CAPPS - Avocacy and Communication Professional Development

California Association of Private Postsecondary Schools

State duns cities for millions of dollars

07/25/2012

San Francisco Chronicle - July 24, 2012

California cities are in a high-stakes fight with officials in Sacramento over money that the state says the cities owe as part of the winding down of redevelopment agencies.

County officials, under the state's direction, have sent letters of demand to cities throughout the state in recent weeks, many for millions of dollars. Several cities, including El Cerrito, refused to pay and sued the state, which is threatening to penalize cities by withholding sales tax revenue that cities rely on to pay for police, parks and other general operating expenses.

Some local officials warn that if the state follows through with its threat, struggling cities could be pushed off the fiscal cliff. Recently, fiscal crises prompted three California cities - Stockton, Mammoth Lakes and San Bernardino - to declare bankruptcy.

"It's time that we stand up and be counted, and defend our municipal affairs and rights, and push back," William C. Jones III, mayor of El Cerrito, said at a City Council meeting July 12 after the council voted to sue the state.

Gov. Jerry Brown and the Legislature abolished redevelopment agencies last year as part of the budget plan to deal with California's chronic deficits, redirecting billions to local governments for schools, public safety and other services. Some of that money helps the state's budget by reducing the amount of the general fund that is required to go towardeducation.

$1.7 million demand

The letter sent to El Cerrito on July 9 demanded a $1.7 million payment within three days, but city officials said the demand was based on a miscalculation and filed a lawsuit instead of sending a check. The city is challenging the constitutionality of the demand, among other thingsJones said the state's actions show it has "an unapologetic disregard for its cities."

On Friday, state Department of Finance Director Ana Matosantos sent letters to local officials statewide saying the department was conducting a review of the amounts that cities owe to the state and that the agency's staff had already found discrepancies.

"In some cases these discrepancies were significant," Matosantos wrote. She said the state would delay imposing penalties until at least September as the reviews continue.

It is not clear exactly how much is at stake. County clerks calculated the bills on behalf of the state and sent them to the "successor agencies" that cities created to wind down the redevelopment agencies. The money from cities that complied with the demand was sent to county officials, who redistributed it to schools, counties, special districts and some to cities as well.

Finance officials said the amount of redirected money going to school districts - which is the only funding that affects the larger state budget - is expected to be $685 million. County officials are expected to report totals to the state later in the month.

In Contra Costa County, the clerk sent bills to cities and the county totaling just under $21.3 million, and in Alameda County the bills were just over $40 million, according to officials in those counties.

OK from Supreme Court

The state gave the money in question to redevelopment agencies in December. Under the old system, those agencies received a portion of property taxes in areas with redevelopment projects.

But later that month, the state Supreme Court gave the state the green light to abolish the redevelopment agencies. The ruling was a blow to cities that had sued the state, hoping to keep redevelopment alive.

Redevelopment agencies were abolished in February, and successor agencies were created to finish projects that were already under way and eliminate bond and other debt owed. They are then to be shuttered.

However, at the heart of the debate between cities and the state is whether the money given in December can be used to pay bond debt and other obligations. Cities say the calculations were rushed and are inaccurate. Many also say the penalties - including a fine of 10 percent of the amount in question and the withholding of sales tax revenue equal to the amount in question - are unconstitutional.

H.D. Palmer, Department of Finance spokesman, said the state is not being quick to penalize cities.

"My hope is that we won't have to ... use these penalties," Palmer said. "There's not a rush on the state's part to implement these. They are meant as tools of last resort."

But even cities that have paid the full amount have objected to doing so.

Richmond city officials paid $2.1 million "under protest," said City Manager Bill Lindsay.

Penalties 'too severe'

"The penalties, we felt, were too severe not to pay it even though we did not agree with the amount or the approach taken by the county at the direction of the state," he said.

One project that was to be funded in Richmond was an underpass below railroad tracks on the edge of the marina area. Passing trains can cut off access to the area, including for emergency vehicles, for as long as half an hour, Lindsay said. State officials have said the project was not far enough along when redevelopment agencies were dissolved, so the money can't be used for that project.

The project is now stalled.

Cities' representatives at the Capitol said they are glad the state has decided to review the amounts charged, but asked that the penalties be removed.

"We've never seen any threat like this," said Chris McKenzie, executive director of theCalifornia League of Cities. "It's really, we believe, just dramatically excessive, unnecessary and on top of it, illegal."

He said the league is considering filing its own lawsuit on the matter.