In the confusion following the end of California redevelopment agencies in February, an estimated $2 billion in the hands of local officials is in limbo.
Before redevelopment agencies were dissolved, the state Department of Finance was responsible for reviewing budgets for the 400 now-defunct agencies to ensure spending was limited to the legal requirements. But about half of those budgets – which originally covered September through December and were extended through June – never received a careful review when they were submitted in August.
If there hadn't been a delay in dissolving redevelopment agencies or they had been able to continue operating, it might not have mattered. But now each successor agency has to submit retroactive budgets covering Jan. 1 through June 30 to the Department of Finance by April 15.
Before they were dissolved, redevelopment agencies received an estimated $2 billion in property taxes in late December and early January. Some of that money should have gone to other local agencies, such as school districts and the county, but it's unclear how much, said the Department of Finance.
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Once it has been calculated, the department plans to deduct that amount from the property taxes distributed in June. But if the successor agency has already spent the money and the state disagrees with the payments, it's unclear whether it can force local agencies to pay it back.
Department of Finance officials said that in an ideal world, they would have reviewed the draft budgets when they were submitted back in August. At the time, many of its staffing resources were dedicated to reviewing plans that would have allowed redevelopment agencies to continue operating, an option that was ultimately struck down by the state Supreme Court in December, said H.D. Palmer, a department spokesman. The department did not request additional staff to conduct the reviews of draft budgets.
Schools, counties and other local taxing agencies have a big stake in how redevelopment money is spent. They receive funds only after the agencies’ required payments are made.
The Department of Finance estimates that it has sent about 20 notices to local agencies challenging expenditures in their budgets. Even though the official window during which the department could challenge the budgets has passed, it is still alerting agencies about problems it found in an effort to avoid disputes.
Marianne O’Malley, an analyst at the Legislative Analyst's Office, said the Legislature never envisioned that most redevelopment agencies would be dissolved. When the courts struck down a voluntary option that would have allowed redevelopment agencies to continue, not having closely examined all the budgets back in August suddenly became important, she said.
Gov. Jerry Brown estimated that $3.6 billion would be distributed to local agencies over two years as a result of dissolving redevelopment agencies, but his estimate requires that the costs associated with dissolving redevelopment agencies be limited to the bare minimum. It assumed that redevelopment agencies would reduce their spending after the Legislature passed a dissolution plan in June, but a review by the analyst’s office found the opposite – spending was the same or higher than in previous years.
Beginning this spring, spending oversight by the local successor agencies charged with dissolving redevelopment agencies’ assets won’t fall solely to the Department of Finance.
Local oversight boards, which include representatives from school districts and the county, have to approve all payments, and the county auditor-controller must ensure the budgets are accurate. In addition, the Department of Finance will have a short window to review the new budgets submitted this spring and can overrule any decisions made at the local level. The department said it has assigned 22 staff members to review budgets.