City Has Much Company in Refuse-To-Pay Showdown with State

The ongoing tug-of-war between the state and local governments over the revenues that once went to local redevelopment agencies erupted into legal hostilities last month when several cities, including El Cerrito, to block a new state-mandated order for immediate payments from local entities.

El Cerrito not only filed suit but also took the financially dangerous step of refusing to make the payment, thus risking heavy penalties, including a cut-off of its sales tax revenue.

And while the lawsuits by El Cerrito and other cities are a matter of public record, the larger number of jurisdictions that refused to pay, regardless of whether they filed suit, was not immediately known.

Number of non-complying local jurisdictions

In response to a request from Patch, state Department of Finance spokesman H.D. Palmer said Friday that 16 local entities refused to make any payment. An additional 11 made partial payments less than what they were billed. El Cerrito made no payment. The deadline to pay was July 12.

In Contra Costa County, El Cerrito was the only city that refused to make any payment, according to the county Auditor-Controller's office. It was billed $1.76 million, an amount that city officials said was incorrectly calculated and that they couldn't pay without risking a default on bond payments.

Two other cities – Brentwood and Pittsburg – made partial payments and were reported by the Auditor-Controller's office to the state Department of Finance as "paid short." Brentwood was billed $2.06 million and paid less than a fourth, $509,997. Pittsburg received the largest bill in the county, $3.48 million, and paid but 3.3 percent, or $114,794.

Palmer said Friday he didn't have a list of all the 27 local agencies across the state that did not make full payment but will try to have it available today, Monday.

Origin of the battle

The high-stakes confrontation stems from the decision last year by the state Legislature and Gov. Jerry Brown to dissolve the state's approximately 400 local redevelopment agencies in order to secure more revenue to meet the state's budget deficit. Redevelopment agencies received a certain amount of property taxes to fight local blight with development and housing projects.

The payment demands issued to local jurisdictions last month were authorized by a new state law, AB 1484, adopted June 27, which was described as "clean up" legislation for last year's law (ABx1 26) abolishing redevelopment agencies.

AB 1484 provided that each county's auditor controller issue a "demand for payment" letter by July 9 to each local entity that had a redevelopment agency. The legislation provided also that both the local government and the local "successor agency" would face financial penalities for non-compliance. Each jurisdiction that had a redevelopment agency named a "successor agency" to oversee legally allowed leftover responsibilities of the former redevelopment agency, including paying off bonds and completing projects that were in progress. The city of El Cerrito, like many cities, designated itself as the successor agency.

The payment demands were called "true up" payments that the local jurisdictions were told they must pay back from the property tax revenues that had been distributed to them by county auditor controllers in December and January, when redevelopment agencies still existed, though in a legally comatose state because of earlier court challenges to the state's attempt to eliminate them. Redevelopment agencies were officially dissolved Feb. 1, following a upholding their dissolution. 

Penalties for not meeting the July 12 deadline for payments included 10 percent of the amount owed plus 1.5 percent for each month of not paying – accessed against  both the local government and the successor agency, meaning El Cerrito faces a 20 percent penalty plus 3 percent per month. In addition, the local government's sales tax revenue would be blocked.

Most recent legal hostilities

The latest legal battle broke out on July 11 and 12 when El Cerrito and at least eight other California cities filed suit in Sacramento County Superior Court against the state Department of Finance, the state Board of Equalization and their county auditor controllers. The suits dispute the calculations used by the county auditor controllers and allege that the AB 1484 penalties are an unconstitutional violation of Proposition 22 (passed by voters in 2010) and other laws designed to block the state from taking local revenues.

On July 16, two other cities – Brea and Mission Viejo – filed similar suits, also in Sacramento County Superior Court.

State backs off a bit

In a July 20 letter, the director of the state Department of Finance, Ana Matosantos, told the county auditor controllers that mistakes had been discovered in some of the calculations used in the "demand for payment" letters and that the state would review the calculations and work with auditor controllers on those that need to be corrected.

And in a separate July 20 letter to the successor agencies of redevelopment agencies, Matasantos said no sales tax would be stopped before September. She did not mention the other penalties for non-payment.

The letters from Matasantos were followed by strong words from the executive director of the League of California Cities, Chris McKenzie: "The League has been sharply critical of AB 1484’s unnecessarily harsh penalties and ridiculously rushed payment schedule that led to the incorrect billings on July 9. On July 11 we urged DOF to correct the data. ... The decision to delay the objectionable sales tax distribution suspensions until no sooner than September is welcome for those who did not already pay the incorrect amount by the July 12 deadline. We urge DOF to keep moving in this direction.”

Contra Costa County Auditor-Controller responds

Contra Costa County Auditor-Controller Robert Campbell told Patch that his office does not intend to use an option in the law that allows the county auditor controller to impose the penalities for non-payment and that he will leave any such enforcement up to the state. 

Campbell also said he stands by the $1.76 million figure that his office calculated is owed by El Cerrito.

In Brentwood, Assistant Finance Director Kerry Breen said Campbell's office miscalculated the "demand for payment" amount by not including reimbursement for the "pass-through" payments made by the city to local school districts and other agencies that are entitled to part of the property tax revenues that once went to redevelopment agencies.

Brentwood, which has not filed suit, sent an explanatory letter with its partial payment and has been told by the state Department of Finance that it won't face any penalties while the issue is being reviewed, Breen said.

Patch also requested a response from Pittsburg officials.