CDC - Item 4A - Redevelopment Update Regarding the California Supreme Court Decision to Abolish Redevelopment1 •' • •
TO: THE HONORABLE CHAIR AND COMMISSIONERS
FROM: JEFF ALLRED, EXECUTIVE DIRECTOR
DATE: JANUARY 10, 2012
SUBJECT: REDEVELOPMENT UPDATE REGARDING THE CALIFORNIA
SUPREME COURT DECISION TO ABOLISH REDEVELOPMENT
SUMMARY
With the adoption of the State Budget for the current 2011 -12 fiscal year, State
lawmakers enacted AB1x26 and AB1x27 as a means to divert local redevelopment tax
revenues to resolve the State's ongoing deficit. As the Council is aware, the California
Redevelopment Association, with the support of the League of California Cities, filed a
lawsuit which sought to have AB1x26 and AB1x27 overturned to reinstate
redevelopment agencies and disallow payments from cities required by the State. On
December 29, 2011, the State Supreme Court upheld AB1x26 which dissolved all
redevelopment agencies and ruled that AB1x27 was unconstitutional. AB1x27 would
have allowed redevelopment agencies to remain active if certain financial payments
were made to the State. As a result of the Supreme Court's ruling, the Rosemead
Community Development Commission will be dissolved and current activities are
required to be wound down.
The fiscal impact of the dissolution of the Community Development Commission will be
severe to the City of Rosemead due to the loss of funds for both economic development
and affordable housing. The Commission received approximately $7 million dollars in
tax increment funds annually. From these funds, approximately 25% or $1.72 million
were returned to various taxing agencies as "pass- through" payments and 35% or $2.45
million was used for debt service payments. Of the remaining $2.83 million, $1.4 million
was allocated to the Low /Moderate Income Housing fund and $1.43 million was
allocated for local redevelopment and economic development activities. Effective
February 1, 2012 the Commission must immediately cease all expenditures related to
the remaining $2.83 million unless they have been specifically approved by an
Oversight Committee which has until May 2012 to be established . Therefore, all
salaries, benefits and operational costs currently funded by redevelopment revenues
must be absorbed by the City's General Fund until reductions in costs can be made.
Staff Recommendation:
That the City Council approve Resolution 2012 -04 designating the City of Rosemead as
the Successor Agency to the Rosemead Community Development Commission.
APPROVED FOR CITY COUNCIL AGENDA: ITEM L
City Council Meeting
January 10, 2012
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ANALYSIS
As a result of the Supreme Court's ruling to uphold AB1x26 and invalidate AB1x27, the
City of Rosemead will lose approximately $7 million per year in annual tax increment
funds, which includes approximately $2 million for ongoing programs related to
redevelopment and low- income housing. Furthermore, the State will also stake claim to
any assets, including cash, which the Redevelopment agency had as of June 30, 2011.
This analysis is intended to show specific financial impacts of these actions and the next
steps involved in winding down the Commission's activities.
The Commission - funded staffing and ongoing operational programs in the amount of
$1.3 million annually from the general Tax Increment funds and an additional $700k
through the Low /Moderate Income funds. Included below is a breakdown of the major
categories where these funds were utilized:
Description
Amount
Salaries /Benefits
$1,205,600
Legal Services
27,500
Audit
15,000
Planning /Consulting
30,000
Professional Services
20,000
Travel/Meetings
10,000
Supplies /Dues
3,500
Chamber Support
48,000
Facade Program
200,000
Sr. Housing Land Lease
183,400
Sr. Housing Administration /Operations
226,200
Sr. Housing Subsidy
53,500
Total
$2,022,700
Originally, AB1x26 required the dissolution of redevelopment agencies by October 1,
2011; however, this date has been pushed back four months while the Supreme Court
was reviewing the case. The new effective date for the dissolution of the Commission is
now February 1, 2012.
Low - income Senior Housinq Facilities
As highlighted in the chart above, $463,100 of expenditures related to the two Low -
Income Senior Housing facilities are currently remitted back to the City of Rosemead.
Of the amount, $183,000 is for the land lease payments to the City. As the Commission
may recall, the City owns the land and the Rosemead Housing Development
Corporation owns the buildings. The City is also compensated $226,200 annually to
cover the costs of operating the facilities including insurance and other overhead costs.
Finally, the remaining $53,500 is the amount necessary to fund the subsidy between
rents collects and general utilities and operations. The agreements also specifically
state that any funding shortfalls are the responsibility of the Community Development
Commission. While these contracts were approved prior to the construction of these
City Council Meeting
January 10, 2012
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facilities, the funding has been provided by the Low - Income Housing fund and the
authorization to continue with these agreements would come under the purview of the
Oversight Board (see below). City staff and our attorney will make the case that these
contracts are legally binding and must be maintained from the existing redevelopment
tax increment levy; however, currently there is no guarantee that will be the case.
Current Staffing and Services Funded by Redevelopment
Unfortunately, even if the City is successful in maintaining the funding for the two low -
income senior housing facilities, the City will still lose approximately $1.6 million in
annual tax increment funding. While some programs such as the fagade improvement
program can be eliminated with little to no effect on staffing or service levels to
residents, approximately $1.2 million is utilized to directly fund staffing and services.
Fortunately, the City of Rosemead has been fiscally conservative over time and has
sufficient reserves to help fund this loss in revenue for the short -term. However, staff
will begin working on ways to reduce this deficit to ensure the City remains fiscally
solvent with stable reserves in compliance with our Guiding Principles of Fiduciary
Responsibility which state that the use of reserves should only be for one -time
expenditures or temporary stop -gap measures.
Existing Redevelopment Bond Proceeds
Currently the Community Development Commission has approximately $7 million of
locally generated redevelopment bond proceeds on deposit. These bond proceeds
were generated by the 2010 bond issue that was approved by the City Council and
Commission in 2010 for various local infrastructure and facility improvements. The City
Attorney and staff will make a case that these locally generated bond proceeds are
legally bound to be expended on the infrastructure and facility projects for which the
bonds were sold. However, currently there is no guarantee that argument will be
upheld.
Successor Agency and Oversight Board
As of February 1, 2012, all obligations such as debt service payments and contractual
payments will be the responsibility of the "successor agency." Unless action is taken by
the City Council to 'opt out' of this role, the City will become the successor agency. As
the successor agency, the City will be responsible for continuing to pay any obligations
as well as implementing the direction given by the Oversight Board. The City will be
required to establish a Redevelopment Obligation Retirement Fund and the assets of
the Commission will be transferred to this fund.
The Oversight Board will be compromised of seven individuals that will be responsible
for making the final determination as to what expenditures are allowed to be paid on a
going forward basis by the successor agency. The Oversight Board will consist of the
following members:
1. A member appointed by the County Board of Supervisors
2. A member appointed by the Mayor or City Council
3. A member representing the largest special district by property tax share
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January 10, 2012
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4. A member representing the County Supervisor of Education
5. A member representing the Chancellor of California Community Colleges
6. A public member appointed by the County Board of Supervisors
7. A member representing employees of the former redevelopment agency
It is important to note that all actions taken by the Oversight Board must be done so with
a unanimous vote. This is important because the use of existing bond proceeds appears
to be a discretionary decision that the Oversight Board must approve. In Rosemead's
case, this represents the potential ability to continue with the roughly $7 million in
planned capital improvement projects. Furthermore, the City will be entitled to receive a
minimum of $250,000 for administrative expenses related to service as the successor
agency, but the details of that are still being reviewed and would ultimately have to be
approved by the Oversight Board.
PUBLIC NOTICE PROCESS
This item has been noticed through the regular agenda notification process.
Prepared by:
Matthew E. Hawkesworth
Assistant City Manager
RESOLUTION NO. 2012 - 04
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
ROSEMEAD, CALIFORNIA, DESIGNATING THE CITY OF ROSEMEAD
AS THE SUCCESSOR AGENCY OF THE COMMUNITY
DEVELOPMENT COMMISSION OF THE CITY OF ROSEMEAD
WHEREAS, on January 10, 2011, Governor Jerry Brown released his Fiscal
Year 2011 -12 State budget proposal, which proposed to eliminate redevelopment
agencies; and
WHEREAS, on June 29, 2011, the Governor signed ABx1 26 eliminating
redevelopment agencies and ABx1 27 which would have allowed cities to resurrect their
redevelopment agencies for a large payment in Fiscal Year 2011 -12 and continuing
payments for the life of the Commission; and
WHEREAS, the California Redevelopment Association and the League of
California Cities filed a petition July 18, 2011, asking the California Supreme Court
( "Court") to overturn ABx1 26 and ABx1 27 on the grounds that they violate the
Constitution ( "CRA v. Matosantos "); and
WHEREAS, on December 29, 2011 the Court announced its decision in CRA v.
Matosantos upholding ABx1 26 as a constitutional exercise of the Legislature's power,
but striking down ABx1 27 as unconstitutional; and
WHEREAS, as of February 1, 2012, every redevelopment agency will be
dissolved and a successor agency will be created for each former redevelopment
agency; and
WHEREAS, the successor agency for the Community Development Commission
of the City of Rosemead ( "Commission ") will be the City of Rosemead ( "City ") unless the
City elects not to serve in that capacity; and
WHEREAS, the City may also and separately elect to assume the housing
functions, duties, and obligations of the Commission and by doing so also receive all of
the housing assets of the Commission, excluding amounts in the Agency's Low and
Moderate Income Housing Fund, thereby becoming successor to all of the housing
rights and responsibilities of the Commission. That decision must be made by February
1 and will be addressed by the Council prior to that deadline.
Resolution No. 2012 - 04
Page 2
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF ROSEMEAD
DOES HEREBY RESOLVE AS FOLLOWS:
SECTION 1 . The City of Rosemead elects to serve as the successor agency of
the Community Development Commission of the City of Rosemead.
SECTION 2. The City Clerk shall certify to the adoption of this resolution and
shall cause a certified resolution to be filed in the book of original Resolutions.
PASSED AND ADOPTED this 10th day of January, 2012.
Steven Ly, Mayor
ATTEST:
Gloria Molleda, City Clerk
APPROVED AS TO FROM
Rachel Richman, City Attorney