Glendale sues state over interest on loans

Glendale is taking the state government to court over a potential loss of more than $30 million in interest from loans it made decades ago to its now-defunct Redevelopment Agency.

When the agency was founded in the early 1970s, it received dozens of loans from City Hall for improvement and revitalization projects that were paid back to the general fund through property taxes.

When officials in Sacramento ended local redevelopment agencies in 2011, tens of millions of dollars were still owed to cities. To ease the impact, the state Legislature passed AB 1484 to allow Sacramento to reinstate some loans, but only if the money was intended for legitimate redevelopment purposes.

The state’s Department of Finance Oversight Board determined that amount in Glendale involved 13 projects worth $13.6 million, not accounting for any interest.

But where local government and state government differ is the interest rate, also known as the Local Agency Investment Fund rate.

Those rates were as high as 12.04% in 1981 but just 0.22% in the second quarter of 2014. Based on the rates when City Hall’s loans were distributed, the accumulated interest is $31.9 million, according to the complaint filed by city attorneys.

After several meetings between local and state officials, the Department of Finance said Glendale was entitled to a 0.28% rate — or only $974,200 in cash generated by interest, the complaint read.

City Manager Scott Ochoa called the process of pursuing the reinstatement of the loans a “bait and switch.”

“It’s as though the city is at a point where it is reaping the benefits of the good work done by the redevelopment agency only to have those flickers of opportunity snuffed out by the state,” he said.

Ochoa added that the $31.9 million would have gone back to the general fund to benefit parks and community centers, for example.

The case boils down to a statute in California’s health and safety code over whether to use interest rates agreed upon when the loans were first signed or when the Department of Finance reinstates them.

“If you take the words of the statute as we did, it is not susceptible to another interpretation other than what we believe, which is that the interest rate should be calculated from the loan origination,” said Gillian Van Muyden, Glendale’s chief assistant city attorney.

State attorneys have filed a response to the city’s claims, but did not return phone calls seeking comment.

According to the city, the section of health and safety code refers to recalculation of accumulated interest “at the interest rate,” not multiple interest rates.

“The absence of any such specific language suggests that the proper reading of the statute requires application of the [Local Agency Investment Fund] rate at the time of recalculation and the oversight board’s findings and approval,” the court papers say.

The city filed the case last summer. A Sacramento County Superior Court judge is scheduled to hold a hearing Feb. 13.

arin.mikailian@latimes.com

Twitter: @ArinMikailian