Q&A: CRA's Jim Kennedy on Day Redevelopment Died

 

On the occasion of redevelopment's demise in California, CP&DR editor Josh Stephens caught up with Jim Kennedy, the interim executive director of the California Redevelopment Association. Kennedy has been on the front lines of the unsuccessful effort to win CRA vs. Matosantos and, since the Dec. 29 Supreme Court ruling, has been lobbying for legislators and Gov. Jerry Brown to extend the Feb. 1 deadline for dissolution while also helping member agencies prepare for the worst. Now that that day has arrived, Kennedy has called for the state to acknowledge challenges facing successor agencies and their communities. 

What is the mood at CRA today? Many agencies have already wound down and become successor agencies, so does anything momentous happen today? 

It’s been characterized as a funeral. It’s not a positive day in the careers of people that have worked in redevelopment for a long time. It certainly represents a different environment for the foreseeable future. We try to strike an optimistic tone the issues that redevelopment was charged with dealing with haven’t miraculously gone away as of this morning. Additional tools will be forthcoming to help localities continue to address those issues, albeit, I don’t think anyone has an expectation that that’s going to happen quickly or the amount of revenue that might be associated with it will be anywhere near what redevelopment had. 

Over the past few weeks CRA convened technical advisory committees to discus the transition and some troubles that you’ve had with the legislations. How have those meetings gone? Have any of those problems been ironed out? 

We’ve bee operating at the technical level in two different venues. One is with our members and we’ve hosted a variety of conference call meetings, that we’ve had upwards of 700 participants on, trying to help our members both understand and implement the terms of a very poorly drafted statute. We are going to continue that with some additional technical face-to-face meetings hopefully in late February or early March. They will replace what would have been our annual conference, which was scheduled for Los Angeles. We have changed that, under the circumstances. 

The second venue in which discussions are going forward are with the state Department of Finance—and, to a lesser extent the controller, and state treasurer--on a whole variety of issues ranging from bonds, to housing, to what constitutes enforceable obligations. Thus far I will characterize those sessions as less than productive. The Department of Finance’s posture has been “none of the issues that have been raised are ones that we don’t think can be taken care of simply with the issuance of administrative guidelines or clarifying memoranda or something along those lines.” We substantively disagree with that. 

We’ve had bond lawyers and folks with expertise in some of the esoteric areas engaged in these discussions and they’ve clearly provided the message to DOF that bond lawyers, for example, cannot rely on administrative guidelines that are not authorized in the statute and effectively represent new law that hasn’t been approved by the Legislature.  

My suspicion is, now that we’re at Feb. 1 that will change.

What do you think will change now that we’re past this milestone?   

Our attempt was to try to identify the significance of these issues and the need for additional time to make the difficult corrections to the law.  Senate Bill 659 was the vehicle for providing more time. That clearly didn’t get passed and we’re now in a position where the dissolution process will be initiated and you can’t turn back the clock. We think now that the issue of dissolution of Feb 1 or later is moot that the posture of DOF may change as well. We’re certainly hopeful that that’s the case. We are very disturbed by the almost cavalier approach that DOF has taken on very substantive issues.

From the RDAs’ perspective, are there now offices in California where the lights are off, or are people still going to work in the capacity of successor agencies? And what does that mean they’re doing? 

In almost every case the host community has agreed to be the successor agency. Seven or eight that we’re aware of have not. The others still have the lights on and are doing one of two things: 1) preparing the records for ultimate review and determination by the oversight boards, county auditors, and ultimately Department of Finance as to what constitutes enforceable obligations; 2) for those projects that are on the enforceable obligation list, there’s the implementation and they can continue to be undertaken. And that’s hopefully what they’re doing. 

Regarding those projects, many are concerned about projects that have been designed, but not implemented. The oversight boards seem to have a great deal of discretion and the ability to kill such projects. How big of a concern is that for communities? 

It's a significant one and one that we’ve raised with DOF. There are two aspects to that. One is, just what a waste it would be to have gone through the effort and cost of completing a design for a project that you’re not going to pursue. Secondly, there’s an aspect associated with particularly infrastructure projects where not only do you have design but you’ve earmarked bond proceeds for the construction side. Those bond proceeds cannot be simply captured and sent to the taxing agency as part of the residual. They’re limited by federal law as to how they can be used. In most cases, if they’re not being used for projects, they can’t be used to redeem bonds in the near term.

Most bonds have been sold with at least ten-year call protection. And most bond proceeds are probably at the short end of a ten-year call—they’re probably a year or two old at most. So they have another 6, 7, 8 years before unused proceeds could be used to redeem bonds. If that plays out, you have the IRS, which has gotten very aggressive on auditing and examining the use of tax-exempt bond proceeds. One thing they’re concerned about is the failure on the part of localities to not use the proceeds in a timely fashion. Sitting on bond proceeds is a clear violation of a reasonable expectation test, and you could find yourself crosswise with the IRS. 

Those are the kinds of things that haven't really been addressed. 

If you’re a developer looking for property to buy, is this now a fire-sale situation? 

The possibility exists for a fire-sale scenario. I hope saner minds prevail. The oversight boards ultimately are charged with overseeing the disposition of assets associated with the former RDAs and, presumably, in their fiduciary capacity would view a fire-sale approach to things as being contrary to their charge to pursue a return on the assets and the availability of funds for distribution to the taxing entities. But they may fall prey to saying, “we’d rather have whatever we can get now to help stem the tide on the challenge to public agency budgets in the current environment.” That could lead to the fire-sale scenario.

This interview has been edited and condensed.