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State challenges local redevelopment budgets

MCCAIG/istockphoto.com Riverside's redevelopment budget is among about two dozen challenged by the state so far.

In the flurry surrounding the end of redevelopment, 60 state Department of Finance officials are scouring local redevelopment budgets to determine whether their claims about existing debts and obligations are legal.

Cities and other local entities that are overseeing the shutdown of redevelopment agencies were required to submit a list of their ongoing financial commitments by April 15. Now, the department has a three-day window to raise objections. Of the budgets it has reviewed so far, the department has challenged almost two dozen, including budgets from the cities of Riverside, Orange and San Leandro.

The department’s review could have serious effects on the state budget and local agencies, including school districts and counties.

Gov. Jerry Brown estimated that $3.6 billion would be distributed to local agencies over two years as a result of dissolving redevelopment agencies, offsetting $1.7 billion in state general fund costs.

Additional property taxes that previously were given to redevelopment agencies could be redirected to local coffers. But if the ongoing financial commitments of the now-defunct redevelopment agencies consume the bulk of the property taxes, then there won’t be any money left to reallocate, at least in the short term.

Many of the Department of Finance’s objections to local budgets might stem from uncertainty about the law and pending legislation.

Riverside and San Leandro were challenged on loans those cities made to their former redevelopment agencies. As California Watch reported previously, cities and counties have loaned more than $4 billion to their redevelopment agencies over the past few decades, but according to the law governing how agencies will be dissolved, they might not be able to recover that money.

SB 1585, a bill introduced this year by state Assembly Speaker John A. Pérez, D-Los Angeles, would allow cities to recoup loans made to their former redevelopment agencies. The bill passed the Assembly last month and is now in the Senate.

All told, the Department of Finance is questioning more than $150 million of expenditures listed by the city of Riverside. The city did not respond to a request for comment in time for publication.

The city of Orange has to shave about $142,000 off its administrative costs before it's within the legal limit, according to the Department of Finance letter sent to the city.

Lisa Kim, acting economic development manager for Orange, said the city has submitted additional documentation that it hopes will resolve the issues. “We were probably one of the first agencies that tried to meet their timeline. It’s still an evolving process for the state and for communities.”

If the process to wind down the agencies had started in July, as originally intended, the local budgets would have been reviewed by county auditors before they were submitted to the Department of Finance, but due to legal action, the process was delayed. The additional step would have helped ensure that the local budgets were reported accurately.

The Legislative Analyst’s Office suggested that the Legislature amend the law so that any findings by county auditors could be made to the budgets at a later date. The Legislature has not yet taken any action.

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