SAN FRANCISCO — A new California law meant to clean-up confusion stemming from the shutdown of the state’s redevelopment agencies may be making things worse for some local governments.
Those concerns about Assembly Bill 1484, a trailer bill adopted in connection with the state budget, extend to whether municipalities that took over responsibility for their former RDAs will be able to make debt payments.
The statute, which opponents say was only in print for roughly 24 hours, set up a short schedule for the new agencies representing the former 400 state redevelopment agencies to make newly defined property tax payments.
“To say this is a flawed bill is an understatement,” said Chris McKenzie, executive director of the League of California Cities. “I think a number of them were very worried that if they had to make this payment they wouldn’t have the money that they needed in order to make bond payments.”
The municipalities got their bill from the state on July 9 and had to pay it on July 12 or face penalties.
The new law clarified that the RDA successor agencies’ payments to other local taxing entities, such as schools and fire districts, had to include tax increment revenue going back to December 2011.
Redevelopment agencies captured increased property tax revenues in designated areas. With their cessation, their tax revenue, unless obligated by contracts such as bond payments, is supposed to be distributed to other local agencies.
“Basically this is a catch-up mechanism to ensure that those schools, those cities, those counties and those special taxes receive the property tax they were supposed to receive under the terms of the original bill,” said H.D. Palmer, a spokesman for the Department of Finance.
That has put a squeeze on some municipalities. San Diego Mayor Jerry Sanders said in a statement Friday that the successor agency to the city’s redevelopment agency had to make an unexpected payout of $89 million, noting it could make it harder to cover future debt payments.
“This means it’s going to be even more difficult to complete projects in the pipeline and pay former redevelopment obligations,” he said.
The state budget assumes $3.1 billion in savings from the end of redevelopment. If successor agencies’ governments failed to make the required property tax payment by July 12, they face a fine of 10% of the amount owed plus 1.5% interest for each month past due. The state would also be able to withhold sales tax payments to them up to the amount owed and will impose further fines on municipalities that miss other transfers or payments of redevelopment money.
The successor agencies are allowed to dispute the payments they make that will be then reviewed by the Department of Finance.
Palmer said he knew of only a few successor agencies that didn’t make the required payments, which included agencies in Riverside and San Bernardino counties.
San Bernardino officials say the city is likely to file for bankruptcy soon.
In San Bernardino and already bankrupt Stockton, the end of redevelopment exacerbated already deep budget problems because they could no longer loan money back and forth between city funds and their RDAs.
McKenzie said several municipalities have already sued the Department of Finance over its payment calculations. He credited the department for setting up a process to review the disputes.
The legislation also has rating analysts concerned.
Standard & Poor’s last week placed all of its investment-grade California tax increment bonds on watch for possible downgrades.
S&P credit analyst Sussan Corson said in the report that the concerns are due mainly to the new legislation, “which could lead to further confusion and potential cash-flow disruptions.”
The report said the new law could reduce property tax revenue to successor agencies, which could cause shortfalls in cash available for debt service.
Standard & Poor’s move followed Moody’s Investors Service downgrade last month of all state redevelopment bonds.
AB 1484 at least did make some things clearer.
It clarified that bond proceeds must be used for the purpose intended or be used to defease the bonds. The measure also allows the government entity that took over for a shuttered redevelopment agency to retain some of its tax revenue for low- and moderate-income housing.