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Handful of Cities Refuse to Serve as RDA Successor Agencies (Updated)

Josh Stephens on
Jan 31, 2012

Among the roughly 400 redevelopment agencies that will shut down tomorrow, the vast majority have effectively elected to dig their own graves. That was one of the stipulations of AB X1 26, that cities may serve as their own successor agencies, which will oversee the wind-down of operations, liquidation of assets, and payment of outstanding obligations. 

At least a handful of cities, however, have indicated that they want no part in what many consider an unfortunate process. The Los Angeles City Council very publicly voted not to serve as successor agency for the Los Angeles Community Redevelopment Agency. That vote was based in part on a city report that indicated that overseeing the shutdown of the state's largest RDA could cost the city up to $130 million -- more, by far, than the entire annual budgets of many redevelopment agencies. 

In addition, the cities of Los Banos, Merced, Pismo Beach, Riverbank, and Waterford have all taken similar action as of last week. If a city opts out, then any other taxing entity that is affected by a city's redevelopment tax increment can volunteer to be successor agency. Most likely, this entity would be the county, but it could also be a school district or other special district. Thus far, no such entities have volunteered to take over. As such, the state Department of Finance will appoint an oversight board for each agency so abandoned. 

Of the cities that have opted out, some were simply indifferent to the whole process. 

"We didn't see a lot of benefit to the city to being the successor agency," said Riverbank city manager Pam Carder. "I know that we would get a little bit of money for administration, but the amount of work that was required for that money we just didn't see any benefit."

The city councils of Pismo Beach and Bishop felt similarly. 

"We have no blight and we have no bonded indebtedness," said Pismo Beach mayor Shelly Higginbotham. "It would become much more expensive for the city to take on that duty." Bishop assistant city clerk Denise Gillespie said that the city's redevelopment agency had been essentially dormant for over ten years and had "zero money;" it was dissolved Jan. 9. 

Carder said that serving as successor agency would not save anyone's job either, since the city does not employ full-time redevelopment staff people. "It didn't affect our budget because we have no staff people that are being paid for out of redevelopment," said Carder. 

The City of Merced, however, had deeper concerns. 

"We felt that there was not enough clarity in the legislation to hold the successor agency harmless," said Merced city manager John Bramble. Bramble noted that, in part because AB X1 26 was passed hastily last year, legislators may have inadvertently left out language that legally protects cities that serve as successor agencies. "The Legislature cannot go backwards and determine what their legislation intent was.  Both AB 26 and AB 27 were approved at the end of the session…we found nothing that there was no liability to being successor agency." 

Bramble said that the city, which has been famously devastated by the recession and housing collapse, did not have the financial resources to defend against litigation that could arise in the course of dissolution. Being held liable, he said, would be even worse. So the city was happy to shift both the burden of dissolution and the associated legal responsibilities to a successor agency. 

Bramble said that, as in Los Angeles, Merced's City Council was also concerned about the cost of dissolving the RDA. Although AB X1 26 provides for some administrative costs, Bramble said "the amount of funds that are available to unwind the RDA assets does not even come close to what we have in terms of staff resources or cost" and that Merced's full-time city is obligated to the City Council, not to a potentially all-consuming special project. 

Merced's approach does not, however, mean that it isn't reasonable for hundreds of other cities to accept the burden of serving as successor agencies. In many cases, creating a successor agency temporarily salvages the jobs of at least some RDA employees. As well, cities have an interest in making sure that successor agencies use a light touch when liquidating assets. 

"There's always the desire to maintain control," said Bramble. "If they have a project that isn't quite finished and they're not quite sure where it stands, they're going to want to make sure it's done right." 

Many cities, however, may not have made such measured calculations. Cities had only two weeks to decide on whether to serve as successor agencies, and those that may not have been certain were automatically opted-in under AB X1 26. By contrast, cities like Los Angeles and Merced took pains to understand what that choice entailed. 

"We dropped everything for the next two weeks," said Bramble. "I involved city attorney, the finance office, my office, and economic development and RDA staff to go through absolutely everything."

With that decision made, it is now up to the state to assign three-member oversight boards that will serve as successor agencies, unless any other taxing entity shows interest by Feb. 1. In some cases, relatively obscure taxing entities could have stepped up if they so chose.

"If a city declines, then it's up to one of the other taxing entities to decide whether they want to become the successor agency, and if none of them step into that, then it goes to the state," said Jim Kennedy, interim executive director of the California Redevelopment Association. 

For instance, the Merced Redevelopment Agency could, potentially, be succeeded by the Merced County Mosquito Abatement District. Not that it would choose to take on that task. 

"There's not a lot of rewards to being a successor agency," said Marty Coren, a consultant and head of a California Redevelopment Association committee that is studying the RDA transition. 

UPDATE: 

The morning of Feb. 1 Gov. Brown named twelve individuals to serve on four governing boards--one for each county with cities that opted out--responsible for dissolving local redevelopment agencies. The governing boards' rosters can be found here, on Gov. Brown's website.