Tuesday, Jan. 20, 2009 | The city’s downtown redevelopment arm could soon start forking over more of its budget to City Hall to repay longstanding debt and take over the city’s ballpark bond payments.
Centre City Development Corp. board members are slated to give final approval Wednesday to an agreement to pay the city’s annual debt service on Petco Park for the next five years. The agency is also expected to agree to repay the city, starting in 2014, for money loaned to the agency in its early years. But the City Council must sign off on the agreement, and it’s unclear whether council members will agree to the delayed payments and to freezing the interest on the debt.
CCDC’s payments to the city have long been a matter of debate, with some saying the city agency should pick up a larger debt share to relieve pressure on the city’s finances. However, others have argued that asking the agency to make too many debt payments could hamper its downtown redevelopment efforts.
Mayor Jerry Sanders was among those who opposed asking CCDC to pay the debt service on Petco Park, citing CCDC’s success in revitalizing the downtown area. In 2007, Sanders said he was “unwilling to take money out of a long-term investment,” likening it to “taking money out of your IRA.”
But last year, with finances tight, the city directed downtown redevelopment money to start paying a portion of the bonds out of its $235 million annual budget. CCDC had been slated to pay $7.5 million this budget year, but CCDC board members have already tentatively agreedto increase the agency’s annual share to $11.3 million for the next five years. That would cover the city’s entire annual payment for a half a decade and pay off about $57 million of the $153 still owed on the bonds. City officials say that will free up hotel tax money that now pays off the bonds but could be used for general fund expenses at a time when the city is struggling to close a budget deficit.
Sanders’ spokeswoman, Rachel Laing, said the mayor was concerned that paying the ballpark debt out of the agency’s budget in 2007 would throw the agency’s development projects out of whack. Now that CCDC is collecting more money from increased downtown property values, Laing said, the mayor thinks the agency can afford to pay off the debt.
The other payments that CCDC will take up Wednesday stem from money loaned to the agency in its infancy. California law requires redevelopment agencies to incur debt to receive tax money from increased property values in certain areas, known as tax increment financing. So the city has advanced money to the Redevelopment Agency, which is overseen by the City Council. CCDC and the Southeastern Economic Development Corp. are part of the Redevelopment Agency and must have most of their major actions approved by the City Council.
CCDC has paid off a chunk of that money it was loaned, along with the interest that’s accumulated in the past three decades, but about $116 million remains outstanding. All but $1.7 million of that money stems from federal Community Development Block Grant funds and the interest.
The city’s use of CDBG grants, which are meant for projects to help low- and moderate-income residents, was the subject of a recent federal audit. The U.S. Department of Housing and Urban Development has found more than $13 million in questionable spending of the grants, saying the city apparently misspent or failed to adequately document that it correctly spent the grant money.
The federal auditor said the city used the grants to create debt needed for the redevelopment areas to exist and failed to establish a timeline for the city’s Redevelopment Agency to repay the debt.
Frank Alessi, CCDC’s vice president and chief financial officer, said the repayment schedule wasn’t a result of the federal audit. Rather, Alessi said it stems in large part from the suggestions of the Independent Budget Analyst’s Office, which said the city should hammer out repayment terms not only with CCDC but with SEDC and the Redevelopment Agency. (City officials plan to eventually establish repayment schedules with those agencies as well.)
Under the CCDC proposal, the downtown agency would start repaying the city $10 million annually in the 2013-14 financial year. Those payments would increase in later years until the debt is paid off by 2021, shortly before CCDC officials expect the agency to go out of business because of caps on how much tax money it can collect. Alessi said the delayed schedule is meant to lessen the effects on CCDC’s cash flow, especially since it will be making yearly payments on the ballpark bonds until at least 2013.
The city could only use the repaid money for activities consistent with the CDBG program, since almost all the outstanding debt stems from those grants.
The federal audit could complicate the matter if HUD officials take issue with the delayed schedule. “They could say that’s not immediate enough,” Laing said of the repayment schedule.
It also remains to be seen if City Council members will sign off on a repayment agreement that not only doesn’t start payments for several years but freezes the interest now accumulating on the debt. CCDC officials say the move is necessary to preserve the agency’s cash flow, and a HUD official said a zero interest rate shouldn’t affect the repayment called for in the federal audit.
But Councilman Carl DeMaio said that provision was nonsensical. If CCDC wants the interest frozen, he said, it should begin paying the debt back now.
Councilman Kevin Faulconer, whose district includes downtown, said he’d like to see how the payments would affect CCDC’s planned projects.
“It’s important that we have a repayment schedule,” Faulconer said. “It’s also very important to me that we continue to have a thriving downtown and that we follow through with infrastructure like fire stations and parks.”
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