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DOF Payment Obligation PRROYo o 13 INCORPORATED 9Z V vi:aeuau'i�.., m * JULY 10, 1911 * MEMORANDUM 1(!FORce' TO: CITY COUNCIL AND THE CITY COUNCIL, AS SUCCESSOR AGENCY TO THE DISSOLVED ARROYO GRANDE REDEVELOPMENT AGENCY (RDA) FROM: ANGELA KRAETSCH, DIRECTOR OF ADMINISTRATIVE SERVICES SUBJECT: CONSIDERATION OF COMPLIANCE WITH THE STATE DEPARTMENT OF FINANCE'S (DOF) INTERPRETATION OF THE SUCCESSOR AGENCY PAYMENT OBLIGATION UNDER AB 1484 AND APPROPRIATE FUNDING FOR POTENTIAL LEGAL ACTION DATE: JULY 10, 2012 RECOMMENDATION: 1. It is recommended the City Council, acting as the Successor Agency to the dissolved Redevelopment Agency approve (under protest) the payment obligation required by the Department of Finance (DOF) of $472,895 be paid as follows: • $132,835 from the Low/Mod Housing Fund reserves • $340,060 from the June 1st ROPS distribution that was to be used for July through December debt payments. 2. It is recommended the City Council approve the appropriation of $30,000 from the General Fund for initiating legal action. Considerable staff time can be expected if litigation is pursued. IMPACT ON FINANCIAL AND PERSONNEL RESOURCES: Staff is requesting an appropriation of $472,985. The amount of $132,835 will be paid from the Low/Mod Housing reserve funds and the remaining $340,060 will be paid from the Successor Agency to the Former RDA Fund. In addition, staff is requesting an appropriation from the General Fund of $30,000 to pursue legal action. CITY COUNCIL APPROVAL OF COMPLIANCE WITH AB 1484 JULY 10, 2012 PAGE 2 BACKGROUND: On December 29, 2011, the California Supreme Court upheld the validity of AB 1x26, the bill that dissolved all redevelopment agencies in the State. On June 27, 2012, the Governor signed AB 1484, which clarified that property tax distributed to redevelopment agencies in December 2011 should have been subject to distribution through the AB x1 26 mechanism. To accomplish the correct distribution of funds anticipated in AB x1 26 and as clarified in AB 1484 the DOF has stated that no later than July 9, 2012, county auditor-controllers are required to notify each successor agency of the "residual" amount it still owes to affected taxing entities (ATEs), if anything, pursuant to HSC section 34183 (a) (4) for the period covered by the January 2012 to June 2012 ROPS, after the payment of property tax-funded enforceable obligations and agency administrative costs that were approved by the DOF. ANALYSIS OF ISSUES: The County of San Luis Obispo Auditor Controller's office was under the assumption that while ABX1 26 was still before the Supreme Court and could potentially be overturned, to make the December distribution under the old Health & Safety Code since the RDA was still in existence. This distribution was made directly to the Arroyo Grande RDA and did not go through the Redevelopment Property Tax Trust Fund (RPTTF) since it did not exist at the time. The Arroyo Grande Redevelopment Agency (RDA) received the tax increment payment on December 20, 2011. The money was then put into the RDA's reserves and the RDA's debt was paid from that fund as per usual. The Successor Agency filled out the January through June 2012 ROPS to show the "source of payment" as coming from reserves to reflect what actually occurred. Staff was never advised by anyone reviewing the ROPS that this needed to be changed to reflect what should have happened according to the statute (to deposit into the RPTTF, which had not yet been created) rather than what mechanically took place with the transfer of the funds. The DOF has now determined that because the ROPS stated that the payment for the debt was coming from reserves and not the RPTTF that all of the tax increment that the RDA received in December must be returned to the County for redistribution. The County notified the Successor Agency that the true up amount is $472,895 and is due by Thursday, July 12, 2012. Health & Safety Code 34183.5(b)(2)(C) states that failure to make this payment will subject the successor agency to a civil penalty of 10 percent of the amount owed plus one and one-half percent of the amount owed for each month that the payment is not made. Additionally, the City that created the RDA is also subject to the same penalties. CITY COUNCIL APPROVAL OF COMPLIANCE WITH AB 1484 JULY 10, 2012 PAGE 3 ALTERNATIVES: The following alternatives are presented for consideration: - The City Council, as the Successor Agency to the dissolved Redevelopment Agency, approve (under protest) the payment obligation of$472,895 be made to the County on July 12, 2012 from a combination of Low/Mod Housing reserve funds and Successor Agency to the former RDA funds, and the City Council approve the appropriation of$30,000 for litigation costs from the General Fund; - The City Council approve (under protest) the payment obligation of $340,060 be made to the County on July 12, 2012 from the General Fund, approve a loan agreement between the City and the Successor Agency to the former RDA and appropriate $30,000 for litigation costs from the General Fund and the City Council as the Successor Agency to the former RDA approve the appropriation from the Low/Mod Housing reserves of $132,835 be paid to the County on July 12, 2012; - Do not approve any payment and be subject to the penalties described by the DOF; or - Provide staff other direction. ADVANTAGES: Approval of the true up payment will protect both the City and the Successor Agency from penalties imposed by the DOF. DISADVANTAGES: Using the June 1st tax distribution •for the payment obligation may cause the Successor Agency to go into default on the bond payment that is due on August 15, 2012. ENVIRONMENTAL REVIEW: No environmental review is required for this item. PUBLIC NOTIFICATION AND COMMENTS: This item was not posted as it came to City staff's attention after the agenda was posted.