EL CERRITO -- The city settled a lawsuit that allows it to skip $1.76 million in "true up payments" demanded by the state following its dissolution of redevelopment agencies last year.

The settlement, reached in Sacramento County Superior Court in December, allows El Cerrito to keep the money and avoid penalties and fines that were threatened when the city refused to make the payments.

In delaying payment and filing the suit, the city risked penalties that could have included state confiscation of sales and property tax revenue and one-time and accumulating fines based on percentages of the amount owed.

City officials in July refused an order from Contra Costa County Auditor Robert Campbell to refund the money, stipulating that it had already been spent on projects and that a refund would have to come from its general fund reserves.

If it had been required to pay the penalties and fines, El Cerrito would have had to replace the money lost from reserves from money it has already budgeted for services.

The "true up" demand was roughly equal to about half of the city's reserves, according to economic development manager Lori Trevino.

Alternatively, if the money was taken from the so-called successor to the city's redevelopment agency, it would have resulted in a default on some of the former agency's bonds, she said.


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"We did not take this lightly," City Manager Scott Hanin said. "To protect our residents' assets, revenue and services, we saw no alternative to refusing to make the 'true up payment' and filing a lawsuit. We are pleased with the settlement."

In the suit, the city contested the amount of the payment and penalties demanded by the county auditor's office and by the state Department of Finance, as well as challenging the constitutionality of the state withholding sales tax or property tax from the city.

Campbell said he was required to make calculations of the amount due based on data that was approved by the state.

"We made the correct calculations, but there were other items that should have been included (in considering the amount owed), but no mechanism to change the data," Campbell said.

"Our concern was that we performed our duties, and I believe we did, and (the city and state) were able to resolve outstanding issues between them," he said.

The demand for payment came as part of a larger state effort to collect redevelopment money held by successor agencies.

Hundreds of cities statewide with successor agencies received demands for different repayment sums, Trevino said.

The settlement applies only to El Cerrito, she said.