CITY HALL — City officials turn
ed over $12.6 million to the Los Angeles County Auditor-Controller to comply with a new state law governing the death of redevelopment agencies that officials say will be challenged in court.
The new law that required the payment, Assembly Bill 1484, poses an “immediate threat and period of uncertainty” that is forcing City Hall to ask the City Council to delay several projects previously funded through redevelopment money, including seismic improvements to the Santa Monica Civic Auditorium and the Town Square Park immediately in front of City Hall, said City Manager Rod Gould.
The payment, made July 12, is a portion of property taxes collected in Santa Monica between November 2011 and January 2012 that would have gone to the Santa Monica Redevelopment Agency, an entity that funded capital improvements throughout the city before it was dissolved by the Legislature in February.
City Hall sent the money under protest, reserving the right to challenge the legality of the demand.
Had officials chosen not to pay, City Hall might have been charged over $1.2 million in penalties, according to a staff report.
The League of California Cities voted to initiate litigation against the law last Friday.
AB 1484 was signed with the state budget on June 27.
It speeds up the process begun by AB X1 26, creating a series of steps and deadlines by which localities must dismantle their redevelopment agencies and dictates which of the projects those agencies funded can continue and which cannot.
Redevelopment projects that were under contract before June 27, 2011 slipped under the wire, and were allowed to go forward with the same funding source as before.
Others, including $57 million for improvements on the Santa Monica High School campus, were thrown out by state Department of Finance officials.
The Department of Finance felt that those contracts had been signed one day after the June 27 cutoff. Other costs, including administrative payments, were also tossed out.
The new law takes the money that was previously allotted for those uses, despite the fact that City Hall is disputing the Department of Finance’s decision.
In Santa Monica’s case, it forced the Auditor-Controller’s Office to demand the $12.6 million no later than July 9, which it did, and gave Santa Monica only three days to come up with the cash.
If it hadn’t, the law empowered the Auditor-Controller to offset sales and property taxes to make up the difference.
Those taxes flow to the city’s General Fund, and cut straight into core services, Gould said.
That process was repeated across the state for cities who chose to act as successor agencies to their now-defunct redevelopment agencies.
The law constitutes a major hit to the cash flow of cities across California, said Larry Kosmont, president and CEO of Kosmont Companies which does consulting work on the unraveling of redevelopment.
“(AB X1 26) was the death pill, 1484 was the clean-the-carcass pill,” Kosmont said.
The loss hurt Santa Monica, but it’s killing other California cities which relied on redevelopment funding to plug gaps in operational budgets that were caused by a flagging economy and rising employee benefits costs.
More and more positions were being attributed to redevelopment, and more operations were funded through redevelopment, Kosmont said, so when the state pulled redevelopment out from under them, it was like a bank cutting off a line of credit.
“When that happened, it accelerated the reality of the prospect for bankruptcy for many cities,” Kosmont said.
City officials are still struggling to determine how AB 1484 will impact Santa Monica down the road.
Although the law was supposed to clarify the process by which redevelopment agencies are dissolved, it did nothing of the kind, Gould said.
“It has clouded matters further, and posed serious constitutional and other challenges because it is so aggressive and represents a threat to too many cities,” Gould said.
The law is supposed to protect certain loans and bond measures between cities and their former redevelopment agencies, but it doesn’t spell out what the Department of Finance will find acceptable, said Tina Rodriguez, an administrative services officer with City Hall.
Also at question are property sales required under AB X1 26.
That might be the one silver lining for cities under the new law, Kosmont said.
If cities pass a number of state requirements, they could get the chance to create a property management plan, which could allow them to keep properties previously held by redevelopment agencies that would otherwise have to be sold.
“Maybe they’ll get to keep some properties, and don’t have to force the sale of the properties now without any guidance,” Kosmont said.
Chez Jay, a famous restaurant on the other side of a $47 million park funded through redevelopment funds, sits on land held by the former agency, and might yet be sold.