At a special closed session last week, the Santa Clara City Council voted to provide gap funding for the Convention Center from April 17 to June 30, even though the City will no longer own it and hasn't received any of the land rent paid by the Hyatt and Techmart for four years.
The City hopes during that time it will be able to work out an agreement with Santa Clara County for adequately operating, maintaining and marketing the Convention Center, as required by the Hyatt and Techmart leases.
The funding gap exists because there was no funding for Convention Center operations, maintenance or marketing on the January through June payment schedule of the City's shuttered redevelopment agency (RDA). In the past, lease revenues paid the difference between event revenue and the Center's expenses. (Convention Centers rarely break even; instead, they generate secondary economic impact because they bring large numbers of visitors to a city.)
“We need time to come to a reasonable resolution to meet everyone's needs, including the City of Santa Clara,” says Santa Clara Mayor Jamie Matthews. “We wanted to ensure we didn't miss opportunities. The long–term health of the Convention Center is important to the City – now, more than ever.” The Convention Center is booked almost every week of the year, and fills an important role as an affordable venue for new and highly specialized companies and events, as well as a “center” of activity and information for visitors to the City's Northside, says Matthews.
The land under the Convention Center Complex is the object of a county “clawback lawsuit” over redevelopment agency assets following the state legislature's 2011 dissolution – at the behest of Gov. Jerry Brown – of California's 50 year–old redevelopment program.
In Oct. 2014, a Sacramento Superior Court judge ruled that although the City had bought the land with general fund money and used the land rent – rather than property taxes – to run the Convention Center and pay its obligations, the property was subject to “clawback” to benefit county taxing entities because “Santa Clara Redevelopment Agency” was the name on the deed.
The City's counter argument, which will be heard in the same Sacramento Court later this month, is that the RDA operated as its leasing and property management agency, and the RDA didn't have actual ownership. However, the City must comply with the October court order or face fines.
Thus, on April 17, the City must turn over the deed to the Santa Clara RDA Successor Agency (SA) – the City of Santa Clara – which has no financial resources except those approved by its County agency–appointed Oversight Board and the State Dept. of Finance (DoF). The only way the SA can pay for anything is if the Oversight Board earmarks – and the DoF approves – money via the six–month Recognized Obligation Payment Schedule (ROPS). Money for paying these obligations comes from the RDA Property Tax Trust Fund, former RDA revenues, and sales of former RDA assets.
Since Santa Clara's position was that the Convention Center Complex was a City–owned, not RDA–owned, property, the City continued to fund the Convention Center – while the revenues went into an escrow account – and didn't list those costs as obligations of the former RDA.
Last month the Oversight Board summarily shelved the SA's proposed ROPS for July through December 2015 – the Board claimed they didn't have adequate time to read it – in favor of a revised ROPS based on County Finance Director Emily Harrison's eight–page list of objections, which was introduced by the Board's attorney, Hilda Montoy, 15 minutes before the end of the meeting.
Harrison's ROPS includes funding for Convention Center operations, but only half its assessment as part of the Maintenance District and none of the Center's marketing or capital improvement costs.
Actively marketing the Convention Center and maintaining the common area are central to the long–term leases between complex's tenants and whoever is the property's owner, explains Santa Clara Economic Development Officer Ruth Shikada.
The City subcontracted Convention Center marketing and operation to the Santa Clara Convention Center and Visitor's Bureau, which is a part of the Santa Clara Chamber of Commerce.
“The City and the RDA had contractual agreements on how the Convention Center would be operated,” she says. “They [the contracts] were nullified by the [RDA] dissolution.
CVVB CEO Steve Van Dorn and Convention Center Manager Lisa Moreno had a meeting with County Executive Jeff Smith last month in hopes of coming to an agreement about Convention Center operations and marketing, but the meeting, reportedly, was disappointing.
One of the background issues is whether or not the Convention Center has value as a piece of real estate. At the last meeting of the SA Board, Chair Don Gage suggested that it was a “$400 or $500 million” property. However, the contracts that encumber it may tell a different story.
To resolve the question, an independent appraiser has been hired to evaluate the property, according to Shikada. Whether the Board will accept the appraiser's answer is another question. Last month, Oversight Board Member (and former County Finance Director) John Guthrie, who sits on both the Santa Clara and San Jose RDA dissolution boards, pointedly questioned the valuation of a parking garage by an appraiser hired by the San Jose Board, which went on to vote not to accept the appraisal.