A financially dangerous refusal by the City of El Cerrito to pay the state $1.76 million in funds linked to the city's former Redevelopment Agency has been resolved with a court-approved settlement that lets the city keep the funds without suffering penalities.
El Cerrito took a high-stakes financial gamble in July when it disobeyed a state-mandated demand from Contra Costa County Auditor-Controller Robert Campbell to pay back $1.76 million in property tax revenues linked to the Redevelopment Agency.
The city instead sued Campbell and the state Department of Finance in Sacramento County Superior Court, saying that Campbell's calculations were incorrect and that the threatened penalties were unconstitutional. The penalties for failure to comply with the payment demand included suspension of the city's sales tax revenues.
The dispute grew out of the state's dissolution of California's nearly 400 local Redevelopment Agencies, resulting in disagreements over what agency assets and funds could be retained by local governments.
In a Dec. 21 judgment, Sacramento County Superior Court Judge Michael Kenny accepted a settlement agreement by the parties to the suit allowing the city to keep the $1.76 million and avoid any of the threatened penalities, which also included fines. The settlement pact, or "stipulation to entry of judgment," was filed by the parties on Dec. 19.
The judgment and the settlement agreement are attached to this article.
County Auditor-Controller Campbell told Patch Monday that his calculations were correct based on the data that the state provided to him and that the court settlement chiefly represented an agreement between the city and the state.
"My office performed our duties the way we're supposed to," said Campbell, who is among those who signed the agreement. "The agreement is really between the city and the state. My calculations were based on data submitted and approved by the state."
"They (officials in the state Department of Finance) probably have the details as to why the state agreed to have El Cerrito not pay the amount that I calculated," he said.
Background of El Cerrito's lawsuit
El Cerrito was one of 16 local governments in California that refused to make the so-called "true up payments" demanded under a state law passed last year. Another 11 jurisdictions paid less than was demanded of them. The law, AB 1484, targeted property tax revenues linked to the former Redevelopment Agencies, whose revenues and assets the state hoped to tap to help close the state's budget gap.
El Cerrito was ordered to pay $1.76 million, an amount that city officials said was miscalculated and that they couldn't afford without endangering other city programs and the city's ability to meet bond obligations. The city filed suit on July 12 against the state and Campbell, who was tasked under AB 1484 with calculating and issuing the "demand for payment" sent to El Cerrito on July 9.
AB 1484 provides strict penalties for the local governments that don't comply, including a blockage of sales tax revenues. The non-complying localities also face other financial penalities, which in El Cerrito's case would have been 20 percent of the amount owed plus an additional 3 percent of the amount owed for every month that it's not paid.
Origin of state-local battle
The conflict stems from the decision in 2011 by the state Legislature and Gov. Jerry Brown to dissolve the state's local redevelopment agencies in order to secure more revenue to close the state's budget gap. Redevelopment agencies received a certain amount of property taxes to fight local blight with development and housing projects.
AB 1484 – described as "clean up" legislation for the 2011 law (ABx1 26) abolishing redevelopment agencies – 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 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 2011 and January 2012, when redevelopment agencies still existed on paper. The agencies were 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 state Supreme Court decision upholding their elimination.