HomeMy WebLinkAboutRDA AG PKT 2011-08-08 #2REDEVELOPMENT AGENCY
AGENDA STAFF REPORT
DATE: August 8, 2011
TO: Honorable Chair and Board Members
THRU: Jill R. Ingram, Executive Director
FROM: Mark Persico, AICP, Director of Development Services
SUBJECT: DISCUSS THE CITY'S PARTICIPATION IN THE
"ALTERNATIVE VOLUNTARY REDEVELOPMENT
PROGRAM" UNDER AB 27
SUMMARY OF REQUEST:
That the Agency discuss the City's participation in the "Alternative Voluntary
Redevelopment Program" and the payments to the State of California to continue
redevelopment activities under AB XI 27 ( "AB 27 ").
BACKGROUND:
The City and Seal Beach Redevelopment Agency have successfully executed
redevelopment projects and activities beginning in 1969. However, the
continuing ability of the Agency to eliminate blight and create economic
development opportunities has been threatened by the Legislature's adoption of
the recent budget package which, in part, solves the State budget problems by
taking revenue from redevelopment agencies. AB XI 26 ( "AB 26 "), was signed
by the Governor Brown on June, 29, 2011, immediately suspends most
redevelopment agency activities and, among other things, prohibits
redevelopment agencies from incurring indebtedness or entering into or
modifying current contracts. Further, on October 1, 2011, AB 26 dissolves all
existing redevelopment agencies and designates successor agencies to carry out
agency activities, while imposing numerous requirements on the successor
agencies and subjecting successor agency actions to the review of oversight
boards established under the new law.
AB 27 was signed by the Governor concurrently with AB 26. This companion law
establishes an "Alternative Voluntary Redevelopment Program" whereby a
redevelopment agency will, notwithstanding AB 26, be authorized to continue to
exist and carry out the provisions of the Redevelopment Law. To "opt into" this
Agenda Item 2
Page 2
"voluntary" alternative program, the City must adopt an ordinance signifying the
City's compliance with the onerous exactions imposed by the Legislature. To
restore the ability to continue redevelopment activities, the City must make
specified annual payments to the County Auditor - Controller on a schedule, and
the Auditor - Controller will then allocate the payments to special districts and
educational entities. The amount to be paid in FY 2011 -12 is the Agency's
proportionate share of $1.7 billion, as determined by the California Department of
Finance pursuant to a formula specified in AB 27. That determination, made on
August 1, 2011 is $937,868. We recommend that the City appeal such
determination no later than August 15, 2011. This payment obligation is an
ongoing obligation of the City in subsequent years. For FY 2012 -13 and
thereafter, the City is required to calculate its own payment amount, subject to
audit by the California Department of Finance, with the payments based on the
Agency's proportionate share of $400 million (with adjustments based on
growth /decline of tax increment revenues, and with additional payments triggered
if the Agency incurs new debt).
Thus, the Legislature has created a system where a city is liable for making
continuing annual payments out of city funds in order for the agency to be able to
continue its activities. AB 27 provides that a participating city and the
redevelopment agency in that participating city may enter into an agreement
whereby the agency will transfer a portion of its tax increment to the participating
city in an amount not to exceed the annual remittance required that year. Any
tax increment funds transferred from the agency to the city are required to be
spent only "for the purpose of financing activities within the redevelopment area
that are related to accomplishing the redevelopment agency project goals."
If the City Council determines that it will not opt into the AB 27 Alternative
Voluntary Redevelopment Program, the activities of the Agency will continue to
be severely curtailed. Ultimately, the Agency will be dissolved as of October 1,
2011 and a number of "wind -up" activities must be undertaken by a successor
entity. No further redevelopment activities could be undertaken and the
successor agency would be required to dispose all Agency assets. The State
Controller would have the authority to review, and potentially unwind, asset
transfer transactions between the City and the Agency which occurred after
January 1, 2011. In addition, AB 26 provides that except in very limited
circumstances, the Agency could not repay amounts currently owed to the City.
The "wind -up" activities of the Agency would be subject to the supervision of a
new "Oversight Board" with the authority to give direction to City and Agency
staff, and to usurp the existing authority of the City Council and Agency Board.
ANALYSIS:
At a threshold level, the City Council must determine whether to take the steps
necessary to continue the activities of the Redevelopment Agency or allow the
Agency to be dissolved.
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This determination requires answers to the following questions:
1. Do the benefits of keeping the Agency in operation outweigh the costs and
risks to the City of opting into the "voluntary" program?
a. The benefits of keeping the Agency in operation include:
• Completion of storm drain improvements
• Acquisition and improvement of parkland and open space
• Continuation of the accessibility of improvement program in
Leisure World
b. The cost to the City of making the payments are:
• For FY 2011 -2012: $937,868.
• For FY 2012 -2013: $222,468 (estimated)
• Annual payments continuing thereafter.
c. There are some significant risks to the City if it chooses to "opt into"
the "voluntary" program. Those risks include:
o The risk that the City will not have sufficient available funds
in subsequent years to continue making the required
payments, or that at some future time, the net benefits of
making the payments will not exceed the actual cost of
making those payments. If the City stops making the
payments in future years, the provisions of Part 1.8
(prohibitions on Agency activities) and 1.85 (dissolution of
the Agency) will be applicable to the Agency. In addition,
Part 1.9 provides that the State will be entitled to an
assignment of any rights the City has to any payment from
the Agency to which the City is entitled for purposes of
mitigating the fiscal impact to the State related to the failure
of the City to make the annual payments.
• The risk that the Legislature makes changes to the program,
or requires additional payments, in future years. For
example, if the total amount paid by agencies in FY 2011 -12
does not equal the $1.7 billion anticipated by the State
budget, this could trigger the need for additional exactions.
• The risk that the City will be unable to recover its payments
to the State if AB 26 and AB 27 are ultimately invalidated by
the courts.
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2. Before it "opts into," the "voluntary" program, the City Council should
consider whether the City will have the resources to make the annual
payments required under AB 27. There are three important questions:
Does the City have funds to make the payments to the state? If so, what
will be the source of those payments? Does (or will) the Agency have
sufficient funds to "reimburse" the City the amounts paid to the state? The
answers to the foregoing questions will help the City Council determine
whether to "opt into" the "voluntary" program established by AB 27.
a. Funds for and source of City payment in fiscal year 2011 -2012.
Staff has identified funds in the City's FY 2011 -2012 budget
designated for a storm drain project located in the project area as a
potential funding source for the initial payment of $937,868.
b. The Agency has sufficient funds to make transfers to the City "to
reimburse" the City for its payments to the state. Based upon the
recently adopted 5 year implementation plan, it appears the Agency
has sufficient funds to reimburse the City for payments to the state.
According to the 2009 -10 — 2013 -14 Five Year Implementation
Plan, the Agency will have an ending balance of $4,486,073 for FY
2012 -13.
FINANCIAL IMPACT:
Future budget amendments and a transfer agreement will be necessary if the
City Council opts into the "voluntary program."
RECOMMENDATION:
Staff recommends that the Agency consider the foregoing facts and analysis, and
recommend that the City participate in the "Alternative Voluntary Redevelopment
Program" established by AB 27.
SUBMITTED BY:
Mark H. Persico, AICP
Director of Development Services
NOTED AND APPROVED:
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J& HA. Ingram,
Executive Director