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Redevelopment Debt is the City’s Debt

We received several emails yesterday about a local amateur blogger quoting un-named City of Alameda sources and trying to assert that redevelopment debt issued by the Community Improvement Commission of the City of Alameda is effectively “free money” with no impacts on the City’s finances. How untrue.


This blogger’s assertion, of course, is utter nonsense. Redevelopment debt, or tax-increment financing bonds, issued by the Community Improvement Commission of the City of Alameda (CIC) is City of Alameda debt. It’s secured by a property tax revenue stream from properties within the City of Alameda and issued under the auspices of the City and by a City of Alameda governing body. The CIC is run by a governing board consisting of the City Council of the City of Alameda. Although the CIC is created under State redevelopment laws, the debt they issue is not guaranteed by the State of California, and it is rightly reported on the City’s books as City of Alameda debt. Claiming that CIC redevelopment debt has no effect on the City of Alameda is like saying Alameda Power & Telecom debt has no impact on the City of Alameda. Well, AP&T bondholders are suing both AP&T and the City of Alameda for roughly $20 million of bonds that AP&T cannot pay back. Attempts to exclude CIC redevelopment bonds from a calculation of the City’s total debt is an attempt to outright lie to the public. That’s the sort of accounting that got Wall Street into the current financial mess they are in.

So we went to yesteday’s Fiscal Sustainability Meeting held at City Hall West to be sure the commitee is considering redevelopment debt in their evalution of the City’s fiscal sustainability. We want to be sure that the final work product that the Committee produces includes an evaluation not just of the existing $300 million of CIC redevelopment debt, but also the proposed $700 million in redevelopment debt that SunCal wants to subsidize their development at Alameda Point. We said our piece and then followed up with e-mail to committee members.

Of course, as soon as we spoke about redevelopment bonds, former Alameda City Manager Bill Norton, who sits on the committee, and Redevelopment Services Director Leslie Little, who sits also on the board of the California Redevelopment Association, a Sacramento lobby group that pushes for municipalities to issue redevelopment bonds to benefit their members, were quick to silence any discussion of the matter – even a response from committee members to public comments – ostensibly because the topic wasn’t on the agenda. In our email, we asked for the topic to be put on a future agenda for the committee. Hopefully it will be.

Here is an excerpt of our letter to the Fiscal Sustainability Committee:

Thank you for hearing our public comments today at the fiscal sustainability committee meeting regarding the proposed issuance of another $700 million in redevelopment debt to support SunCal’s buildout of Alameda Point. This is surely within the purview of your committee – SunCal delivers their plan to City Staff on Dec. 19th and I presume it will go to ARRA/City Council early in the new year.

To be sure, SunCal has very clearly indicated that they want redevelopment bonds (tax increment financing) to support their efforts out there. In their March 8, 2007 response to questions from the City, they clearly stated they would seek tax-increment financing for “infrastructure.” (see below.)

In their draft master infastructure budget, SunCal estimated it would take $670 million (call it $700 million) to replace the infrastructure at Alameda Point to support their buildout.

SunCal hasn’t officially asked for the bonds to be issued yet, but it’s clear they will. At the Nov 5th ARRA/CIC meeting, base re-use manager Debbie Potter started off the meeting with a discussion about the need to issue redevelopment bonds to attach to the tax increment. The bonds get issued first, then the redevelopment construction work starts, thereby improving the value of the property and generating tax-increment revenue to pay back the bonds. That’s how it works.

A $700 million redevelopment bond issuance will have a tremendous impact on the City’s finances. We hope you will include a review of this potential bond issue in your final work product for the committee.

References:

SunCal Draft Master Infrastructure Budget – Fall 2008
http://www.alameda-point.com/pdf/presos/APDraftMasterBudget.pdf

March 8 2007, SunCal Response to City of Alameda Questions – See Question 9, excerpted below.
http://www.alameda-point.com/pdf/resp/SunCal.pdf

Question 9: How does your firm envision utilizing tax increment financing, and what assurances will the CIC receive that tax increment will be used only as necessary?

SunCal anticipates utilizing tax exempt financing in connection with the project, including for construction of public infrastructure and affordable housing. The extent to which tax increment will be utilized is not known at this time, and requires significant further analysis, including development of a proposed project plan, understanding of the City’s and the ARRA’s requirements, and understanding the level of affordable housing required for the project (i.e., is greater than 25% affordable housing required on the site?) SunCal understands that a core principle established by the ARRA and the City is the achievement of revenue neutrality and agrees to maintain that as a core principle in negotiations. In addition, SunCal anticipates that the CIC will require SunCal to justify its use of tax increment and to utilize such funds for purposes consistent with state redevelopment law requirements.

We suggest you write or call City Council and ask them to direct the Fiscal Sustainability Committee to examine the pending SunCal redevelopment bond issue in their final report.

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