By Ethan J. Walsh
For cities and counties across California, one of the most daunting tasks of 2012 has been starting the wind-down of redevelopment. Since the California Supreme Court released its decision in California Redevelopment Association v. Matosantos last January that eliminated all redevelopment agencies throughout the state, cities and counties have been frantically working to keep up with the dissolution steps set forth in Assembly Bill 1X 26, and then supplemented by Assembly Bill 1484.
The staff members for successor agencies established by AB 1X 26 have been running from one task to the next in order to comply with the requirements of these two bills. Due to the strict deadlines and severe penalties associated with each step of the wind-down process thus far, successor agency staff have been understandably focused on the tasks immediately in front of them for most of 2012. However, in 2013 many successor agencies will start with the next phase of the wind-down process, and focus on how to use or dispose of the real estate assets that were owned by redevelopment agencies prior to their dissolution through the preparation of a long-range property management plan as required by AB 1484. While agencies are not required to begin preparing these plans for a few months, they would be well served to get a head start on this process not only to ensure compliance with the law, but also develop the plan as a tool to fulfill local policy goals and objectives.
The Long-Range Property Management Plan
The requirement to prepare a long-range property management plan is triggered once the successor agency completes a series of requirements that were imposed by AB 1484, enacted in June. Successor agencies are preparing due diligence reviews that will be used to determine the amount of unencumbered cash that the successor agencies must turn over to their county auditors. The State Department of Finance will review the due diligence reviews, and in April will determine the amount that each agency must pay. Once an agency makes this payment, it will receive a “finding of completion,” and will be authorized to prepare the long-range property management plan within six months after receiving the finding of completion. While the long-range property management plan is required by law, it is also a tool that agencies can use to develop a strategy on how to use the remaining redevelopment agency properties.
Developing an Inventory of Successor Agency Property
A B 1484 requires that specific information be included in the long-range property management plan. The plan must include an inventory of all property that is held by the successor agency. Agencies should start developing this inventory sooner rather than later. Redevelopment agencies frequently held a wide variety of property interests, and those property interests were often managed by many different people over the life of the redevelopment agency. It is important to take the time to ensure that all property interests are addressed in the plan, and no loose ends are left to clean up later. The inventory must contain specific information regarding each property, including the date of the original acquisition and the purpose for which it was acquired; the original purchase price and the estimated current value of the property; the history of environmental contamination on the property and any clean-up efforts; a description of the property’s potential for transit-oriented development and the advancement of the successor agency’s planning efforts; and a history of any previous development proposals or activity for each property. Although agencies are required to prepare this inventory, they should not approach the task as simply a box that must be checked as part of the dissolution process. The preparation of this inventory allows for an opportunity to take a step back and evaluate the properties held by the successor agency, including relevant facts that affect their marketability and potential for development. The information compiled as part of the inventory can guide future decisions over how to use or dispose of the property going forward.
Deciding on the Use or Disposition of Property
The long-range property management plan must also address the use or disposition of all properties held by the successor agency. Any property the redevelopment agency used for a governmental purpose may be retained for that use; other properties may be kept for future development, sold or used to fulfill outstanding enforceable obligations. Properties that are to be used or sold for a project identified in an approved redevelopment plan must be transferred to the city or county, and the proceeds from the sale or use of all properties retained by the successor agency will be distributed amongst all the local agencies in the former redevelopment agency’s jurisdiction. Once complete, the plan must be approved by both the successor agency’s oversight board and the Department of Finance before successor agency can begin to implement the plan.
In addressing the future use or disposition of these properties, successor agencies should evaluate not only the value of the properties, but also how to maximize that value for the benefit of their cities and the other taxing entities. Many redevelopment agency properties can still be developed for productive uses that will further local goals, and also in many cases improve the property tax base to the benefit of all local agencies. Successor agencies should evaluate how best to achieve their goals, and may want to consider how to best position the property for sale, including possibly conducting pre-development work that would enhance the value of the properties, including environmental clearances, entitlements and feasibility studies for the property. To maximize the potential benefit, the successor agency will need a well thought-out strategy that will allow intelligent and creative decision-making on the development and liquidation of available redevelopment properties.
The wind-down of redevelopment has been a painful process for cities and counties, and is sure to give rise to many more conflicts and disputes in the coming years. The long-range property management plans, however, offer an opportunity to salvage some of the goals that were cast aside when redevelopment was eliminated. Successor agencies should take the time to take advantage of this tool for the benefit of their communities.
Ethan J. Walsh is a partner in the Municipal Law practice group of Best Best & Krieger LLP in Sacramento, where his practice focuses on post-redevelopment, affordable housing and land use law. He assists redevelopment successor agencies and private developers in structuring transactions for commercial, residential and mixed-use projects; negotiating and drafting disposition and development agreements, and owner participation agreements for commercial, residential and mixed-use projects. He can be reached at email@example.com.