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01-17-2012 - Designating the Community Development Commission a - Item 14 (2).docCity of West Covina Memorandum A G E N D A ITEM NO. 14 DATE January 17, 2012 TO: Andrew G. Pasmant, City Manager and the City Council FROM: Christopher J. Chung Community Development Commission Director SUBJECT: DESIGNATING THE COMMUNITY DEVELOPMENT COMMISSION AS THE HOUSING SUCCESSOR AGENCY RECOMMENDATION:                            It is recommended that the City Council do the following: 1. Adopt the following resolution: RESOLUTION NO. __________ - A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WEST COVINA DECLARING THE NEED FOR A HOUSING AUTHORITY TO FUNCTION WITHIN THE CITY OF WEST COVINA 2. Adopt the following urgency ordinance: ORDINANCE NO. __________ - AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF WEST COVINA, CALIFORNIA, DECLARING THE NEED FOR THE COMMUNITY DEVELOPMENT COMMISSION IN THE CITY OF WEST COVINA, TO FUNCTION AS THE CITY OF WEST COVINA HOUSING AUTHORITY AND TRANSFERRING ALL DUTIES, POWERS AND RESPONSIBILITIES OF THE WEST COVINA HOUSING AUTHORITY TO THE COMMUNITY DEVELOPMENT COMMISSION AND DECLARING THIS ORDINANCE TO BE AN URGENCY ORDINANCE 3. Introduce the following ordinance: AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF WEST COVINA, CALIFORNIA, DECLARING THE NEED FOR THE COMMUNITY DEVELOPMENT COMMISSION IN THE CITY OF WEST COVINA, TO FUNCTION AS THE CITY OF WEST COVINA HOUSING AUTHORITY AND TRANSFERRING ALL DUTIES, POWERS AND RESPONSIBILITIES OF THE WEST COVINA HOUSING AUTHORITY TO THE COMMUNITY DEVELOPMENT COMMISSION 4. Adopt the following resolution: RESOLUTION NO. __________- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WEST COVINA, CALIFORNIA, ELECTING TO TRANSFER HOUSING FUNCTIONS TO THE LOCAL HOUSING AUTHORITY PURSUANT TO PART 1.85 OF DIVISION 24 OF THE CALIFORNIA HEALTH AND SAFETY CODE   DISCUSSION: In order to balance the State budget, the Governor signed several budget-related bills on June 29, 2011, including ABX1 26, which move to eliminate redevelopment agencies, and ABX1 27, which would have established a voluntary alternative redevelopment program whereby an agency could continue to exist upon the enactment of an ordinance by the City to comply with the provisions of ABX1 27. These two bills were passed as part of the 2011-12 state budget and work together to eliminate redevelopment agencies (ABX1 26) unless they agree to pay the state $1.7 billion in this fiscal year and $400 million to schools and special districts in subsequent budget years (ABX1 27). In July 2011, California Redevelopment Agency v. Matosantos was filed in the California Supreme Court by CRA, the League of California Cities, and the cities of San Jose and Union City, challenging the constitutionality of ABX1 26 and ABX1 27. The CRA/League legal team argued these two budget bills directly violated Proposition 1A (2004), Proposition 22, and Article 16 Section 16 of the California Constitution. On December 29, 2011, the California Supreme Court ruled in CRA v. Matosantos.  The Court upheld ABX1 26 (the redevelopment elimination bill), but struck down ABX1 27. As a result of this court ruling, the Voluntary Alternative Redevelopment Program is no longer valid and all redevelopment agencies cease to exist as of February 1, 2012. Pursuant to ABX1 26 by February 1, 2012, all agency property and obligations would be transferred to a Successor Agency, which would continue to satisfy enforceable obligations of the former redevelopment agencies. The West Covina City Council, on January 10, 2012 adopted a Resolution to serve as the Successor Agency. The Successor Agency is charged with selling assets, repaying existing indebtedness, completing performance of existing contractual obligations, and otherwise winding down operations and preserving agency assets for the benefit of taxing agencies. The actions of the Successor Agency would be regulated by an Oversight Board. The Successor Agency is entitled to an annual administrative cost of up to five (5) percent of the property tax allocated to the Successor Agency for FY 2011-2012 and three (3) percent of the property tax each succeeding fiscal year. Under ABX1 26, the County Auditor-Controller would annually determine the amount of property tax increment that would have been allocated to an agency and deposit that amount in a Redevelopment Trust Fund. The Trust Fund would be administered by the County for the benefit of holders of former RDA debt, taxing entities that receive pass-through payments, Successor Agency to pay for enforceable obligations of the former RDA, including bonds, and to pay for administrative costs of the Successor Agency (subject to approval of the Oversight Board). Any remaining balances in the Trust Fund would be allocated to school entities and other local tax entities as property tax. Under ABX1 26, it also gives the option that the City or a local housing authority can serve as the successor housing agency of the former redevelopment agency. While the City can serve as the successor housing agency of the former redevelopment agency, the City Attorney’s office is of the opinion that program revenues may be subject to the administrative cost allowance threshold set forth under ABX1 26 and advise that a separate entity such as the Community Development Commission in its capacity as the West Covina Housing Authority serve as the successor housing agency to continue to receive the program revenues. Since the inception of the redevelopment agency in 1971, over 2,000 home improvement loans and 142 first time homebuyer loans have been issued. As many of these home loans have matured and repayment via payoff and mortgage repayment have been occurring throughout the past several years. In addition, the CDC has residual revenue sharing payments from previous housing development projects, these program revenues and residual payments may be utilized to pay for on-going administrative expense necessary to monitor and administer these loans in addition to the administrative fees referenced above. In FY 2010-2011, the CDC received approximately $517,028 in housing program income from the existing loans and residual payments. In addition, the CDC has several housing agreements with affordability covenants, which would need to be monitored and enforced to ensure compliance with the affordability guidelines and maximum rent charged as set forth in the various housing agreements and State requirements. Since the formation of the Community Development Commission in December 2003, it assumed the responsibility of the former West Covina Redevelopment Agency. However, at that time it did not assume the responsibility of becoming a “legal housing authority”. Should the City Council concur with the recommendation to have the Community Development Commission retain housing functions, the City Attorney’s office is recommending adoption of said resolutions and ordinance to form the City of West Covina Housing Authority to be administered by the CDC in compliance with Community Development law and ABX1 26. ABX1 26 does not specifically indicate that the CDC, operating as the Housing Authority will be subject to the Administrative Cost Allowance limitations as opposed to the City. Due to unresolved interpretations of ABX1 26 and the pending deadline of February 1, 2012 for the dissolution of the all redevelopment agencies, an Urgency Ordinance is recommended at this time. In order to pass an Urgency Ordinance, a super majority affirmative vote of the Council is required. The introduction of a regular, non-urgency ordinance is also recommended in case the necessity for the urgency ordinance is challenged. FISCAL IMPACT It is estimated that CDC can receive approximately $500,000 in annual program income and residual payments. Prepared by: Mike Lee Assistant CDC Director Reviewed/Approved by: Christopher J. Chung CDC Director Approved via telephone Reviewed/Approved by: Arnold M. Alvarez-Glasman General Counsel to the CDC _______ Finance Attachments: No. 1 - A Resolution of the City Council of the City of West Covina declaring the need for a Housing Authority to function within the City of West Covina. No. 2 – An Ordinance of the City Council of the City of West Covina, California, declaring the need for the Community Development Commission in the City of West Covina, to function as the City of West Covina Housing Authority and transferring all duties, powers and responsibilities of the West Covina Housing Authority to the Community Development Commission and declaring this Ordinance to be an urgency Ordinance. No. 3 – An Ordinance of the City Council of the City of West Covina, California, declaring the need for the Community Development Commission in the City of West Covina, to function as the City of West Covina Housing Authority and transferring all duties, powers, and responsibilities of the West Covina Housing Authority to the Community Development Commission. No. 4 – A Resolution of the City Council of the City of West Covina, California, electing to transfer housing functions to the Local Housing Authority pursuant to Part 1.85 of division 24 of the California Health and Safety Code.