HomeMy WebLinkAbout04. CDC State ERAF
AGENDA MEMO
DATE:
April 27, 2010
TO:
Chairman and Members of the Community Development Commission
FROM:
Office of the Executive Director
By: Brian Saeki, Director of Community Development
SUBJECT: APPROVAL OF $1,423,825 PAYMENT TO FUND THE STATE OF
CALIFORNIA-MANDATED TRANSFER OF REDEVELOPMENT FUNDS TO
THE STATE EDUCATION RELIEF AUGMENTATION FUND
RECOMMENDATION
Staff members recommend that the Downey Community Development approve the
payment of $1,423,825 to the State of California and direct staff to remit this payment by
May 10, 2010.
BACKGROUND/DISCUSSION
During the State of California (“State”) budget negotiations for 2009, the California
legislature approved the use of local redevelopment funds to close the State of
California budget deficit, which was estimated at nearly $22 billion at the time. Despite
significant lobbying by elected officials and the California Redevelopment Association
(“CRA”), this mandate (ABX4-26) was approved and signed into law on July 28, 2009.
Shortly after this approval, the State published the amount that each redevelopment
agency or community development commission would be required to transfer to the
State. The Downey Community Development Commission (“CDC”) is required to pay
$1,423,825 this fiscal year (2009-2010) and $292,862 during the next fiscal year (2010-
2011).
The CRA has filed a lawsuit that contends that the State takeaway of local
redevelopment funds violates the State constitution and therefore is illegal. This lawsuit
is currently pending in the Sacramento Superior Court. In 2008, the CRA successfully
challenged the legality of a previous attempt by the State to takeaway local
redevelopment funds. Because the current lawsuit is pending, the CRA has
recommended that local agencies approve and prepare their required payments, but not
remit these payments until May 10, 2010. There may be new direction from the
Sacramento Superior Court judges or from the CRA before May 10, 2010 regarding
actually making the transfer to the State.
The Downey CDC generated approximately $4.1 million in property tax revenue in fiscal
year 2006-2007, which is the year used by the State to calculate the required transfer of
redevelopment funds. Using redevelopment funds, the Downey CDC funds housing
development projects, residential rehab projects, public improvement projects,
economic development projects, current outstanding CDC debt, and many
administrative costs. The requirement to pay the State $1,423,825 this year is a big
CITY OF DOWNEY, CALIFORNIA
impact for the CDC, given its small budget. However, the State takeaway has always
been a possibility, therefore staff has developed a strategy to manage this takeaway.
The CDC, over the last two years, has been deferring interest and principal payments
on the loans it has with the City of Downey. This has allowed the CDC to build up
reserves and have the resources to fund the State takeaway without interrupting regular
principal and interest payments of outstanding CDC bonds or negatively impacting
current CDC operations and projects. The deferral of loan payments to the City means
that it will take the CDC longer to repay these obligations, i.e. the payback period is
extended.
FISCAL IMPACT
Approval of this action will result in a $1,423,825 decrease in CDC reserves. These
funds will be paid on a pro-rata basis from reserves of three redevelopment project
areas/subareas per the following: Project Area #1 – 38%; Woodruff Project Area – 21%;
Amended Area #4 – 41%.
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