Reading of the RDA Will

Last week, I attended the Oversight Board for the Successor Redevelopment Agency public meeting. One person who watched the meeting said it was “like viewing the reading of a will.”  That was a fair analogy. In the case of the deceased RDA (56 years old), the deceased had property it owns but comes accompanied with liens from the County and JP Morgan. The deceased had a substantial income stream but also has debt payments, so revenues collected moving forward will go towards paying the debt of bonds and JP Morgan line of credit.

The meeting also showed that while the deceased was alive, Sacramento poached over $100 million from the estate, which disrupted RDA’s ability to pay planned debt installments over a period of 20 years.

It was a bit startling to see the county representative appear shocked when they understood that no money would be coming to the county soon—bonds must be paid down first. The only potential for the county to get money this year is to sell a RDA property like the Billy DeFrank center on The Alameda, which I would not support, and split the proceeds with JP Morgan and the Successor Agency. 

The other option is that if property values increase, like in North San Jose, for example, those higher values would bring in more tax increment to pay off the bonds sooner. To some degree this is likely to happen because developments have been approved and are under construction in North San Jose. This will cause those parcels to be re-assessed. However, even with this scenario it will still be years before the county gets revenue. The county is last in line.

There is a tax increment shortfall that will impact the general fund for the Fourth Street Garage and Convention Center. The reason is the State of California took $154,714,244 from the San Jose RDA, including interest. This amount is far greater than the annual bond payments to cover the Fourth Street Garage and Convention Center. The city of San Jose could relieve itself of this debt payment by selling these assets, but it may choose to keep them. It is not unheard of for a city to own a downtown parking garage or a convention center. However, if a potential buyer emerges, the City Council should consider the offer.

In 2001, the council could have brought the RDA to a peaceful closure. Instead, the City entered into a new revenue-sharing deal with the county on May 22, 2001, to keep the RDA alive. The deal assumed property valuations would rise at a “bubble” pace. This agreement over the last 10 years paid the county over $344 million. This amount was much larger than the required annual $2 million per AB1290. The 2001 agreement was unrealistic.

As I have written before, the RDA was not meant to last forever. As a result, San Jose could have planned for an end of the RDA but it is hard for elected officials (around the world) to say no to capital projects. Of course, RDA was positive in many ways, which relates to the comment that was shared with me Saturday at a public school event.  A 50-year resident of my district shared with me that “for people that have lived in San Jose a long time they know the before and after of San Jose and that RDA investments were good.”

15 Comments

  1. We all wonder why our roads are in terrible condition, our libraries endure shorter hours, our police department is grossly understaffed, ad nauseum.

    Pier’s column gives us some insight into the cause of those problems.  The City has gone way beyond what its Charter dictates.  Why should the City own parking garages, the DeFrank Center and convention facilities?  The answer is, it should not!

    Sell all the damn City-owned property and pay down debt that will otherwise drain our General Fund!  Let’s get back to basics and provide core City services to the residents.

  2. It is always fascinating to read Pier’s missives about San Jose.  He always reminds us of the mayor of a snall village who lets the Allied forces know how he was held captive by the bad guys.

  3. Downtown San Jose redevelopment/revitalization is beyond finished, and now it’s time for private side/investments to take it from here. Well done, city of San Jose!  Whether downtown revitalization is successful is up to the market forces to decide and the local residents to make it work/thriving. Now, it’s time to payoff its debts and then distribute leftover money to schools in later years.

  4. And you wonder why this city is in such a mess, don’t blame the state or the unions and pensions.  This is all about over spending and miss management of public funds by our city councils present and past.  I See another lawsuit coming from the county.

  5. “In 2001, the council could have brought the RDA to a peaceful closure. Instead… The deal assumed property valuations would rise at a “bubble” pace. This agreement over the last 10 years paid the county over $344 million…. much larger than the required annual $2 million per AB1290. The 2001 agreement was unrealistic.”

    Witness the council’s bullish mindset in 2001. The council’s willingness to bet on the market, so evident in its approach to RDA, was also the compelling component in its willingness to trade pension enhancements for political capital. As has been posted here and ignored previously, the widespread claim that pension enhancements were the result of strong arm union tactics is a lie. The council was never cowed. Public safety unions—which can neither strike nor raise huge amounts of campaign cash—were politically empowered only by the credibility voters attached to their endorsements. If you want to hold public safety guilty of anything, blame them for their willingness to accept whatever the council was trading, and squandering their credibility in the process.

    Anyone who doubts for one minute that the 2001 council expected “the market” to foot the huge bill for its RDA shopping spree and its employee contract largess is either sporting his Chuck Reed-issued blinders or simply a fool.

  6. It is no coincidence that the birth of the RDA coincided with the rapid death of San Jose’s once-thriving downtown. Before RDA, downtown San Jose was the county’s shopping, dining, and entertainment hub, courtesy of the free market and private enterprise. The downtown was home to several major department stores, dozens of specialty shops, at least a half-dozen movie theaters, two bowling alleys, and numerous restaurants, bars, and hotels. Daily foot traffic was so heavy in the downtown’s core that traffic cops were posted and diagonal crosswalks introduced to improve safety and facilitate movement at major intersections.

    Then came that first sniff of something new in the air: government cash. Suddenly, the commercial property owner who’d seen his rents dwindling, his expenses rising, and his building decaying, stopped being interested in strategies like cutting his loses or bringing in new partners, as his attention became attuned to rumors that grandiose plans were being made for his street, or his block, or even his building. The prospect of having his property’s value lifted by the redevelopment of his block, or of being the obstinate holdout who gets to name his own price, transformed the miserable status of his investment from a curse to an opportunity.

    Suddenly, speculators looking to invest in and revitalize a tired old building, or perhaps even a row of them—with the intent of attracting the latest shops and collecting the highest rents, were faced with owners who’d rather hold tight to a crumbling building than sell at fair value and miss out on the coming bonanza. Suddenly properties stopped turning over, fresh investment and promising new enterprise went elsewhere, and stagnation aged the downtown rapidly. Less than a decade after the RDA came into existence much of downtown San Jose was riddled with vacant lots and buildings, infested with hookers and drug addicts, and devoid of any investment enthusiasm except for that which came with a big, fat government subsidy.

    Fifty-six years ago the downtown was an asset to the city, one for which it was only tasked with the minor costs of keeping neat and safe. RDA changed all that, turned the downtown into a pricey whore, with a taste for bling, frivolity, and men with loose morals. RDA has been the most expensive mistake ever made in this city, one for which the blame belongs to a relative few, most of whom will somehow avoid ever being named.

    (I attempted to post this on Monday, the 26th)

  7. Finfan,

    To continue your analogy of the RDA being a pricey whore, I might speculate that two of its greasiest pimps have been Gonzales and Reed.

  8. > It is no coincidence that the birth of the RDA coincided with the rapid death of San Jose’s once-thriving downtown.
    . . .
    >RDA has been the most expensive mistake ever made in this city, one for which the blame belongs to a relative few, most of whom will somehow avoid ever being named.

    Interesting analysis.

    You make a plausible case.

    If you were tortured, would you name names?

  9. In 2001, the council could have brought the RDA to a peaceful closure. Instead, the City entered into a new revenue-sharing deal with the county…to keep the RDA alive. The deal assumed property valuations would rise at a “bubble” pace… over the last 10 years paid the county over $344 million… much larger than the required annual $2 million per AB1290. The 2001 agreement was unrealistic…”

    Mayor Reed supported this agreement when he was a rookie councilmember and RDA board of director member. He allowed it to continue during his term as Mayor and as Chair of the RDA BOD. Any reason why he is not held accountable for this?

    Mayor Reed is also responsible (as mayor and RDA Chair) for the RDA withholding money from the county which resulted in the City having to settle a lawsuit to the tune of $68mill and included the handover of the Old City Hall and associated buildings – the very property that was to be sold to help payoff debt on the new City Hall. Where is the outrage for this blatant incompetence that resulted in the loss of REAL TAXPAYER MONEY and is directly responsible for the last 10 years worth of deficits in the General Fund?

    Expenditures on land to be given to Lew Wolfe and the A’s… Expenditures to entice the Grand Prix to San Jose only to pull the plug as it was supposedly about to break even and start generating revenue to the City… Bailouts to MACSA… Losses due to the incompetence of Reed / RDA’s hand-picked convention center operator…

    When we add up the loss of real money at the hand of Mayor Reed and the RDA we can quickly exceed all of the actuarial and imagined costs of pensions imagined by Reed and Crosby…  WELL IN EXCESS OF HIS FABRICATED $650Million.  REED DARES TO BLAME THE HARD WORKING CAREER EMPLOYEES THAT KEEP THE CITY RUNNING???

    WHERE IS YOUR OUTRAGE CITIZEN OLIVERIO? WHERE IS YOUR INTEGRITY COUNCILMAN OLIVERIO?

    • Great Post Meyer Weed. 

      After watching that NBC report on Cheiron I did a little research of my own.  It seems that Cheiron does the Actuaries for San Diego, San Francisco, Philideplphia, and San Jose among others.  I then started to notice a few coincidences, or what have you.

      San Jose:  Largest RDA debt of any municipality in California= 2.48 billion as of 2009.  San Jose is blaming it’s employees for it’s insolvency.  San Jose is currently embroiled in a major Pension reform debacle and trying to take away vested rights of employees, giving new hires a 401k type retirement.  San Jose is doing this by amending the city charter (or trying to do so) with a ballot initiative.
      Actuary= Cheiron

      San Diego:  Second largest RDA debt of any municipality in California= Just over 1 billion in RDA debt as of 2009.  San Diego is blaming its employees for its insolvency.  San Diego is also currently embroiled in a major Pension reform debacle and trying to take away the vested rights of employees, and putting new employees in a 401k type plan.  San Diego is trying to amend their city charter with a ballot initiative that already passed and is in court.
      Actuary= Cheiron

      San Francisco: Third largest RDA debt of any municipality in California= Around 900 million in debt as of 2009.  San Francisco is also blaming employees and working on pension reform.  San Francisco would like to put new hires on a 401k style plan.  San Fran is trying to do this by amending the city charter similiar to San Jose, with a ballot initiative.  San Francisco’s “measure B” was defeated, but new measures are being thought of. 
      Actuary= Cheiron

      Philidelphia:  Is thought to be one of the most underfunded pension systems in the nation and may only be able to pay its retirees for 7-8 years before going bankrupt. 
      Actuary= Cheiron

      Sound familiar?  Sure does to me.  So the question I have is this:  Is it a coincidence that Cheiron does the actuaries for almost every municipality at the fore front of pension reform?  Is it a coincidence that 4 of the largest cities in the nation are managed by Cheiron and all of their pension systems are drastically insolvent?  Is it a coincidence that almost all of these cities area blaming employees for their money management mistakes.  Maybe Cheiron is the company you go to when you need to have the books cooked to promote your cause, the cause of pension reform.

      Cheiron sure rhymes with ENRON

      http://www.utsandiego.com/news/2011/feb/07/san-diego-ranks-2nd-highest-redevelopment-debt/

    • a footnote to my comment regarding the transfer of Old city Hall to the County as part of the lawsuit settlement: I was researching something else when I came across the BOD minutes of the Almaden Valley Community Association fomr 10/12/2010 where Mayor Reed was asked what was “being done” about old city property like old City Hall. Reed is quoted as saying “The County wants the building.”

      I am not sure what that means but the County ultimately got the building and then some is is still owed more!

  10. Torture not necessary … lets just start with Chuck Reed Esq’s former and most likely future client list, you know from back when he was practicing real estate and environmental law?  McEnery, Swenson, Sobrato, W-O-L-F-E (ya lew wolfe you know the owner of the Fairmont Hotel that got the sweet land deal from the RDA,  or Lew Wolfe who recently bought the St. Claire Hotel.?  Or maybe the Lew Wolfe who is getting a soccer stadium for the team he owns called the Earthquakes thanks to the RDA?  Or is it the Lew Wolfe who owns the Oakland A’s and is set to receive several hundred million dollars in land from the RDA purchased with our taxdollars so that he can build a stadium and move the A’s to San Jose?)  There may be others but those are some pretty big players who have benefited greatly from MayorChuck Reed Esqs city council and RDA dont you think?  And where do you think the next pile of money is that Reed wants to plunder to splurge on his friends might be.?  Can you say ” pension funds?”

    • > Torture not necessary …

      But you can never be sure what other interesting details you might uncover with the judicious use of loud music or a Die Hard battery.

      And also,based on your analysis, maybe we should change the name of the city to Wolfenburgia.

      > And where do you think the next pile of money is that Reed wants to plunder to splurge on his friends might be.?  Can you say ” pension funds?”

      No.  But Obama can say “pension funds”.  If Reed or anyone else wants to grab for the pension funds, Obama will grab their hands and crush their fingers.

      Obama is going to suck all the pension funds into Social Security and give every one another worthless entitlement.

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