Report Prepared by: Frank Quintero, Deputy City Manager and Director of Economic Development
Title
SUBJECT: Adoption of City of Merced Resolution 2023-57 A Resolution of City Council of the City of Merced Electing to Serve as the Successor Agency to the Redevelopment Agency of the City of Merced
REPORT IN BRIEF
The former Merced Redevelopment Agency was dissolved effective in February 2012 with legislation passed in 2011. The City opted not to be a Successor Agency, and the State formed a Designated Local Authority to close out the business of the former Redevelopment Agency. After nearly 10 years, the Designated Local Authority members desire to transition the closeout to the City of Merced as the Successor Agency.
RECOMMENDATION
City Council - Adopt a motion approving Resolution 2023-57, a Resolution of the City Council of the City of Merced Electing to Serve as the Successor Agency to the Redevelopment Agency of the City of Merced, Pursuant to Health and Safety Code Section 34171(j) and Section 34173.
Body
ALTERNATIVES
1. Approve as recommended by Staff; or
2. Approve, subject to conditions as specified by the City Council; or,
3. Refer to staff for reconsideration of specific items as requested by the City Council; or,
4. Defer action until a specific date; or
5. Deny the request.
AUTHORITY
Charter of the City of Merced, Section 200; and California Health and Safety Code Section 34171(j) and Section 34173.
CITY COUNCIL PRIORITIES
As adopted in the FY 23-24 Budget
BACKGROUND
Dissolution of California Redevelopment Agencies.
Assembly Bill 1X 26 (as amended to date, the "Dissolution Act") and Assembly Bill 1X 27 (the "Alternative Redevelopment Program Act") were enacted on June 28, 2011, to significantly modify the Community Redevelopment Law (Health and Safety Code section 33000, et seq.; the "Redevelopment Law"). On August 11, 2011, the California Supreme Court agreed to review the California Redevelopment Association and League of California Cities’ petition challenging the constitutionality of the Dissolution Act and the Alternative Redevelopment Program Act.
On December 29, 2011, the California Supreme Court ruled that the Dissolution Act was largely constitutional, and the Alternative Redevelopment Program Act was unconstitutional, resulting in the dissolution of all California redevelopment agencies on February 1, 2012. The Dissolution Act provides that the city that authorized the creation of the redevelopment agency shall be the "successor agency" to the dissolved redevelopment agency unless the city elects not to serve as the successor agency under Section 34173(d)(1) of the Redevelopment Law.
Seven cities within the state did not elect to become the successor agency to their respective redevelopment agencies. The City of Merced elected not to serve as the successor agency to the former Redevelopment Agency of the City of Merced (“Former Agency”). As a result, a “Designated Local Authority” (“DLA”) was formed by operation of law to serve as the successor agency to the Former Agency (“Successor Agency”) pursuant to Section 34173(d)(3) of the Dissolution Law. The Governor appointed three residents of the county to serve as the governing board of the DLA. The Dissolution Law states that the DLA shall serve as successor agency until a local agency elects to become the successor agency in accordance with the Dissolution Law.
Funding for the Successor Agency.
Like the Former Agency, the Successor Agency receives funding from property tax revenues. Property tax revenues are referred to in the Dissolution Act as “redevelopment property tax trust funds” or “RPTTF.”
Each January, the Successor Agency prepares a “Recognized Obligation Payment Schedule” or “ROPS” to request funding for the following fiscal year beginning July 1. The ROPS includes “enforceable obligations” permitted under the Dissolution Act, including bond payments and administrative expenses.
The ROPS must be approved by the Successor Agency’s governing board, the Merced Countywide Oversight Board, and the California Department of Finance. Once approved, RPTTF is distributed twice a year for each six-month period of the fiscal year.
Operation of the Successor Agency.
The three members of the governing board of the DLA are Michael Amabile, Jim Sanders, and Cannon Michael. They have each served since 2012 and are not compensated for their time. There are no alternate members of the Board, and if two or more members become unable to serve, the DLA will lack a quorum and be unable to act.
The Merced DLA is staffed by Brian Moncrief and Stephanie Ontiveros of Kosmont Companies. Joy Otsuki of Leibold, McClendon & Mann serves as counsel to the DLA, and Price Paige serves as non-audit staff and the auditors to the DLA. Staff, counsel and the audit and non-audit accounting fees are paid for from RPTTF allocated to the Successor Agency for administrative cost. Los Banos City staff acts as the accounting department for the DLA (primarily maintaining a general ledger for the Successor Agency and paying its bills), and is paid $24,000 per fiscal year from RPTTF to do so. Funding for each of the foregoing can continue to be included in administrative funding if the City elects to act as the Successor Agency.
Status of the Merced DLA and Ongoing Successor Agency Obligations.
As required by the Dissolution Act, the DLA has disposed of almost all its real property (the remainder of the properties are in the process of being transferred to the City, except for the Costco parking lot, which will be conveyed to Costco when the nearby remediation is complete), resolved all litigation, and is close to complete with the remediation of Former Agency-owned properties. Enforceable obligations, except for the bonds, bond-related expenses, and remediation costs, have been satisfied.
The ongoing obligations of the Successor Agency under the Dissolution Act are to prepare and submit an annual ROPS requesting RPTTF funding to pay enforceable obligations, including administrative costs, administer collection of RPTTF and payment of enforceable obligations (which Los Banos City staff already performs), prepare and submit an annual “Prior Period Adjustment” form “PPA”), and comply with FPPC regulations by adopting a Conflict of Interest Code biannually.
Kosmont Companies, Leibold, McClendon & Mann, and Price Paige would continue their respective roles with the Successor Agency. Staff, counsel and the audit and non-audit accounting fees would continue to be paid for from RPTTF allocated to the Successor Agency for administrative cost. If it so desires, the City’s accounting department could replace the City of Los Banos and collect RPTTF, make payments on the bonds and related expenses, and maintain a general ledger and other accounting records for the Successor Agency. City staff could also coordinate with the Successor Agency’s auditors in preparation of the audit of the Successor Agency’s books, required in connection with the bonds, or the City of Los Banos could continue to do so.
DISCUSSION
Benefit to City to becoming the Successor Agency.
Because the City and City Council are government institutions designed to exist in perpetuity, the City is the more appropriate entity to continue as the Successor Agency. The City would be able to see that the Gateways 2015 Tax Allocation Refunding Bonds (“2015 Bonds”), maturing in 2038, will be paid in full in a timely manner. Notwithstanding that the bonds are an obligation of the Successor Agency, and not the City, the City’s credit rating would likely not be affected in the event of a default under the 2015 Bonds. The DLA board members are ready to retire from the DLA as they are not available to serve until 2038.
Ongoing Obligations of the Successor Agency.
As described above, the ongoing obligations of the Successor Agency are to prepare and submit an annual ROPS requesting RPTTF funding to pay enforceable obligations, administer collection of RPTTF and payment of enforceable obligations, prepare and submit an annual PPA, dispose of any remaining real property, and comply with FPPC regulations by adopting a Conflict-of-Interest Code biannually.
To establish itself as the Successor Agency, the City Council, acting as the Successor Agency, would need to adopt bylaws and a Conflict-of-Interest Code at its initial meeting as the Successor Agency. Members of the City Council would be required to file “assuming office” Form 700s with the FPPC and make similar filings on an annual basis as required by applicable law.
Cost to City to Become the Successor Agency.
The Dissolution Act allows the Successor Agency to receive RPTTF to cover its administrative costs, thus there are no financial costs to the City to become the Successor Agency. However, a relatively small portion of City staff time would be required to administer the tasks described above.
The City receives a share of the tax increment not used by the Successor Agency to pay enforceable obligations (also known as residual property taxes). To the extent that the City can reduce the cost of administering the Successor Agency, the City may receive a greater amount of residual property taxes.
City Council Liability, Maximum Exposure of Successor Agency.
Were the City to become the Successor Agency, the City Council would act as the governing body of the Successor Agency. The City Council would be indemnified for its actions as the governing body of the Successor Agency in the same way it is indemnified for its actions with respect to the City.
The Successor Agency is a separate legal entity form the City, and therefore the City will not incur any additional risks or financial obligations because of its agreement to act as the Successor Agency.
Pursuant to Section 34173of the Dissolution Act, the liability of any successor agency, acting pursuant to the Dissolution Act, shall be limited to the extent of the total sum of RPTTF it receives, and the value of assets transferred to it as a successor agency for a dissolved redevelopment agency. The liabilities of neither the Former Agency nor the Successor Agency shall become liabilities of the City, nor shall the assets.
Next Steps
On or around 60 days after notice of adoption of the attached Resolution has been given to the current Successor Agency and the Oversight Board, the City Council will need to meet as the governing board of the Successor Agency and take various initial administrative steps. The City Council will hold meetings as the Successor Agency governing board during regularly scheduled meetings of the City Council.
At the first meeting of the City Council acting as the Successor Agency, the Council will need to adopt a Code of Conduct, Conflict of Interest Code and other governing documents for the Successor Agency, and address whether or not it desires to retain the current counsel and staff, hire other counsel and staff, or handle the activities of the Successor Agency in-house. Members of the City Council will also need to file an “assuming office” Form 700 with the FPPC and file annual Form 700s for their role as the Successor Agency.
IMPACT ON CITY RESOUCES
The City of Merced may continue to retain the consultants currently working with the Designated Local Authority, hire different consultants, or keep all functions within the City of Merced. The code allows for administrative costs to be taken out from the annual Tax Increment.
ATTACHMENTS
1. Resolution 2023-57