A Lawsuit-free Redevelopment Solution

When Mark Purdy starts writing about the state of redevelopment, you know it’s serious.

The truth is, whether by design or accident, Selig has dawdled so much that any Northern California ballpark plan could be imperiled by new Gov. Jerry Brown’s plan for the state to scarf up redevelopment funds. Oakland was counting on those funds to buy ballpark property. Fortunately, San Jose has already purchased most of its land and has a Plan B to obtain the rest — selling other downtown parcels owned by the city and using that money to buy up the remaining ballpark footprint.

Following up on former San Jose Mayor Tom McEnery’s appearance on The Ronn Owens Show, Purdy is taking the tack of calling Bill Neukom’s stance on T-rights silly, as opposed to McEnery’s appeal to Neukom’s better angels. Again, I can’t see this media campaign as being effective other than the fact that the issue remains in public view, which may be the point.

Going back to redevelopment, an article in today’s Merc tries to project what would happen in the near term to the beleaguered SJRA. The agency has tax increment over 8,100 acres of property in SJ city limits, equivalent to a 12 square miles or a city the size of Mountain View. Even if Sacramento ordered SJRA to stop any new development contracts tomorrow, they couldn’t claim any new tax increment off the top because it’s already sworn to pay off debt for existing projects. That’s because nothing new is being built in San Jose other than a few projects which started a few years ago such as the Brocade headquarters in North San Jose. For Sacramento to be able to get “new unsecured” tax increment, San Jose and other cities would have to embark on a new development boom, or at least encounter a situation where a bunch of property gets sold among private parties. That means that, ironically, one of the ways Brown could see that new tax increment is if he allows the RDAs to make their last hurrahs and go out with a bang by approving new projects, like a Diridon ballpark. Diridon would be a different case from most other new projects in that no new funding source would be required to complete the project.

That’s not a situation that would work in Oakland, since ORA would have borrow against future tax increment to assemble the Victory Court land and infrastructure. That’s exactly what Brown wants to prevent. Oakland could raise funds without ORA, but it would have to occur via a hike in sales tax or a parcel tax, the same kind used for local school improvements, and thus would require a vote. Should the dissolution or scaling back of RDAs happen – say by this summer – the biggest obstacle facing San Jose would also face Oakland, except that Oakland would require a supermajority (2/3rds approval) 55% approval per Brown’s proposal for limited redevelopment, whereas San Jose would require only a simple majority (no new taxes). Judging by the results of the last vote on a parcel tax measure in Oakland (for police funding), it’s not very promising.

Even if the cuts were quick, there’s no chance that they’d be clean. The Bay Citizen’s Zusha Elinson ponts out that both Oakland and San Jose have a lot of budget crossover between RDA and City, with both cities paying for some police task forces and even city council members’ salaries. When Controller John Chiang finishes his audit of 18 cities (including SJ), he may find that whatever revenue Governor Brown thought he could realize by killing RDAs was a mere illusion. Then what?

Then there’s the issue of what tool Brown would use to extract funds. He promised not to go after already under contract projects. He might go after recently agreed upon projects, the ones cities have been rushing to approve over the last few years weeks. This goes against the spirit of Proposition 22 which was passed in November. Brown and his aides talked of Prop 22, which is now enshrined as a constitutional amendment, being moot if the agencies themselves were eliminated. But that would undoubtedly run into lawsuits and scared the big city mayors enough to lobby Brown in the Capitol last Wednesday. The result of the meeting was that the mayors, including Chuck Reed and Jean Quan among others, agreed to put together a “working group” whose mission it is to make a counterproposal. Given our experience with panels/committees/working groups, the mayors aren’t the best bet right now.

A compromise solution may come from the legislature. Assemblyman Jim Beall suggests that the state could place a cap on the percentage of tax increment any RDA takes. For many cities and specific redevelopment districts, such a step would amount to a freeze. San Jose would have to search far and wide for projects in areas not affected by a cap, whereas Oakland might benefit from having large swaths of former industrial lands or brownfields which could work under the cap. It’s unlikely that this solution would net the $1.7 Billion in revenue Brown is seeking, but at least it would keep the lawyers at bay. I could also see a situation where there are caps on individual projects based on proportionality. Even if San Jose wanted to raise bonds for a big project right now it would be in trouble because Fitch just dropped its rating on non-housing RDA bonds from A to BBB-, putting the confidence in SJRA bonds just barely above that of junk bonds.

If you’re reading this and thinking, “GAWD why is ML writing about this crap again?!?!” or “Cities have too much power to let RDAs die” I suggest you read up on this. I assure you, when it comes to the A’s staying in the Bay Area long term, it’s very serious. The cities aren’t acting like they’ve got nothing to lose, they’re battening down the hatches. The end is nigh for the era of modern redevelopment throughout California, and if cities aren’t proactive, the chances of being able to pull off the next big library/sports facility/city hall/transit hub will dwindle to nothing (admittedly some are cheering this on).

Tomorrow, I’ll go over the weird possibilities for the local sports teams if RDAs were to crumble.

12 thoughts on “A Lawsuit-free Redevelopment Solution

  1. Nice link to the NY Times article: so they use RDA money for … wait for it … salaries. Makes short shrift of what they always claim that it can only be used to build stuff, not for maintenance … Slush fund — and also taxpayer dollars that got siphoned off from schools and the like. Fine with me to use it to pay for a ballpark, if indeed the majority of the voters of San Jose consider that the best use of funds in these times with budget gaps (I am just talking about SJ’s gap, not even CA’s gap).

  2. great summary on RDA’s and ultimate challenge for keeping the A’s in the Bay Area—Neukom is loving life—a commissioner who can’t make a decision and a govenor who is trigger happy—both playing right into his hand of making the Bay Area a single MLB baseball market–irionically its not a huge stretch to see that we could ultimately see one team only for all of the major sports–‘9ers, Sharks, gints, and w’s—-not saying that it will happen but the odd’s get stronger each passing day—

  3. Well, wasn’t that a nice reality bummer.

  4. GoA’s,
    You really need to relax a bit. The Bay Area WON’T become a single-team MLB market. SJRDA could disappear tonight and Diridon South would still be put together for Wolff/A’s.
    Again all, MLB does not favor one team in the Bay over rhe other. Two healthy franchises in two spanking yards in the two largest cities; that’s what this is all about.

  5. @Tony—can appreciate an optimistic point of view but blind optimism can also be a bit naive….if the path was so clear you can bet that McEnery, Stone, Purdy, LW, and Silicon Valley CEO’s wouldn’t be wasting their time trying to publically ensure that both teams will be supported and railing against territorial rights—as Stone put it—its not a contest between SJ and Oakland–that really doesn’t exist—neukom is the challenge—as others have established here before there is little in it financially for the other owners to green light SJ—that’s why this was up to BS to lead rather than be led and there seems to be more than enough concern that he has failed to accomplish what was expected-

  6. Those that are calling for the end of RDAs should reread following sentence in the merc article linked above:

    Brown envisions cash-strapped local governments using the money to pay employees’ salaries and support parks or libraries, freeing up dollars the state currently pays to counties and schools to replace tax money taken by redevelopment.

    This is just a transfer of money from local funds to the state. It sure doesn’t sound like your neighborhood school is going to get squat in terms of extra funds. Only a name change on the check. I say this b/c most comments in these news articles frame the debate as general fund vs RDA. The real question is state vs. RDA and I wish the public was more focused on that issue. Instead we’ll likely hear more clamoring to end RDAs for the sake of our schools.

  7. @gojohn10 – That’s right. If anyone remembers the Prop 22 debate, the special interests involved were RDAs vs. public employees (CTA). This is a continuation of that fight.

  8. Add to that the fact that this will do nothing to drive pension reforms which is why these city’s are all broke—end of the day a city is net neutral in terms of revenue and now has lost its ability to try and create jobs—suprised that the construction trade unions aren’t more pro-active–they stand to get hit hard–and I’m not sure that group can handle anymore with unemployment so high amongst its ranks

  9. GoA’s,
    Little in it financially for the other MLB owners if the A’s move to SJ? Says who? Not Rosenthall or Wolff.
    Put it this way: does it make more $ense to keep the A’s on revenue sharing welfare by forcing them to stay in Oakland or relocate them to an inferior market?
    Or does it make more $ense to make the A’s a revenue contributor by simply moving them 35 miles south of their current location?
    If I’m a MLB owner, I know how I’m thinking: follow the money! By the way, Wolff’s sense of humor in the Purdy piece should tell you a lot about the current situation.

  10. @ go a’s. As a government employee, I can tell you my employer pays more each month for my health insurance than it’s share of my retirement contribution. True health care reform and welfare reduction would do more for budgets than altering the public employee pension system.

  11. @bay area A’s–thanks–not qualified to debate how best to improve a city’s financial outlook—I am sure there are many ways–but one thing that continues to be raised is the current pension system is unsustainable–even if you assume moderate revenue increases—which wont be afforded by Brown’s plan with RDA’s

  12. It is obvious Selig is waiting for Oakland to do something to keep the team there. He has stated MLB never moves teams out of their assigned territory unless it is a last ditch effort.

    Selig is praying for an “Oakland miracle” and he knows the date is 2015 for a new A’s ballpark and he has the luxury of sitting around for another year before doing anything….Of course he is taking full advantage of this.

    If Oakland can subsidize the actual ballpark (50% or so) on top of the transportation infrastructure around VC then I am sure Wolff will be “all ears”. But why won’t Oakland call him? We all know that answer….

    It goes to show how “smart” Selig is and how much “guts” he truly has. This coupled with the fact he put himself in this mess by writing the “You can explore other territories” outside their assigned territory and the appointment of the BRC.

    Purdy is right on in his assessment and as Neil de Mause on his “Field of Schemes” blog states if contraction even becomes a remote possibility you can assume Oakland or San Jose (more likely) will sue MLB and erode their Anti-Trust exemption in court.

    The lawsuit is coming in 2012. San Jose will take it all the way and Selig will go down in flames…

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