Redevelopment agencies throughout California are preparing for the outcome of the new state legislation ABX1 26 and ABX1 27 which essentially calls for the suspension of redevelopment activities that incur debt.
The tightening State budget is the reasoning for this legislation since existing law provides that upon ceasing activity that property tax revenue after meeting existing redevelopment debt would be allocated according to existing property tax allocation within each county to cities, schools, special districts, school and community college districts. Agency have the following choices according to the new legislation:
1) Dissolution
2) Creation of a successor agency to wind down the business of the agency, or
3) Continuation of the agency following a hefty "voluntary payment" to the State and annual payments thereafter.
Although there the California Supreme Court has agreed to hear the case challenging the constitutionality of these new laws, cities must start taking action to meet timelines in the event the case favors the State.
The City of Turlock has already taken two important steps related to this new legislation.
First, the agency authorized the appeal of the original CA Department of Finance (DOF) calculated "voluntary payment". The original was based on 2008-2009 financial data which does not take into account the principal and interest payments related to the 2011 Bond issued for the construction of the Public Safety Facility. The DOF calculated the initial payment to be $3,187,304 while staff has calculated the amount to be $1,599,681. The DOF has until September 15th to respond or extend timeline to October 15th therefore triggering an extension on all other timelines established by the new legislation.
The second action the agency has taken is the adoption of the Enforceable Obligations Payment Schedule. This will allow the agency to make payments to its creditors through the remainder of calendar year 2011. These obligations include contracts with sub-contractors, employee salaries, rent, etc.
At the September 13, 2011, Turlock City Council Meeting, the City Council discussed the potential impacts and costs of the new legislation of the future of Turlock’s Redevelopment Agency.
Dissolution of the agency and creating a successor agency would both have significant impacts on city budget since $500,000 in current administrative, fixed and employee costs are paid through the redevelopment agency. This includes funding of seven positions and a portion of administrative costs for the following departments: City Council, City Manager, City Clerk, Finance, City Attorney and Human Resources.
According to law a successor agency can be a new agency consisting of a seven member board including one council rep, one prior agency employee, one TUSD rep, one County Office of Education rep, one community college rep, and 2 Board of Supervisor reps or the successor agency can be the City of Turlock with a new board in place consisting of the same members as a new agency would have. The only way the City would be able to retain some administrative costs would be as the named successor agency.
The first year would be 5% of Tax Increment ($400,000) and future years would max at 3% of Tax Increment ($240,000). With both of these options of a successor agency, there would be no funds available for low-mod income housing programs besides those that are already contractually obligated, all assets would be transferred to the successor agency, and no new projects can be initiated.
The third option of making a "voluntary payment" and annual payments thereafter is the only option that allows the Redevelopment Agency to maintain its function. The City Council would remain in place as the Agency’s board and would retain full budget discretion to initiate new projects following housing set-aside, pass thrus, debt service and required payment to DOF. The greatest advantage in this scenario would be the continuation of the housing set aside that can be used for programs or matching funds for grants.
The City Council was given an overview of the options at the Redevelopment Workshop on September 13th but was not required to make a decision on the direction the City will be taking yet. Making that decision between each option will be difficult considering there are still many unknowns including the outcome of the court case, the final calculated "voluntary payment" amount currently in the appeal process and knowing just how much tax increment will be available after fulfillment of the agencies obligations.
