The California Department of Finance is resisting the city of Chino’s efforts to stake a claim to a significant portion of the redevelopment funding it was forced to give up by the state of California last year.
Redevelopment agencies are, or were, adjuncts to local government intended to eliminate blight by encouraging economic development. Redevelopment agencies were empowered to issue bonds and use the proceeds from the sale of those bonds to create infrastructure or undertake improvement projects within a designated redevelopment project area. That infrastructure was intended to spur development and eradicate blight, thereby increasing the value of the property in and around the project area. The increase in property tax realized as a consequence of the improvements would then theoretically be utilized to debt service the bonds, i.e., make annual payments over a period of time – usually 20 to 30 years – to the bondholders. In other cases the redevelopment agencies would borrow money from the governmental entities that created them.
Last year, Governor Jerry Brown induced the state legislature to pass a law, ABX1 26, that called for the elimination of redevelopment agencies and for money normally passed through to them by the state to be utilized for education and law enforcement funding.
ABX1 26 and its companion law, ABX1 27, were challenged by a coalition of cities but upheld by the California Supreme Court and the state’s redevelopment agencies were closed out effective February 1. Part of the legislation shelving the redevelopment agencies called for cities to create for themselves or have the county create for them a successor agency to  oversee and wind down that agency’s functions and dispose of its enforceable obligations by scheduling and executing the payments needed to discharge those obligations. The legislation also called for an oversight board to work in concert with each county’s auditor-controller and the California Department of Finance to oversee the successor agency through the dissolution process.
In April, after dissolving its redevelopment agency, Chino in compliance with the protocol laid out by the state, held a meeting of its redevelopment successor agency. That successor agency, taking stock of the consideration that the city of Chino had made more than $15 million in loans to its redevelopment agency for improvements in its redevelopment agency project areas, in April submitted to the state Department of Finance a recognized payment schedule for the first half of 2012 that called for the successor agency to begin retiring the debt on more than $15 million in promissory notes issued by the Chino Redevelopment Agency and held by the city of Chino.
Earlier this month, on May 16, the board for Chino’s  successor redevelopment agency followed up on its April action, and again submitted to the state a recognized obligation payment schedule for the second half of 2012 that cited payment on the promissory notes as an outstanding obligation.
The Department of Finance, according to Jeff Oderman, an attorney for the Chino redevelopment successor agency, has rejected the approved list, holding that loans made to the redevelopment agency by the city that founded it are, with the dissolution of the redevelopment agency, invalid debts.
Chino is not alone among California cities in asserting it has a legitimate claim to be repaid for money it loaned to its now-defunct redevelopment agency. Chino appears to be leading the way among San Bernardino County cities in seeking to recover its loans, and other municipal officials are following the case. Either independently, or in concert with several other cities, Chino may file suit against the state to force the refunding of money in the form of loans made in the past.
According to a number of attorneys, the promissory notes from the Chino Redevelopment Agency held by the city of Chino, like many other debts pursuant to loan arrangements involving other cities and  their respective redevelopment agencies, are enforceable under ABX1 26. ABX1 26 requires that any legal challenges to it take place in Sacramento Superior Court. That provision of the law was, ostensibly, intended to save the state the expense of having to send its lawyers into court in 58 different locations to respond to potential lawsuits. It also has the effect of making it expensive, perhaps prohibitively so, for cities to pursue such litigation. In this way, the state is calculating that most cities will elect to “write off” the loans.
Simultaneously, a move is on to apply a legislative fix to the dilemma. Assembly Bill 1585 would clarify a standard protocol for cities to collect on debts owed to them by their former redevelopment agencies. Governor Jerry Brown, who was the prime mover in the effort to shutter redevelopment agencies statewide with ABX1 26 and ABX1 27, is opposed to AB 1585 and is marshalling the Democratic Senate Leadership to kill the bill.