The Los Angeles City Council has decided to walk away from the city’s redevelopment agency, saying it would be too costly to take control of.
The council voted 9 to 3 on Wednesday to not absorb the Los Angeles Community Redevelopment Agency.
The California Supreme Court on Dec. 28 ruled in favor of legislation that would eliminate the state’s 420 redevelopment agencies. Cities have the first option of assuming the successor role for their RDAs. The City Council’s decision takes effect Feb. 1 unless the Legislature intervenes with language clarifying the city’s liability.
Uncertainty reigns when it comes to the fate of dozens of redevelopment projects in the works in the city and about the fates of 192 agency employees, but state and city officials do seem certain of one thing: bond payments will be made. The LACRAhas $1.7 billion of outstanding bonds.
The state legislation dictates that the first $5 billion of the estimated $6.7 billion in projected tax increment revenue will be used to pay this year’s bond payments owed on the $20 billion of outstanding bonds issued by agencies across the state,. The state has chosen to use the majority of the $1.7 billion it says remains after bond payments are made to fund education and other costs, so very little will return to the RDAs.
“Most of the money coming in from tax increments was being used to pay off bonded indebtedness,” said David Bloom, a spokesman for the LACRA. “We didn’t have to go to voters to put bonds out, which is unique. This allowed us to create bonds based on tax increment coming in over a 40-year lifetime in a project area. That is perfect for bonds.”
Bloom said Gov. Jerry Brown’s figure of $6.7 billion in tax increments from the state’s RDAs was based on a three-year-old estimate and that more recent estimates indicate the state agencies’ haul on property taxes will be closer to $6 billion.
“The number was never verified and was based on property assessments made before the economic downturn and property assessments have since dropped,” Bloom said. “They made a decision to eliminate the agencies over what turns out to be a small amount of money after bond payments are made … certainly not enough to plug the holes in the state budget.”
A day before the vote, Los Angeles’ chief administrative officer and the mayor both recommended in writing that the city relinquish its role with the community redevelopment agency.
In his report, Miguel Santana estimated it would cost the city $109 million in fiscal 2012 to absorb the Los Angeles RDA. The first step will likely be to lay off the agency’s 192 employees, whose salaries and pensions make up the bulk of the $109 million cost.
The RDA this year had a budget of about $670 million. The successor agency would have the role of winding down all the redevelopment projects tied to those funds.
“The risk is too big” for Los Angeles, which faces a $200 million deficit next fiscal year, said Santana, adding that the majority of California cities have voted to take on that role.
Mayor Antonio Villaraigosa sent a letter Tuesday night to City Council members recommending against taking on the responsibility because of the potential liability. Santana’s report did not explore the cost of the legal liability the city could face as the successor agency.
If Los Angeles opts out, Los Angeles Ccounty supervisors could take responsibility for the redevelopment agency. If no successor is found, a three-member panel appointed by the state will take over.