Culver City Observer -

By Lynne Bronstein

Observer Reporter

Culver City has some financial issues to work out after being hit with a difficult appeal decision by the California Department of Finance (DOF) on October 31.

The Superior Court had ordered the Los Angeles County auditor-controller’s office to make a payment of $10,473,745 to the city on October 27. But the DOF’s filed appeal stayed the execution of that payment, resulting in the Successor Agency being $1.7 million short of being able to pay into the city’s $229 million in outstanding redevelopment debt.

The problem stemmed from a disagreement between Culver City and the state on the repayment of a $12.5 million loan by the former Redevelopment Agency (RDA) to the city in 2011, just before the dissolution of redevelopment agencies in 2012. The DOF claims that the Culver City RDA transfer was illegal.

Culver City CEO of Finances Jeff Muir offered further explanation of this complicated story:

“In June of 2011, the legislature adopted AB26 to dissolve redevelopment agencies in California. They also adopted AB27 at the same time, which allowed RDA's to continue to exist if they 'opted in' and agreed to make a big one-time payment. “

Culver City’s RDA opted for the payment, also filing litigation to challenge the legality of AB26 and AB27.

Said Muir: “During these summer and fall months of 2011, the thought of RDA's was that either they would be successful in the litigation and both bills would be struck down, allowing RDA's to continue normal existence, or the bills would be upheld but those that had opted in to AB27 would still be able to continue to exist.”

In October 2011, “The City and RDA approved an agenda item allowing a $12.5 million cash advance from the City to the Agency, with repayment by the end of December 2011. The cash was advanced by the City, the debt service was paid on November 1, and the RDA paid back the cash advance in late December.”

However, in December 2011 a ruling came that upheld AB26, thereby eliminating all RDAs, and striking down AB27, eliminating the one-time fee payment option.

Muir continued: “The new Successor Agency that took over the wind-down of the former RDA had to request money in six-month increments on a Recognized Obligations Payment Schedule (ROPS) and also report exactly how money was spent during each six month period. When the Culver City SA submitted its ROPS request for the January 1, 2013 through June 30, 2013 period (ROPS III), we had to report how money was spent during the ROPS I period of January 1, 2012 to June 30, 2012.

“ In order to account for the tax increment attributable for that period, the $12.5 million repayment of the cash advance was included on the schedule. The LA County Auditor-Controller (AC) and the Department of Finance (DOF) decided that this was an illegal transfer and reduced our allocation of property tax, distributing the amount to the various taxing entities.”

The debt service payment of about $15 million was due on November 3. “The Successor Agency used all cash on hand towards the debt service payment, but was still about $1.7 million short. Funds on hand with the bond trustee were used to make up the difference.”

However, other enforceable obligations of the successor agencies aren't being paid.

The Successor Agency owes money to a developer for a disposition and development agreement, and owes also for a settlement agreement, worth $400 million, with another developer.

Muir said that except for the bonds nothing else on the recognized obligation payment schedule is getting paid at this time.

"This has also caused our debt rating to drop to BBB-minus [from Standard & Poor's], which is preventing us from proceeding with a refinancing where the present value savings that would be passed on to taxing entities meet or exceed the amount of the dispute."

Muir notes that “the Successor Agency has a myriad of other debts and obligations that are going unpaid as a result of these adjustments. Fortunately, to this point, we have been able to protect bondholders. It is utterly ridiculous that the City should send $12.5 million of taxpayer money to the Successor Agency, when more than adequate tax revenues of the former agency exist to pay the necessary obligations. The State is looking to enrich itself off of the back of the City.”

As for how this might affect the next budget, Muir said “At this point, there is no anticipated effect on the budget. In a worst case scenario, if we were to lose in court, the repayment would have to occur out of General Fund reserves. This would weaken the City's financial position, and take away monies that could ultimately be used for infrastructure or facility investments.”

The Successor Agency expects to prosecute the DOF appeal.