Some cities, like Santa Ana, are refusing to hand over to the state money from the remaining affordable housing funds of their defunct redevelopment agencies.
State legislation, supported by a late 2011 state Supreme Court ruling, dissolved the state's redevelopment agencies, which were required to use 20% of their revenue to support low- and moderate-income housing.
Many of the successor agencies were required to hand over by last Friday the housing money, which is to be redistributed to cities, schools and other local government entities in their respective counties.
The Santa Ana City Council voted 4-0 in a special meeting not to pay $56 million owed the state, said H.D. Palmer, spokesman for the state's Department of Finance.
City officials weren't available to comment as their offices are closed for the holiday through Jan. 1.
According to Palmer, the state could withhold tax proceeds from Santa Ana or lodge criminal penalties against local officials, but those measures will be used only as a last resort. He added that state officials are willing to set up payment plans with the cities.
The state doesn't have a tally on cities that refused to pay or the total amount to be collected from the cities impacted, he said. Letters went out last week to 160 cities regarding disputes on funding left over from affordable housing programs and 240 cities for disputes regarding recognized obligation payments, Palmer said.
The state spent the past few weeks conducting over 500 meet and confer sessions with successor agencies over disputed funds, Palmer said.
Battles with the state over redevelopment agency funds have resulted in bond rating downgrades on many of the bonds issued by the 400-plus defunct redevelopment agencies.
Fitch analysts said last week they are maintaining negative rating watches on four of the cities they rate over such battles. The list was larger, but some subsequently have been removed from negative rating watch due to entity-specific reasons, said Scott Monroe, a Fitch analyst.
The impact on bondholders would vary based on each entity's ability and willingness to deal with liability from the Assembly Bill 1484 clean-up legislation passed last summer to facilitate the redevelopment agency dissolution, if cities' judicial strategies proved unsuccessful, Monroe said.
"For example, one entity indicated they would pay the liability from the sponsoring entity's general fund," Monroe said. "However, some would not or could not make the payment from their general funds, and their [tax-allocation bond] debt service payments could be impaired, or they could result in a draw from a debt service reserve fund, if available."