It’s time to pay up or die slowly for the Morgan Hill
redevelopment agency now that the state budget is law. The city
council will make that decision Wednesday, and city staff will
recommend paying the
”
ransom
”
to the state that starts at $9.8 million the first year, and
drops to about $2.3 million annually in following years, city
manager Ed Tewes said.
It’s time to pay up or die slowly for the Morgan Hill redevelopment agency now that the state budget is law.
The city council will make that decision Wednesday, and city staff will recommend paying the “ransom” to the state that starts at $9.8 million the first year, and drops to about $2.3 million annually in following years, city manager Ed Tewes said.
The state will redistribute the money to cover an ongoing shortfall in education and other basic services, according to California Department of Finance staff.
“We will be recommending that we pay the ransom, but that will mean big changes to redevelopment and to the general fund,” Tewes said.
The other option, as laid out in two budget bills signed by Gov. Jerry Brown earlier this month, is to eliminate the RDA altogether, allowing a new “successor agency” to liquidate and redistribute the agency’s assets, which include property, cash and outstanding loans.
The new laws spread a blanket of uncertainty over city hall, though staff warned numerous times the cuts were coming. The city’s $26-million general fund relies on about $2.5 million in redevelopment funds annually. Without that revenue, the council will likely have to cut the budget for 2011-2012 even more, days after approving a budget for the year June 15.
Staff from the state’s department of finance say at least the new laws give the cities and redevelopment agencies a choice. If Brown had his way, he would have eliminated the agencies statewide as he proposed at the beginning of this year. A bill in the legislature that would have done that failed due to lack of votes.
“The final agreement provides a choice. It’s different from the governor’s proposal in that respect,” said department of finance spokesman H.D. Palmer.
The RDA laws employ a formula that determines how much of each agency’s tax increment revenues should be transferred out of the agencies, in order to gain $1.7 billion for education and other services this year. In future years the RDAs would contribute a total of $400 million to “offset” the state’s K-12 education costs, Palmer said.
The governor’s staff has previously said Brown’s redevelopment proposal was necessary to fund core services including schools, firefighters and police. It was part of the state strategy to close its own $25 billion shortfall going into the year that started July 1.
The Morgan Hill RDA collects about $22 million in property tax increment annually. The agency does not currently have the cash to pay the “ransom,” though Tewes’ recommendation to the council will include a complicated payment method, he said.
That could require more hacking away at the general fund, after the budget approved in June already eliminated a net total of five jobs.
“Because we don’t have $9.8 million, the ultimate solution will require a mixture of approaches. Whether to include general fund cuts, and to what extent are among the policy decisions the council will wrestle with,” Tewes said.
Some options include closing city hall and moving employees to the development services center then leasing city hall, turning off 500 neighborhood street lights as of January, leaving vacant police officer and dispatcher positions open, leasing or selling the Friendly Inn, furloughing employees, gaining concessions through employee groups through negotiations, according to the staff report.
The new laws also state that all contracts entered by the RDA since Jan. 1 are “subject to challenge,” Tewes said.
That includes agreements between the RDA and city to transfer or share resources, contracts to design and built West Dunne Avenue, the Santa Teresa Boulevard extension and other infrastructure projects, and the creation of the Downtown Economic Development Commission which the council created with property and cash formerly owned by the RDA soon after the governor’s proposal to eliminate redevelopment in January.
The building containing the Downtown Mall and Granada Theater, the Royal Clothiers building, the local share of the Caltrain parking lot on Butterfield Boulevard, the former site of the Simple Beverages liquor store at the corner of Third Street and Monterey Road, an option to purchase the property that houses BookSmart and Jesus restaurant, and a small vacant lot on Fourth Street were transferred to the EDC.
Since 2008, the city has planned to work with private sector investors to redevelop these properties.
All of those actions could be challenged by the state and potentially reversed by the courts, though RDA advocates say it is the state that has violated the law.
The California Redevelopment Agency and the California League of Cities have both hinted they would challenge the new redevelopment laws, city attorney Danny Wan said. The organizations maintain the laws are in violation of Proposition 22 of the state constitution, which prohibits the state from using local redevelopment funding for the state’s general fund expenses.
Morgan Hill’s redevelopment agency is approaching the end of its existence anyway, Tewes said. Redevelopment is expected to sunset or “go dark” by 2016, when the agency is expected to reach a previously agreed-upon threshold of tax increment revenue beyond which they cannot collect until they pay off the bond proceeds acquired in 2008.
Projects in the current five-year capital improvement program will spend down the rest of the $110 million in bond proceeds.
