Report 97101 Summary - March 1998

Community Redevelopment Agencies: Surplus Balances in Lower-Income Housing Funds Are Overstated, Suggesting a Need for More Statewide Oversight and Direction

Results in Brief

The Community Redevelopment Act gives California cities and counties the authority to establish community redevelopment agencies to revitalize their deteriorating and blighted areas. State law requires that a redevelopment agency set aside a designated amount of its property tax revenue to adequately supply affordable low- and moderate-income housing. The California Department of Housing and Community Development (department) must report each year on the status of the redevelopment agencies' low- and moderate-income housing funds. As of June 30, 1995, the department reported that 44 agencies had accumulated excess balances in their low- and moderate-income housing funds, totaling approximately $51.7 million, that were subject to a mandated January 1, 1997, spending deadline.

Our audit finds that actual low- and moderate-income housing funds excess balances are far less than reported and there are problems with the administration of community redevelopment. Due to the lack of oversight, redevelopment agencies fail to provide accurate and consistent information on the mandated amount of property tax dollars they allocate and spend on low- and moderate-income housing. As a result, the department has no way of knowing how much mandated money has not been spent. Specifically, we found the following:

State law does not provide for the oversight of redevelopment by a state agency that has authority to enforce compliance with statewide policies regarding low- and moderate-income housing activities. Compliance depends on local legislative bodies' interpretations of the legal and regulatory requirements. However, our review of practices used by 51 redevelopment agencies shows that some do not comply with laws and regulations governing redevelopment activities. Specifically, we found the following: Finally, the State Controller's Office guidelines for compliance audits of redevelopment agencies do not contain sufficient audit procedures to determine whether agencies use redevelopment funds to provide affordable housing as required by law.


The Legislature should do the following:

The State Controller's Office should revise its Guidelines For Compliance Audits of California Redevelopment Agencies to include the critical tests and other audit procedures needed to determine whether a redevelopment agency complies with state policies regarding the production, improvement, or preservation of housing affordable to low- and moderate-income households.

After the law regarding the calculation of excess surplus is clarified, the State Controller's Office and the Department of Housing and Community Development should consider taking steps to further educate the redevelopment agencies about the law's intent and requirements.

Agency Comments

We received comments from the Department of Housing and Community Development, the State Controller, and the 11 community redevelopment agencies for which we gave specific mention in the body of our report. The Department of Housing and Community Development and the State Controller agreed with our findings and recommendations. In addition, the agencies generally agreed with our findings. However, 6 of the redevelopment agencies disagreed with our conclusions regarding their compliance with the law that governs community redevelopment activities, and our conclusions on the adequacy of their internal accounting controls over their agency's assets. We provide our comments to these and other concerns raised by the agencies after their respective responses.