists.
The first bill would dissolve redevelopment agencies as of Oct. 1, and the second bill allows them an expensive exception, permitting them to stay in business if they make “voluntary” payments to the state.
During the question-and-answer period, one audience member raised the recent Moody’s Investors Service action on California tax allocation bonds that placed the entire sector on watch for downgrade. Moody’s had laid out a scenario in which counties could blend debt-service funding for individual agencies that choose to dissolve together.
If that happens, the security investors had when they purchased the bonds wouldn’t be what it was at the time of purchase, he said.
|Jim Kennedy, Kurt Yeager, Janice Weinrick, (l-r) Credit – Jim Tiffin|
“Although it is not as artful as what we would like to see, the statute does provide that pledges will be honored and that nothing will impact the bond payments,” replied Kurt Yeager, a shareholder with law firm Stradling Yocca Carlson & Rauth. “Having said that, we expect it will require further legislation or direction from the courts to reach a point that more careful folks can rely on to make investment decisions.”
Someone is going to have to fill in the blanks on how those obligations will be honored for the agencies that choose dissolution, Yeager said.
Over the past several years, California has redirected funds from the about 400 redevelopment agencies statewide to balance the state budget during difficult budgetary times.
When the Legislature turned to that remedy last year, their lobbying and trade organization, the California Redevelopment Association, sued to prevent its member agencies from having their funds redirected. Legislators countered during the budget process in June with the bill to dissolve the RDAs and the companion bill permitting them to pay up to stay alive.
The high court could conceivably rule that dissolution is constitutional, but the companion bill is not, which would effectively eliminate all of the state’s redevelopment agencies, said panelist Janice Weinrick, deputy executive director of the San Diego Redevelopment Agency.
The state decided the size of each agency’s contribution based on a complicated formula that incorporated an RDA’s 2009 budget, but also how much bond debt it had, Weinrick said. The San Diego agency’s contribution for 2011 is $62 million. It will have to pay the state $13 million each year after that.
The CRA found in a survey it conducted that 20% of redevelopment agencies plan to dissolve. When that occurs, either the city or county the RDA is located in would be responsible for the agency’s bond debt and assets. Under the law, the agency has to make current payments on the bonds before dissolving.
San Jose has the largest redevelopment agency that has indicated plans to disband, said Weinrick, who is also a CRA board member.
Even if they win at the state Supreme Court, RDA officials don’t expect the state to quit trying to use the agencies’ funding to balance its budget.
Following the panel, Weinrick said in an interview that state officials have been taking funds from the redevelopment agencies to resolve budget shortfalls for the past several years.
“If we prevail in the lawsuit and the bills are deemed unconstitutional, the state’s budget problems will still not be resolved, so we will still be fighting the state, because they will still be trying to take redevelopment funds under some different scenario,” she said.