Sac'to Redevelopment Unwind Bill (Sent To Governor For Approval or Veto) Doesn't Cover City's Cost To Demolish Former LB Courthouse AND May Or May Not Let City Receive Up To Roughly $100 Mil City Expected From Former RDA (Portion Uncertain)
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(Sept. 17, 2015, 10:10 p.m.) -- On the final day of its regular legislative session (Sept. 11), the Assembly and state Senate approved a big ticket bill meant to address issues for cities statewide in the wake of the legislature's dissolution years earlier of local Redevelopment Agencies. The measure amounted to a fiscal tug-of-war between Sacramento and California cities over who gets what sums in unwinding the assets of local Redevelopment Agencies.
As passed by the state legislature and sent to the Governor -- who as of today (Sept. 17) hasn't signed it or vetoed it -- SB 107 would help some cities significantly and gives the City of LB some incremental additional flexibility that the City didn't have previously. However, the bill appears to leave Long Beach City Hall with an outcome in which it might not receive multi-million dollar sums that the City had expected and sought. LBREPORT.com unofficially estimates the amounts involved could total as much as roughly $100 million.
The City might be able to obtain some portion of this total, not currently certain, since it depends on precise verbiage of documents between the City of LB and the now-dissolved LB Redevelopment Agency (two entirely separate legal entities) going back many years, in some cases decades.
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Assemblyman Patrick O'Donnell voted "no" on SB 107; state Senator Ricardo Lara (D., LB-Huntington Park) voted "yes." The measure helps some cities more than others. Below are some of SB 107's salient provisions that we believe could affect Long Beach taxpayers:
(1) SB 107 doesn't cover the City of LB's costs to demolish the former LB courthouse. City management included the prime located courthouse property (Ocean Blvd. just east of Magnolia) within its Civic Center transaction but didn't require the private developer/operator to pay the demolition cost initially-estimated at about $2-$3 million. City management assumed Sacramento would cover the cost, but when Sac'to's Dept. of Finance declined to let LB's RDA "Successor Agency" (the City Council) fund the demolition, city management pursued legislation while still advancing the Civic Center transaction.
On Dec. 9, 2014, the Council voted 8-0 (4th dist. vacant) to enter into an Exclusive Negotiating Agreement with a preferred potential developer/operator for a new Civic Center without seeking bids for a less costly seismic retrofit of City Hall.
In August 2015, Financial Management Director John Gross sent a memo to the Council's Budget Oversight Committee -- publicly agendized and cc'd to all Council members and the Mayor -- which indicated that the courthouse demolition costs had grown to roughly $14.5 million when including asbestos remediation/removal from the 1950s era courthouse. The memo noted that if Sacramento didn't approve then-pending legislation (AB 113), the City would have to cover the cost to meet the Civic Center transaction's current timeline. The memo suggested a payment method that would take $3 million from the City's FY15 surplus and get the remainder from a debt bond (the repayment of which would cost the City's General Fund about $1.3 million a year for ten years.) The memo also noted that "there may also be a need" to borrow $1.5 million (in addition to the courthouse demolition amount) to fund relocation of the 3rd/Pacific storm drain (which is a financing component of the Civic Center project.)
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The Budget Oversight Committee (Lowenthal and Mungo, with Price absent) heard Mr. Gross' report, didn't discuss it in detail...and didn't send it to the Council where it would receive "prime time" discussion...although the Council and the public (and the press) had been advised of the issues because Mr. Gross had publicly agendized his memo and cc'd Councilmembers on it.
A few weeks later came the Sac'to outcome: AB 113 didn't advance; SB 107 (another Redevelopment trailer bill) advanced in its place...and SB 107 didn't include courthouse demolition funding.
Asked by email today (Sept. 17) for comments on what might happen now, Mr. Gross replied in a quick email that he hadn't had a chance yet to examine SB 107 and hasn't scheduled any Council action in the near term on financing. Mr. Gross indicated he doesn't anticipate the item coming up in September and at this point doesn't anticipate it in October...but indicated that he does anticipate a bond reimbursement resolution [from the City Council] to come up when the courthouse demolition contract is awarded this fall. The resolution would let the City reimburse itself from future bond proceeds, if the Council were to decide to issue bonds. [LBREPORT.com note: The old courthouse would have be torn down at some point whether or not it's part of the Civic Center transaction.]
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(2) SB 107 leaves the City of Long Beach without payment of some part (perhaps a large part) of [our unofficial estimate] roughly $100 million the City has for years accounted for on its books as sums due and expected to be paid.
The lion's share stems from transactions years ago (in some cases going back decades) in which the City "loaned" the LB Redevelopment Agency (a legally separate entity from the City) federal grants [we believe HUD grants] whose proceeds funded blight-fighting and urban renewal projects, the types of activities reasonably within the Redevelopment Agency's purview. As part of the transaction, the City entered into agreements in which LB's RDA agreed to repay the City the amount of the grants...although the federal grants didn't require the City to repay the grants. In other words, the City created "assets" for itself (the "loan" payable to the City by LB's RDA) that it has routinely recorded and carried on the City's books for years as an amount due and payable to the City.
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Requiring LB's RDA (which was supposed to be using its sums to fight blight) to repay the City of LB for federal funds the City itself didn't have to repay rankled some Redevelopment area neighborhood advocates. They argued that the City had basically created assets for itself out of thin air. Former Redevelopment Agency Board member Terry Jensen made similar criticisms.
For its part, the City has consistently argued that its loans to RDA -- reaching roughly $100 million in total -- are sums it has consistently expected to be repaid and has treated as valid assets of the City.
When the state legislature dissolved local Redevelopment Agencies statewide a few years ago (an action bitterly opposed by the City of LB), lawmakers effectively gave Sacramento the authority to decide what Redevelopment Agency assets are repaid locally...and what Sacramento keeps for itself. The City of Long Beach has already received large Redevelopment Agency sums from Sacramento, a windfall that helped produce a temporary LB General Fund budget surplus in recent years...but the roughly $100 million in LB City-RDA "loans" have remained a major sticking point locally.
SB 107 was an attempt by the state legislature to resolve such issues statewide...but it didn't have statewide consensus. The League of CA Cities (privately run advocacy group, lobbies for interests of City Halls statewide) opposed SB 107, writing state lawmakers on Sept 11:
Legislators are being asked to act on a rushed basis without any due process or opportunity to review on
SB 107, a 104-page bill that only appeared in print on the last day of session. Based on a quick review of the language this morning by city attorneys, and given that there is an effort to move it quickly with no time for adequate review, the League of California Cities regrets it must remain opposed to harmful aspects of language contained in SB 107.
While the loan repayment provisions in this version may be characterized by some as improvements over the language contained in AB 113, have no doubt it will cause clear and significant financial harm to many cities. And as the attached analysis reveals, even those provisions that may appear to benefit must be reviewed closely.
We urge you check back with your cities to make sure that any new proposals developed affecting loan
repayment and interest rates are truly helpful. [emphasis in original] Redevelopment dissolution has been difficult enough.
This is not the time to rush and cut a bad deal.
Among the issues spotted by the League of CA Cities' analysis:
Third-Party or "Reimbursement Agreements." The maximum amount of reimbursement
under this type of loan is $5,000,000 per agency for all loan agreements.
COMMENT: The $5,000,000 limit applies per agency, even if there was more than one loan
agreement. Many cities are owed much more than this. This is the issue that has been most
hotly contested, and was the subject of the Watsonville case, where a city contracted with a
third party.
The language also requires that the city's agreement with a third party was made "on behalf
of the RDA." This language will give DOF [CA Dept. of Finance] an opportunity to limit these types of loans to
agreements that explicitly provide that they are made "on behalf of" the RDA. Many agreements do not include this language.
Some city attorneys have commented that the obligation to reimburse was documented with a
resolution rather than "an agreement" and that DOF may adopt a narrow definition of "agreement" and limit repaying loans on that basis [emphasis in original.]
(To view the League of CA Cities full analysis of SB 107, click here.)
In other words, under SB 107, it appears that whether Long Beach will receive tens of millions of dollars may depend on the precise verbiage used in "loan" agreements between the City and the former RDA -- some dating back decades -- and decisions continue to rest with the State Dept. of Finance (which has an interest in maximizing repayment to Sac'to, not cities.) As a result, it's currently uncertain how much -- or how little -- the City of Long Beach and its taxpayers will ultimately receive...although it's almost certainly less than what LB City Hall originally anticipated.
City management has previously and publicly indicated that the "loans" remain booked in a separate account, aren't used for any ongoing day-to-day purposes, aren't pledged as assets in any other matters...and remain accounted-for as assets of the City.
City management hasn't publicly briefed the City Council (or taxpayers) on its assessment of what SB 107 may mean in dollar terms to the City...if it becomes law.
SB 107 was passed by the legislature on Sept. 11 (and "enrolled"/sent to the Governor on September 16.) Under the CA Constitution, the Governor has thirty days (thus until Oct. 11) to sign or veto bills in the Governor's possession after Sept. 11 (Art. IV, Sec. 10(b)(1).)
