April 10, 2013 -- Santa Monica will have to fork over $19 million in Redevelopment Agency (RDA) funds to the State, down from an initial $55 million earmarked by state financial officials, The Lookout has learned.

California's State Department of Finance (DOF) reduced the amount it says Santa Monica's former RDA owes the Los Angeles County Auditor-Controller after reviewing the City's claim that state officials overestimated the amount, according to a letter from DOF to the City Attorneys Office dated last Wednesday.

Counties receive RDA funds from dissolved agencies in their jurisdictions. (“Where Santa Monica's RDA Money Goes,” February 23, 2012)

Pending a lawsuit filed by City Hall and the Community Corporation of Santa Monica (CCSM) over the DOF's handling of the dissolution of RDAs, the DOF has agreed that nearly $23 million of the $55 million in RDA money that it originally demanded Santa Monica return to the County would not have to be returned.

In addition, the DOF allowed that the City wouldn't have to repay $3.5 million, which helped finance High Place East, a 44-unit affordable housing complex in the Pico Neighborhood built by CCSM. (“High Place West Adds Affordable Homes to Santa Monica but None to Buy,” March 29, 2013)

Last March former RDAs were required to submit lists of “enforceable obligations,” RDA money that they believed was contractually committed and couldn't be taken without legal consequences for the agencies.

Last December, the Successor Agency for Santa Monica's RDA returned about $12.5 million to the Los Angeles County Auditor-Controller as required by ABx1 26, the law approved in February 2012 that ended RDAs throughout California.

Even after the reduction and the $12.5 million payment are taken into account, the DOF alleges that Santa Monica still owes approximately $19 million.

“The lawsuit is still an issue because we are still disputing other amounts,” said Deputy City Attorney Susan Cola. “The DOF was attempting to claw back restricted housing funds.”

The City’s lawsuit alleges that the DOF's handling of RDA dissolution has been “arbitrary and capricious, unlawful and unconstitutional,” according to court documents.

California's 400 RDAs were required to submit lists to the DOF in March 2012 enumerating “enforceable” financial commitments, namely those that, if reneged on, would have serious legal consequences.

The DOF then reviewed those lists -- enforceable obligation payment schedules -- and determined if, in fact, the financial commitments were enforceable. The DOF maintains that every determination it has made regarding payments successor agencies have to make has been in accordance with the law.

The $19 million that the DOF is demanding Santa Monica's Successor Agency pay to the County is largely money that was used either to secure financing from lending institutions for affordable housing or was committed to help with upkeep of affordable housing complexes throughout the city.

The lawsuit alleges that forcing the City and the Successor agency to give the money to the County, would lead to major legal problems, including litigation over contract breaches and the possible bankruptcy of CCSM, a nonprofit and the city's single largest provider of affordable housing.

The April 3 letter warns that if the Successor Agency doesn't pay the $19 million, tax revenue for the City's General Fund could be funneled back to the County to pay the bill. However, DOF representatives maintain that that is a last resort.

The first hearing for the lawsuit is set for July 19 in Sacramento, officials said.