State denies Glendale millions to pay for redevelopment obligations

Glendale and state officials have locked horns for months over spending money for redevelopment obligations, but this week, a decision handed down from Sacramento escalated the fight.

In a letter this week, the California Department of Finance denied tens of millions of dollars that Glendale had requested to pay for the obligations of its former redevelopment agency, which like others across the state was dissolved by the state earlier this year.

The decision to withhold some of the money Glendale requested will leave the city open to a lawsuit if it can’t pay its obligations — a sticky situation forewarned by redevelopment attorneys months ago.

“We don’t have any administrative recourse,” said Philip Lanzafame, Glendale’s officer for economic development and asset management, at a City Hall meeting Wednesday.

In addition, the state’s decision puts $10 million in Central Library improvements on hold and ties up about $3.5 million in transportation funds.

“The Glendale community had made plans for those funds and this whole thing has changed that,” Lanzafame said. “It’s the community that’s going to suffer.”

The possible lawsuit Glendale is preparing for may come from Union Bank, which lent the city’s affordable housing development arm $1.5 million to build Vassar City Lights in South Glendale.

Every six months city officials must ask for money from the state to pay the obligations of its former redevelopment agency. State and city officials have been arguing over the most recent request of $47 million — which covers January through July 2013 — since October.

But this week, the state Department of Finance said it was denying loans, bonds and other administrative line items, and released $11 million to Glendale.

“It’s wacky. At nighttime you don’t deny the existence of the sun,” said City Manager Scott Ochoa, who also serves on an oversight board made up of officials from the city, Los Angeles County and Glendale Unified School District, which was created to oversee the wind-down of redevelopment obligations.

Last February, Gov. Jerry Brown effectively killed redevelopment throughout California, moving the property tax revenue that Glendale had tapped to develop the Americana at Brand and Disney Creative Campus to Sacramento’s coffers to close a multibillion-dollar budget gap.

But the state couldn’t take all the money. Agencies had entered into contracts, such as development agreements to build the Museum of Neon Art and Laemmle Theater projects in Glendale.

That’s where the six-month chunks of funding come in.

But both sides disagree on what’s a legal obligation. According to state records, the money left to cover Glendale’s outstanding obligations is finite.

“This amount is not, and never was, an unlimited funding source,” wrote Steve Szalay, local government consultant for the state agency, in the controversial letter.

Glendale contends its former redevelopment agency is legally obligated to pay Union Bank back, but the state says that because the agreement was made through the city’s housing arm, it’s not on the hook.

Department of Finance Spokesman H.D. Palmer said his department blocked similar requests from former redevelopment agencies across California.

“Our job is not to evaluate any given project on its relative merits. Our job is to evaluate it based upon the law,” Palmer said.

As for the library and road improvements, those were to be paid for with nearly $17 million in bonds. Glendale tried to get the bond money on its most recent state request to get the projects going, but the state won’t release bond proceeds until audits of redevelopment assets are reviewed, Lanzafame said.

Jennifer Mizrahi, the oversight board’s attorney, said former redevelopment agencies across the state are experiencing similar headaches.

“We are constantly behind the eight ball,” Mizrahi said.

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