Property value decline keeps San Jose RDA from borrowing

Sharon Simonson
Published: August 30, 2004
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Burdened by steep declines in tax revenue and bound by a covenant with
existing bondholders, the San Jose Redevelopment Agency will be unable
to issue new debt this year.

The RDA's tax revenue has been especially hurt by a 27 percent decline
in the value of business personal property.

David Baum, the RDA's finance director, says initial indications are
that the agency's "tax increment" revenue on commercial property,
including business personal property, will be insufficient this year to
allow it to issue more bonds. "Tax-increment" revenue is the kind of
property tax the agency receives.

The agency issues debt to finance improvements citywide, focusing on
housing and retail projects in downtown and various neighborhoods and on
redevelopment of city industrial zones.

Under agreements with holders of $1.53 billion in existing senior agency
debt, the RDA cannot issue more like debt unless it can show that its
tax-increment revenue is sufficient to cover its required debt service
with $1.15 in revenue for every $1 in annual debt payments. With the
decline in revenue, the agency can no longer meet the $1.15 to $1 test.

Matthew Jones, an analyst with Moody's Investors Service, says the
agency is not in danger of being unable to repay its debt, noting that
it has "plenty of cash."

The agency began the fiscal year in July with a $216 million fund
balance, according to its budget.

Mr. Jones downgraded his rating on the agency's debt last year, however,
from A2 to A3. The debt remains investment grade. He said he did so
because the agency would have only enough tax-increment revenue to pay
its combined, annual senior and subordinated debt-payment obligations,
assuming its tax revenue did not fall more. In fact, its revenue is
expected to fall by $20 million this year compared to last.

The agency has other revenue sources, but its tax-increment revenue is
far and away its largest revenue stream.

Still, Mr. Jones says he has been taken offguard by events.

"We introduced the idea that there could be more declines (in reports
issued in December and April), but the magnitude of the (current)
decline is a bit more dramatic than anyone anticipated," he says.

Moody's hasn't yet decided what further actions to take, if any, he
says.

Standard & Poor's maintained its A rating in December. Calls to the S&P
analyst in San Francisco to learn if it were contemplating a change were
not returned.

The RDA has seen the taxable value of the commercial property on which
it draws its revenue fall by nearly $4 billion in the last two years to
$14.9 billion. At the peak of that property's value, in 2002, the agency
received $187.4 million in tax revenue. This year, it will take in only
$150 million.

The two years of consecutive declines in taxable value and tax increment
revenue are "unprecedented" for the agency and dictate its actions, Mr.
Baum says.

"Everything we do has to be financially prudent. Until tax (revenue)
goes up, we are always concerned about a future drop," he says.

The agency contemplated issuing $20 million in additional debt this
year. Late last year, it sold $135 million in new debt.

It is already conserving cash, Mr. Baum says, and it has refinanced $281
million in existing debt, allowing it to reduce required payments by $12
million over the next 18 months.

"The truth is, this year, we don't have a problem," he says.

After that, "we're looking for a bounceback," he adds.

Time To Repeal Redevelopment

An fascinating article has been written about the relevancy of Redevelopment in today's society from the view of real estate developer, Doug Kaplan. An insider's look with analysis and statistics - we encourage everyone to read this article.

"Time to repeal redevelopment", by Doug Kaplan

State Budget – Coming to a theater near you.

Doug McNea
Vice President
Silicon Valley Taxpayers Association

The recent local government compromise budget struck in Sacramento can not be given the title of "The Terminator." A better title would be the "The Good, The Bad, and The Ugly." This budget does not terminate the government credit cards. This budget condones complex, creative financing schemes with no rationale. The Good: local government protection from state imposed unfunded mandates. The Bad: locking in place with a constitutional amendment the current flawed state-local fiscal structure. The Ugly: the complex tax swap of vehicle license fees (VLF) and property tax revenues. This should be the last of the "Titanic" state budgets that rearranges deck chairs instead of steering clear of the iceberg. The taxpayers of California deserve better.

This latest budget remake of "Nightmare on Elm Street" was produced by an alliance of local government interest such as the League of California Cities, the California Redevelopment Association, and the California State Association of Counties. This local government coalition made up of mayors, county supervisors, and appointed city officials have accomplished something extraordinary. They have converted public tax dollars into their own private assets to build a political organization to sway the Governor, the Legislature, and the voters to their point of view. The effort led by the League of California Cities qualified Proposition 65 for the November ballot. The league donated more than $1 million toward the cause. The league’s employees are paid with tax dollars contributed by the member cities. The coalition then lobbied hard using Prop. 65 for leverage. In exchange for allowing the state to divert $2.6 billion over two years to balance the budget, local government gets to place its "King Kong" feet into the wet constitutional concrete.

If the taxpayers of this state only knew how their taxes are being allocated they would demand real reform. Local government is funded by three major sources of revenue: property tax, sales tax and the VLF. To understand how each of the revenue pies is sliced and allocated to redevelopment, education, cities, counties, and special districts is "Mission Impossible." The formulas for distribution can be found in the state code if you know how to decipher the code. Each year as part of the budget process this code is revised and compromised. This year’s budget compromise is contained in SCA 4 (Proposition 1A) and SB 1096. Your mission, if you choose to accept it, is to read and understand this legislation. This message will self-destruct in 30 seconds. Unfortunately, so could your tax dollars.

Reform the Planning Commission

Save Our Open Spaces
Dale Warner - Secretary

Reform The Planning Commission

Members of the Save Open Spaces coalition came away from the city's
planning commission meeting on Wednesday, 8/11/04, convinced that it needs
top-to-bottom reform. The reasons will become clear as you read this
message from the SOS Coalition.

Wednesday's Planning Commission Meeting

At least twenty members of the Berryessa Citizens Advisory Council,
five members of the Independence High Neighborhood Association, five members of the SOS Coalition, and three residents of Alviso attended the lengthy Planning Commission meeting on Wednesday, 8/11/04, in city hall.

The meeting began at 6:00 PM and lasted with no breaks until 1:40 AM.
That is an irresponsible way to manage the public's business. After midnight
only four of the seven planning commissioners were still present. Pretending
to do the public's business in a responsible way after six hours of meeting and
after midnight is a fraud on the public. All recommendations made by the
planning commission after midnight should be revoked, and this ugly conduct
should be outlawed.

North San Jose's Projects

North San Jose had three large high density housing projects on the
agenda.
The Lundy/McKay housing project was referred to the city council as a
technical negative recommendation because it had only a majority of votes (3 to 2) and could not get the four votes which are required for a positive
recommendation.

The Penitencia Creek/North Capitol housing project was referred to the
city council unanimously with a positive recommendation. An interesting
disclosure by the expediter was that the developer will be required to pay well
over $400,000 as parkland in lieu fees to the city's public park fund. (When
will the millions of dollars in this fund be made part of the public record? Why
the lack of transparency in city hall about this money?)

Both of these housing projects will be decided by the city council, but
it is impossible to predict the date. The SOS Coalition will monitor the city
council agenda to provide the dates to you when these items are
scheduled. While the planning commission is very powerful, the city council can amend, deny, approve, or postpone commission recommendations, and it can cut its own deals with developers.

Outside Contacts

A surprising revelation was the frequency with which planning commissioners
announced that they had had private one-on-one meetings with developers,
lawyers, lobbyists, or expediters who provided the commissioners
off-the-record information and documentation not available to the public. This is
clearly improper and unethical, and must be stopped. It was surprising to hear
the name of the lobbyist who got the mayor in such trouble with the golfing scandal in these disclosures. Something is rotten in the planning commission.

Mabury/King Project

The third high density housing project in North San Jose was at the
northwest corner of North King Road and Mabury Road. The argument before the planning commission was generally about which classification it should have: very high density "Transit Corridor Residential" (per planning department staff) versus lower density "Medium High Residential" (per developer). This proposal is vitally important to all residents of North San Jose for two reasons.

First, it sets a precedent for the use of the very high density Transit
Corridor Residential classification right in the heart of North San
Jose, thus confirming the widespread suspicion that North San Jose is destined to be a bedroom community for all of the South Bay -- and without required
parklands, setbacks, or other amenities. If you think traffic congestion was bad
in 2000 and 2001, you haven't seen anything yet. Traffic is destined to triple in
the BART station area.

Second, it sets a precedent for the use of Transit Corridor Residential classification where there is no transit corridor. The city has designated a huge
area, literally the heart of North San Jose, as the Berryessa BART station
area. The city has decided that in an area for 3,000 feet around the "future site"
of the Berryessa BART station, all development will take place as though BART
were to come on-line in 2005, not 2012 which is the most optimistic estimate
for its arrival. Most of us are skeptical that BART will ever get beyond
Milpitas. The BART station area is to achieve an overall average density of 44
dwellings per acre which means the existing undeveloped land will bear an
extra-heavy load to achieve that average figure.

(The SOS Coalition now has color pictures of the area included in the BART
station area, and we will have copies to give to anyone who wants one at the
upcoming BCAC meeting on Monday, 9/13/04, or at the next BCAC Workshop
on Land Use meeting on Monday, 9/27/04.)

The diameter of the BART station area is well over one mile long, and it reaches from 101 and Coyote Creek in the west, to Sierra Road in the north, to the
public gardens on the North Jackson Avenue BUSD property in the east, and to
Las Plumas Avenue in the south.

It takes in huge chunks of Sierra Road, Berryessa Road, Mabury Road, King/Lundy Road, and Coyote Creek. The much-abused GraniteRock neighbors have a new level of abuse in their future.

Three Men Who Sold Out The Neighborhoods

Most decisions to destroy neighborhoods are reported in a hazy way that covers up individual responsibility for deeds, but we won't take that approach here. There were definitely three men whose acts led to the positive recommendation (4-0) for the Transit Corridor Residential classification for the Mabury/King project.

To set the stage, please realize that the Mabury/King housing project was
handled at the end of the meeting at 1:10 AM when only four commissioners (out of seven total) were still present. The chairman of the commission, Bob
Levy, had pretty well lost control of the commission meeting by midnight and
was visibly fatigued. It didn't occur to him, however, to end the
proceedings and take up the remaining issues at another time, so he has a lot of responsibility for the commission's recommendation that a non-transit corridor site be designated high density Transit Corridor Residential.

Leadership of the commission shifted to Commissioner James Zito who has
a wheedling and needling style to get his way. Inasmuch as everyone else
was very tired, his wheedling and needling won the day.

The real personal loser was Thomas Armstrong, Vice President of HMS
Engineers, representing the developer. Armstrong began strongly by
arguing that the parcel should be classified as Medium High Density on the ground (A) that this was an appropriate density for the site, (B) that it was a legally available designation in the General Plan, (C) that a higher density designation would violate city policy about "compatibility of land uses" (meaning
projects should be compatible with existing neighborhood uses), and (D) that a higher density designation would also violate city policy stating that it is
inappropriate to build more than 25 dwellings per acre near single-family residential neighborhoods.

None of this was good enough for Commission Zito who wheedled and
needled Armstrong (even going so far as to promise that the city planning
department would not impose excessive density requirements at the zoning stage) until Armstrong sold out. Armstrong could have held firm against Transit
Corridor Residential with no pain. The worse thing that could have happened is
(A) the commission could have gone ahead anyway and approved the Transit
Corridor Residential classification -- it didn't need Armstrong's approval, or (B) the commission could have referred the matter to the city council with a negative recommendation to which the city council would have paid no heed.

Armstrong seems like a smart guy, but he told the commission that he
didn't support Transit Corridor Residential because, "I don't want to be the
bad guy to the neighbors," but then he went ahead and supported the higher
density, and agreed to be the "bad guy to the neighbors." It was odd for him to just give away this issue, without getting any thing in return. In the SOS
Coalition, we now call him Thomas "Bad Guy" Armstrong, and we'll make sure the neighbors to his development understand his misguided role.

Then the matter became an issue within the commission. Commission Chair
Bob Levy opposed the Transit Corridor Residential recommendation on the
rational ground that there was no transit corridor in the area now or for the
foreseeable future. Commissioner James Zito then went to work on Levy, wheedling and needling Levy to sell out. At one point, Zito actually said that if the words "Transit Corridor Residential" bothered Levy, then Levy should think of the category as "TCR," as though an acronym would free Levy's conscience.
At that point, Levy sold out to the irrational, and voted with the three other
commissioners to make a majority positive recommendation to the city council (4-0).

If not for Armstrong, Zito, and Levy, we would not be facing the first step
toward construction of the equivalent of college dorm rooms in the heart of
North San Jose. When Thomas "Bad Guy" Armstrong commences negotiations
with planning department staff about density, he's going to get a rude shock
about how little they care about promises made by Commissioner Zito. We'll keep you informed about how this disaster plays out.

More later.

Dale Warner
SOS Secretary
Dalewarner@aol.com

Don't Lock Fiscal Inequities into the Constitution

Norby Notes
June 4, 2004

"Redevelopment Abuse: California’s 382 redevelopment agencies now divert over $2.6 billion in property taxes away from other public entities. Typically, these funds subsidize new malls, giant retailers, hotels, NFL stadiums and even gambling casinos.
California needs more classrooms, not Costcos. Businesses should make money from customers, not public handouts. Redevelopment agencies need serious reform, not legal protections. Their revenue needs to be restored to provide public services, not bankrolling private projects. The League of Cities seeks to protect redevelopment agency revenue, but this is the very revenue being diverted away from cities, counties and school districts."

To read the entire article click here

City eases rules to speed up condo construction

Should the City of San Jose relax its requirements concerning affordable units in new construction? If you think they should not then keep your eye on the Council's meeting schedule in August. The City Council will be discussing waiving the affordable housing requirements.

Want to learn more? Read Sharon Simonson's article in the Silicon Valley Business Journal.

Michigan's Supreme Court rules in favor of property owners

On July 30, 2004, Michigan's Supreme Court ruled against the taking of private property for the purpose of private development. Per the Wall Street article, "Poletown Revenge," this ruling could have national implications.

Read the Court's ruling here.

Other Articles on the ruling:
Fair Development Brooklyn
Reviewjournal.com