RPVCCA_CC_SR_2011_08_16_04_Ord_524_Voluntary_Alternative_Redevelopment_ProgramCITY OF
MEMORANDUM
RANCHO PALOS VERDES
Staff Coordinator:
TO:
FROM:
DATE:
SUBJECT:
REVIEWED:
HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCI~
DENNIS McLEAN,DIRECTOR OF FINANCE &INFORMATION ~
TECHNOLOGY;AND
CAROL LYNCH,CITY ATTORNEY
AUGUST 16,2011
VOLUNTARY ALTERNATIVE REDEVELOPMENT PROGRAM
CAROLYN LEHR,CITY MANAGER oS2-
Kathryn Downs,Deputy Director of Finance &Information
Technology l(1J
RECOMMENDATION
1.ADOPT ORDINANCE NO.524,AN ORDINANCE OF THE CITY OF RANCHO
PALOS VERDES,TO COMPLY WITH PART 1.9 OF DIVISION 24 OF THE
CALIFORNIA HEALTH AND SAFETY CODE AND TAKING CERTAIN ACTIONS IN
CONNECTION THEREWITH;and
2.Direct Staff to prepare a budget resolution to substitute tax increment for General
Fund funding of an existing project appropriation (e.g.drainage repairs in the
project area),thereby freeing up the General Fund to make the FY11-12 $91,320
VARP payment (Option 1);or
3.Direct Staff to propose an additional project within the redevelopment area related
to accomplishing the redevelopment agency project goals (e.g.drainage,de-
watering well,etc.)to be funded with a proposed FY1 0-11 continuing appropriation,
and prepare a budget resolution accordingly (Option 2).
BACKGROUND &DISCUSSION
On August 2,2011 Staff presented a summary of new redevelopment law that requires
dissolution of California redevelopment agencies as of October 1,2011 (see attached
August 2,2011 Staff Report).The new law also provides for a Voluntary Alternative
Redevelopment Program (V ARP),whereby a city can continue to operate a redevelopment
agency by agreeing to make specified annual payments to the County Auditor-Controller.
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VOLUNTARY ALTERNATIVE REDEVELOPMENT PROGRAM
August 16,2011
Page 2 of4
After receiving the report on August 2nd ,the City Council determined that the benefits of
participating in the VARP currently outweigh the costs of making the annual payments,and
introduced Ordinance No.524 to comply with the exception law (Part 1.9 of state
redevelopment law)to continue operating the Rancho Palos Verdes Redevelopment
Agency (Agency).
To finalize the City's commitment to participate in the VARP,the City Council must adopt
Ordinance No.524 by August 28th to avoid a requirement to begin compliance with the
provisions of the dissolution law (Parts 1.8 and 1.85 of state redevelopment law).
The City has received notification from the California Department of Finance that the City's
FY11-12 VARP payment is $91,320.Assuming there are no further modifications to the
redevelopment law requiring additional payments and the new law is not invalidated by the
courts,half of the first VARP payment will be due January 15,2012 with the balance
payable by May 15,2012.Future annual payments beginning in FY12-13 are estimated to
begin at about $23,000 and grow at the same rate as tax increment growth.If a payment is
missed,the Agency becomes subject to the dissolution law and the City assigns its rights
to the State for any payments owed from the Agency,including payments from loan
agreements.If the law is ultimately invalidated by the courts,the City may lose its initial
VARP payments.
Funding for the VARP Payment
The exception law (Part 1.9 of state redevelopment law)provides that a participating city
and redevelopment agency may enter into an agreement whereby the agency will transfer
a portion of its tax increment revenue to the participating city in an amount not to exceed
the annual remittance required that year.For FY11-12 only,the tax increment transferred
may come from the 20%Set-Aside that would normally be deposited into the Agency's
affordable housing fund.There has been some discussion among state legislators that a
bill may be proposed to require cities to repay these affordable housing funds;however,no
such legislation has been introduced to date.
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."The transferred tax increment
cannot directly be used to make the VARP payment.However,the transferred tax
increment can be used to relieve the General Fund of another qualifying expenditure in the
project area that has already been appropriated,thereby freeing up General Fund money
to make the VARP payment.Two different options for a funding plan are outlined below.
Option 1 -Tax increment is transferred to the City to relieve the General Fund of a
"redevelopment"expenditure within the project area that is already included in the FY11-12
budget (e.g.drainage repairs as part of road maintenance in the landslide area),thereby
freeing up the General Fund to make the VARP payment (as illustrated below).
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VOLUNTARY ALTERNATIVE REDEVELOPMENT PROGRAM
August 16,2011
Page 3 of4
Before Adjustment:
General
Fund
After Adjustment:
"Redevelop.me nt"
I $91K>CIP Fund 1$91K>Project
Balance ..Appropriations
."R~developrn~nf"Ta~1·$91K··~·.·•.:\.•·Qn~FUnd "$91K;>'PrclJeot
I.J1C.·•..f..8.rnen.t .Balance ..'A··....,'",•.....•..ppropfiat.Qns
General
Fund'
Option 2 -Tax increment is transferred to the City to add a new appropriation for a
"redevelopment"expenditure within the project area,and the General Fund bears the
burden of the VARP payment.
Staff would return to the City Council with a proposed project that could include drainage or
dewatering wells in the landslide project area.Staff would propose using a FY10-11
favorable variance to fund the VARP payment.Staff is in process of analyzing FY10-11
accounts,and is confident that adequate favorable variances will be available to fund the
additional $91,320 expenditure.For example,the FY10-11 legal services budget is
expected to have a favorable variance in excess of $100,000,which could be carried
forward to FY12-13 to be used for the VARP payment.
FISCAL IMPACT
If the City Council approves Option 1,there would be no impact to the General Fund.Staff
would return with a proposed budget adjustment to substitute project funding.
If the City Council approves Option 2,there would be no impact to the Budgeted General
Fund Balance at June 30,2012.Staff would return with a proposed continued
appropriation from FY 10-11 to FY 11-12 for the V ARP payment.
Whichever Option the City Council chooses,the ability to transfer tax increment that would
have been deposited into the Agency's affordable housing fund represents a one-time
opportunity to re-characterize the use of the 20%Set-Aside from affordable housing to
landslide mitigation within the project area.
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VOLUNTARY ALTERNATIVE REDEVELOPMENT PROGRAM
August 16,2011
Page 4 of 4
ATTACHMENTS
ORDINANCE NO.524,AN ORDINANCE OF THE CITY OF RANCHO PALOS VERDES,
TO COMPLY WITH PART 1.9 OF DIVISION 24 OF THE CALIFORNIA HEALTH AND
SAFETY CODE AND TAKING CERTAIN ACTIONS IN CONNECTION THEREWITH.
Staff Report dated August 2,2011
4-4
ORDINANCE NO.524
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF RANCHO
PALOS VERDES TO COMPLY WITH PART 1.9 OF DIVISION 24 OF
THE CALIFORNIA HEALTH AND SAFETY CODE AND TAKING
CERTAIN ACTIONS IN CONNECTION THEREWITH
RECITALS
A.The Rancho Palos Verdes Redevelopment Agency (the "Agency")is a
redevelopment agencyin the City of Rancho Palos Verdes (the "City"),created pursuant
to the Community Redevelopment Law (Part 1 (commencing with Section 33000)of
Division 24 of the California Health and Safety Code)(the "Redevelopment Law").
S.The City Council of the City (the "City Council")adopted Ordinance
No.190,adopting a redevelopment plan as the official redevelopment plan for Project
Area No.1,and from time to time,the City Council has amended such redevelopment
plan.The Agency is undertaking a program to redevelop the Project Area.
C.AS X1 26 was signed by the Governor of California on June,29,2011,
making certain changes to the Redevelopment Law,including adding Part 1.8
(commencing with Section 34161)and Part 1.85 (commencing with Section 34170)to
Division 24 of the California Health and Safety Code.Commencing upon the
effectiveness of AS X1 26,AS X1 26 suspends most redevelopment agency activities
and,among other things,prohibits redevelopment agencies from incurring indebtedness
or entering into or modifying contracts.Effective October 1,2011,AS X1 26 dissolves
all existing redevelopment agencies and redevelopment agency components of
community development agencies,designates successor agencies to the former
redevelopment agencies,and imposes numerous requirements on the successor
agencies and subjects successor agency actions to the review of oversight boards
established pursuant to the provisions of Part 1.85.
D.AS X1 27 was signed by the Governor of California on June 29,2011,
adding Part 1.9 (commencing with Section 34192)to Division 24 of the California Health
and Safety Code.Part 1.9 establishes an Alternative Voluntary Redevelopment
Program whereby,notwithstanding the provisions of Part 1.8 and Part 1.85,a
redevelopment agency will be authorized to continue to exist and carry out the
provisions of the Redevelopment Law upon the enactment,prior to the applicable
deadline established in Part 1.9,by the city council of the city which includes that
redevelopment agency (the "participating city")of an ordinance to comply with Part 1.9.
E.Part 1.9 requires a participating city to make specified annual remittances
to the applicable county auditor-controller,who shall allocate the remittances for deposit
into a Special District Allocation Fund,for allocation to specified special districts,and
into the county Educational Revenue Augmentation Fund,for allocation to educational
entities.
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F.To participate in the Alternative Voluntary Redevelopment Program,in
addition to adopting the ordinance described in Recital D,above,the participating city
must,by November 1,2011,notify the applicable county auditor-controller,the State
Controller,and the State of California Department of Finance (the "Department of
Finance")that the participating city agrees to comply with the provisions of Part 1.9.
The participating city's agreement to make the remittances provided for under Part 1.9
is a precondition to continue redevelopment pursuant to Part 1.9.
G.Part 1.9 provides that for fiscal year 2011-12,a participating city shall
remit to the applicable county auditor-controller an amount equal to the amount
determined by the State of California Director of Finance (the "Director of Finance")for
the redevelopment agency pursuant to a formula set forth in Part 1.9,which formula
utilizes information contained in the State Controller's redevelopment agency 2008-09
annual report.The amount represents the redevelopment agency's proportionate share
of the sum of $1 ,700,000,000.The initial amount determined by the Director of Finance
is subject to recalculation and reduction in the event the participating city timely files an
appeal in accordance with Health and Safety Code Section 34194(b)(2)(L).
H.For fiscal year 2012-13 and each fiscal year thereafter,a participating
city's remittance amouht shall equal the amount determined pursuant to calculations
performed by the participating city in accordance with the requirements of Part 1.9,
subject to adjustment based on audit and verification by the Director of Finance,the
State Controller and the applicable county auditor-controller.On or before November
1st of each year,commencing November 1,2012,a participating city shall notify the
Department of Finance,the State Controller,and the applicable county auditor-
controller of the remittance amount calculated by the participating city.
I.Pursuant to the provisions of Part 1.9,a participating city shall pay one-
half of the total remittance amount for a fiscal year on or before January 15 of that year
and shall pay the remaining one-half of the remittance amount on or before May 15 of
that year.
J.A participating city making remittances pursuant to Part 1.9 may use any
available funds not otherwise obligated for other uses.
K.A participating city and the redevelopment agency in that participating city
may enter into an agreement pursuant to Part 1.9 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 pursuant to Part 1.9.
L.Pursuant to the provisions of Part 1.9,if a participating city fails to make a
remittance payment,as calculated in accordance with the applicable provisions of Part
1.9 and according to the schedule set forth in Rectiall,above,the applicable county
auditor-controller shall notify the Director of Finance of the failure to make the payment
within 30 days.Upon receipt of the notification,the Director of Finance may determine
that the redevelopment agency in the participating city shall be subject to the
requirements of Part 1.8 and Part 1.85.
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M.The City has estimated that its 2011-12 remittance amount under Part 1.9
is $91,748.
N.The City desires to participate in the Alternative Voluntary Redevelopment
Program so that the Agency may continue to exist and carry out the provisions of the
Redevelopment Law.
O.The City has,or will have,available funds not otherwise obligated for other
uses with which to make the fiscal year 2011-12 remittance in an amount not to exceed
$91,748,or such lesser amount recalculated by the Director of Finance,payable one-
half by January 15,2012,with the remaining one-half payable by May 15,2012.
NOW,THEREFORE,THE CITY COUNCIL OF THE CITY OF RANCHO PALOS
VERDES,CALIFORNIA DOES ORDAIN AS FOLLOWS:
Section 1.The above recitals are true and correct and are a substantive part of
this Ordinance.
Section 2.This Ordinance is adopted as required by Health and Safety Code
Section 34193.
Section 3.So that the Agency may continue to exist and carry out the provisions
of the Redevelopment Law notwithstanding the provisions of Part 1.8 and Part 1.85,the
City Council hereby determines and declares that it shall comply with the requirements
and obligations contained in Part 1.9,as Part 1.9 exists on the date of adoption of this
Ordinance.In adopting this Ordinance or agreeing to comply with the provisions of Part
1.9,the City does not intend to incur an indebtedness or liability within the meaning of any
constitutional or statutory debt limitation or restriction.
Section 4.Performance of actions under or pursuant to this Ordinance,including
the making of payments by the City to the Los Angeles County Auditor-Controller (the
"Auditor-Controller"),is made under protest.Neither the adoption of this Ordinance nor
the performance of actions under or pursuant to this Ordinance is intended by the City or
Agency to waive any right either may have to challenge the legality of all or any portion of
AS X1 26 or AS X1 27 through administrative or judicial proceedings,or to appeal the
City's fiscal year 2011-12 remittance amount pursuant to Health and Safety Code Section
34194(b )(2)(L),or to otherwise contest the remittance amount for any year.Any payments
hereunder are intended to be made without prejudice to the City's right to seek to recover
reimbursement of such payments,plus interest,should the requirement of making such
payments be stayed,enjoined,repealed,or held unconstitutional or unenforceable by any
court of competent jurisdiction.This Ordinance shall be null and void and of no further
force and effect in the event that AS X1 26 or AS X1 27 is repealed,or held
unconstitutional or unenforceable by any court of competent jurisdiction.
Section 5.The City Manager,or the City Manager's designee,is hereby
authorized and directed to notify the Auditor-Controller,the State Controller,and the
Department of Finance,on or before November 1,2011,that the City agrees to comply
-3-4-7
with the provisions of Part 1.9,as Part 1.9 exists on the date of adoption of this Ordinance,
with such notification to be accompanied by a certified copy of this Ordinance.
Section 6.This Ordinance has been reviewed with respect to applicability of the
California Environmental Quality Act ("CEQA"),the State CEQA Guidelines (California
Code of Regulations,Title 14,Sections 15000 et seq.,hereafter the "Guidelines"),and the
City's environmental guidelines.The City has determined that this Ordinance is not a
"project"for purposes of CEQA,as that term is defined by Guidelines Section 15378.
Specifically,this Ordinance constitutes the creation of government funding mechanisms or
other government fiscal activities which do not involve any commitment to any specific
project which may result in a potentially significant physical impact on the environment.
(Guidelines Section 15378(b)(4».In addition,this Ordinance is an organizational or
administrative activity that will not result in a direct or indirect physical change in the
environment.(Guidelines Section 15378(b)(5».Therefore,because it is not a "project,"
this Ordinance is not subject to CEQA's requirements.Further,even if this Ordinance
were deemed a "project"and therefore subject to CEQA,the Ordinance would be covered
by the general rule that CEQA applies only to projects that have the potential to cause a
significant effect on the environment.(Guidelines Section 15061 (b )(3».As an
organizational or administrative activity or the creation of government funding mechanisms
or other government fiscal activities which do not involve any commitment to any specific
project which may result in a potentially significant physical impact on the environment,
this Ordinance does not have the potential to cause a significant effect on the environment
and is therefore exempt under this general rule.Further,it can be seen with certainty that
there is no possibility that the activity in question may have a significant effect on the
environment,and thus this Ordinance is not subject to CEQA.(Guidelines Section
15061(b)(3».
Section 7.The City Clerk shall certify to the passage of this Ordinance and is
hereby directed to publish or post this Ordinance,or a summary of this Ordinance,in
accordance with law.
Section 8.The City Clerk is hereby directed to send a certified copy of this
Ordinance to the Agency.
Section 9.The City Clerk is hereby directed to file a Notice of Exemption with
the County Clerk pursuant to Section 15062 of the Guidelines within five days of the
adoption of this Ordinance.
Section 10.The officers and staff of the City are herby authorized and directed,
jointly and severally,to do any and all things which they may deem necessary or
advisable to effectuate this Ordinance and any such actions previously taken by such
officers are hereby ratified and confirmed.
Section 11.If any part of this Ordinance is held to be invalid or unconstitutional
by the decision of any court of competent jurisdiction,for any reason,such decision
shall not affect the validity of the remaining portions of this Ordinance and this City
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Council hereby declares that it would have passed the remainder of this Ordinance if
such invalid or unconstitutional portion thereof had been deleted.
Section 12.This Ordinance shall take effect 30 days from adoption.
PASSED AND ADOPTED this 16th day of August,2011.
Mayor
ATTEST:
City Clerk
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CrTYOF
MEMORANDUM
RANCHO PALOS VERDES
TO:
FROM:
DATE:
SUBJECT:
REVIEWED:
HONORABLE MAYOR AND MEMBERS OF THE CITY COUN~II..J
DENNIS McLEAN,DIRECTOR OF FINANCE &INFORMATIO
TECHNOLOGY;AND ..
CAROL LYNCH,CITY ATTORNEY
AUGUST 2,2011
REDEVELOPMENT AGENCY DISSOLUTION AND EXCEPTION LAWS
CAROLYN LEHR,CITY MANAGER 09..--
Staff Coordinator:Kathryn Downs,Deputy Director of Finance &Information
Technology It[)
RECOMMENDATION
1.Determine that the City and Redevelopment Agency ("Agency")participate in the
"Alternative Voluntary Redevelopment Program";
2.Instruct Staff to make the required payments to the State of California and continue
redevelopment activities under AS X1 27;
3.Agree to comply with Part 1.9 of Division 24 of the California Health and Safety
Code,and INTRODUCE ORDINANCE NO.,AN ORDINANCE OF THE CITY ..
OF RANCHO PALOS VERDES,TO COMPLY WITH PART 1.9 OF DIVISION 24
OF THE CALIFORNIA HEALTH AND SAFETY CODE AND TAKING CERTAIN
ACTIONS IN CONNECTION THEREWITH;and
4.Direct Staff to propose necessary budget adjustments and prepare a transfer
agreement betv{,een the Agency and City for consideration at a future meeting.
5.Delegate to the City Manager and the City Attorney the authority to file an appeal,if
warranted,of the Department of Finance's determination ofthe amount of the City's
required AS X1 27 payment for FY11-12.
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REDEVELOPMENT AGENCY DISSOLUTION AND EXCEPTION LAWS
August 2,2011
Page 2 of 8
EXECUTIVE SUMMARY
New redevelopment law was signed by the Governor on June 29,2011 providing for the
dissolution of California redevelopment agencies as of October 1,2011.The law also
provides for a "voluntary"program,whereby a city can continue to operate a
redevelopment agency by agreeing to make specified annual payments to the County
Auditor-Controller.
The City's estimated FY11-12 payment to participate in this voluntary program is $91,748.
Future annual payments beginning in FY12-13 are estimated to begin at $22,991,and
grow at the same rate as tax increment growth.There is a risk that the Legislature could
make changes to the program or could require additional payments in future years.As
discussed in more detail below,the Agency may be able to transfer tax increment to the
City,which could be used for an eligible redevelopment expenditure and offset the City's
payment to participate in the voluntary program.
The City Council must determine whether the benefits of keeping the Agency in oper.ation
outweigh the costs and risks of participating in the "voluntary"program.The benefits to
participation include:
1.Protection of the Agency's ability to repay a portion or all of its debt to the City
(estimated to be $18.6 million atJune 30,2011)with future nettax increment,which
could be about $397,000 in FY13-14,growing to more than $3.2 million in FY34-35;
2.Protection of the Agency's assets,including $0.9 million of cash,more than 124
acres of land,and a note receivable of $6.3 million;and
3.Retention of an annual $240,000 funding source to meet the City's affordable
housing requirement.
Staff recommends that the City Council consider the facts and analysis outlined in this staff
report,and determine that the City and Agency will participate in the Alternative Voluntary
Redevelopment Program established by AS X1 27.
BACKGROUND
The Redevelopment Agency was created by the City to address blight that has been and is
being caused by the active landslides that are located within the Redevelopment Project
Area.The City and Agency have carried out an active and successful redevelopment
program since the activation of the Agency in 1984.However,the continuing ability of the
Agency to repay the Agency's debt to the County and construct landslide mitigation
projects has been threatened by the Legislature's adoption of the recent budget package
which,in part,solves State budget problems by taking revenue from redevelopment
agencies.AS X1 26,which was signed by the Governor of California 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
contracts.Then,on October 1,2011,AS X1 26 dissolves all existing redevelopment
agencies,designates successor agencies as successor entities to the former
redevelopment agencies,imposes numerous requirements on the successor agencies,and
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REDEVELOPMENT AGENCY DISSOLUTION AND l:XCEPTION LAWS
August 2,2011
Page 3 of8
subjects successor agency actions to the review of oversight boards established under the
new law.
AS X1 27 was signed by the Governor concurrently with AS X1 26.This companion law
establishes an Alternative Voluntary Redevelopment Program whereby a redevelopment
agency will,notwithstanding AS X1 26,be authorized to continue to exist and carry out the
provisions of the Redevelopment Law.To "opt into"this "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.If a payment is missed,the Agency becomes subject to AS X1 26
and the City assigns its rights to the State for any payments owed from the Agency,
including payments from loan agreements.The estimated voluntary payment in the
amount of $91 ,748 that would be paid in FY11-12 is the Agency's proportionate share of
$1.7 billion,as determined by the Department of Finance pursuant to a formula specified in
AS X127.
After receiving it's notification from the state Department of Finance,the City may appeal
the determination of the amount of the FY11-12 payment on the basis that the State
Controller's report was in error,or that the percentage of tax increment necessary to pay
for tax allocation bonds and interest payments has increased by 10 percent or more over
the percentage calculated pursuant to the Controller's 2008-09 report.Staff does not
expect that the City of Rancho Palos Verdes has a basis for appeal other than on the basis
that the City contends that the provisions of AS X1 26 and AS X1 27 are unconstitutional,
and that the Director of Finance accordingly lacks the authority to determine payment
amounts pursuant to AS X1 27.Any appeal must be filed by August 15th
•
The payment obligation is an ongoing obligation of the City in subsequent years.For FY12-
13 and thereafter,the City is required to calculate its own payment amount,subject to audit
by the 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).As
discussed below,the FY12-13 payment is estimated to be $22,991.
AS X1 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 notto 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 goa[s."
[f the City Council determines that it will not opt into the AS X1 27 Alternative Voluntary
Redevelopment Program,the activities of the Agehcywill continue to be severely curtailed.
,U[timately,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 assets of the Agency would be disposed of.The State
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REDEVELOPMENT AGENCY DISSOLUTION AND EXCEPTION LAWS
August 2,2011
Page 4 of 8
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 X1 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 .
Boam..
A more detailed description of AB X1 26 and AB X1 27 prepared by the City Attorney's
Office is attached to this report.
DISCUSSION
The City Council must determine whether to take the steps necessary to continue the
activities of the Agency or allow the Agency to be dissolved.
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:
i.Protection of the Agency's ability to repay a portion or all of its debt to
the City (estimated to be $18,557,057 atJune 30,2011,see attached
FY10-11 Tax Increment Projections &Debt Service Schedule
prepared by Staff),which could be paid from future net tax increment
of about $397,000 in FY13-14,growing to more than $3.2 million in
FY34-35 (discussed in further detail below);
ii.Protection of the Agency's assets,including the loan receivable from
AM CAL for the Mirandela senior housing project ($6,344,139 at June
30,2010),real property owned by the Agency (about 124 acres of
Abalone Cove Shoreline Park and 6 vacant parcels on Cherry Hill in
the landslide area),and cash held by the Agency ($590,411 in the
Housing Set-Aside Fund and $315,343 in the capital projects funds at
June 30,2011);
iii.Protection of the Agency's ability to transfer back to the City's
Affordable Housing Fund a portion of the $1,774,203 that was
previously transferred to the Agency's Housing Set-Aside fund for the
City's contribution to funding ofthe AMCAL loan (maximum amount of
$6,790,000,of which only about $6.3 million was needed);and
iv.Retention of a funding source of about $240,000 per year for the
Agency to continue to meet the City's affordable housing requirement.
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REDEVELOPMENT AGENCY DISSOLUTION AND EXCEPTION LAWS
August 2,2011
Page 50f8
b.The cost to the City of making the payments are estimated to be:
i.For FY11-12:$91,748;and
ii.For FY12-13 (with annual payments continuing thereafter,increasing
by the rate of tax increment growth):$22,991 ($21,588 base,
increased by estimated 6.5%growth of tax increment).
iii.In addition to these annual payments,the County Auditor-Controller
may charge the City a fee that does not exceed the reasonable costs
of the AUdjtor-Controller to implement the provisions of Part 1.9.At
this time,the amount of this fee is unknown.To provide context,the
Auditor-Controller currently charges the Agency about $17,000
annually to administer property tax increment.This new fee may be
substantially less,but would be in addition to the $17,000 currently
charged..
c.There are some risks to the City if it chooses to "opt into"the "voluntary"
program.Those risks include:
i..The risk that if there are further changes to the law,the City may not
have sufficient available funds in subsequent years to continue
making the required payments;or that at some future time,the net
benefits may not exceed the actual cost of making those payments.
However,as discussed above,the assets to be protected currently far
outweigh the cost of the 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 of the City 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.
ii.The risk that the Legislature makes changes to the program,or
requires additional payments,in future years.For example,ifthe total
amount paid by agencies in FY11-12 does not equal the $1.7 billion
anticipated by the State budget,this could trigger the need for
additional exactions.
iii.The risk that the City will be unable to recover its payments to the
State if AB X1 26 and AB X1 27 are Ultimately invalidated by the
courts.
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 X1 27.
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August 2,2011
Page 6 ofa
a.What source will the City use to make the payment in the current fiscal year?
AB X1 27 allows for the Agency to transfer to the City the tax increment
revenue that would normally be deposited in the Housing Set-Aside Fund
during FY11-12.To make such a transfer,the Agency must make a finding
that there are insufficient other moneys to meet its debt and other
obligations,current priorty program needs,or its obligations pursuant to an
agreement between the Agency and the City whereby the Agency agrees to
transfer tax increment to th~City in the amount of the City's required
payments.Once the transfer is made to the City,the tax increment must be
used "for the purpose of financing activities within the redevelopment area
that are related to accomplishing the redevelopment agency project goals."
The transferred tax increment revenue could be used to backfill a project that
would otherwise be funded with General Fund money,thus keeping the
General Fund whole for FY11-12.If the City Council'adopts the
recommendation,Staffwtll develop a plan and propose a budget adjustment
on a future agenda.
\
This same allowance to transfer tax increment that would otherwise be
deposited to the Housing Set-Aside Fund is not made for future years'
payments.It should be noted that there have been suggestions that state
legislation may be proposed requiring cities to repay their Housing Set-Aside
funds.However,no such legislation has been proposed to date.
b.Will the Agency have sufficient funds to make transfers to the City in
amounts not to exceed the City's payment amounts under a transfer
agreement between the City and Agency?
As noted above,the annual payments for FY12-13 and thereafter are
expected to start at about $22,991,which must be paid by the City.
However,similar to the allowance noted above for tax increment revenue
that would be deposited into the Housing Set-Aside Fund,Agency excess tax
increment (net of transfers to the Fire District and the 20%Housing Set-
Aside)can be transferred to the City "for the purpose of financing activities
within the redevelopment area that are related to accomplishing the
redevelopment agency project goals."Therefore,if the City were to fund any
projects fitting this purpose,the Agency could backfill the amount the City
must pay to participate in the "voluntary"program with tax increment
revenue.These types of projects (not maintenance)could include
construction of new dewatering wells,storm drain projects,and sewer
rehabilitation projects in the landslide area.
The County currently impounds all tax increment (except for the 20%
required to be deposited into the Housing Set-Aside Fund)for purposes of
repaying the Agency's debt to the County.Staff expects that once the
Deferred Interest Debt to the County is completely repaid in November 2013,
the Agency will begin to receive excess tax increment (see attached FY10-11
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REDEVELOPMENT AGENCY DISSOLUTION AND EXCEPTION LAWS
August 2,2011
Page 7 of 8
Tax Increment Projections &Debt Service Schedule prepared by Staff).As
illustrated in column K of that schedule,the net tax increment available to
repay the City could be about $397,000 in FY13-14,growing to over $3.2
million annually in FY34-35.
The answers to the foregoing questions will help the City Council determine whether the
City should "opt into"the "voluntary"program established by AS X1 27.If the City Council
determines that the City will "opt into"the program,the first step in the process is to
introduce the attached Ordinance.The ordinance must be adopted by August 28th to avoid
a requirement to begin compliance with the provisions of AB X1 26.If the City Council
adopts Staffs recommendation,then the attached Ordinance will be presented for
adoption on August 16th •In addition,the City Council must direct staff to propose the City
budget adjustments necessary to facilitate the required payment for FY11-12 and prepare
a transfer agreement between the Agency and City;which can be presented to the City
Council and the Agency Board at a later date.
If the City Council determines not to participate in AB X1 27's voluntary program,th~City
Council should direct'staff to start the actions necessary to comply with AB X1 26,and to
bring those actions before the Agency Board and City Council as necessary.
OPTIONS
1.Determine that the City and Agency will participate in the Alternative Voluntary
Redevelopment Program,which is the recommendation of Staff;or
2.Determine thatthe City and Agency will not participate in the Alternative Voluntary
Redevelopment Program;or
3.Delay making the determination,and direct staff to prepare additional information
and analysis.In such case,direct staff,in the meantime,·to start the actions
necessary to comply with AB X1 26 and to bring those actions before the Agency
Board and City Council as necessary.
FISCAL IMPACT
If the City "opts in"to the "voluntary"program,Staff will return with a budget resolution to
transfer $91,748 from the Agency's Housing Set-Aside Fund (from FY11-12 budgeted tax
increment revenue of $234,500)to the City's General Fund for an eligible redevelopment
expenditure,and an adjustment to General Fund expenditures to make the payment.
When preparing the FY12-13 budget,Staffwill include an allocation to make a payment of
approximately $22,991 from the City's General Fund.
If the City does not "opt in",Staff will return with further analysis of the fiscal impact.
ATTACHMENTS
Summary of AB X1 26 and AB X1 27,prepared by Richards,Watson &Gershon.
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REDEVELOPMENT AGENCY DISSOLUTION AND EXCEPTION LAWS
August 2,2011
Page 8 of 8
ORDINANCE NO.,AN ORDINANCE OF THE CITY OF RANCHO PALOS VERDES,
TO COMPLY WITH PART 1.9 OF DIVISION 24 OF THE CALIFORNIA HEALTH AND
SAFETY CODE AND TAKING CERTAIN ACTIONS IN CONNECTION THEREWITH.
FY10-11 Tax Increment Projection &Debt Service Schedule,prepared by Staff and
previously presented with the ·staff report to the City Council dated June 7,2011,titled
"Additions to the Consolidated Loan Between the City and Redevelopment Agency for
Expenses incurred during FY09-10".
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