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HomeMy WebLinkAboutItem 2a: Budget Allocation of ARA Funds for SERAF PaymentDATE: February 16, 2010 TO: Chairman and Redevelopment Agency Board FROM: Jason Kruckeberg, Assistant City Manager /Development Services Director - 5 1 - 1 & By: Jerry Schwartz, Economic Development Manager Js SUBJECT: AUTHORIZE A BUDGET ALLOCATION OF $1,549,203 FROM THE REDEVELOPMENT AGENCY'S UNPROGRAMMED RESERVES TO MAKE THE REQUIRED SUPPLEMENTAL EDUCATIONAL REVENUE AUGMENTATION FUND (SERAF) PAYMENT TO THE STATE OF CALIFORNIA FOR FY 2009 -2010 AS REQUIRED BY ASSEMBLY BILL X4 -26 Recommendation: Approve SUMMARY Assembly Bill X4 -26, a trailer bill that was part of the 2009 -2010 California State budget, included another raid of redevelopment funding totaling $2.05 billion over two years. The money is transferred to the Supplemental Educational Revenue Augmentation Fund (SERAF) to offset some of the State's costs for education. The amount that will be taken from the Arcadia Redevelopment Agency for 2009 -2010 is $1,549,203. It is due to the State by May 10, but the Agency must report how it will pay its share by March 1. DISCUSSION STAFF REPORT Arcadia Redevelopment Agency The Supplemental Educational Revenue Augmentation Fund (SERAF) is a budget balancing mechanism that has been used by State lawmakers several times in the past. It was last used in FY 2008 -2009 when the State attempted to take $318,643 from the ARA. However the California Redevelopment Association filed a lawsuit claiming that the taking was unconstitutional, and the judge agreed. The FY 2008 -2009 taking of ARA funds never occurred. During FY 2009 -2010, despite CRA's legal victory, the Governor and State Legislators have again voted to use redevelopment to help balance the next two years of state budgets. AB X4 -26, one of the bills approved along with the budget, requires redevelopment agencies to transfer $2.05 billion to the state over two years to offset some of the cost to fund education. This was done despite two important facts; one, CRA already prevailed in court on a similar effort to take redevelopment funds in 2008- 2009, and two, redevelopment is one of the only tools available for local governments to support business and preserve and create jobs, important capabilities in this continued period of economic uncertainty. AB X4 -26 allows the ability to extend the project area time limits by one year if the 2009 -2010 payment is made on -time. The Arcadia Redevelopment Agency's share of this taking is $1,549,203 for FY 2009- 2010. It is due to the State by May 10. However, all redevelopment agencies are required to inform the State of their method of payment by March 1. Agencies that cannot afford to pay have the option to borrow the entire SERAF amount from their low /mod housing fund. Staff is recommending that the entire payment come from the general redevelopment fund, not from low /mod housing. The California Redevelopment Association (CRA) has filed a lawsuit claiming that the taking of redevelopment funds required in AB X4 -26 is unconstitutional. A hearing on the merits of the lawsuit is scheduled for February 5 in Sacramento Superior Court. CRA is hopeful of having the Court render a decision prior to the May 10 deadline, as was accomplished for FY 2008 -2009. While we are monitoring this case, we are nonetheless proceeding as if the payment deadline will remain unchanged. As mentioned in the recently adopted Five Year Implementation Plan 2010 -2015, this SERAF shift will have consequences. The Agency identified several priority projects in the Implementation Plan. Given the high land prices in Arcadia and without the power of eminent domain, the loss of $1,549,203 will limit the ability to achieve redevelopment agency goals. The AB X4 -26 includes a provision for taking another approximately $318,000 from the ARA for 2010 -2011. Unless the CRA prevails in its lawsuit, the Agency will lose over $1.85 million from its project fund in the next two years. FISCAL IMPACT The impact on the Redevelopment Agency for FY 2009 -2010 is $1,549,203. The transfer of these funds to the State significantly reduces the tax increment available to meet the goals for the Central Project Area. There is no impact on the General Fund. RECOMMENDATION That the Redevelopment Agency Board authorizes a budget allocation of $1,549,203 from unprogrammed Agency funds to make the SERAF payment to the State of California as required by AB X4 -26. Approved: Donald Penman, City Manager /Executive Director Staff Report February 16, 2010 Page 2