Cities Swap State, Federal Grants to Pay for Projects

Two years ago, La Canada Flintridge gave back almost $600,000 in federal block grant funds because it had no blight to fight. This year, the city found a way to use funds it couldn’t spend: It traded them with Los Angeles County in exchange for $1 million it needs to upgrade Foothill Boulevard.

Fund swapping is “about the only way to make ends meet these days,” said Don Otterman, La Canada Flintridge city manager.

But not all cities opt to swap. Glendale city officials said they have never traded funds. “We use everything we get,” City Manager James Rez said.

The agreement approved earlier this month by the Los Angeles County Board of Supervisors calls for La Canada Flintridge to receive $1 million in state utility funds from Los Angeles County in exchange for giving the county $500,000 in Proposition A transportation funds and $500,000 in community development block grant funds.

Burying Phone Lines

The utility funds will enable La Canada Flintridge to bury lines attached to about 48 telephone poles along Foothill Boulevard as part of a $4-million renovation of the city’s main thoroughfare.

City officials are studying the feasibility of forming a redevelopment agency to pay for the improvements, and are expected to present a detailed proposal to the City Council on June 15.

Government experts say fund swapping has become increasingly popular as municipalities strain to get maximum mileage from limited budgets. The trades are legal unless otherwise specified and can involve everything from county transportation funds to federal blight funds to state utility funds.

Although there are no records on how many municipalities swap funds, Jim Harrington of the League of California Cities said they are most popular with restrictive funds that must be returned unless they are spent or traded.

Otterman said the idea of swapping funds first arose in 1985 when Monrovia city officials approached him with a proposal to trade La Canada Flintridge’s block grant funds for money from Monrovia’s general fund. But Monrovia was willing to pay only 50 cents on each dollar, so Otterman declined the offer.

Accumulating Money

Meanwhile, La Canada Flintridge was accumulating $75,000 to $100,000 a year in federal Housing and Urban Development Department block grant funds, which according to federal law must be used to upgrade blighted neighborhoods, build low- or moderate-income housing or senior citizen centers or finance other low-income projects.

The money, which is administered through Los Angeles County for cities with fewer than 50,000 residents, is allocated based on population, age of the housing, job growth or loss and the number of people living below the poverty line, a HUD spokesman said.

But La Canada Flintridge, an affluent community whose median household income of about $40,000 a year is more than double that of Los Angeles County, had trouble spending the money. In 1985, the city spent $66,000 on studies to come up with a program to spend $575,000 in block grant funds that had accumulated over six years. Eventually, it gave the money back. Other area cities that have returned block grant funds include Rolling Hills, Rancho Palos Verdes and Cerritos.

Besides its HUD surplus, La Canada Flintridge receives about $200,000 a year in Proposition A funds. The city spent $130,000 on its Dial-A-Ride bus service and about $10,000 more to install concrete bus pads at bus stops throughout the city. But it couldn’t find a way to spend the balance.

The swap with Los Angeles County provided the answer. The agreement called for La Canada Flintridge to turn over its surplus plus future allocations until Los Angeles County has amassed $500,000 in Proposition A and $500,000 in block grant funds.

Otterman said that it may take the city about five years to pay off the swap, depending on the size of future allocations. The city will receive the money as it is needed.

In return, La Canada Flintridge will receive $1 million in “Rule 20A” money, a special fund established by the state Public Utilities Commission that pays for municipalities to bury utility lines. The money comes from a fee levied on utility customers and is allocated based on the number of overhead meters in a community, a Southern California Edison spokesman said. There are no restrictions on swaps.

Likewise, Proposition A, the half-cent transit tax approved by Los Angeles voters in 1980, provides municipalities with funds for buses, vans and fare subsidies and allows trading of unused funds, said Alan Patashnick, a senior analyst with the Los Angeles County Transportation Commission.

There have been attempts to restrict the use of federal block grant funds. A bill supported by the Reagan Administration earlier this year sought to make it more difficult for affluent municipalities to participate in the community development block grant program, a HUD spokesman said. The bill appears to lack congressional support, he said.