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Guidance on SERAF Implementation

Legal Alerts

Agencies Should Not Make Payments Before Monday

MAY 6, 2010

Background

On July 28, 2009, the Governor signed into law AB X4 26 modifying the Community Redevelopment Law. AB X4 26 permanently shifts approximately two billion dollars away from redevelopment agencies to the Supplemental Educational Revenue Augmentation Fund (“SERAF”) in each county. These funds will ultimately be provided to K-12 school districts and county office of education. 

The California Redevelopment Association (“CRA”) filed a lawsuit in Sacramento Superior Court in fall of 2009 to stop AB X4 26. The lawsuit challenged the constitutionality of AB X4 26 and sought to prevent the State from taking redevelopment funds for non-redevelopment purposes. On May 4, 2010, the Sacramento County Superior Court issued its judgment in California Redevelopment Association, et al. v. Michael C. Genest, et al. and County of Los Angeles, et al. v. Michael C. Genest, et al., holding that $2.05 billion in SERAF payments required from redevelopment agencies are legal (“Genest decision”).

SERAF Payment in Light of CRA Appeal

The CRA has stated that it plans to appeal the Superior Court decision and filed a motion to stay the decision pending such appeal. In the meantime, CRA continues to advise agencies not to make payments before May 10 but to be prepared to do so should the request for a stay from the Court of Appeal be denied or not acted upon. In addition, it is recommended that agencies include statement with the SERAF payment reserving all rights to recover the funds in the event the Genest decision is reversed.

Redevelopment agencies must make the required payments to their county SERAF on or before May 10, 2010, for FY 09/10 and May 10, 2011, for FY 10/11. Should the Agency fail to make its full required payment on or before the deadline, it would become subject to the following penalties:

  • Suspension of all new redevelopment activities, known as the “Death Penalty,” until the SERAF payment is made in full. New redevelopment activities include issuance of new debt, adoption of new or revised project areas, entering into contracts with property to incentivize redevelopment, and limitations to administrative expenses.
  • Permanent increase of its Low and Moderate Housing Income Fund from 20% to 25%.

Extension of Redevelopment Authority

Upon full payment of the FY 09/10 SERAF allocation, AB X4 26 authorizes such agency to extend the thirty (30) year life of redevelopment plans and the forty-five (45) year time limit for repaying indebtedness by one year. When amending a redevelopment plan for this purpose, the agency is not required to comply with the administrative requirements set forth in Health in Safety Code Sections 33354.6 or Section 33607.7, or any other provision of this part relating to the amendment of redevelopment plans.

For further details on this case or inquiries regarding other redevelopment matters, please Municipal & Redevelopment practice group attorneys Elizabeth Hull or Delmar Williams, or your BB&K attorney.


Disclaimer: BB&K e-Bulletins are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information in this communiqué.

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