Redevelopment in Sacramento will continue, but it will cost the city more than $20 million.

The City Council unanimously approved an ordinance Tuesday that allows the city to make an initial $18.3 million payment to the state in order to maintain the Sacramento Housing and Redevelopment Agency.

The ordinance – an emergency measure that takes effect immediately – authorizes the city to participate in the “Voluntary Alternative Redevelopment Program” (VARP) under a new state law (ABx27) enacted in July.

Participation in the program allows redevelopment agency activity to continue as long as continuation payments are made to the state each year.

La Shelle Dozier, SHRA executive director, said that in order for Sacramento to stay in the redevelopment game it must make an initial $21.8 million payment – $18.3 million from the city and estimated $3.5 million from the county – paid in two installments in 2012, plus $4.2 million from the city and $839,000 from the county annually thereafter.

According to the new state law, if the city and county didn’t create an ordinance to opt into the VARP and make the VARP payments, the redevelopment agency would be dissolved as of Oct. 1.

“Every project we have generates jobs in the region,” Dozier said. “In these economic times, that will have a huge impact.”

The city will make the required payments to the state to prevent “the total loss of benefits provided by the Agency to the taxpayers, property owners and residents of the city,” according to a report from city and SHRA staff.

On July 18, the League of California Cities (LOCC) and the California Redevelopment Association (CRA) filed a petition in the California Supreme Court challenging the constitutionality of the new redevelopment agency laws.

New Sacramento City Manager John Shirey said on Aug. 4 that he will be doing double duty as both city manager and taking part in the lawsuit against the state, of which he was a part as executive director of the CRA.

While the legal challenge makes its way through the courts, the City Council isn’t waiving any legal rights by enacting the ordinance. If the challenge from LOCC and CRA is successful, the City Council can repeal the ordinance.

The VARP payments will be made “under protest,” the ordinance states, and the city will have the right to recover payments (plus interest) if the courts determine the new redevelopment laws are unconstitutional or illegal.

Craig Powell, president of local political watchdog group Eye on Sacramento, addressed the City Council Tuesday with concerns that continuing SHRA will have a negative impact on the city’s general fund.

“What would the general fund receive on an annual basis if the redevelopment agency went away?” Powell asked. “You would not be doing your job if you did not know what you’re giving up in the way of cash to the general fund by making this payment to keep the RDA alive.”

Powell criticized the SHRA as a “debt-creating machine,” saying the agency has run up $1 billion worth of debt.

Powell said in an interview Wednesday that, if the agency is dissolved, that debt would be paid down and income for the city coffers would increase – to the tune of approximately $15 million annually after 10 years, according to Eye on Sacramento estimations.

Powell said that funding from property tax revenues currently going to redevelopment agency activities could be restored to the general fund “for badly needed police, fire, parks and other general services.”

Interim City Manager Bill Edgar and Dozier responded to the criticism Tuesday night by noting the ordinance to continue redevelopment agency activity does not require the City Council to pledge any general fund revenues to make the VARP payments.

Any payments required under ABx27 will be funded solely from SHRA funds or assets transferred to the city, Dozier said.

Additionally, SHRA will suspend tax increment allocation to the Low and Moderate Income Housing Fund (LMIHF) for 2011-12 to help make the initial VARP payment.

“There is a cost to the city, however, in the way of delaying projects,” Dozier said. “Less redevelopment equates to less jobs.”

In 2010, SHRA invested more than $25 million in 76 redevelopment projects, according to the staff report. Of those projects, 18 were completed in that year, resulting in 530 temporary and permanent jobs.

Dozier said it was necessary to enact the VARP ordinance right away because, otherwise, SHRA’s redevelopment activities would be suspended and the agency would be dissolved as of Oct. 1.

Without adoption of the ordinance, projects such as the La Valentina development project, the 65th Street bus transfer relocation, Township 9 affordable housing component, and 800 K Block and 731 K St. enhancements would be immediately impacted, according to the staff and agency report.

The next step for SHRA, Dozier said, is to file an appeal to the state regarding the payment.

“Since the agency has seen a steep decline in our tax increment revenue,” Dozier said, “we can file an appeal and that may lower our (payment) obligation.”

Dozier said SHRA staff is reviewing its annual project budget so it can determine the exact amount the city will need to put forth for the continuation payment.

SHRA will report back to the City Council in November with that amount as well as the amount of project defunding necessary.

Melissa Corker is a Staff Reporter for The Sacramento Press. Follow her on Twitter @MelissaCorker.