Renovation of the Santa Monica Civic Auditorium has been put on hold since the state took back RDA money. (File photo)
Renovation of the Santa Monica Civic Auditorium has been put on hold since the state took back RDA money. (File photo)

CITY HALL — City Hall will pay the state $56.78 million over the next two years as part of a settlement over redevelopment agency funds, city officials said at Tuesday’s City Council meeting.

The move saved the city at least $10.7 million, said City Attorney Marsha Moutrie. At one point, the state had claimed that City Hall owed $81 million, she said. The state asked for $67 million before the settlement was reached.

In 2012, attempting to plug a budget shortfall, the governor, state legislature, and the California Supreme Court worked together to close all state redevelopment agencies, which were originally created to make over “blighted” areas in postwar urban cores and to build affordable housing.

This settlement with the California Department of Finance partially satisfies the first of three state agencies, the others being the State Controller’s and Attorney General’s offices.

“They don’t always talk to one another but they all have the same marching orders, which is maximize the takeback to the state,” said City Manager Rod Gould.

The funds, which City Hall must return in four payments, the last in July 2015, were already earmarked for projects.

“The casualties here include the renovations of the Civic Auditorium, which was to the tune of $52 million to bring it up to earthquake and ADA codes and to make it a modern facility for entertainment and cultural offerings,” Gould said.

Other planned uses for the cash included rebuilding Fire Station 1, renovating Fire Station 3, and funding for affordable housing.

The settlement means that the state cannot clawback the funds, withholding property tax or sales tax receipts that would otherwise be owed to the city, Moutrie said.

“Because the state has that unusual power, they have a great deal of leverage in effectuating settlements with cities,” she said.

One victory for City Hall in the settlement is ratification of $10 million in loan proceeds already used for affordable housing, which the state had questioned.

“In that sense it’s good,” Gould said. “But it’s not over because we are waiting for the State Controller to do audits of all 400 previous redevelopment agencies. And if they find money that the Department of Finance didn’t find, they can demand their return.”

City Hall and the state are also in dispute over several parking structures and Tongva Park, which were built with redevelopment money.

City officials are headed to Sacramento in two weeks to negotiate with the Department of Finance over the physical assets.

“I’d be remiss to even guess as to how that’s going to turn out,” Gould said.

The parking structures are critical infrastructure, supplying thousands of parking spaces for residents, visitors and employees.

City Council voted unanimously to approve the recommendation by Moutrie that City Hall accept the settlement.

“We’re pleased that we’ve been able to reach a resolution of this issue without further litigation,” said H.D. Palmer, spokesperson for the Department of Finance.

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