State Not Cracking Down Yet on El Cerrito, Other Refusenik Cities

It appears that El Cerrito will not be hit with a heavy fine soon for its disobedience of a state-mandated order to turn over property tax revenues linked to its former redevelopment agency.

A state Department of Finance spokesman said Friday that the state is seeking a "cooperative and amicable" resolution of its disputes with El Cerrito and several other local governments who refused to turn over the money demanded.

El Cerrito is among 27 local governments in California that embarked on a financially dangerous course by not complying with a July 12 deadline to pay funds demanded under a new state law. The law, AB 1484, targets property tax revenues linked to the approximately 400 dissolved local redevelopment agencies in California.

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 not only refused to pay but against the state and the Contra Costa County Auditor-Controller, who was tasked under AB 1484 with calculating and issuing the "demand for payment" sent to El Cerrito on July 9.

El Cerrito was the only local entity in Contra Costa County and one of 16 across the state that didn't pay anything. Another 11 local governments made partial payments, typically far lower than what was demanded. 

The biggest unpaid bill in the state – $39.3 million – was sent to San Jose, which didn't pay anything. A full list of the jurisdictions that did not comply, along with the amounts they were billed and the amounts they paid, was provided to Patch last week by the Department of Finance and can be found at the bottom of this article.

Adopted on June 27, 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 be 20 percent of the amount owed plus an additional 3 percent of the amount owed for every month that it's not paid.

Enforcement held in check

The Department of Finance announced July 20 that some of the payments demanded from local governments had been miscalculated and would be reviewed, and that in the meantime no sales tax revenues would be withheld before September. Contra Costa County Auditor-Controller Robert Campbell told Patch he stands by his calculation.

The state announcement, however, did not address the other penalities.

On Friday, Department of Finance spokesman H.D. Palmer told Patch that those penalties – the 20 percent of the amount owed plus 3 percent per month – would be imposed "only as a last resort."

"These are tools that would be implemented only as a last resort," Palmer said in an email. He noted that the department would need to go to civil court to implement them.

The financial penalties would be imposed upon the local government and the so-called "successor agency," which is a body named to take over the residual responsibilities of the former redevelopment agency. El Cerrito and a large number of other local governments designated themselves as the successor agency.

"It’s our hope that we will be able to resolve any differences with these successor agencies in a cooperative and amicable manner," Palmer said.

At the same time, he added, the penalties are intended to assure that funds are provided to the other agencies that are supposed to benefit from the property tax revenues once allocated to redevelopment agencies.

"These provisions were put into the bill to ensure that schools, cities, and counties in these areas will indeed receive the property tax owed to them for the January-through-June period," he said. The "demand for payment" letters sent to local entities last month targeted the amounts calculated as owing for January-through-June of this year.

Origin of state-local battle 

The high-stakes conflict stems from the decision last year 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.

This year's new state law, AB 1484, 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 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 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  upholding their elimination. 

Recent flurry of lawsuits

The demands for payment were met not only with refusals to pay by some local governments but also by several lawsuits against the state and county auditor controllers.  At least 11 local governments filed suit between July 11 and 16 in Sacramento County Superior Court.

El Cerrito's suit, like most of the others, says that the payments were miscalculated and that the penalites for non-compliance represent an unconstitutional attempt by the state to take away local funds.

There's no consistent corelation between the localities that sued and the localities that refused to pay. The amounts paid by the suing governments varied between zero and the full amount. And a number of the governments that did not comply with payment demands have not filed suit.

Orange County filed a related suit against the state on Aug. 3, alleging that the amount allowed for it to continue its residual redevelopment activities was too low. The law that abolished redevelopment agencies allowed local jurisdications and successor agencies to keep some of the property tax revenue that formerly went to redevelopment agencies, as long as it was necessary to continue paying off redevelopment bonds and to complete projects that were in progress when the agencies were abolished.

A related suit was filed against the state on Aug. 1 by a municipal bond insurance company, Syncora Guarantee Inc., saying that the state law abolishing redevelopment agencies upended the guarantees for municipal bonds and violated state and federal constitutional protections of contracts.

Localities that didn't pay amounts demanded under AB 1484

The following list was provided to Patch by the state Department of Finance: