Santa Ana City Council members Tuesday night in a closed-door meeting decided to freeze payments to affordable housing developers depending on funds central to a $54-million standoff between city officials and the state Department of Finance.
The housing funds are left over from the winding down of redevelopment agencies. State officials argued that the funds must be turned over to other local government agencies. But city officials claimed the funds are locked up in “enforceable obligations,” essentially agreements and legal settlements made before redevelopment was eliminated.
The move reverses a defiant stance council members took last December to continue paying the developers, despite the threatened use of “clawback” measures allowed under the redevelopment dissolution bills that empower Sacramento to withhold sales and property tax revenue. Such a punitive move could cripple the city's already fragile financial position.
Council members had expressed confidence about the city's claim to the funds. But council members reversed that stance because of concerns about adverse impacts to the general fund, City Attorney Sonya Carvalho announced Tuesday night, signaling that city officials could be losing confidence in their position.
State finance officials are in the midst of similar arguments with nearly two dozen cities across Orange County over the use of leftover housing funds. The state is also suing Orange County over property tax allocations.
For Santa Ana, hundreds of affordable housing units, some under construction, are at risk of being underfunded if the state collects the housing funds, city officials said last December.
Among the projects that at the time were at risk of losing funding are the Station District development; the Vista Del Rio affordable housing project, which would house disabled residents; single-family homes under construction by Habitat for Humanity Orange County; and a low-income housing project by C&C Development.
Carvalho said the council's decision would affect mainly the Station District developer.
Of the amount demanded, $26 million is supposedly dedicated to developer contracts signed before the deadline, city officials had said. Several million dollars of the total have already have been spent on development projects, according to city officials.
The state’s payment demands stem from the dissolution of the state’s approximately 400 redevelopment agencies, which diverted local property tax revenues toward new development aimed at cleaning up blighted areas. To help plug the state’s budget deficit, Gov. Jerry Brown pushed to eliminate the agencies last year.
Redevelopment agencies were required to set aside for affordable housing programs 20 percent of their property tax increment revenue — funds that cities had diverted from their own general funds and from other local governments in redevelopment zones.
When redevelopment agencies were axed, some $2 billion in low-income housing funds were estimated to be left over, the Sacramento Bee reported earlier this year. Now the state is demanding that leftover money.