WATSONVILLE — Should the city lose a lawsuit against the state, Watsonville will have to pay $4.6 million to the state Department of Finance, and to prepare for this, the City Council will look at ways to pay the bill during its meeting Tuesday.
The issue began in 2006 when the city made a loan from its general fund to the Redevelopment Agency to build the Civic Plaza, the adjacent garage and the community rooms in the library.
The Watsonville Redevelopment Agency paid the loan back in 2011, but that was the same year when Gov. Jerry Brown dissolved the state’s 390 redevelopment agencies.
The State argued that the repayment of the loans was not valid due to the timing of the payment but should be a valid obligation to be paid in the future by the city's Successor Agency, according to a report by Ezequiel Vega, administrative services director.
The city disagreed, filing a lawsuit against the Department of Finance, the State Controller’s Office, the State Board of Equalization and the County-Auditor Controller.
If the courts ruled against the city, Watsonville would have to pay $4.6 million to the County Auditor Controller within the timeframe specified by the courts, the report stated. However, it would receive back $1.1 million within five working days of making the payment, because the city is a taxing entity.
To repay the loan, the city could enter into a cash flow loan where the Water Fund lends cash to the General Fund to pay the State, and the General Fund would pay interest to the Water Fund, according to the report. If this schedule is followed, the internal loan repayment could take up to 11 years.
City staff recommends this option because the Water Fund has "healthy cash reserves," the report stated.
In other items:
• The City Council will award a contract in the amount of $210,000 to Redding-based All Phase Excavating and Construction for the first phase of the citywide fiber optic project.
• The city is expected to adopt updated building and fire codes.
The Watsonville City Council will meet Tuesday at 4:30 p.m. in the City Council Chambers, 275 Main St., fourth floor. The agenda can be found at tinyurl.com/kcxh8bx.
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