When the City of Oakland sold the Henry J. Kaiser Convention Center to the City’s dying redevelopment agency for $29 million last May, most observers saw through the shell game and figured that it would only be a matter of time before the state’s Department of Finance came looking for the money. Now we know that the raid is happening, thanks to Mayor Jean Quan’s warnings to the City Council this week. For more background on what got Oakland to this point, I’ll point you to two past blog posts.
- Quan takes it down to the wire (6/15/11)
- State bills Oakland $29 million for Henry J. Kaiser Center sale (5/29/12)
As Oakland scrambled to deal with the ramifications of redevelopment’s demise, the City sought creative ways to move money around to fund basic city services. Methods included using redevelopment money to pay for items that would have normally be covered by the general fund, and transfers like HJKCC. State Controller John Chiang warned cities doing such transfers that if they felt that assets would be at risk for seizure, those assets should be placed in a reserve, which Oakland did to the tune of $30 million. In 2012, the City received a large uptick in tax revenues, bringing its surplus to over $80 million including the reserve. Quan expressed confidence about the surplus.
Even under the worst-case scenario, we have $45 million in reserves. We can cover this.
That worst-case scenario is approaching soon, as the seizures will occur, short-term benefits deals cut with unions to help balance the budget are set to expire, major unfunded pension liabilities loom, and the City works to maintain and add to police staffing. During Tuesday’s City Council meeting, a large union contingent was in attendance to protest any notions of prolonged or additional concessions.
Oakland made a huge mistake in 2011 in assuming that a crippled form of redevelopment would be allowed if bills AB 1x 26 & 27 passed. The nightmare scenario came to fruition when AB 1X 27 was ruled unconstitutional, leaving no avenue for future RDA activities. In addition to the state coming down on the HJKCC deal, the DoF asked Oakland to return $18 million of RDA money in January. All told, Oakland could be dealing with a new $50+ million hole that will go straight to future budgets. Unlike some of the other illegal transfers such as the ballpark land in San Jose, Oakland’s problems are related to cash that was either allocated or spent. The City still has the reserve that can backfill most of the hole, but it will put other parts of the budget at risk and jeopardize other projects, including broad development initiatives such as Coliseum City. Land transfers are a different case in that they don’t have to be liquidated unless the DoF determines that a city has come up so short that a fire sale is needed. In many cases, it’s merely a matter of determining that a piece of land has to be taxed normally instead of being placed in a RDA-style tax increment scenario.
Howard Terminal is owned by the Port while the Coliseum is jointly owned by the City and Alameda County. Neither HT nor Coliseum City are at greater risk in terms of feasibility due to the coming raid. However, it’s possible that the budget crunch will cause additional funding for pre-dev work at HT or CC to be rerouted elsewhere as both fall down the priority list in favor of more pressing matters. That already happened once with Victory Court in 2011, and we all know what happened with that plan.
The full impact of the RDA seizure and clawback won’t be known until the DoF releases its final report on Oakland and the City bakes the impact into its next budget.