Workers prepare the foundation last year for a construction project on High Place. (File photo)
Workers prepare the foundation last year for a construction project on High Place. (File photo)

SACRAMENTO — City Hall has brought the fight over redevelopment money to Sacramento in a lawsuit alleging that state officials broke the law by demanding back millions already committed to projects throughout the city.

The result could be a Santa Monica dotted with incomplete structures that might have housed hundreds of low-income individuals, as well as homeless turned back onto the streets and the bankruptcy of Community Corporation of Santa Monica, the largest affordable housing developer in the city, according to court documents.

The lawsuit, filed Jan. 31 by City Hall, the Community Corporation of Santa Monica and the Redevelopment Agency’s Successor Agency, accuses officials in the state Department of Finance of being “arbitrary, capricious, unlawful and unconstitutional” in its blanket refusal to consider certain kinds of agreements and intentions to award contracts when unraveling assets held by Santa Monica’s former Redevelopment Agency.

The agency committed $54.5 million to affordable housing projects throughout the city that the Department of Finance later declared inappropriate and demanded back as part of a legislative bid to plug holes in the state’s broken budget.

City Hall paid just over $12.5 million, leaving $42 million in dispute, and the state has threatened sales and property taxes that would otherwise flow to the General Fund to cover that money. The General Fund covers such essential city services as police and fire protection, street cleaning and trash pickup.

Ana Matosantos, director of the state Department of Finance, asserted that the department acted in good faith, and asserts that the plaintiffs do not have standing to pursue other claims.

In her response to the lawsuit, Matosantos requested that the court dismiss the complaint in its entirety and each of the 10 causes of action listed.

Much of those funds have already left municipal control, however, and have been used to leverage other kinds of loans and private financing on properties throughout the city, said Andy Agle, City Hall’s director of the Housing and Economic Development Department.

That doesn’t just impact future projects, however — some of the money has gone to buildings that are being built or already finished and have people living in them.

Although city officials always knew the loss of redevelopment money would impact the future of affordable housing development in Santa Monica, the potential impact on projects already underway was a surprise, Agle said.

“One of the biggest issues, even before we start talking about the future of affordable housing, is affordable housing today that has been built or being built,” Agle said. “This is saying projects financed today that are built or have been built, somehow the funding for those should be in the state’s hands.”

That would be disastrous to the city’s ability to address its affordable housing needs, wrote Barbara Collins, City Hall’s housing manager, in a court declaration.

“If the (Department of Finance’s) position is allowed to stand with respect to the developments as well as the other two properties, the construction and/or maintenance of over 400 affordable apartments within the city … will be indefinitely suspended or lost altogether,” Collins wrote.

It would also have potentially devastating consequences on nonprofits that have accepted city funds, like Community Corp.

The affordable housing developer could be forced to return $6 million in capital contributed to some housing projects by investors, as well as an additional $13 million that could be due to conventional lenders, according to Sarah Letts, executive director of Community Corp.

Another $3 million could go back to contractors for work already done, but with no building to show for it.

The consequences could be devastating, Letts wrote in court documents.

“CCSM could face bankruptcy, and a nonprofit organization that has been serving low-income households for 30 years may no longer be able to meet its mission,” she wrote.

In essence, the lawsuit seeks to protect affordable housing work already accomplished in Santa Monica, which is meant to protect the city’s diversity, Agle said.

“For the last 15 years, our primary tool to keep that diversity has been investing in production and preservation of affordable housing,” Agle said. “The death of redevelopment has cut off the most important tool in that regard. Now this lawsuit is battling over all the important work we’ve been doing in the last two or three years.”

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