City, State React to End of Legal Showdown

With good cause for breathing a sigh of relief, El Cerrito officials Wednesday said they are pleased with a court judgment declaring that they do not have to pay the $1.76 million that was demanded in a state-mandated accounting of funds linked to the city's former Redevelopment Agency.

After a five-month legal stand-off following El Cerrito's refusal to pay and its lawsuit against the state, the California Department of Finance last month relinquished its demand for the money and agreed not to seek penalities against the city for disobedience. The settlement was ratified in a court judgment issued just before the holidays, on Dec. 21, by Sacramento County Superior Court Judge Michael Kinny.

El Cerrito lost its Redevelopment Agency last year as part of the state's dissolution of the nearly 400 local Redevelopment Agencies in California, a move that sparked numerous conflicts over how much of the agencies' assets and revenues could be retained by local governmments.

City officials, in their first public comment since the ruling, issued a news release Wednesday quoting City Manager Scott Hanin saying in part, “We did not take this action lightly."

Hanin was referring to the city's financially risky refusal to pay and its July lawsuit against the state Department of Finance and against Contra Costra County Auditor-Controller Robert Campbell, who was charged by a state law passed last year, AB 1484, with issuing the "true up payment" demand to the city. The city contended that Campbell's calcuation of $1.76 million owed by the city was incorrect and that the threatened penalities for non-compliance, which included blockage of sales tax revenue, were unconstitutional.

"To protect our residents’ assets, revenue and services, we saw no alternative to refusing to make the True Up Payment and filing a lawsuit," Hanin continued. "We are pleased with the settlement.”

In response to a request for comment from Patch, Department of Finance spokesman H.D. Palmer said his agency agreed to relinquish the demand for funds and to not seek penalities in an effort to "assist" El Cerrito in fixing accounting errors that had caused the "true up payment" demand to be issued.

"The settlement reflects the efforts of Finance to assist the El Cerrito Successor Agency in fixing unintentional payment errors, which were not appropriately accounted for," he said in an email. The "Successor Agency" is the City of El Cerrito, which assumed responsibility for carrying out the redevelopment projects that were in progress when the Redevelopment Agency was dissovled.

Asked by Patch if the city offered anything in return for the state agreeing to give up the payment demand, El Cerrito Development Director Lori Treviño said, "No. We made our case why the calculation was incorrect and they agreed."

County Auditor-Controller Campbell told Patch earlier this week that his calculations were correct based on the data supplied to him by the state. He said the settlement reached in court was basically between the city and the state.

The city's news release Wednesday also quoted Mayor Greg Lyman saying, "El Cerrito residents appreciate the Department of Finance recognizing our unique conditions and reaching an agreement that acknowledges El Cerrito owes nothing for the True Up Payment for the dissolution of the Redevelopment Agency. We look forward to working with the Department of Finance to resolve ongoing issues related to the Successor Agency’s obligations.”

The release also described the toll that paying the $1.76 million would have taken on the city:

"The True Up Demand amount equated to about half of the City’s General Fund cash reserves and such a loss would most likely have significantly hindered City services.  Had the funds been taken from the Successor Agency, it would have resulted in a default on payments due on bond debt and developer notes, as well as interfered with the Successor Agency’s ability to fund its contractual obligations to third parties related to affordable housing projects and economic development projects and programs, and to pay the costs associated with the onerous administrative requirements of the redevelopment dissolution process imposed by the State."

For more details and background on the settlement and the city's legal battle with the state, see the Jan. 8 Patch article, "Major Suit Settled: City Off the Hook for $1.76 Million State Bill."

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