LOS ANGELES (CBS) — City Administrative Officer Miguel Santana and Chief Legislative Analyst Gerry Miller warned Tuesday the city could be on the hook for as much as $109 million if it elects to be in charge of winding down the Community Redevelopment Agency of the City of Los Angeles, a task required by a recent state Supreme Court ruling.
The City Council has by Friday to decide whether to become the agency responsible for absorbing all of the employees and administration for remaining CRA/LA projects and outstanding debts.
The move would leave the city with little control over the fate of an agency with a budget of more than $670 million that drove key development projects, including a new downtown art museum, housing and park project.
The California Supreme Court in late December upheld a state law that eliminated the agencies, which use increases in property tax revenue to fund development projects mainly in blighted parts of cities.
The law passed by the Legislature required the elimination of the agencies by Feb. 1. It also forced local governments to establish successor authorities to dismantle the agencies.
In a lengthy report that lays out a laundry list of major liabilities, Santana and Miller advised the city not to become the CRA/LA’s successor agency.
Chief among the reasons, Santana said in an interview, was an estimated $109 million in costs for absorbing 192 CRA/LA employees.
“CRA/LA salaries, pension and benefits are significantly better than those currently provided to most city employees,” the report states.
The average salary of a CRA/LA employee is $109,000, compared to the average $72,000 of a city employee. As a successor agency, the city would have to take on the workers’ salaries, healthcare and pension costs.
“The risk is too big,” Santana said. “Our primary responsibility is to the general fund and the employees that are paid from it. We can’t afford to add greater liability to it.”
The city is facing a more than $70 million budget deficit for the fiscal year that ends in June and a $200 million to $250 million deficit for the 2012-2013 fiscal year that begins July 1.
“Adding more employees to the city puts other employees at risk, and our job first and foremost is protecting employees that we currently have,” Santana said.
Santana and Miller also warned of untold financial liability from lawsuits by developers whose projects are killed during what Santana called a “liquidation” process.
City Councilman Tony Cardenas, who chairs the Housing, Community and Economic Development Committee, said he still needed time to study the report before commenting on which way to vote.
“No matter which option we choose, this report confirms that the state and the courts have dealt a devastating blow to the city’s ability to invest in its neediest neighborhoods,” Cardenas said.
Santana said the only reason for the city to become the successor agency is to fight for projects that were pending but not finalized before the Supreme Court decided to rule on the matter.
However, the report lays out a weak position for the city and very strong position for Los Angeles County on a seven-member oversight board that will determine the fate of the projects. The city only gets to appoint two board members.
“It is in the best interest of the county to liquidate as many assets as possible, as quickly as possible, because for every asset that they liquidate they get 25 percent of the cut,” Santana said.
The report shed light on one bright spot for the city’s finances. The elimination of CRA/LA funds will yield an immediate $57.4 million infusion to the city’s general fund and a payment of $19 million each additional year.
The California Supreme Court’s late December ruling upholding the state law eliminating redevelopment agencies across the state was a major blow to cities, which sued earlier this year in an attempt to block the law.
If the city elects not to become the successor agency, any government entity can choose to take on the the responsibility.
In the case that no one steps up, it would fall to the state, and Gov. Jerry Brown would appoint a three-member panel.
Los Angeles is in a unique position among California cities. All but three other cities have redevelopment functions already intertwined into city operations.
“This is frankly an L.A. city problem,” Santana said. “We’re required to absorb nearly 200 employees into the rest of the city family at a time when we can’t afford it.”
Democratic legislators and Brown chose to eliminate the agencies in order to use redevelopment tax dollars to help fill a state budget deficit that Brown said last week is more than $9 billion.