With the clock ticking, the Morgan Hill Downtown Economic Development Corporation will meet during a special session Wednesday to consider replacing itself as the five-member board of directors and appointing a new slate of seven board members – five of whom are not connected to the city via a paycheck, commission seat or any other municipal involvement. The city council currently serves as the EDC’s board, but the council and city staff want to create some independence with an “arm’s length” distance between the private nonprofit corporation and the city itself, according to City Manager Ed Tewes.
Doing so will improve the city’s chances of keeping and redeveloping the Granada Theater, Downtown Mall, Royal Clothiers and other sites as it has planned to for a long time, according to council members and city staff. Otherwise, the city faces a possible takeover of those properties and about $20 million in cash if the state decides to employ a strict interpretation of the law dissolving the RDA that took effect Feb. 1.
At an EDC meeting last month, the council decided to amend the corporation’s bylaws to make the board a seven-member body, with two of the members being council members. The council was initially split on whether to keep the total number of board seats at five (with one council member serving) or increase it to seven. Mayor Steve Tate thought a five-member board would be more efficient, while council member Gordon Siebert thought seven members would give the board more flexibility and make it easier to gather a quorum. The council settled on seven members.
But they were in consensus from the outset on the need to untether the city from the EDC which is charged with implementing the downtown plan crafted by the council in 2008. They also unanimously agreed that time is of the essence, with the oversight board expected to seat all seven of its members by May 1.
The oversight board could end up reversing the transfer of downtown properties and bond proceeds from the RDA to the EDC last year, and redirecting the assets to education and other public services. In that case the downtown plan will fade away without another funding source – which is unlikely to be found.
The state law eliminating redevelopment agencies will direct all their resources and what would have been future property tax revenues to schools, community colleges and the general funds of the city and county. The oversight board will be in charge of approving or rejecting the “enforceable obligation” plans to pay off the RDA’s existing debts and contracts. That plan will be submitted by the redevelopment successor agency, which is the city itself.
The Morgan Hill RDA pulled in about $23 million in annual tax revenues, most of which will go toward existing obligations before any benefit to schools or the general fund is realized. County staff have said that after all nine RDAs’ debts in the county are paid off, education, social services, indigent medical care, public safety and other “local priorities” will receive an additional $286 million in annual property tax revenue.
The first step in this redistribution and liquidation is to conduct an audit of all 400 or so former RDAs in California, which could take some time, according to Santa Clara County controller-treasurer Irene Lui. It’s “not clear” if the state controller or the county auditor will conduct the audit, or when that process will begin. Lui said it’s too soon to speculate if the city’s EDC plans are likely to hold up to oversight.
“(An audit) is the only way we can determine” whether or not the city’s downtown plan will remain intact, Lui said. “We need to determine the assets and liabilities.”
City staff and council members think the EDC’s resources are still protected. The state law eliminating the RDA says all transactions – including property and cash transfers – between the RDA and “another public entity” after Jan. 1, 2011 will be reviewed by the state controller and “subject to his reversal,” Tewes said.
While the city created the EDC and the RDA transferred the assets to the EDC after that date, Tewes noted that the EDC is not a public body. Rather, it is a private nonprofit corporation whose assets should be protected.
Another reason the EDC’s resources – particularly $19.3 million in cash – are safe is because the state law allows the resources to be used for their original purposes, according to city staff. The money is left over from a 2008 bond issue of $110 million. The bond issuing documents designate the money for implementing the downtown specific plan.
At a meeting last month, the council approved a plan to exhaust the money on a list of downtown projects that includes a three-story parking structure, a new Monterey Road streetscape extending south of Dunne Avenue, investment in a future private development partnership, and downtown side street improvements.
At Wednesday’s meeting, the mayor hopes the council can appoint all seven members – including the two representing the council. Tate and Siebert, comprising a subcommittee to study the changes in EDC bylaws, have a list of candidates in mind, but the mayor declined to release the names before presenting them to the council.
Because of time constraints, the council agreed the new board should be appointed in one single action, and not slog through an application and interview process.
The criteria in selecting candidates were a familiarity and dedication to the city’s downtown plan, private individuals who are independent from the city, and a desire to work hard and be intimately involved in implementing the EDC’s plan, Tate said. Council members also hope to have board members who represent a broad cross-section of the community, and who have experience in financial or development related activities such as banking or real estate.
“It will be a working board, and they won’t just be delegating, because the EDC doesn’t have any staff” to whom to delegate, he said. “We want them to abide by our ethics policy, and we really want the best possible result for the downtown, and for the entire community.”
