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sr-021412-8bCity Council and Successor Agency Meeting: February 14, 2012 Agenda Item: 8 -5 To: Mayor and City Council Chairperson and Successor Agency From: Andy Agle, Director of Housing and Economic Development Gigi Decavalles- Hughes, Director of Finance Subject: Successor Agency Reimbursement and Operating Agreement Recommended Action Staff recommends that the City Council (Council) authorize the City Manager to execute a reimbursement and operating agreement (Reimbursement Agreement) to reimburse the City for the Successor Agency's use of City staff, facilities and administrative services (collectively, City Services) to implement the Successor Agency's administrative duties under AB 1X 26 (AB 26), as codified in Part 1.85 of the California Health and Safety Code (Part 1.85). Staff recommends that the Santa Monica Redevelopment Successor Agency (Successor Agency) authorize the Successor Agency Chairperson to execute the Reimbursement Agreement. Executive Summary This report recommends that the Council and Successor Agency enter into a reimbursement and operating agreement (Reimbursement Agreement) for the purpose of formalizing the Successor Agency's obligation to reimburse the City for the Successor Agency's use of City staff, facilities and administrative services (collectively, City Services) to implement the Successor Agency's administrative duties under AB 1X 26(AB 26), as codified in Part 1.85 of the California Health and Safety Code (Part 1.85). Background In anticipation of the Redevelopment Agency's dissolution, effective February 1, 2011, on January 10, 2012, Council adopted Resolution No. 10647 and Resolutions No. 10648 to serve as the Successor Agency to the former Redevelopment Agency ( "RDA "). The Successor Agency is comprised of the seven members of the City Council, with the Mayor serving as the Chairperson. Under AB 26, the Successor Agency is required to perform specific functions such as: • Maintain reserves in the amount required by indentures, trust indentures, or similar documents governing the issuance of redevelopment bonds. • Perform obligations and make payments for enforceable obligations. • Prepare a Recognized Obligation Payment Schedule (ROPS) and administrative budgets and submit to Oversight Board for approval. • Expeditiously wind down the affairs of the RDA including liquidation of the assets and properties of the RDA as directed by the Oversight Board. Under AB 26, the Successor Agency may receive an administrative cost allowance, which is payable from property tax revenues of up to 5 percent of the property tax allocated to the Successor Agency for the 2011 -12 fiscal year and up to 3 percent of the property tax allocated to the Successor Agency for each fiscal year thereafter. The amount of property taxes that are allocated to the Successor Agency are based upon an approved payment schedule (referred to herein as the ROPS). The Successor Agency's administrative budget is subject to approval by an Oversight Board of seven political appointees, as specified in AB 26. Discussion The Successor Agency became operative on February 1, 2012. Currently and prospectively, the Successor Agency's responsibilities of implementing and ensuring compliance with AB 26 will be performed by City staff. The reimbursement agreement between the City and Successor Agency formalizes the Successor Agency's use of the City Services in exchange for reimbursement of Successor Agency's administrative cost allowance. The City's provision of services relating to specific projects (e.g., project management costs) will be charged separately to and be paid separately by the Successor Agency as "enforceable obligations" within the meaning of AB 26. In accordance with AB 26, property taxes will be distributed to the Successor Agency in January and June of every fiscal year. Therefore, the City's provision of City Services must be advanced and the City's reimbursement can only be made twice per year, as FA property taxes are paid to the Successor Agency. Staff recommends execution of the Reimbursement Agreement to defray financial impacts to the General Fund. Next Steps Staff will return to the Successor Agency on February 28, 2012 to submit two ROPS for approval. The first ROPS will cover the period between January 1, 2012 to June 30, 2012 and the second ROPS will cover the July 1, 2012 to December 31, 2012. By March 1, the ROPS will be submitted to the Los Angeles County Auditor - Controller for certification. Staff will submit the approved ROPS to the County Auditor - Controller, State Controller and the Department of Finance by April 15, as required by AB 26. The ROPS will also be submitted to the Oversight Board for approval once the Oversight Board has sufficient members to constitute a quorum. Financial Impacts & Budget Actions Based on the Successor Agency's ROPS, the administrative cost allowance is $3.8 million for FY 2011 -12 and approximately $2.28 million for subsequent fiscal years. However, elements of the ROPS are subject to review and challenge by outside agencies. Should potential challenges to any of the enforceable obligations prove successful, the administrative cost allowance would be reduced. In addition, because the Oversight Board must approve the Successor Agency's administrative budget, the approved administrative budget could be lower than the statutory allowance. The City will front the administrative costs, to be reimbursed by the County on a semi - annual basis. One risk is that administrative cost reimbursement is subject to a waterfall provision, which places payment of County administrative costs (which have no statutory cap) and enforceable obligations ahead of the Successor Agency's administrative costs. If remaining funds after waterfall distribution were less than the administrative costs, such costs would have to be reduced and could result in one period where the full amount of administrative costs would not be reimbursed to the City. As AB 26 expressly states that any successor agency's liability cannot be greater 3 than the amount of tax increment, such a situation may require the City to fight for full reimbursement for services provided to the successor agency. Prepared by: Nia Tang, Acting Administrative Services Officer Forwarded to Council: Andy Agle, Director Rod Gould Housing and Economic Development City Manager Director of Finance CI Reference Contract No. 9549 (CCS /RAS -SA).