What’s Next for Redevelopment Dissolution

16 Jan

The dissolution of the state’s redevelopment agencies began in earnest around this time last year. Since then, the process of winding down the activities of some 400 former local agencies has been anything but smooth. In spite of lawsuits, temporary restraining orders, and demands for payment, the long march of the post-redevelopment era continues. Here’s what to look for as we enter year two of redevelopment’s dissolution.

More Battles Between Local Governments and the State

At least one of the state’s redevelopment agencies has managed to settle its debts, clearing the final hurdle before officials can shutter the agency once and for all. But not all cities can be as expedient as Willits (in Mendocino County) and many local governments are just now gearing up for some of their biggest fights with the state. Redevelopment dissolution has already sparked a spate of lawsuits and there’s no reason to suspect that year two will bring any reprieve. By the looks of it, the Sacramento County Superior Court is going to be busy.

Moving forward, we can expect to see similar court challenges, especially around demands made by the state that require former redevelopment agencies to fork over large chunks of cash.

The (Not Quite an) Audit of Former Redevelopment Funds

The Department of Finance is asking former redevelopment agencies to cut large checks as a result of due diligence reviews that many agencies have recently completed. The reviews detail what former agency assets are available for distribution to other taxing entities (e.g., cities, counties, school districts, etc.). Predictably, the state’s demands for payment have been met by legal challenges.

Most agencies have completed reviews of their housing and non-housing funds, noting what assets are on hand and whether or not any funds have been committed. Based on information included in the review, the Department of Finance determines what amounts are unobligated and must be surrendered for distribution to local taxing entities. Not surprisingly, some of the state’s determinations regarding what funds are considered “available for distribution to taxing entities” have been challenged by the former redevelopment agencies. The state has handed down determinations for the housing funds already, but final decisions for the non-housing money won’t be available until April 1st.

ROPS Madness

Once the due diligence reviews are completed and submitted to the state, former redevelopment agencies must then pivot to submitting a semi-annual schedule of payments known as the ROPS (Recognized Obligation Payment Schedule). The document lays out the financial obligations of the former redevelopment agencies over a six-month period and must be approved by the state. To date, each redevelopment agency’s successor entity has already submitted three ROPS documents, so the process isn’t new. However, this ROPS period will be the first time that certain obligations that were once disallowed will be eligible for inclusion on the ROPS as an “enforceable” (i.e., state-approved) obligation. Most notably, redevelopment successor entities will be able to list certain city loan repayments as an obligation on the ROPS. To list these new obligations, former redevelopment agencies will need to get a “finding of completion” from the state (more on that below).

Thanks for Paying Up, Here’s a Finding of Completion

After an agency surrenders amounts that are deemed to be “available for distribution” to local taxing entities, then the state will issue a “finding of completion.” That finding allows agencies to plan for property disposition, to repay loans that are owed to the city that formed the agency, and to spend excess bond proceeds. Based on the state’s timeline for making final determinations for the due diligence reviews, we expect findings of completion to start getting doled out in the late spring. After the finding is issued, agencies have six months to create a plan for asset disposition, but we suspect that many will start presenting drafts of their long range property management plans shortly after the findings of completion are issued.

Spending New Revenue

Year two of redevelopment’s dissolution will also leave local taxing entities with newfound revenue. Although many local governments are using the small windfall to fill existing budget gaps, there is momentum to start committing the former redevelopment funds to help finance new vehicles for economic development. In Los Angeles, consultants have proposed using the $20 million or so in former redevelopment funds as “possible seed money” for a citywide effort to make economic development a “high-priority citywide effort” [subscription required].

It’s clear that the task of winding down the affairs of the state’s former redevelopment agencies will continue to be contentious and unpredictable. However, as the process becomes more routinized and as legal challenges are resolved, it is time to consider how former redevelopment funds will be spent. As state and local finances improve, we shouldn’t miss the opportunity to allocate these dollars in a meaningful way.

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