Attorney General Jerry Brown’s Office, which reviewed the Grantville settlement after Sen. Chris Kehoe asked for an investigation, has concluded the settlement is not illegal, according to a letter sent yesterday to Kehoe.

The settlement was struck this summer to end the county’s legal challenge to the city of San Diego’s declaration of blight in Grantville, and the subsequent creation of a redevelopment area in the neighborhood. The settlement sends $31.36 million in Grantville redevelopment dollars to the city for improvements along the C Street trolley line in downtown. In turn, $31.36 million from the downtown redevelopment area goes to improvements to county-owned land as part of plans to renovate the North Embarcadero.

Kehoe asked for an investigation into the validity of a settlement like this that would send redevelopment money from one community (Grantville) to another one (downtown) more than 15 miles away.

The attorney general’s review concluded there are two issues raised by the settlement. The plan to spend money from one redevelopment area in another one raises a “legitimate question.” But no matter what the answer is, the letter states, the law bars any judicial challenge to that kind of expenditure.

The second issue is the agreement between the city, county and Redevelopment Agency to send the money from Grantville to downtown, and then to send money from downtown to the county-owned land at the Embarcadero. That agreement “might be construed as an effort to bypass legal restrictions on the use of redevelopment funds to settle litigation.”

From the letter:

While there is a question about whether this agreement is consistent with the Legislature’s intent in adopting these restrictions, we cannot conclude it is illegal.

The letter lays out those restrictions, which I found really interesting. You might, too, even if you’re not as redevelopment nerdy as some of us are. Here’s how I understand it:

The legal quagmire we’ve seen in Grantville used to happen all of the time. Agencies that stood to lose out on tax revenue when redevelopment areas were created (like school districts, counties and the state) used to watch blight designations really carefully. (Creating redevelopment areas allows municipalities — in this case the city — to get a larger share of the tax revenue from a specific area and then use the money to fund beautification projects or subsidize private development in that area, provided they prove the neighborhood is blighted.)

When those agencies felt that neighborhoods weren’t really blighted, they’d sue and settle the lawsuit to recoup some of their lost cash.

But the state wasn’t usually party to those settlements, so state lawmakers came up with a formula in 1993 to regulate how those settlements could work and how the money could “pass through” from a redevelopment agency to another taxing entity, like the school district or the county. That ban applies to plans adopted after Jan. 1, 1994.

Grantville’s redevelopment area was approved in 2005 and is thus regulated by that prohibition — the city can’t use Grantville funds to compensate the county or to pay for county facilities.

But here’s how they made it work in Grantville. The Redevelopment Agency sends $31 million from Grantville to the downtown redevelopment area for trolley improvements. From the letter:

This ensures that Grantville funds will not go directly to the County in contravention of [the law].

But since the redevelopment plan for the downtown area was adopted in 1992, it’s exempt from those 1994 restrictions. Because CCDC’s funds are technically unrestricted by that law, the $31 million can be spent from CCDC to pay for the county facilities, the park and the parking lot.

Although it might be questioned whether this arrangement carries out the Legislatures’ intent in adopting the anti-pass through provision in 1993, it appears to be technically permissible.

Whoa. The attorney general concludes that part of the settlement arguably undercuts the spirit, if not the letter, of the restrictions in the redevelopment law to keep stuff like this from happening. You can read the whole letter here.

Mike Aguirre last week echoed Kehoe’s skepticism of the settlement, calling the agreement “an abuse of the law.” And a group of landowners, leaseholders and business owners in Grantville sued the city, the county, the Redevelopment Agency and a private landowner on Friday over the settlement’s validity.

KELLY BENNETT

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