Heralding a “new spirit of cooperation” among local public officials, and finally a return of local control over the future of downtown properties, the Morgan Hill Redevelopment Oversight Board approved the settlement of a lawsuit that sought to limit the worst possible repercussions of the state’s labyrinthine 2012 redevelopment wind-down law.
The board, which was created by the state law that eliminated RDAs statewide as of Feb. 1, 2012, is tasked with tying up the Morgan Hill RDA’s ongoing affairs, including costs for projects, contracts and debts. The ultimate goal is to redirect the RDA’s former revenues to the agencies represented on the Oversight Board.
Six of seven board members present at Wednesday’s meeting (board member Steve Kinsella was absent) also unanimously approved a separate agreement between the City and Santa Clara County that squashes most of the two parties’ previous squabbles over the fate of the downtown properties, and over the validity of some of the ongoing, post-redevelopment expenses claimed by the City.
“This represents a wonderful step forward,” Santa Clara County Deputy Executive James Williams said at the meeting. “Underlying the spirit of this ‘County agreement’ is an effort to start fresh (with) a new spirit of cooperation moving forward.”
And while many more layers of approval, planning and permitting remain to allow the development of downtown properties formerly owned by the RDA, the settlement approved Wednesday of a lawsuit filed in 2012 by the City removes a big hurdle: The City is now able to use about $28 million in former RDA revenues to build a multi-story parking structure, improve streetscapes and work with private parties to develop the Granada Theater, Downtown Mall, Royal Clother building and other downtown projects.
“One of the concerns of the (City) has been, we are concerned we would have a fire sale of these properties. We now know that is not the case or intent of the properties,” City Manager Steve Rymer said at Wednesday’s meeting. “We the (City) will take the lead, and work closely with the County, trying to ensure the spirit and intent of our Downtown Specific Plan are held in place. That’s what’s most important to the people of Morgan Hill.”
Rymer noted that the two agreements, one of which involves multiple other parties, are not yet finalized.
The Oversight Board consists of representatives of the former redevelopment agency’s “underlying taxing entities” who will gain the revenue that was once directed to the RDA. The City and County each hold two seats on the board, and the two parties have consistently disagreed on whether certain outstanding RDA obligations – such as staff costs for administering certain ongoing projects – should be charged to bond proceeds or property tax revenues formerly controlled by the RDA.
Also serving on the Oversight Board are a representative each from the Santa Clara Valley Water District, California Chancellor of Community Colleges and the Santa Clara County Office of Education.
The property tax revenues formerly collected by the RDA – about $22 million per year in Morgan Hill – are now held in a trust fund controlled by the County Auditor Controller. Every six months or so, the City presents a list of proposed ongoing RDA expenses – such as costs for the new Butterfield Boulevard extension and planning for future projects the RDA planned years ago – to the Oversight Board for approval before the California Department of Finance reviews the requests.
“The (City and County) agree that employee costs associated with work on specific project activities, including…construction inspection, project management, or actual construction, shall be considered project specific costs and shall not constitute administrative costs,” the County agreement reads.
The difference between “project specific costs” and “administrative costs” is the former can be paid out of what remains of bond proceeds acquired by the RDA in 2008, while the latter category is capped at $250,000 per year by the 2012 state redevelopment law, paid out of the property tax trust fund. The County has previously argued that some of the costs considered “project costs” by the City should be included in the administrative allowance.
In some cases, that would have unfairly pushed the City’s administrative costs far over the $250,000 allowance, City officials have said.
The agreement approved Wednesday retroactively proclaims that about $2 million in project costs were appropriately paid by the City out of the bond funds; and about $106,000 in costs associated with the widening of East Dunne Avenue can be paid out of the property tax fund.
Also pursuant to the agreement, the County will no longer oppose the City’s proposal to use $14 million of the 2008 proceeds to expand South County Wastewater facilities to the former RDA area.
All of these costs and projects will still require subsequent consideration by the full Oversight Board, and ultimately approval by the state DOF.
The lawsuit settlement approved Wednesday is separate from the County agreement, but will solidify the détente between the City and County once it gains final approval.
Complicated lawsuit segues into “tighter partnerships going forward”
The lawsuit in question was filed by the City and the Morgan Hill Economic Development Corporation in September 2012, shortly after the state passed a follow-up Redevelopment law that would impose stiff penalties on Cities that do not comply with the state’s directives for divvying up the former RDA assets.
The State Controller’s office had ordered the EDC, a private nonprofit created by the RDA in 2011, to return about $14 million worth of downtown properties and about $4 million in cash from the 2008 bond proceeds back to the City. The RDA transferred the properties and cash to the EDC in 2011, in order to protect them from the state law and a potential “fire sale.” And the RDA created the EDC to manage the properties in accordance with the 2008 Downtown Specific Plan.
The EDC indicated it would not return the properties to the City, and the City feared that would lead the state to impose harsh penalties on the City such as the withholding of general fund sales tax revenues. The EDC joined the City in the lawsuit against the state in order to prevent the liquidation of the properties and penalties.
But now, under the settlement agreement, the City will still gain the properties and cash back from the EDC, but will not be pressured by the County to immediately sell the properties. The cash will be divided up among other local taxing agencies. The City will also agree to drop the lawsuit it filed against the state and County.
As of Wednesday, the City and County pledge to work together to develop a “long range property management plan” that will allow downtown redevelopment to proceed, in accordance with the 2012 state RDA law.
“I know we will form some tighter partnerships going forward,” said Morgan Hill Mayor Steve Tate, who serves on the Oversight Board.
