Budget report: Poway may owe state $18 million
By Steve Dreyer
A dark cloud, in the form of a possible state demand for $18 million in post-redevelopment agency money, is hanging over City Hall’s budget planning efforts for the coming year.
Pending a long-shot, last-minute intervention by the state, city officials are saying it is likely Sacramento will insist that money transferred in March 2011 and again in January from the Poway Redevelopment Agency be instead distributed to local taxing agencies such as the public school and hospital districts.
Compliance with the state’s demand would mean the city’s $20.3 million general fund, from which day-to-day operations are funded, would suffer a $3.3 million hit, according to a staff report prepared for Tuesday night’s City Council meeting.
All but $24,674 of the city’s $4.4 million drainage and storm fund would be taken as part of the $18 million payment, the staff report says. The $22.2 million sewer fund would lose $5.57 million, while $8.6 million streets fund would lose $2.8 million according to the report.
Each of those funds have sufficient reserves to absorb the brunt of the unexpected payments, Assistant City Manager Tina White said Monday, For example, the $3.3 million needed to replace the general fund money could come from $20 million in unallocated reserves. Another option might be a combination of further budget cuts and reserves, she said.
The water fund is an entirely different story, she said. A $2.6 million payment to the state would leave a revised fund balance at $3.7 million, significantly less than what the city would desire, White said. The only way to make it up would be through higher water rates, she said.
The $18 million in question represents repayment of loans made to the redevelopment agency by the city for such things as sewer and water line construction and acquisition of land. White said that while the plan was to have the loans repaid as the redevelopment program wound down in 2033, the state’s decision to close down all local RDAs as of Feb. 1 accelerated the repayment process.
During a special meeting held in March 2011, the City Council, sitting as redevelopment agency directors, took a series of steps designed to protect the agency’s accumulated funds from being taken by the state as a result of its ending of the local RDAs. Among those steps were approvals of so-called “cooperation agreements” between the RDA and city, in part calling for the repaying to the city of $13.8 million in loans made to the RDA over many years. The legality of the use of the certificates was endorsed by a special bond counsel retained by the city.
Another $4.8 million in repayments were authorized by the City Council in January, just days before the RDAs went out of existence.
White said the repayments are now under scrutiny due to language in the state bill abolishing the RDA that passed last summer and was supported by the state Supreme Court in December. The bill contains a retroactive or “clawback” clause that forbids the transfer of funds out of RDAs for loan repayment purposes after Jan. 1, 2011.
“It appears that any ‘asset transfers’ after January 1, 2011, including loan repayments, may be subject to potential reversal by the State Department of Finance,” City Manager Penny Riley wrote in the staff report. “… If that occurs, these loan funds would be treated as property tax revenues and distributed to local taxing agencies.”
White said Monday the whole RDA situation in Sacramento remains fluid and that legislation has been introduced to allow repayments to remain valid. Whether the measures pass through both houses of the legislature and gain the approval of Gov. Jerry Brown, a staunch RDA opponent, remains to the seen, she said.
While the repayment issues remain in limbo, the City Council will proceed with a review of a proposed 2012-13 budget. The general fund portion calls for $36.4 million in expenses, up about $2.4 million over the adopted 2011-12 budget. Revenues are projected to climb 7 percent, including a 6 percent increase in sales taxes and a 2 percent increase in property taxes. Expenditures are pegged at $36.1 million, including employee pay raises that go into effect July 1 as part of last year’s agreement that they pay the maximum allowed into their pension funds. Fire employees are set to receive 5 percent pay raises. All other city employees, including department heads, will receive 3 percent increases.
General fund expenses are projected to exceed revenues in the next year by about $500,000. Both city staff and the citizen Budget Advisory Committee recommend that the difference be made up by taking some of the $3.1 million available in a special “State Economic Uncertainty Fund.”
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