EDUCATION REVENUE AUGMENTATION FUND (ERAF) PAYMENT

SUBJECT:

EDUCATION REVENUE AUGMENTATION FUND (ERAF) PAYMENT

RECOMMENDATION: That the Board of the Ontario Redevelopment Agency (Agency) adopt the attached Resolution approving the use of a portion of the Low- and Moderate-Income Housing Fund (Low-Mod Fund) to satisfy its ERAF obligation imposed by the State.

COUNCIL GOALS: Operate in a Businesslike Manner

• Live within our means, fully funding liabilities and reserves, while forming capital to strategically invest in the future.

FISCAL IMPACT: The State’s action to shift property tax revenues from redevelopment agencies to the ERAF Fund will result in the loss of $3,372,147 in tax increment revenues for Fiscal Year 2008-09.

BACKGROUND: As part of balancing the State’s budget deficit of approximately $42 billion, the State adopted legislation in Fiscal Year 2008-09 requiring redevelopment agencies to shift $350 million in property tax revenues to the State to help meet its funding obligation to K-12 schools and community colleges. Based on the State’s allocation formula, the Agency’s ERAF obligation is $3,372,147. The State’s ERAF shift was designed to be a one-time occurrence, but due to the magnitude of the State’s ongoing structural budget deficit, similar actions have been taken by the State in three of the last six fiscal years.

The Agency is required to make the ERAF payment on or before May 10, 2009. If the entire ERAF amount is not paid, the Agency is subject to penalties which include 1) the Agency will be prohibited from adding new or expanding existing project areas; 2) the Agency will be prohibited from issuing new bonded indebtedness; and 3) the Agency will be prohibited from encumbering funds or expending money except for current bonded indebtedness and obligations. The Agency receives tax increment revenues for Low-Mod housing related activities and for non-housing related activities. Pursuant to California Health and Safety Code Section 33685(b), the Agency may borrow up to 50% of the amount required to be allocated to the Low-Mod Fund for the current fiscal year to satisfy The $3,372,147 ERAF obligation. For Fiscal Year 2008-09, it is estimated that approximately $9.52 million is to be allocated to the Low-Mod Fund; therefore, the 50% limit is approximately $4.76 million. This amount must be repaid within 10 years.

Due to contractual bond payments and other budgeted uses of the Agency’s non-housing tax increment revenues there are insufficient other monies to satisfy the Agency ERAF obligation. Thus, it is recommended that the Agency borrow $3,372,147 of the amount required to be allocated to the Agency’s Low-Mod Fund during the current fiscal year to satisfy its ERAF payment for Fiscal Year 2008-09. As additional non-housing tax increment revenues become available in the future, the Agency will repay the Low-Mod Fund on or before May 10, 2019.

STAFF MEMBER PRESENTING: Grant D. Yee, Administrative Services/Finance Director