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HomeMy WebLinkAboutItem 2a: Budget Allocation from Redevelopment Agency to make State Educational Revenue Augmentation Fund (SERAF) Payment 111, Pr PI 0 1 1 1 STAFF REPORT Arcadia Redevelopment Agency DATE: February 15, 2011 TO: Chairman and Redevelopment Agency Board FROM: Jason Kruckeberg, Assistant City Manager /Development Services Director 5a- By: Jerry Schwartz, Economic Development Manager t iR5 SUBJECT: AUTHORIZE A BUDGET ALLOCATION OF $318,643 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 2010 -2011 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. In 2009 -2010, the money was transferred to the Supplemental Educational Revenue Augmentation Fund (SERAF) to offset some of the State's costs for education. The amount that was taken from the Arcadia Redevelopment Agency for 2009 -2010 was $1,549,203. For 2010 -2011, the amount that must be sent to the State is $318,643. This fiscal year, the funds will be used to pay for the Court system. The funds are due to the State by May 10, but the Agency must report how it will pay its share by March 1. DISCUSSION 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 previously 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 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, required 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 SERAF payment is made on -time. CRA has strongly urged that Agencies not utilize this provision while it is fighting the constitutionality of the SERAF shift. The Arcadia Redevelopment Agency's share of this taking in FY 2009 -2010 was $1,549,203. The budget allocation to make this payment was approved on February 16, 2009, and the payment was made on May 10. For FY 2010 -2011, the Agency's share of the SERAF shift is $318,643. The payment is again due on May 10. However, all redevelopment agencies are required to inform the State of their method of payment by March 1. This year, the State is not using these funds for education. Instead, it is using the SERAF funds to pay for the Court system. 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. Last year, the California Redevelopment Association (CRA) filed a lawsuit claiming that the taking of redevelopment funds required in AB X4 -26 is unconstitutional. CRA lost in Superior Court and on its first appeal. CRA has filed another appeal and it has urged member agencies, like Arcadia, to follow the requirements of AB X4 -26 while the legal challenge continues. Additionally, California voters approved Proposition 22 which was on the November 2010 ballot and bans the State from further ERAF shifts. However, Proposition 22 only impacts the future, forcing the Agency to comply with AB X4 -26 for FY 2010 -2011. As mentioned in the Five Year Implementation Plan 2010 -2015, these two years of SERAF shifts 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 last year and $318,643 this year will limit the ability to achieve some redevelopment agency goals. The two year loss to the Arcadia Redevelopment Agency from AB X4 -26 is $1,867,846. Of course, Governor Brown has proposed even more drastic measures than AB X4 -26, the elimination of redevelopment in California. While the impact of the Governor's proposal would be devastating to Arcadia and every other redevelopment agency in the State, there is still a long way to go before a vote might be scheduled on the proposal. At this point, it is being recommended that we continue with normal activities, which include making this SERAF payment for FY 2010 -2011. FISCAL IMPACT The impact on the Redevelopment Agency for FY 2010 -2011 is $318,643. The transfer of these funds to the State reduces the tax increment available to meet the goals for the Central Project Area. There is no impact on the General Fund. Staff Report February 15, 2011 Page 2 RECOMMENDATION That the Redevelopment Agency Board authorize a budget allocation of $318,643 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 15, 2011 Page 3