07-26-2011 CC RPT 13 - Laserfiche WebLink

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Voluntary Alternative Redevelopment Program Page 2 the City but could be backfilled with Agency funds. Assembly Bill X1 27 allows a one-year reprieve on the Agency’s obligation to contribute 20% of tax increment to the Low- and Moderate-Income Housing Fund so as to permit a redevelopment agency to assemble sufficient funds to make its initial payments. As stated above, to effectuate the VARP (thus allowing continued operations of the Agency), the City must adopt an ordinance which pledges compliance with Assembly Bill X1 27 and payment of the above-described amounts. The Ordinance must be adopted prior to November 1, 2011. However, between now and the effective date of the Ordinance, the Agency must cease most operations. During this dark period, the Agency cannot expand or create new project areas, cannot enter into any new or expanded contracts or agreements, cannot pledge or encumber revenue or assets, and cannot acquire or dispose of property. However, the Agency must continue to meet all preexisting enforceable obligations by completing projects and paying debt service pursuant to enforceable contracts entered into prior to June 29, 2011. The California Redevelopment Association (CRA) and the League of California Cities filed a lawsuit against the State on Monday, July 18, 2011 challenging the constitutionality of the two bills. The lawsuit also seeks a stay to prevent the legislation from going into effect on October 1, 2011. Despite this lawsuit, it is recommended that the City proceed with a plan to ensure continued operations of the Agency, while simultaneously monitoring and supporting the CRA and the League of California Cities.This recommendation imposes a significant financial impact upon the Agency and the City but protects the Agency from dissolution. The initial voluntary payments will necessitate a one-year suspension of the deposit into the Low- and Moderate-Income Housing Fund for Fiscal Year 2011/12, and the reprogramming of projects to use bond proceeds when possible. Payment of the subsequent semi-annual installments may also have an impact on the City by having to reduce or eliminate redevelopment funding for code enforcement, graffiti abatement, some economic development efforts, and administration, in addition to limiting the ability to initiate new projects. Based on current year-end estimates of fund balances, there will be approximately $6 million in low- and moderate-income housing funds as of June 30, 2011 and available for Fiscal Year 2011/12. This amount is sufficient to cover the annual housing debt service payment of approximately $2.8 million and staff and operational costs of $950,000. The most immediate impact of Assembly Bill X1 26 is the temporary cessation of new activity. Attached is a list of the Agency’s current projects and potential project opportunities that may be affected (Exhibit B). Based on the cash flow projections prepared by Development, making the payments to the State to save redevelopment will potentially result in cash shortages in the short term; however, the long term benefit to both the City and the Agency far outweigh the potential assistance that may be required to sustain the Agency. If the Ordinance to save redevelopment is adopted, the Agency can provide some of the funds needed to make the initial $19.6 million dollar payment to the State by suspending the Fiscal Year 2011/12 Low- and Moderate-Income Housing Fund deposit as allowed by Assembly Bill X1 27. In order to free up additional funds for the payment, it will be necessary to defer payment on three City loans to the Agency which have balloon payments due this fiscal year totaling $14