Department Of Finance Denies Request To Recognize Former Obligations

By Sean Belk - Staff Writer

June 5, 2012 – The latest attempt by Long Beach city officials to retrieve nearly $100 million in loans paid to the city’s former redevelopment agency (RDA), in addition to various other obligations, has so far been deemed unenforceable by state officials.

The loans that the city paid to its RDA to launch the downtown project area in the early 1970s was to be paid back over time. But, the state’s new redevelopment dissolution law, AB X126, which put an end to nearly 400 redevelopment agencies across the state on February 1, now voids all obligations between former RDAs and local governments.

City officials and a contracted law firm, however, contend that the loans made to establish the downtown project area and pay for payments on the CityPlace parking structure, in addition to other obligations, are still enforceable. If not honored, the property tax increment funds would be dispersed to schools, Los Angeles County and other taxing entities that the city believes are not entitled to the money.

The Port of Long Beach, which was owed about $41 million from the former RDA to pay for upgrades to the Long Beach Entertainment & Convention Center and bonds for the Aquarium of the Pacific, has already decided to take a loss.

In the last few months, city staff has been in discussions with the state department of finance to approve a list of payments, called the recognized obligations payment schedule (ROPS), to be dispersed for six-month periods – from January 1 through June 30 and July 1 through December 31.

Successor agencies to former RDAs had until June 1 to turn in their ROPS. County auditor-controllers are now expected to start dispersing property tax increment funds to various taxing agencies, including the city, under the state’s new law.

Long Beach’s initial ROPS included the city-to-RDA loan repayments and other obligations. But the state department of finance ordered the Long Beach RDA’s successor agency, made up of the Long Beach City Council, to remove the item from the ROPS, claiming they “do not meet the characteristics of an enforceable obligation.”

Law firm, Rutan & Tucker, LLP, retained by the city to assist in administering the RDA dissolution, however, disputes the state’s assertion, adding that redevelopment funds being “swept” to other taxing agencies will result in “accounting problems, confusion, potential offsets of funds owning to the taxing entities at a later date and even litigation.”

Robert Zur Schmiede, deputy director of Long Beach Development Services, said the city has so far removed the items from the ROPS, which was officially approved by the state department of finance, according to an approval letter filed on May 25.

But he said the city is still reserving its right to challenge the action at a later date, adding that there is still pending legislation that may resolve the disputes and possible forthcoming lawsuits. Under the dissolution act, successor agencies have the right to come back with more evidence to put items on the ROPS as enforceable obligations.

“We agreed to remove the items that they objected to under protest,” Zur Schmiede said. “We’re reserving our right to argue further, perhaps in a different venue . . . It goes back to the fact that these loans were legitimate when they were made. The state comes along decades later and passes a law that invalidates them . . . I’m sure there will be additional discussion and, more than likely, some litigation over this.”

Meanwhile, a Sacramento Superior Court judge has recently denied a preliminary injunction filed by Palmdale, Glendale, Culver City, Huntington Beach, National City, Imperial Beach, Palmdale, Inglewood and Hayward to put a temporary “restraining order” on property tax increment allocations.

The injunction was filed to give cities and counties more time to sort through legal determinations, prevent possible bond defaults and stop funds from going to other taxing agencies that aren’t deserving of the funds. The judge claimed that cities and counties, however, haven’t shown any evidence that they would be financially damaged or default on existing obligations.