Cities dispute redevelopment money sought by state

SACRAMENTO, Calif. — Gov. Jerry Brown’s finance department said 27 local governments have failed to pay or have underpaid the state after the governor tried to sweep up billions of dollars from community redevelopment agencies that were eliminated this year.
Yet cities such as San Jose, Stockton and Brea are disputing the bill from the administration, saying it is using unreasonable accounting methods. Officials there said forcing payments to the state could trigger bond defaults.
“All we’re asking is simple: Let us pay our bond debt,” said Eric Nicoll, community development director for the Orange County city of Brea, which has paid $831,000 of the state’s $15.5 million tab.
Brown planned on receiving $3.1 billion from the elimination of about 400 community redevelopment agencies to help bridge California’s budget deficit. Under the change, more property tax revenue that once went to economic development efforts would be going to local school districts — a move that helps offset state funding for schools.
The Santa Monica City Council on Tuesday voted to put the brakes on $149 million worth of construction projects that would have been funded with redevelopment money, including a $55 million overhaul of facilities at Santa Monica High School and renovations to the landmarked Santa Monica Civic Auditorium.
At the same time, the City Council chose to press on with $115 million worth of projects, despite the fact that they might not be safe from the state’s clutching hands.
“Redevelopment is clearly one of the largest financial risks in this year’s state budget plan,” said Jason Sisney of the nonpartisan Legislative Analyst’s Office. “If redevelopment dollars do not reduce general fund spending — as assumed in the budget plan — the task of balancing the state budget in 2013 could be that much harder.”
For the first half of 2012, the state has set a goal of receiving $685 million in property tax revenue that is not needed to pay the debt of redevelopment agencies, which were created initially as a municipal financing tool to promote development in blighted areas.
While most cities and counties have made their redevelopment payments to the state, the Department of Finance reported that 27 have not paid or underpaid the state.
According to figures provided by the Department of Finance, the state is seeking a total of $129 million from those agencies. So far, only some have paid part of the bill, returning just $6.7 million.
Richard Keit, spokesman for San Jose, said early reports to the state suggested the city’s redevelopment agency had $39 million extra. But in fact, he said, the money was obligated to pay off bond debt.
“It’s already gone,” Keit said. “The state Department of Finance knows we don’t have the $39 million — that we weren’t hiding it. It was all committed and now expended.”
Stockton spokeswoman Connie Cochran said the city has not paid its $2.5 million bill, “because we disagree with the calculation.” Stockton filed for bankruptcy protection earlier this year.
Lawmakers gave state finance officials the power to take some tax money from cities, but officials say they are trying to work out the differences first. State Finance Director Ana Matosantos sent a letter last month to the 27 local governments, saying the state would not withhold sales tax revenue or seek a penalty until September.
“We hope that we’ll be able to resolve any differences between these successor agencies in an amicable manner,” finance department spokesman H.D. Palmer said. “That said, those tools were put into place to ensure that schools and cities and counties get the property tax that they are owed for that period.”
Nicoll said Brea cannot give what it never had. The city is now suing the state to force an accounting fix.
The city claims the state should allow cash flow to be calculated on an annual basis, not just in a six-month period, as the state wants, so local governments can accurately show existing obligations.
“The glitch is that we receive the majority of our tax increment the first six months; our major bond payments are due in the second six months,” Nicoll said.

Daily Press Editor-in-Chief Kevin Herrera contributed to this report.