Assembly Bill 2031 allows “Boomerang Funds” to be used as a revenue source to finance affordable housing development through bond issuance, as loan collateral, or on a cash basis. Boomerang Funds include ALL property tax revenue, both pass-through payments and residual RPTTF, received by a City or County as a result of redevelopment dissolution. Boomerang Funds are diverted from the general fund into a separate fund for affordable housing purposes.
The good news is that there is a new way to issue bonds for affordable housing development! Here are the main takeaways from this new tool as it’s currently written:
1. Creation is Easy - A City or a County that has a Successor Agency who received its Finding of Completion may create an affordable housing special beneficiary district by adopting a resolution or an ordinance. No large reports are required, the district is co-terminus with the jurisdiction’s boundaries, and formation of a board is composed of three members of the city council/board of supervisors, the treasurer, and a community member.
2. Largest Beneficiary – Counties will likely be the largest beneficiary since they receive not only their share from their redevelopment project area, but also pass-through and residual revenue from other project areas throughout the County. Cities that have a high tax rate or collect a large portion of residual revenue may also benefit from this tool.
3. Not Many Expenditure Requirements – Monies must be spent on promoting affordable housing development for moderate income families and below. There are no proportionality or expenditure requirements as long as the board deems that the use promotes financing development of affordable housing within its boundaries.
4. Ability to Issue Bonds – The beneficiary district may issue bonds for affordable housing purposes without voter approval or an asset as collateral. The term of the bonds may not exceed 20 years from the date of the Finding of Completion or 90 days from the dissolution of the successor agency. Typically, an agency would want at least 10 years remaining to be able to fully amortize the costs of issuing the bonds but a shorter period may still be advantageous depending on available revenues. And a general rule of thumb is that for every dollar of debt financed the issuer will need a dollar and twenty-five cents of available revenue (a 1.25 coverage factor).
This tool may prove useful for those Cities and Counties that receive a large portion of residual revenue and pass-through revenue. A major policy decision will center around a jurisdiction’s desire to divert general fund revenue for affordable housing purposes.
Written by Tara Matthews, a Principal at RSG