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01-10-2012 - Designating the City of West Covina as the Success - Item No1 staff report (2).docCity of West Covina Memorandum A G E N D A ITEM NO. 1 DATE January 10, 2012 TO: Andrew G. Pasmant, City Manager and the City Council FROM: Christopher J. Chung Community Development Commission Director SUBJECT: DESIGNATING THE CITY OF WEST COVINA AS THE SUCCESSOR AGENCY FOR THE REDEVELOPMENT AGENCY (COMMUNITY DEVELOPMENT COMMISSION) RECOMMENDATION:                            It is recommended that the City Council adopt the following resolution: RESOLUTION NO. __ - A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WEST COVINA, CALIFORNIA, ELECTING TO BECOME THE SUCCESSOR AGENCY TO THE REDEVELOPMENT AGENCY OF THE CITY OF WEST COVINA 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 eliminated redevelopment agencies, and ABX1 27, which established a voluntary alternative redevelopment program whereby an agency can 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 August 23, 2011, the West Covina City Council adopted an ordinance determining that it will comply with the Voluntary Alternative Redevelopment Program in order to permit the continued existence and operations of the Community Development Commission of the City of West Covina. The City’s voluntary payment amount for FY 2011-2012 is amount is $5.85 million and FY 2012-2013 payment is estimated at $1.4 million. On the same night, the City Council approved the enforcement obligation schedule pursuant to ABX1 26, which outlined all of the agencies debt. This schedule was transmitted to the County’ Auditor Controller, the State Controller and the Department of Finance. 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 agencies would need to abide by ABX1 26 effectively shutting down its redevelopment agencies. Due to the expiration of specific timeframes, the court has extended all deadlines set forth in ABX1 26 by four months. Among other requirements ABX1 26 imposes the following: Continued from June 29, 2011 all redevelopment agencies are prohibited from taking any actions other than payment of existing indebtedness and performance of existing contractual obligations. Such prohibited actions include incurring indebtedness (including bonds), refund or restructure indebtedness, redeem bonds, modify or amend the terms of payment schedules, execute deeds of trust or mortgages, or pledge or encumber any of its revenues, making loans, entering into new contracts and agreements, disposing of assets by any means, acquiring new property, transferring or assigning any of the agency’s assets, forgiving or altering the terms of loans, entering into new partnerships or joint power authority and engage in redevelopment activities (e.g., adopt new project areas, amendment project areas etc). Until February 1, 2012, a redevelopment agency is authorized to make scheduled payments on and perform obligations required under its “Enforceable Obligations”, which include: bonds, loan borrowed from RDA, payment required for pension obligations, judgments or settlements, legally binding and enforceable agreements or contracts that are not otherwise void as defined in ABX1 26, contracts for administration or operations of the RDA, set aside reserve as required for bonds, preserve all assets and records, and avoid triggering defaults under enforceable obligations. Redevelopment agencies would cease to exist as corporate governmental entities as of February 1, 2012 (the new dissolution date established by the Supreme Court). On 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 Successor Agency will be the City, unless it elects not to do so. This election must be made by January 13, 2012. If the City elects not to be the Successor Agency, the Successor Agency will be the first taxing entity submitting to the County Auditor’ Controller a duly adopted resolution electing to become the Successor Agency. Although the City is not technically required to adopt a Resolution to become the Successor Agency, the City Attorney’s Office is advising that the City elects to serve as the Successor Agency and adopt a resolution to indicate a clear statement of intent to become the Successor Agency. The Successor Agency would be 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. While the City can serve as the Successor Agency, its action would be regulated by an Oversight Board composed of seven (7) members that are as follows: One member appointed by the County Board of Supervisors. One member appointed by the Mayor for the City that formed the redevelopment agency. One member appointed by the largest special district, by property tax share, with territory in the territorial jurisdiction of the former redevelopment agency, which is of the type of special district that is eligible to receive property tax revenues pursuant to Section 34188. One member appointed by the County Superintendent of Education to represents schools. One member appointed by the Chancellor of the California Community Colleges to represent community college districts in the county. One member of the public appointed by the Board of Supervisors. One member representing the employees of the former redevelopment agency appointed by the Mayor. The member is selected from the recognized employee organization representing the largest number of former redevelopment agency employees employed by the Successor Agency at that time (currently mid-management employees association). Under court’s decision, the Oversight Board membership must be completed by May 1, 2012. 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 holder 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, former RDA’s obligation to its employees pursuant to a collective bargaining agreement becomes enforceable obligations of the Successor Agency. Under ABX1 26, $500,000 of the amount in the Redevelopment Trust Fund is allocated to the Department of Finance for allocation to the State Controller, State Treasurer and State Director of Finance. OUTSTANDING ISSUES: ABX1 26 was a poorly drafted law, which did not consider many of the fundamental challenges in implementing said law. In so much, ABX1 27 was pass concurrently with ABX1 26 to allow for the City to continue its redevelopment agencies. Many legislators, taxing entities, counties, state and local agencies did not contemplate the State Supreme Court would reach such an adverse ruling of validating ABX1 26, but invaliding ABX1 27. There are still many unanswered questions and outstanding issues resulting from ABX1 26, which and can only be clarified by new clean-up legislation and/or future legal ruling on various provisions of ABX1 26. It is important to note that the California Redevelopment Association, League of California Cities, lobbyist, various housing and infill development advocacy groups are working on an immediate piece of legislation that is needed to temporarily postpone the formal dissolution process contained in AB1X 26 that is currently scheduled to take place on February 1, 2012 as part of the Supreme Court’s ruling. CRA and the League of California Cities have contacted potential legislators who have indicated their willingness to author legislation to temporarily postpone the dissolution deadline. However, under current law, a decision to not become a successor agency must be made by the City by January 13, 2012. Staff is recommending that the City become the Successor Agency. At the recommendation of legal counsel, the CDC has placed a resolution for the City to serve as the Successor Agency in order to meet the pending deadline of February 1, 2012 in the event new legislation for postponement is not successful. Should the City Council desire not to become the Successor Agency, Staff has also placed a Resolution to effectuate said decision. 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 – City Resolution Electing to be the Successor Agency of the Redevelopment Agency No. 2 – City Resolution Electing not to be the Successor Agency of the Redevelopment Agency.