Merced CA lost a lawsuit, has to pay out almost $10 million
The city of Merced lost a legal appeal recently and must now pay out $9.5 million to the Merced County controller, according to Sacramento County Superior Court records.
The state Department of Finance said the city improperly spent about $9.5 million that should have been returned following the dissolution of its Redevelopment Agency in 2011.
The city spent the money on building affordable housing in the Woodbridge project on Copper Avenue and Highway 59, and other projects. Seventy-five of the roughly 250 units are considered affordable housing, according to Stephanie Dietz, Merced’s assistant city manager.
The decision to move ahead with the projects was made in early 2011.
“The cause of the dispute pre-dated anyone on the council today or anyone in the city manager’s office,” Mayor Mike Murphy said on Tuesday.
He said the city is in negotiations with the Department of Finance to work out a payment plan. Asked how significant the impact will be, Murphy said, “We need to know the payment plan.”
The controller will divvy up the dollars to cities, counties, special districts and school districts, a legal requirement after the Redevelopment Agency went away.
The city and state have been fighting over the money in court since 2016, according to court records. The money will come out of the general fund, officials say, which is typically used on police, firefighters and other city needs.
Leaders have been putting some money away in anticipation of potentially losing the lawsuit, Dietz said, but “it’s nowhere near” the $9.5 million.
“It’s a general fund obligation so there’s no special funding for us to pay this,” Dietz said. “It will have an impact on the budget going forward.”
The outside attorneys who handled the lawsuit, Best, Best & Krieger, declined to comment, directing questions to city leaders. The city spent $205,795 on legal fees related to the lawsuit, according to Dietz.
That law firm remains on retainer with the city.
Murphy defended spending money on legal fees to try to keep the $9.5 million. “It’s an important matter for the city so we defended ourselves in court,” he said.
Merced’s redevelopment agency was one of 400 eliminated across the state, because legislators passed a law in 2011 ending them. Redevelopment money re-routed to public services like public safety and education as the state was dealing with budget shortfalls following the Great Recession.
So-called Successor Agencies were set up in each jurisdiction to manage the remaining funding and turn over to counties what was owed.
The end of the lawsuit came about the same time as the city announced it has been awarded a $13.9 million state grant to build a 119-unit affordable housing project, which includes 30 for the most vulnerable homeless, on about 5 acres of land at Childs Avenue and B Street.