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HomeMy WebLinkAboutIntent to Pay SERAF & Suspend the 09/10 Deposit to Housing-Set-AsideCITY OF PALM DESERT/ PALM DESERT REDEVELOPMENT AGENCY JOINT CONSIDERATION REQUEST: SUBMITTED BY: DATE: Recommendation: STAFF REPORT AUTHORIZATION TO NOTIFY THE COUNTY AUDITOR OF THE AGENCY'S INTENT TO PAY SUPPLEMENTAL EDUCATIONAL REVENUE AUGMENTATION FUND (SERAF) FROM AGENCY FUNDING SOURCES AND AUTHORIZATION TO SUSPEND THE 2009-10 DEPOSIT TO HOUSING SET -ASIDE VERONICA TAPIA, REDEVELOPMENT ACCOUNTANT OCTOBER 8, 2009 By Minute Motion, that the: 1) City Council directs the City Manager, or his designee, to notify the County Auditor of the Agency's intent to pay 2009-10 SERAF from Agency funding sources; 2) Agency Board authorizes staff to suspend the 2009-10 Housing Set -Aside deposit in order to offset costs of the 2009-10 SERAF shift. Executive Summary: Approval provides authorization to notify the Auditor -Controller of the Agency's intent to pay SERAF from any legally available funding sources of the Agency. Additionally, it will permit staff to suspend the 2009-10 deposit to the Housing Set -Aside fund in order to offset costs of the 2009-10 shift to SERAF. The suspension will be considered a loan and must be repaid by June 30, 2015. The Agency will not remit any SERAF payment to the County until it is required to do so. Discussion: On July 28, 2009 the Governor signed Assembly Bill 26 4X (AB 26) to address the fiscal emergency declared by the Governor on July 1st. AB 26 amends Health and Safety Code Sections 33334.2 and 33688, requiring redevelopment agencies to shift $2.05 billion in property tax increment revenues to the SERAF for K-12 schools and G:\rda\Veronica Tapia\Word Files\Staff Reports\Staff Report-SERAF.doc Staff Report Approval of SERAF Funding Source Page 2 of 3 October 8, 2009 community colleges during the 2009-10 and 2010-11 fiscal years. By May 10th of each year, the Agency is required to make the SERAF payments, which are estimated to be $25,502,408 and $5,250,496 for each year respectively. Health and Safety Code Section 33681.9 (d) requires the legislative body (the City) to report to the County Auditor by March 1, 2010, as to how the Agency intends to fund the required SERAF payment, or if the legislative body intends to make the payments in lieu of the Redevelopment Agency. Within AB 26, there is a provision by which the Agency has the option to suspend the 2009-10 Housing Set -Aside contribution in order to provide assistance in meeting the required SERAF shift in that year; however the suspension would then be considered a loan that would need to be repaid by June 30, 2015. The Agency typically prepares a five year financing strategy. Included in the strategy for 2009-10 through 2013-14, is a provision for an annual Educational Revenue Augmentation Fund (ERAF) payment in an amount equivalent to the State's most recent shift of funding from Redevelopment. However, the Agency could not have anticipated that the amount required for the 2009-10 SERAF shift would be over five (5) times the amount programmed annually. Following much consideration and analysis of the Agency's financing strategy; it appearsthat the Redevelopment Agency's goals would be best served by suspending the 2009-10 Set -Aside contribution. This will provide the Agency with more flexibility in responding to the immediate needs of the project areas. In terms of overall funding availability, this suspension is merely a way to amortize a portion of the 2009-10 SERAF payment in order to actively manage cash flow. Ultimately, the suspension does not provide additional funding to the Agency. The suspension of Set -Aside funds, estimated at approximately $17 million based on preliminary projections from the County of Riverside Auditor -Controller, would provide an amortization similar to what was originally anticipated on an annual basis for an ERAF shift. Based on conservative revenue projections and current expenditures/approved projects, repayment of the loan can be facilitated prior to the June 30, 2015 deadline. Last year the California Redevelopment Association (CRA), on behalf of all redevelopment agencies, prevailed in court when the State of California unsuccessfully attempted to take a $350 million ERAF shift, which was ultimately deemed unconstitutional by the judgment rendered in the Sacramento Supreme Court. CRA once again, anticipates filing a lawsuit in an effort to thwart this shift, as well as future G:\rda\Veronica Tapia\Word Files\Staff Reports\Staff Report-SERAF.doc CITY COUNCILACT'ION APPROVED DENIED RECEIVED OTHER MEETI G DATE;r sr/0 _ '— 07 AYES: 'i1507 �/. h/?ef✓3i Xellf r Sp/eye/ NOES: NO), ABSENT: A(4)/� ABSTAIN• N/�? VERIFI� BY: Original Fil th Cy/Ier�CL's-;nice McCarthy, ACM¢velopment ‘-‘ 4»LA M. Wohlmuth Executive Director BY RDA 5 ON /O c-69 Staff Report Approval of SERAF Funding Source Page 3 of 3 October 8, 2009 re -appropriations from Redevelopment under the same assertion that these shifts of tax increment funds are unconstitutional based on California Redevelopment Law. In addition to the lawsuit, viable alternatives are being sought by the League of California Cities, CRA, as well as the Redevelopment Agency to curtail the State's propensity to shift Redevelopment funds. The Health and Safety code provides that Set -Aside apportionments must be immediately deposited into the Housing Fund upon receipt of tax increment. The Agency anticipates receiving supplemental tax increment payments in the near future. Therefore, in order to suspend the 2009-10 deposit to the Housing fund, staff is recommending this action be taken immediately. If the lawsuit or any alternative proves to be successful, the Agency would immediately remit amounts due to the Housing Set -Aside fund. The 2009-10 SERAF payment is due to the County by May 10, 2010. The Agency will not remit payment to the County until that time, pending the outcome of any legal determination. In order to meet the requirements as set forth in the Health and Safety Code, staff is recommending that the City Council direct the City Manager, or his designee, to notify the County Auditor that the Agency intends to make the required SERAF payment from any legally available funding sources of the Agency. Staff is also recommending that the Agency Board authorize staff to suspend the 2009-10 Housing Set -Aside deposit in order to offset the potential cost of the 2009-10 SERAF payment. Submitted by: eronica Tapia Redevelopment Accountant Approval: Janet More, Director of Housing Paul S. Gibson, Director of Finance VERIFIED BY /et)k/11C�v'J J G'\rda\Veronica Tapia\Word Files\Staff Reports\Staff Report-SERAF doc Original on file with City Clerk's Office