Santa Ana’s Freeze of Housing Funds: It Was Only a Ploy

Santa Ana officials Monday night clarified their decision to freeze payments to affordable housing developers from housing funds demanded by Sacramento, saying that it was a strategic move to allow the developers to file lawsuits aimed at keeping the revenue.

The state's demand for the return of $54.2 million stems 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. Gov. Jerry Brown, citing abuses, pushed to eliminate the agencies last year to help plug the state’s budget.

Redevelopment agencies were required to set aside for affordable housing programs 20 percent of their property tax increment revenue — funds that otherwise would have gone to general funds and to 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 be distributed to school districts and other local governments in the area.

City Council members last December defied the state Department of Finance demand for the funds, arguing that the money was committed to enforceable obligations — essentially agreements that were made with developers and court settlements made before redevelopment agencies were dissolved.

Part of that decision was a directive to city staff to keep paying developers revenue from the disputed funds. Yet when council members reversed that decision last month, City Attorney Sonya Carvalho cited a need to protect the city's general fund, signaling to some that city officials had lost confidence in their legal position.

State officials have threatened “clawback” measures — orders to withhold property and sales tax revenue — if cities don't comply with state demands for leftover housing funds.

But Carvalho and Councilman Vincent Sarmiento at Monday night's meeting said the reversal was merely a tactical move, not a reversal.

Freezing the developer payments allows the developers to file lawsuits against the city and the state to assure that the developers secure the revenue, according to Sarmiento. Developer lawsuits over this issue have seen some success in other cities, he said.

Sarmiento said that developers are in a better position to sue for the funds than is the city.

“I think that the [incorrect] message that was sent last meeting was that we had no interest in funding these projects,” Sarmiento said. “It was a strategic decision.”

The Related Companies of California, developer of a housing project known as the Station District, has already taken legal action. The company filed for a temporary restraining order, which was granted last Friday in Sacramento County Superior Court. The court ordered the state not to seize the housing funds, according to Sarmiento.

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