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01-17-2012 - Impact of ABX1 26 to City & Community Development CommissionCity of West Covina Memorandum AGENDA DATE January 17, 2012 ITEM NO. 13 TO: Andrew G. Pasmant, Executive Director and the Community Development Commission. . FROM: Christopher J. Chung CDC Director SUBJECT: IMPACT OF ABXI 26 TO THE CITY AND COMMUNITY DEVELOPMENT COMMISSION RECOMMENDATION: It is recominended that the Community Development Commission Board receive and file this report. DISCUSSION: In order to balance the State budget, the Governor signed several budget -related bills on June 29, 2011, including ABX1 26, which moved to eliminate redevelopment agencies, and ABX1 27, which could 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(CRA) v. Matosantos was filed in the California Supreme Court by CRA, the League of California Cities (League), 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 'lA (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bill), but struck down AB Xl 27, As a result of this court ruling, the Voluntary Alternative Redevelopment Program is no longer valid and all redevelopment agencies cease to exist as of February 1, 2012. IMPACTS TO CITY AND CDC: ABX1 26 will have significant detrimental impact to the City of West Covina. ABX1 26 states that after October 1, 2011 (now extended to February 1, 20.12 by court order), "... any agreements, contracts, or arrangements between the city and the redevelopment agency..." are invalid, subject to two narrow exceptions: 1) Agreements entered into in connection with the issuance of bonds issued prior to December 31, 2010, solely for the purpose of repaying the bonds; and, 2) Agreements entered into within two years from the date the Agency was created. Impact on City's Loan to the CDC/Redevelopment Agency/Community Facility District Sales Tax Reimbursement In 1973, the City of West Covina provided the Redevelopment Agency (CDC) a loan after its formation to complete economic development and redevelopment activities (2 '/z years after the formation of the Redevelopment Agency). In the years since, these loans have been increase to complete more projects in the City. The CDC currently has two loans with the City in the total Andrew G. Pasmant CityY fanager and City Council • January 17, 2012 Page 2 amount of $21.5 million. Pursuant to the existing loan agreements, the CDC is making annual payment to the City this fiscal year in the amount of $2,259,228 on the $21.5 million loans. This income is a critical revenue component of the City's General Fund. In addition, the City and CDC had. a sales tax reimbursement for the Community Facility District (CFD) Bonds. The Sales Tax Reimbursement Agreement provides for the CDC to reimburse to the City the annual sales tax revenues generated by the businesses within the CFD district (Westfield Mall), that are used to pay towards debt service on the CFD Bonds. If the Reimbursement Agreements are determined to be invalid by the State, the City will not be able to be reimbursed for the sales tax revenues paying the CFD bonds and .will therefore lose approximately $1.1 million in. General Fund Revenues per year. As a result of invalidating these loans with the City, the City's General Fund reserves could be reduced by 75%. Fiscal Impact to the City/CDC Assuming that the State's assertion that the City Loans and the CFD (mentioned above) are invalid, it is estimated that the City stands to experience approximately $4.8 million in additional general fund deficit. For FY 2011-2012, the following is a list of CDC budgeted expenditures that the CDC currently funds: • City Annual Loan Payment: $2,259,228 ' • CDC Sales Tax Reimbursement Agreement for CFD: $1,136,000 • Salaries/benefits for 19 (7.3 FTE) City (non -CDC) personnel: $ 885,659 • Discover newsletter: $ 15,000 • Graffiti abatement: $ 36,934 • Election cost: $ 14,700 • Administrative and Overhead: $ 408,057 • Accounting, Auditing and HdL property and sales tax: $ 31,586 • Self Insurance $ . 39,058 • City website (Civica): $ ' 12,500 TOTAL REVISED ANNUAL IMPACT. $4,838,722 Impact on the CDC: The dissolution of the CDC will have tremendous impacts on the City's ability to eliminate blight, attract new tenants, create new jobs, protect existing jobs and revenues, and to generate new sales and property tax revenues. The CDC is responsible for redevelopment, economic development and housing for the City of West Covina. The CDC has worked diligently under its Economic Development ann to attract new tenants, preserve existing businesses, and assist developers, property owners and tenants through the planning and building entitlements. Such services are invaluable in creating a business friendly environment and to support the ongoing efforts to improve the economic health of the City.' The CDC has a rich history of successful redevelopment projects and has made West Covina what it is today by removing blight in the community. CDC has rehabilitated old and dilapidated uses (commercial shopping centers, residential, industrial and offices), attracted new development and businesses, created thousands of jobs (full-time, part-time, construction jobs, etc.), developed new affordable housing, and has improved the current housing stock of the City. As a direct result of CDC's redevelopment and economic efforts over the past eleven (12) years, the CDC/City has created over 6,792 in new employment opportunities, 5,150 construction jobs, over $6.8 million in annual new sales tax revenues to the City, approximately $6 million in annual new gross property tax increment, and over $600 million in private investments in our community. Furthermore, one of the primary core goals of redevelopment is to improve and increase the supply of affordable housing within the community. Under redevelopment, the CDC has.. financially assisted over 3,000 affordable units, which include: EcdI149ml Andrew. G. Pasmant, CitAanager and City .Council • January 17, 2012 Page 3 1. 1,010 new -housing units restricted to affordable housing families; 2. 142 down payment assistance to first time homebuyers; and, 3: 2,141 home improvement loans to West Covina residents to improve the housing 'stock in West Covina. ABXI 26 will severely litnit the City's future ability to pursue economic and affordable housing development and would eliminate future redevelopment projects that -remove blight in West Covina. Over the years, redevelopment tax increment dollars have been utilized to fund various tools in redevelopment including: acquisition of blighted. property, participating agreements with tenants, developers, and business owners, Disposition and Development Agreement for sale of CDC property for new developments, marketing, and entitlement assistance. Some of West Covina's showcase projects that have benefited as'a result of redevelopment include the award winning Big League Dreams Sports Park and West Covina Heights Redevelopment project, West Covina Nissan and Citrus Grove, Lakes Office Towers, The Curve, Penske Audi/Mercedes, Westfield Mall and .expansion, Eastland Center, Fairfield Marriott, Lark Ellen Apartments, Promenade Apartments, West Covina Senior Villas I, and soon to be completed West Covina Senior Villas II. Impact on CDC's land assets Currently, the CDC owns approximately 188.57-acres of land. Most of the properties include restricted properties for parking use at Westfield Mall (22.51 acres) and Westfield Eastland Shopping Center (5.83 acres),, and approximately 156 acres in' the Sportsplex site (golf course, AAA, 730, 880 pad). Under ABXI 26, all the assets will be required to be transferred to a .Successor Agency. With the Successor Agency Oversight Board composition, there is no guarantee that the interest of West Covina's needs would be honored by the Successor Agency. Its primary purpose is to quickly dissolve a redevelopment agency and to dispose of its assets. All actions by the Successor Agency would have -to be approved by the Oversight Board. The proceeds from the -sales of the assets and the CDC fund balances would be utilized to pay off its bonded indebtedness. Any remaining asset would be transferred to the County Auditor -Controller for distribution to taxing entities. CONCLUSION: ABXI 26 was poorly drafted law, which did not consider many of the fundamental challenges in implementing said law. As such, ABXI 26 created many outstanding issues on implementation and interpretations of said laws. It is important to note that many schools may not receive the "additional" dollars from the dissolution of redevelopment agency as the CDC has various existing pass through agreements which allocated tax increment funding directly to the schools serving West Covina (see attached article). Staff has prepared this report to brief the City Council on ABXI 26 and has outlined the potential impacts to the City/CDC. It is clear that there are still many unanswered questions and outstanding issues resulting from ABX1 26 that can only be clarified by new clean-up legislation and/or legal challenges from the cities to determining court rulings. Senator Ed Hernandez and Alex Padilla has introduced legislation (SB 659) that the California Redevelopment Association, League of California Cities, lobbyist, and housing advocates are support to temporarily postpone the formal dissolution process to April 15, 2012. The City Manager is taking actions to protect City funds and assets 'and will also be preparing various reports, which will address City options in response to the State. actions including potential legal options against the State and lobbying efforts. Prepared by: Mike Lee Assistant CDC Director r EcdI149m1 Ecd1149m1 ATTACHMENT NO. 1 CONTRACOSTATIMES ContraCostaTimesmom School administrators see But here's the really big question, if the state does eventually send the district this $100,000, what will little gain from state it take away? Supreme Court ruling on redevelopment agencies Jim Steinberg, Staff Writer Posted: 01/08/2012 06:03:57 AM PST Updated: 01/08/2012 07:16:06 PM PST At most it will be $100,000. Or not even enough to cover one-half of one furlough day. That's the assessment from the Upland Unified School District of what last week's state Supreme Court decision on redevelopment agencies might mean - in a best -case scenario. The court last week concluded the Legislature could take redevelopment funding, rejecting arguments that such action violated Proposition 22, a 2010 measure designed to bar the state from seizing local funds to pay its bills. The justices struck down a separate state law . allowing. redevelopment agencies to stay afloat if they relinquished a large share of their funding to the state. On the day of the ruling, Gov. Jerry Brown said the decision "guarantees more than a billion dollars of ongoing funding for schools and public safety." After running some numbers, that could translate to $100,000, said Liz Seymour, senior director of fiscal services for the Upland Unified School District. Putting that in perspective for a school district which has an annual budget of $85 million, one furlough day amounts to a $250,000 savings for the district. And in the current school year, the Upland school district is taking nine furlough days to make ends meet. I Regardless of how the numbers get crunched, school officials are clear on one point - this isn't likely to be bonus dollars. George Velarde, assistant superintendent for business services for the Yucaipa-Calimesa Joint Unified School District, said that when the dust settles, there will be no increase in funding to schools as a result of the state legislation upheld by the state's highest court. Velarde said it is likely that any additional funds received from the legislation will result in relieving the state, by a like amount, from its financial obligations to the schools. "We see no net gain for local school districts," he said. Kim Stallings, deputy superintendent of the Ontario - Montclair School District, said the court ruling actually cost the state some $700 million, which it will need to make up from somewhere. While allowing the state the right to dissolve redevelopment funding, the court struck down companion legislation which would have allowed redevelopment agencies to stay afloat if they relinquished a large share of their funding to the state. SAVE. UP 64% to Plus, get 3.1- RED Gifts 131*,Imll Print Powered By I ri <?"i"r'ryt:l�yn�mics' Pagel of 2 http://www.contracostatimes.com/fdcp?unique=1326411807121 01/12/201 10 04, CONTRACOSTATIMES ContraCostp lmesxart Under the scenario where most redevelopment agencies paid what was frequently referred to as "ransom," the state would have netted $1.7 billion, not the $1 billion Brown cited. Julie Gobin, spokeswoman for the Chino Valley Unified School District, echoed sentiment among several school districts, noting that in the management of the state budget crises, "the IOU list just keeps growing." "We have learned not to count on funds until they come in," she said. Stallings has concerns that some of that missing $700 million might come from schools, but he his hopeful some of that $1 billion will flow into public education. Stallings also worries that the dissolution of city redevelopment agencies across the state will have significant impact on how school districts focus on off -school situations. At times, school districts and redevelopment agencies have co-operatively focused on neighborhood blight issues, pouring money into troubled areas surrounding a school. Redevelopment agencies can put in parks, clear out blighted apartment houses, bring in new businesses, all helpful to school districts as they try to "treat the whole kid," he said. Michael Ridgway, president of the Rialto Unified School District board, said that the final resolution of the redevelopment agency situation is far from complete. "Clearly, decisions are still being made .... not only is the ink still wet, but the outcome hasn't been written," he said. Fontana Mayor Acquanetta Warren and other area city leaders have said the battle to save city redevelopment agencies will be determined in the Legislature. Ridgway said he believes that Gov. Brown has clearly signaled education has taken its share of cuts. And now its time for city redevelopment agencies start taking some bumps, he said. Print Powered By ,? [ ynamics` Page 2 of http://www.contracostatimes.com/fdcp?unique=1326411807121 01/12/201.