Santa Ana’s showdown with the state is quickly turning into one of the most contentious in the campaign to redistribute leftover housing funds from more than 400 defunct redevelopment agencies across California.

City officials say the state Department of Finance is being “reckless” in  its demand for $56 million in leftover redevelopment monies and is threatening lawsuits to protect funds for low-income housing projects that would benefit the most vulnerable of their constituents.

Last month, Santa Ana City Council members voted to defy the state demand that they turn over the redevelopment funds to other local governments.

Department of Finance officials say resolving the dispute is as easy as inspecting developer contracts that commit the money to the housing projects.

The state and the city are at odds over “enforceable obligations,” essentially spending agreements made by the city before June 28, 2011, the day that state legislation dissolving redevelopment agencies became law.

City officials say the money was committed before the deadline.

But the Department of Finance won’t validate this claim, arguing that the city has not provided any contracts as evidence that the obligations exist.

“If that information exists and it was provided earlier, we likely wouldn’t be having this discussion,” said Department of Finance spokesman H.D. Palmer.

Of the total amount demanded, city officials say $30 million is locked up because of decades-old legal settlements requiring that redevelopment funds be set aside for affordable housing.

About $26 million is committed to contracts made with developers before the 2011 deadline, according to city officials.

The Public Law Center, an advocate of housing for low-income families, has threatened to sue the city if it complies with the state’s demand. The organization argues that the dissolution law expressly exempts required set-asides resulting from “judgments or settlements entered by a competent court of law or binding arbitration decisions against the former redevelopment agency.”

State officials say the organization is misinterpreting the law. The settlements only required the city to set-aside money for future housing projects.

Because the city has yet to enter into contracts to commit the set-aside money, the funds are not seen by the state as enforceable obligations, state officials said.

City housing officials have publicly acknowledged that they understand that the $30-million portion of the total is at risk of being taken because the funds aren’t committed in existing contracts.

But the demand for the rest of the funds came as a shock, they said.

That other portion, $26 million, is supposedly dedicated to developer contracts signed before the deadline. About $12 million has already been spent, city officials said.

Some 200 affordable housing units, some  under construction, are at risk of being underfunded if the state collects the funds, city officials said.

Among the projects at risk to lose 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.

Department of Finance officials say the city has not turned over any contracts as evidence, despite going through a meet-and-confer negotiations.

State finance officials say that it’s not too late for the city to produce the contracts and would drop the demand once they see them. The contracts would qualify for funding if they are between the former redevelopment agency and a developer and were signed before the deadline.

Yet if the solution is that simple, why all the confusion, last-minute council meetings and rhetoric at City Hall?

Despite all the talk of a “Santa Ana Spring,” by several council members elected in November on a platform of expanded transparency at City Hall, they aren’t talking.

After privately negotiating with the state for weeks, city officials made the dispute public only on Dec. 21, the day of the payment deadline. After that brief public meeting to declare opposition to the demand, officials closed City Hall for two weeks.

Council members are also staying quiet.

According to documents and interviews conducted by Voice of OC, some of the confusion can be traced to August, when city officials submitted a housing asset transfer form to the state.

The document showed money and property transfers to the city related to housing projects like the Station District. The Department of Finance approved the transfers, except for $1 million in assets.

That approval is where some of the disagreement lies.

According to a report from an outside consultant hired by the city, $26 million in enforceable obligations were approved “through their inclusion in the Housing Asset Transfer Form submitted to the Department of Finance.”

State officials said that assumption is incorrect. Enforceable obligations can only be approved by being listing them on other approval forms, known as recognized obligation payment schedules (ROPS).

Several of the questioned projects were also included on the ROPS by city officials. But not all were approved by the state.

The state reduced its $56-million demand to $54.2 million after discovering that some housing funds listed on the ROPS were approved for spending.

The new deadline passed on Wednesday, but city officials did not respond to a request for comment.

It’s not clear why the housing projects — which list contracts on the ROPS signed before the deadline — were rejected as enforceable obligations on the ROPS.

Letters from the state listing the denials indicate only that the “items were previously funded by the agency” and “do not represent continuing obligations.”

State officials declined to comment on the denials, saying they must research the matter further.

They did, however, say they have been confused by some of the ROPS forms submitted recently by city finance officials.

For example, in the latest submittal, city officials requested funds from the wrong source of funding for the housing projects, state officials said.

For their part, city officials say that state officials have made the payment demands without any justification for how the figure was calculated.

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