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CC - 2012-04 - Designating the City of Rosemead as the Successor Agency of the Community Development Commission of the City of RosemeadRESOLUTION 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. V Ste y, Mayor ATTEST: � �jg Gloria Molleda, City Clerk APPROVED AS TO FROM s Rachel Richman, City Attorney STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES ) SS. CITY OF ROSEMEAD ) I, Gloria Molleda, City Clerk of the City of Rosemead, do hereby certify that the foregoing Resolution No. 2012 -04 being: 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 TE CITY OF ROSEMEAD was duly and regularly approved and adopted by the Rosemead City Council on the 10th of January, 2012, by the following vote to wit: Yes: Alarcon, Armenta, Clark, Low, Ly No: None Abstain: None Absent: None +. , lu j 0 Gloria Molleda City Clerk 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. L APPROVED FOR CITY COUNCIL AGENDA: . _ _ _ City Council Meeting January 10, 2012 Page 2 of 4 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 Plan ning /Consultin 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 Housing 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 Paae 3 of 4 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 facade 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 City Council Meeting January 10, 2012 Page 4 of 4 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: n0 Matthew E. Hawkesworth Assistant City Manager