LawFlash

Governor’s Proposal to Shutter California’s Redevelopment Agencies Warrants Review of Existing Agreements

February 09, 2011

Entities transacting business with any of California’s 400 Redevelopment Agencies would be wise to review existing agreements, before the agencies disappear.

On January 10, 2011, California Governor Jerry Brown proposed to eliminate the state’s Redevelopment Agencies (RDAs) by July 1, 2011, as one step in cutting state spending by $12.5 billion. Predictably, the League of California Cities and the California Redevelopment Association have voiced strong opposition, and have raised constitutional issues regarding the Governor’s proposal. However, in his State of the State address on January 31, the Governor showed no signs of backing down. Hearings in the state Senate and Assembly are now underway.

The Governor’s proposal raises a number of problems of concern to any entity involved in transactions with RDAs. Bond deals in progress or bond proceeds that have been raised but not finally committed may be particularly vulnerable because of uncertainty regarding whether those bond proceeds will be available for future contracts. How elimination or restructuring of RDAs would affect loans between cities and RDAs, multi-year loans by RDAs, and RDA non-cash assets remains to be determined.

Developers and cities alike should review their existing agreements to ensure that RDA funds have been fully committed, that tax increment financing documentation is complete, and that any loans between the city and RDA have been formally documented. If any components are ambiguous, the parties should amend the documents quickly.

Entities in the midst of negotiating deals should consider how to lock up tax increment financing and RDA subsidies before the opportunities are gone. And, if at all possible, look at creative financing structures that avoid reliance on bonds.

The full budget proposal is available at www.ebudget.ca.gov.

 

 

For additional information concerning this alert, please contact your regular Bingham contact or the following lawyers:

Barry P. Rosenthal, Co-chair, Real Estate Group
barry.rosenthal@bingham.com
202.373.6078

This article was originally published by Bingham McCutchen LLP.