Richard Close, a partner at the Law Offices of Gilchrist & Rutter, sat down with TPR to discuss his position on the seven-member Oversight Board supervising the dissolution of the Los Angeles Community Redevelopment Agency. The Oversight Board reviews all legal and financial matters decided by the three-member governing body, and, as Close explains, their efforts will become increasingly complicated when the successor agency grapples with the slipperier definitions of ‘enforceable obligations’ on certain projects. Close’s words provide context to this complicated public endeavor.
"Many developers were promised funding for projects, but there were no legal contracts prepared by June 28, 2011, which was the deadline. Many developers have spent millions of dollars in preparation for their projects, and they now realize that they may not get the funding that was promised to them. I envision a lot of litigation surrounding this issue as these developers try to get their projects funded."
Richard, you are one of seven appointed members of the oversight board that reviews legal and financial decisions made by the governing body overseeing the dissolution of the Community Redevelopment Agency of Los Angeles. Elaborate on your role and on the structure of this Oversight Board, specifically on the Board’s responsibilities and with whom you are working.
The Oversight Board, which was established by the California Legislature in AB 1x26, is composed of members appointed by local taxing authorities. Our goal is to make sure that the maximum amount of property tax revenue goes to the taxing authorities. On the other hand, there’s a desire by many successor agencies throughout the state to keep as many of the dollars locally, in community projects, rather than them going back to the taxing authorities. So there’s a natural tension between the successor agency and the oversight board.
How were you chosen to be on the Board? How were the others on the Board chosen?
I was appointed by the Los Angeles County Board of Supervisors, which appointed three of the seven members. The City of Los Angeles appointed two people. The Los Angeles Unified School District, and the Community College Board each appointed one. The chairman of the board is Michael Lawson, who was appointed by the City of Los Angeles.
And are there CRA Oversight Board committees?
No. The CRA Oversight Board currently meets as a committee of the whole twice a month. We are overseeing all expenditures by the Los Angeles CRA successor agency. All contracts have to be approved by the oversight board, and all expenditures of dollars have to be approved.
What has been the Oversight Board’s focus to date?
The first important issue for the Oversight Board will be the sale of real estate. The Los Angeles agency owns about 400 parcels of real estate, and many of them are prime for development within the City of Los Angeles.
The second area of controversy that’s going to arise is based upon "implied contracts". Many developers were promised funding for projects, but there were no legal contracts prepared by June 28, 2011, which was the deadline. Many developers have spent millions of dollars in preparation for their projects, and they now realize that they may not get the funding that was promised to them. I envision a lot of litigation surrounding this issue as these developers try to get their projects funded.
Third, there will be contentions regarding "promised improvements". As an example, a person or development company may have been promised that if they built a certain building then the redevelopment agency would construct a municipal parking garage. Projects like this can no longer take place unless there was a written agreement, signed before June 28, 2011. But the existing law, in general, is not as clear as AB1x26. Developers do have an ability to bring legal challenge to get a court to determine that in fact they do have an enforceable obligation. In that case, the Oversight Board must fulfill that obligation.
The California Department of Finance, which oversees your Oversight Board’s work, has recently recognized all the items on the LA/CRA Recognized Obligation Payment Schedule List. What is the significance of their approval?
It means that we are one of the few agencies in which the state approved our complete lists. We submitted nearly 600 different projects to the state that were approved.
The lists originate from the successor agency, subject to our approval, and then to the state. Our first lists only related to expenditures for 2012. In the fall we will look at projects that have expenditures due in the first six months of 2013. Many of the more controversial projects will be dealt with at that time.
The question is always, “Is this a legal obligation as of June 28, 2011?”
We cannot make a policy decision on whether a project is good or bad. Under state law we only decide whether or not it is enforceable. The reason we were able to get our list totally approved by the state was that we met with the successor agency of LA and told them that we will not pass or approve any questionable projects—either there is documentation or keep it off the list!
We only had a ten-day period to deal with 600 projects. We hope that we have established good will and credibility with the Department of Finance because a lot of agencies throughout the state just put a "wish list" together, and many of those projects were disallowed.
Is there a bright line test that you are working with for what is a legal obligation?
There is a very "un-bright," bright line. The bright line is, “Was there an enforceable contract signed by all the parties by June 28, 2011? Yes or no?” That’s what AB1x26 says.
But, unfortunately, the law is not as clear as the statute. State law does recognize enforceable obligations even where there are unsigned agreements. When I say "the law" I mean case law in California, which is complimentary to statutory law in AB1x26.
We predict that there will be a large number of projects in Los Angeles and across California where lawyers will argue that even though an agreement was not signed by the deadline, it still is a legally enforceable obligation and therefore must be funded by the successor agency.
Richard, in February of this year The Planning Report interviewed Tim McOsker, an appointed member of the successor CRA Los Angeles agency board, to discuss the downsizing of CRA and labor contracts. Can you shed some light on provisions in AB 26 as they apply to the contracts that exist with CRA and the downsizing of the successor agency?
State law provides that the agency must terminate. The process has already begun of laying off most of the employees that were for 20, 30, 40 years working for the Los Angeles CRA. Last year there were about 200 employees; now there are less than 70 remaining. The number will drop to about 30 employees in the next few months. It’s devastating for them because the whole industry has disappeared. We are obligated to layoff in the future 100 percent of the employees.
We are working with state agencies to fund the obligations to laid off employees for pension and medical plans. Under their collective bargaining agreements they are owed benefits in the future. Those obligations will be fulfilled and funded.
Please share the expertise and background that you personally bring to the CRA Oversight Board.
I am a real estate attorney, and these are both real estate and legal issues. On the Board there are two attorneys: Michael Lawson, who is recently retired from the practice of law, and myself. Primarily, I believe I was asked to be on the Board (an unpaid position) because of my legal and real estate background.
Second, the Oversight Board is required to have one "public" member. I’m one of only a couple of members not affiliated with the agency that appointed them. In my civic background, I have been the President of the Sherman Oaks Homeowners Association for a number of years. I was a leader in the Valley cityhood effort about ten years ago, and going way back, I was involved in the original Proposition 13 effort. So I bring to the process experience from both a professional perspective as well as from a public point of view.
Richard, we conducted an interview with you ten years ago, in 2002. You noted then that CRA funds being used in non-blighted areas of downtown LA might have been illegal. As a member today of the CRA Los Angeles Oversight Board, do you have an opinion on the CRA’s actions over the past ten years? And with hindsight, were some CRA projects illegal – i.e. not truly in blighted areas?
Ten years ago when I mentioned the word illegal, I think it went to the question of whether areas were blighted. After the earthquake, a lot of communities seized upon the context of community redevelopment. For instance, most of the business area in Santa Monica is within a Community Redevelopment Agency. This means that the tax revenue is diverted from the schools, police, and fire, and is used for that sole purpose.
Putting aside the word ‘blight’, I think it was a policy decision made by the legislature last year determining that there are better uses for that money. In today’s climate, it may be better to use that money for education and public safety.
Also, there was a lot of misuse and game playing in redevelopment agencies throughout the state. From what I’ve heard, Jerry Brown saw that firsthand as Mayor of Oakland, and took that memory with him as he went to Sacramento to serve as governor again. It’s because of these abuses that Community Redevelopment Agencies no longer exist.
If we speak about the CRA again in six months, at the beginning of 2013, what will we likely be addressing? What will have changed? What perspective actions will be on the Oversight Board’s calendar?
I think everyone will recognize that the dissolution of the redevelopment agencies was an axe rather than a reform effort. Yes, a lot of money will be returning to the schools, cities, and counties. However, many worthwhile projects, which were partially underway, will be fighting in the courts for years to obtain the money that they believe they were owed.
Maybe in five years we’ll realize that this was a necessary process and that good projects will be funded by the cities. But we’ll also say, looking back, that it was a murky process, because it was done with an axe rather than through negotiations.
One last question: why did it have to be done with an axe?
We need to blame it on the attorneys. When this proposal was in the legislature in 2011, attorneys said, one, it would never pass, so there was no need to negotiate with the Governor or the legislature. Two, they said even if it passed, it is illegal, and the courts will throw it out in a moment, so again…no need to negotiate.
Guess what? It did pass, and the courts upheld it! I think the take-away is that you shouldn't always rely completely on your attorney. Sometimes it is better to negotiate a settlement.