With the city’s redevelopment agency gone as of Feb. 1, staff will spend the next few weeks trying to clear up the murky financial picture created by the state law redirecting the resources now spent partially on personnel costs to more basic uses.
In Morgan Hill, that means determining how to continue funding, or eliminating, all or part of about 20 staff positions that were until now financed by local property tax increment revenues.
City manager Ed Tewes is still processing the numbers and the total impact on the city’s general fund and workforce, but he doesn’t expect a tremendous effect on city staff will be enacted come budget time.
“I don’t see any major staff impacts immediately,” Tewes said Friday. “We already had significant cutbacks in anticipation of the need to pay the ransom,” or a $9.8-million continuation payment the local RDA would have paid the state to stay in business, if the state Supreme Court had upheld that part of the original state law.
In December, the court ruled that Gov. Jerry Brown’s budget bill eliminating about 400 RDAs statewide was constitutional, despite the agencies’ protest. But the court also ruled that a second law, allowing the RDAs to continue financing blight-improvement projects if they paid the “ransom” or continuation fee, was declared unconstitutional. That means no more redevelopment in Morgan Hill, whose RDA was created in 1981, or anywhere else in California.
The Morgan Hill RDA collects about $20 million in tax-increment revenues annually, of which about $2 million is spent on city staff positions and administration. The staff positions include about 16 employees who charge all or part of their time to the RDA, for work carrying out redevelopment projects, plus about five positions that manage capital projects funded by RDA bond proceeds, Tewes said. Those costs come out to more than $1 million. These include a full-time police officer whose position is fully funded by the RDA.
Almost another $900,000 is spent annually to cover administrative and operating costs for the RDA, including everything from a portion of electricity bills, insurance and “fractions of employees in different departments” such as human resources, the city manager’s office, accounts and the city clerk’s office, Tewes explained.
Options to reduce the general-fund costs that were covered by the RDA include elimination of staff positions, reductions of hours or furloughs, and reallocating central administrative services to other funds, Tewes said.
Actions taken last year in anticipation of making the ransom payment, specifically the closing of city hall and the effort to reach long-term savings through fire contract renegotiations – softened the impact of the loss of RDA funds, Tewes said.
City staff will continue to sort through the numbers and devise a plan to fund or eliminate the general costs formerly financed by the RDA, Tewes said.
The state law is complicated, especially as it outlines the transition out of a redevelopment structure that, by design, required hefty long-term debts and contracts. In simple terms, the law says all the cash, property and future revenues previously held by the RDA will slip into the control of the county and, ultimately, the state until the agency’s current debts are paid off. What little cash remains each year after debts are paid – a leftover amount that should increase annually – is distributed back to school district, county offices, state colleges and other, more basic uses, according to Santa Clara County deputy counsel James Williams.
In Morgan Hill, that includes not only the $20 million in annual revenue, and potentially about $20 million in bond proceeds left over from the 2008 voter-approved issue, and about $20 million worth of property.
Williams called the transition a “dissolution, liquidation-type” process that potentially even converts RDA-owned properties into expendable cash.
The law creates a new maze of boards and agencies that will presumably be more efficient than RDAs have traditionally been. The state assumes that each city will be able to operate these replacement agencies with $250,000, which is the amount of former-RDA revenues they will be permitted to keep to cover administrative costs.
What remains of the RDA will be blandly renamed the Morgan Hill “successor agency,” to be governed by the city council. Its first job will be to produce a list of already-existing contracts and debts, and a payment schedule. In Morgan Hill, these obligations include about $302 million worth of bond payments, loans from the RDA’s low and moderate housing programs and other debts.
Almost all of the $20 million collected annually as tax increment financing, will become regular property tax revenue. And most of it will go toward these debts and contracts for the next several years. This is what Williams referred to as “the wind-down process” that will be on “auto-pilot” until the governor’s goal of returning the resources back to general use can be achieved.
An offshoot of the new successor agency is the “successor housing agency,” also run by the council, which will administer the former RDA’s affordable housing programs.
Trumping the authority of each RDA’s successor agency will be the generically-termed seven-member “oversight board,” whose role will be to make sure the successor agency is spending the money appropriately and satisfying the terms of existing contracts and debts.
Serving on the oversight board will be a cross-section of the different agencies and offices that have a stake in the property tax revenues they have been sharing with the redevelopment agency for 30 years – the local RDA’s age. Two members will be appointed by the mayor – one to represent city hall and one to represent the AFSCME labor union, which represents employees currently serving the RDA. One oversight board member will be appointed by the state chancellor of California community colleges; one by the county’s board of education; one by the largest special district in the former RDA’s territory (In Morgan Hill’s case, Tewes thinks that will be the public library district.); and two will be appointed by the county’s board of supervisors.
“The idea is to free up the debts, and (eventually) release this money back to local governments so they can use it for basic public services,” Williams said. Redevelopment has “siphoned off” property tax revenues from other services, and the new structure is designed to slowly return the money back to those sectors.
While Tewes thinks $20 million worth of RDA-purchased properties, including the Granada Theater, Downtown Mall, Royal Clothier and other sites, are off-limits, the state might still challenge them. The state law says any actions taken by the RDA after Jan. 1, 2011, are subject to reversal as they potentially deprive the successor agency of resources. However, city staff think those properties are not subject to reversal because they were transferred last year from the RDA to a newly created Morgan Hill Economic Development Corporation in an effort to shelter the resources from state takeover.
“A lot of agencies were doing all sorts of things to lock up everything they could,” in anticipation of the state law last year, Williams said. “The state has the power to go in and look at that independent of the oversight board.”
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