Liset Marquez, Staff Writer
Created: 01/15/2012 06:03:48 AM PST

MONTCLAIR – The City Council took its first step in dissolving its redevelopment agency, but officials are worried that the move may cause the city to default on a short-term bond it took out several years ago.

In a special meeting on Thursday, the City Council agreed to oversee the winding down of the Montclair Redevelopment Agency, as well as to transfer the agency’s housing assets and functions to the Montclair Housing Authority.

Montclair’s decision is in response to last year’s state Supreme Court ruling which upheld a law eliminating about 400 redevelopment agencies in California.

“I’m very sad this is happening to us, to our city. We are an agency that’s always done it right. It’s such a shame to see this happening,” Mayor Paul Eaton said. “It’s done good things for our city and it’s a shame.”

Officials had until Friday to decide if they would become the successor to their redevelopment agency or if they would delegate those responsibilities to another entity.

The next step will be to outline the payment schedule for debt obligations by the Feb. 1 deadline.

In 2011, Montclair’s agency received $11.3 million from the state. Those funds were used toward the debt service on bonds the city has on existing redevelopment projects.

Redevelopment agencies use “tax increment financing,” in which they raise money through bonds to assist the development or upgrade of land and then pay off the bonds with the additional property tax the improved land generates.

Without those funds, the city will not be able to pursue new infrastructure and facility improvement projects, City Manager Edward Starr said.

“The general fund, in our case, is stressed because of the economic recession,” he said. “The general fund the next several years will start to grow but just enough to sustain existing services.”

Starr said the city did not build up debt with its redevelopment agency and anytime it did, the loan was paid back immediately – which brings up another concern for Starr.

In 2008, Montclair entered into a joint redevelopment project with San Bernardino County to rehabilitate Mission Boulevard. The city and county issued more than $7 million in short-term bonds, he said. Those bonds were issued because the project area did not have a five-year history of tax-increment records necessary to issue long-term debt bonds, Starr said.

The principal on that loan, as well as interest, have to be paid in June. With the inability to refinance the existing loan obligations, Starr said Montclair may go into default.

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