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6.C. - Page 24 of 196 Educational Revenue Augmentation Fund Refunds In FY 1992-93 and FY 1993-94, the State shifted property taxes from cities, counties, and special districts to school districts to supplant funding that the State had been providing to school districts. The County Controller places the funds that shifted from local government agencies into the Educational Revenue Augmentation Fund (ERAF). The Controller then disburses these funds to school districts based on a formula prescribed by state law. Any funds remaining in ERAF (after the distribution to the school districts) are returned to the cities, county, and special districts in proportion to the amount they contributed to ERAF. This return of property tax revenue is difficult to anticipate due to complicated state school funding formulas, and is continually at risk of reduction or elimination by state action. In FY 2018-19 and FY 2019-20, Redwood City received $11.0 million and $6.8 million in returned funds, respectively. FY 2018-19 revenue was much higher than estimated due to a one-time acceleration in the timing of payments. This level of funding is higher than can be expected in the future, particularly given recent and potential changes in school financing, which the County Controller has indicated could significantly reduce this revenue source for cities and the County in future fiscal years. The City's policy is to budget what can reasonably be estimated, which was $4.2 million, or about 62 percent of the actual amount received in FY 2019-20. The City has also budgeted to receive $4.2 million in FY 2020-21. Staff will analyze this revenue source in the Spring of FY 2020-21 to determine if a year-end budget amendment is needed. Successor Agency to the Redevelopment Agency As of July 1, 2018, the Oversight Board of the Successor Agency to the Redevelopment Agency of Redwood City was reorganized and combined with other oversight boards in San Mateo County, thus creating one Countywide Oversight Board. Going forward, action on behalf of the Successor Agency to the Redevelopment Agency of Redwood City will be taken by the San Mateo County Countywide Oversight Board. The City continues to focus on the disposition of the $10.3 million in funds that had been in the former Redevelopment Agency's possession, which were encumbered for below-market rate housing through an agreement with the Legal Aid Society. The control of these funds has been in dispute with the State of California Department of Finance (DOF) since the Redevelopment Agency was dissolved in FY 2011-12. The City filed suit against the State of California, challenging the DOF's position that these funds are unencumbered and must be remitted to the County Controller. Although the State prevailed in the Superior Court trial, the City filed an appeal. The appeal was heard on December 14, 2020 and the Court of Appeal reversed the lower court decision and DOF determination, accepting all of the City's Dissolution Act arguments. A petition by DOF for review by the Supreme Court is due by February 8, 2021. State legislation (SB107) was passed in September 2015 requiring that all obligations determined by the DOF be paid in order for successor agencies to receive the benefits of a finding of completion. The City remitted the funds prior to the end of calendar year 2015 for distribution to the taxing entities while it continues to pursue its appeal. The City advised the taxing entities to hold the funds in case the City prevailed in this appeal. If there are no more petitions by the DOF, the City will proceed with recovering the $10.3 million. This recovery is likely to occur over several years. The City also continues to work with the State of California regarding the disposition of several former Redevelopment Agency land parcels. Relevant Financial Policies In FY 2016-17, the City Council updated the General Fund reserve policy, where the unreserved portion of the General Fund's fund balance shall be 15 percent of anticipated General Fund revenues. With the FY 2019-20 Adopted Budget, the City Council approved a strategy to utilize 80 percent of the excess balance, above the 15 percent reserve threshold, to pay down the City's unfunded liabilities, including pension and retiree health 111