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ELA Update: Court rules ERAF to be included in calculation of district’s redevelopment tax payments 

School districts with redevelopment agencies—RDAs—within their boundaries share in the tax increment increases resulting from redevelopment projects after the project property is removed from the real property tax rolls. School districts share these “pass-through” payments with other local agencies supported by local property tax revenue and do so “in proportion to the percentage share of property taxes each affected taxing entity receives … during the fiscal year the funds are allocated” (emphasis added).

It is important to school districts that the calculation is done correctly, as 56 percent of the “pass-through” funds may be used for facilities and do not count toward the state’s revenue guarantee to schools.

In Los Angeles County, and many other counties, transfers of tax revenue into a school district’s Education Revenue Augmentation Fund are not included as “taxes received” by school districts in calculating “pass-through” payments. The Los Angeles Unified School District sued Los Angeles County and the RDAs within its boundaries, claiming that the district’s pass-through payments should be based on a “post-ERAF” calculation basis. The trial court disagreed, but an appellate court recently reversed that ruling and determined that LAUSD was entitled to the “post-ERAF” calculation.

Given that redevelopment projects may go on for decades, substantial amounts of additional revenue for school facilities are involved. LAUSD, for instance, estimates that it will receive an additional $2.4 billion in increased “pass-through” funding over the next 45 years. Reconsideration of the court of appeal’s decision is currently being sought by the county and the RDAs, and review by the California Supreme Court will also almost certainly be sought.

Nonetheless, this court of appeal decision is important for all school districts with RDAs within their boundaries and where counties calculate pass-through payments on the “pre-ERAF” basis. Substantial increased facilities funding could be in the offing, as appears to be the case for LAUSD. The Education Legal Alliance has been following this issue for some time and, in fact, filed an amicus brief in support of LAUSD in the trial court. The Alliance has resumed its legal research on how all school districts subject to the “pre-ERAF” calculation for determining “pass-through” amounts may benefit from LAUSD’s victory. A further update will follow; in the meantime, if you believe your district is subject to the erroneous “pre-ERAF” calculation, discussions with the county and the RDA are advised.

If your district has received notice of a deduction, as a prior-year adjustment, from the total Principal Apportionment for 2009-10 resulting from a review under Assembly Bill 1389 (related to budgeting of “pass-through” amounts) you should determine if you still have the opportunity to submit an appeal to the Education Audits Appeal Panel concerning that adjustment. Participation in that appeal process may be a quick way to determine if the “pass-through” amounts have been calculated correctly.