Moving on to six years after Sacramento forced the closure of county and municipal redevelopment agencies throughout the state, in so doing seemingly foreclosing upon Chino’s ability to recover approaching $16 million in loans it had made toward the goal of urban renewal, city officials are doggedly pursuing one last avenue available to them for getting the money it is out back.
The fifth of San Bernardino County’s current 24 cities to incorporate in 1910 and having now grown in population to more than 81,000, making it the county’s eighth-most populous jurisdiction, Chino is nevertheless following in the footsteps of much younger and much smaller Twentyine Palms, the 20th city in the county to incorporate in 1987 and at present the county’s seventh smallest city, with a population of just under 26,000.
That is because Twentynine Palms was among the more intrepid and determined of California’s cities in prolonging its redevelopment authority.
Redevelopment agencies existed as adjuncts to municipal governments, and were chartered to use a variety of financing mechanisms to eliminate blight and spur economic growth. A primary approach of redevelopment agencies was to use of their governmental authority to issue and sell bonds to investors, and then use the revenue from those bonds to raze unsuitable buildings and dwellings, create or improve infrastructure, in some cases restore historic features and structures, enhance landscaping, and expand government services in an effort to trigger development to supplant blight. The increase in property tax yielded as a consequence of the improvements within a particular redevelopment area, referred to as tax increment, would then be utilized to debt service the bonds. Like nearly everyone of the state’s 482 cities and all but one of its 58 counties, Chino and Twentynine Palms had active redevelopment agencies. In the case of Twentynine Palms, it had undertaken Project Phoenix, a redevelopment project which was to utilize $12 million in tax allocation bonds to construct a community center, a 250-seat theater, classrooms, a civic plaza, a park, a paseo, residential units, a wastewater treatment plant, and improvements to the downtown fire station. Chino, as part of its redevelopment effort in the late 1980s and early 1990s, instead of issuing bonds, had loaned more than $15 million of the city’s reserves to its redevelopment agency to undertake a host of improvement projects including infrastructure enhancements aimed at eliminating blight and jumpstarting renewal projects within the community.
Redevelopment efforts were brought to a screeching halt in 2011, however, when the legislature passed AB X1 26 and AB X1 27, which shuttered all of the state’s redevelopment agencies, and called for the rerouting of redevelopment money to law enforcement and education efforts.
A coalition of cities fought the law, but the state Supreme Court upheld the legislation. While 317 of the state’s 482 incorporated cities went along with the new law without question and shut down their redevelopment agencies, 165 cities resisted the state on the issue. That resistance ranged from registering relatively mild protests to filing lawsuits against the state and its Department of Finance, which is the entity designated under the law to make a determination with regard to how the money that was in the possession of the former redevelopment agencies is to be disbursed.
In San Bernardino County, four cities – Twentynine Palms, San Bernardino, Rancho Cucamonga and Chino – made efforts to preserve a vestige of their redevelopment authority. Those efforts were made with varying degrees of vigor and met with similarly varying degrees of success and failure.
Twentynine Palms made the most energetic effort, daringly pushing ahead with Project Phoenix, based upon Twentynine Palms City Attorney A. Patrick Muñoz’s assertion that the project had been initiated prior to AB XI 26 and AB XI 27 going into effect. According to Muñoz, the state law ending redevelopment function was trumped by federal securities regulations, meaning the money the Twentynine Palms Redevelopment Agency bonded for in 2011 must be utilized only for the purpose that bondholders were told the money would be applied toward. The redevelopment agency-disbanding legislation had called for the creation of locally composed bond oversight boards to guide the proper disbursement of the leftover redevelopment funds. Muñoz formulated a strategy by which Twentynine Palms’ bond oversight board recommitted the bond money to the Phoenix project. When the state Department of Finance used its authority to disallow the recommitment, the city appealed and when that appeal was turned down, filed legal action in Sacramento Superior Court, the venue where the legislation required any litigation pertaining to cities’ use of redevelopment money had to be filed. The case was heard by Sacramento Superior Court Judge Michael P. Kenny.
Muñoz asserted in filings with the Sacramento Superior Court that the non-taxable bonds issued in 2011 created specific obligations between the city, as the issuer, and the bond purchasers, and as such were enforceable obligations and any use of the money for a purpose other than what the city had specified in marketing the bonds to the bond buyers would constitute fraud.
The state Department of Finance in December 2013 told Kenny that the Twentynine Palms Redevelopment Agency, like several others, “rushed to encumber future tax increment revenues” ahead of their legislated demise in December 2011. The department alleged that in March 2011, Twentynine Palms “conceived, authorized, issued and sold” $12 million in tax allocation bonds for the Project Phoenix downtown development and an affordable housing plan without contracts to build or a definite plan for spending the proceeds.”
Ultimately, however, Kenny ruled against the Department of Finance in April 2014 and granted the petition for a writ of mandate on behalf of the City of Twentynine Palms as successor agency, allowing the city to utilize the bond money for the fulfillment of Project Phoenix. In June 2014, the Department of Finance filed an appeal of Kenny’s ruling.
The Department of Finance suffered multiple setbacks with regard to several cities’ efforts to control the spending of redevelopment agency money appropriated in 2011. On May 14, 2015, the department sent a letter to several cities, Twentynine Palms among them, announcing it was throwing in the towel on opposing the cities’ moves to preserve their last remaining redevelopment agency projects.
At stake in the case involving Twentynine Palms was the more than $10 million of the $12 million in bond proceeds for Project Phoenix which was yet to be spent and which the city is now applying toward completing the project.
The May 14, 2015 letter stated, “Consistent with recent appellate decisions, the Department of Finance will no longer seek to reverse lower court rulings upholding ‘reentered’ agreements that oversight boards authorized between Feb. 1, 2012 and June 27, 2012,” the letter, dated May 14 from California Department of Finance Program Budget Manager Justyn Howard, stated. “Accordingly, Finance will comply with applicable court orders and has instructed the [California] Attorney General’s Office to cease litigation on this issue.”
While the City of Chino had also refused to back down in the face of the state’s effort to commandeer its redevelopment money, it was far less bold in moving to secure the money. It did, however, in April 2012, submit 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. In May 2012, the redevelopment successor agency followed up on its April action, and 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, rejected the approved list, holding that loans made to the redevelopment agency by the city that created it were, with the dissolution of the redevelopment agency, invalid debts. That flew in the face of the theories propounded by a number of municipal attorneys, including Oderman, which held that promissory notes, such as those from the Chino Redevelopment Agency held by the city of Chino, were enforceable under AB X1 26 and AB X1 27. Chino then threatened its own litigative remedy in Sacramento Superior Court. It did not follow up with actual litigation but maintained its claim as being entitled to the reimbursement of the loans.
The city has repeatedly filed with the Department of Finance for permission to recover the debt on promissory notes issued by the Chino Redevelopment Agency between 1989 and 1994, along with interest that has accrued on those loans. The city calculates that debt at $15.94 million.
On November 16, 2006, the city lodged a request with the Department of Finance that it be able to take that money out of the redevelopment agency’s remaining assets. On December 22, 2016, the Department of Finance once again denied that request.
The city council, knocked down, once again got up, dusted itself off and, on January 17, 2017, voted to resubmit a request for the loan reimbursement. On January 18, the oversight committee mirrored that action, preparing to send the request up to Sacramento once again. The oversight committee consists of Chino Mayor Eunice Ulloa and Nada Repajic, both representing the city; Greg Stachura, representing the Chino Valley Unified School District; Steve Heide, finance manager of the Chino Valley Fire District; Tom Ramirez, representing San Bernardino County; and Melanie Siddiqi, representing the California’s community colleges.
If the request is to unlock the nearly $16 million in funding, the city will need to overcome the Department of Finance’s contention that the city has not established that the promissory notes covered third-party contracts it had entered into on behalf of the redevelopment agency.
There indeed appears to be some light at the end of the tunnel. Though it represents a formidable accounting task to reproduce documentation covering a five-year period that began 28 years ago and ended 23 years ago, it is doable, and Chino’s finance director, Rob Burns, has assigned himself and his division to doing just that. Once those documents are in order, they will be forwarded to the California Department of Finance. If the Department of Finance does not clear the way for the debt to be repaid, the city is on track to file suit against the state.