Legality of CRA Plan Questioned : North Hollywood: The redevelopment agency’s arrangement calls for using$5 million of its own money to buy land for a shopping center.

The Los Angeles Community Redevelopment Agency has patched together an arrangement to preserve endangered plans for a long-awaited shopping center in North Hollywood, but a city budget official said Thursday the arrangement might violate city law.

The shopping center, which is to include a Ralphs supermarket, is the top priority of the North Hollywood Redevelopment Project, an arm of the city redevelopment agency.

City officials said Thursday they were surprised to hear of the new plan, which calls for the CRA to use $5 million of its own money to buy about five acres of land at Vineland and Magnolia for the shopping center.

The City Administrative Office is concerned that the new financial plan may not comply with a city law requiring that the City Council be notified of significant changes in the agency’s budget, said Bob Brewer, a top city budget analyst.

“We’re looking into that very issue right now,” Brewer said.

The council passed the law earlier this year in an attempt to tighten its control of the powerful redevelopment agency.

In October, the council voted to approve a CRA plan to buy about a dozen privately owned parcels in North Hollywood and sell the land for $2.76 million less than the agency’s cost to North Hollywood Partners, a private firm that would build the Vineland-Magnolia shopping center.

But two weeks after the council approved the plan, the agency’s board of directors voted to alter its terms without telling the council of the change.

Don Spivack, CRA director of operations, said Thursday that the new financial plan is only an “interim measure” and does not require a review by elected city officials. Only if the new plan remained in effect would a review be required, Spivack said.

Norton Halper, a community activist and adviser to foes of the North Hollywood Redevelopment Project, said the CRA had “circumvented the council’s oversight process” by not informing the council of the change.

Halper also said he was concerned that the CRA’s use of its own funds to underwrite the Vineland-Magnolia land acquisition might detract from more worthwhile CRA projects.

As originally approved by the council Oct. 30, the shopping center financing plan called for the CRA to borrow $5 million from Downey Savings & Loan Assn. to buy 5.2 acres for the shopping center.

North Hollywood Partners would then pay the CRA $5 million for the land and build the center, which is to include a 39,000-square-foot Ralphs market, 29,000 square feet of retail space and a 3,000-square-foot restaurant.

But the CRA would lose about $2.76 million on the deal because it would cost the agency about $7.9 million to buy the land, clear it of structures and prepare it for development, according to a city budget office report.

But Downey is reconsidering whether to make the $5 million loan, and the CRA on Nov. 15--realizing then that Downey’s money was not forthcoming--approved the use of $5 million of its own funds to carry out the purchase.

The agency had to set aside the money by Nov. 15, the deadline to use its power of eminent domain to force the sale of properties from a number of owners who are unwilling to sell. The agency’s eminent domain powers, under its original charter, expire in February and actions were required to begin by Nov. 15.

A Downey official involved in the loan agreement could not be reached for comment Thursday.

But Spivack said the savings institution pulled back from making the loan by Nov. 15 after new federal regulations were enacted that required the S&L; to conduct its own appraisal of the Vineland-Magnolia property and to study the site for toxic deposits.

Under previous federal rules, Downey could have accepted the CRA’s own toxic review and appraisal of the site. Continued uncertainty about how federal rules aimed at shoring up the wobbly savings and loan industry might affect the project have made Downey’s “willingness to loan questionable,” Spivack said.

The agency is still trying to get Downey to make the loan, Spivack said.

Questions also were being raised Thursday about whether the new plan, if it remains in place, might provide an additional subsidy to the developer. Under the original plan the developer was to have paid about half--more than $400,000--of the interest and other costs of the $5 million Downey loan.

If there were no Downey loan, there would be no such costs.

On the other hand, the CRA expects to be paid interest by the North Hollywood Redevelopment Project for its use of the agency’s “internal $5 million loan,” Spivack said. Spivack said the developer “is willing to make good on the interest owed to the agency,” but the terms of that agreement have not been finalized, he said.