SACRAMENTO, CA-With the California Assembly’s recent decision to dissolve redevelopment agencies in the state, more than 400 RDAs are sorting through the complicated process of determining ongoing debt obligations, understanding cash flows and eventually selling properties—all while thinking through new ways to finance and achieve economic-development priorities. At this point, the situation is murky, and investors, developers and financing firms are sitting tight until the agencies finish assessing the projects on their slate. Some will remain state-sponsored projects, others put up for sale, and still others scrapped entirely, but just which projects fall into each category remains to seen.

“Whether this new law is seen as an attempt to untangle an abused funding problem or an opportunity to improve the system, there is one certainty—California cities and counties of all sizes must make some tough decisions and do it soon,” says Renata Simril, managing director of Jones Lang LaSalle, which, with Keyser Marston Associates, is helping successor agencies and county administrators prepare for and navigate through these new and uncharted waters.

The new law puts a lot of projects in a situation of uncertainty, Simril tells GlobeSt.com. “They’re trying to figure out how to dissolve the agency when there are a number of projects in various stages of completion. There’s still some unclarity as it relates to those projects that do not have an actual contract for development. Do they unwind those? There will be some impact, but what this will be is till yet to be determined.”

The ultimate resolution of what will happen to all of the development projects in the pipeline is far from happening, and Simril says simply determining what’s in the works won’t be completed until at least the fall. For example, with 71 redevelopment agencies in Los Angeles County alone, many cities still need to adapt successor agencies to take over. All but a handful of cities agreed not to be successor agencies themselves, and in L.A. a board of supervisors has had to put together oversight boards in all of the county’s RDAs. The oversight boards have to meet with the statute of limitations, and then the state Department of Finance needs to review the proceedings.

“You need to determine what is actually enforceable before you can get to what you can dissolve,” Simril tells GlobeSt.com. “By the latter part of summer and early fall, the successor agencies should have a fairly good idea of which categories the assets of the former RDAs should fall into. They’re figuring it out as they go; there’s no manual or standard operating procedure outside of the legislation, which also isn’t clear.”

Authorities directly affected by the new legislation do have an idea of what procedures will need to be followed. First, enforceable obligations such as contracts, bond documents and real estate agreements will need to be identified and blessed by the state.

“From the debt community, those who have agreements with RDAs need to have conversations with successor staffs to make sure their fiduciary responsibilities are recognized on obligation payment schedules,” Dina Fuentes, community development and housing director for the County of San Bernardino Redevelopment and Housing Dept., tells GlobeSt.com. “It’s crucial for any development entity that had a real estate agreement where the RDA was responsible to that entity—that liability needs to be on that enforceable obligation schedule.”

Next under the dissolution act, all assets owned by former RDAs will go to either the cities or the successor agencies, after which cities and counties will look at other economic-development tools that may be available to them. “I don’t think the state is going to identify something in the near term,” Fuentes tells GlobeSt.com. “Nothing will replace the RDA, but there may be other tools that become available.”

She adds that property assets from the dissolution will be an opportunity for attracting investment in the communities, and it will become obvious asset by asset what’s available, after which the respective communities will ascertain the timing for disposing of or going forward with these projects.

In a white paper created by JLL and Keyser Marston, Simril outlines what the municipalities must do in order to facilitate this process, including:

Financial management—Municipal entities must ensure that they are in compliance with all of the legislative requirements and develop a process to manage financial obligations. This includes preparing an annual administrative budget for consideration by the oversight board and identifying project-management-related costs that can be funded outside of the administrative cap.
Affordable housing—If creating a housing successor to take over the RDA’s affordable housing assets, officials will need to create a strategy for fulfilling nay outstanding affordable housing obligations and prepare detailed cash-flow projections, as well as set up systems to monitor compliance and affordability covenants.
Strategic asset management, development and disposition—In evaluating the disposition of assets, avoid the “fire sale” mentality and be proactive. Successor agencies will need to make an inventory and prioritize relevant land and other real estate assets and prepare timing and market strategies for disposing of these properties. The approach needs to balance the immediate revenue needs of local taxing entities with market realities in local communities.
Get help if you need it—For many municipalities, this “new normal” means adopting a longer-term perspective on economic development and staying informed about the needs of the private sector in investment decisions. This could require innovative public-private partnerships that reintroduce quality projects without relying on traditional financial assistance.

Click here to read the complete white paper.

Despite the chaos this dissolution seemingly created, there was a beneficial intent to the legislation. “One of the primary purposes of this legislation is to return tax increments to taxing entities so that the local jurisdictions will get money back,” Tim McOsker, a partner at Mayer Brown, who was appointed the designated local authority for one of the former RDAs in Los Angeles. “Will the local jurisdictions use some of the return of that revenue to put back into economic development? That certainly would be permissible.”

As GlobeSt.com previously reported, in May 2009 A Superior Court judge here ruled unconstitutional a provision in the Legislature’s September 2008 budget package that would have required redevelopment agencies statewide to give back $350 million to help fund state obligations in the then-current budget cycle. At that time, officials at the state Department of Finance were reportedly reviewing the decision and evaluating their legal options. The lawsuit argued that diverting redevelopment funds to balance the state's budget violating Article XVI, Section 16 of the California Constitution. The section stated that redevelopment funds could only be used to finance redevelopment project activities.

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