Santa Clara County taxing entities who've spent four years coveting real estate owned by Santa Clara's defunct redevelopment agency (RDA) may be stuck for the next half century with a cash sink, not a cash cow.
On Feb. 19, the appointed representatives of these agencies, the Oversight Board of the Santa Clara Redevelopment Agency (RDA) Successor Agency (SA), found time to learn about its obligations for the Convention Center alone – including a $4 million bill reimbursing the City for operating the Convention Center since 2011, the date that the Sacramento County Superior Court in Sacramento ruled the property should have been transferred to the SA.
On Feb. 17, the City received a signed court order to hand over the RDA properties to the SA in 60 days: land housing the Convention Center–Techmart–Hyatt complex, Great America theme park and the Hilton hotel. In a decision published last December, the court found no evidence for the City's claim that the property belonged to the City instead of the RDA, which held the titles.
Successor Agencies were the entities tasked with unwinding RDA operations and the City of Santa Clara is the Santa Clara RDA successor. Although a legal entity, the SA has no resources, assets, staff, members or meetings of its own. City staff prepares the bi–annual list of payments, the Recognized Obligation Payment Schedule (ROPS), from the RDA tax trust fund, and conducts other business such as selling property – all as directed by the Oversight Board, whose actions must be approved by the State Finance Department.
The Convention Center is a complex set of interconnected contractual obligations, Santa Clara Business Development Officer Ruth Shikada explained to the group of current and former public officials. “Convention Centers are not money–making concerns. They serve as catalysts for other economic activity. The city has garnered these benefits, but has taken on all the obligations. Soon these obligations will a SA function. There may be years the SA will benefit,” but, she warned, it was almost certain “there will be many more years when a subsidy to meet its enforceable obligations under the terms of the leases with Hyatt and Techmart will be needed.” What happens if the owner stops operating the Convention Center? The short answer is: the Hyatt can take over.
Santa Clara's RDA attorney Karen Tiedermann detailed the obligations for maintenance, capital improvements and operations under the 50–year leases (which also have automatic options for renewal). Here's a few: The 20 year–old Convention Center needs about $3 million worth of work in the near term. The leases obligate the owner to actively market the Convention Center, costing $1.5 million a year. The maintenance assessment is $600,000. Finally, Tiedermann reminded them, when title is transferred, City insurance won't cover the property.
The board asked and said little about the financials or the contracts because, as was clear, this was the first time they were faced–to–face with them; even though the contracts and budgets are public records that were available since the board convened in 2011 and the county filed its lawsuit claiming the property. Copies were supplied to the County and the Board's attorney.
“This is a lot of information,” said Board attorney Hilda Montoy. “I'm wondering if there are copies of what you're showing on the screen. It would be a lot easier to take notes.”
“Wasn't this information requested?” asked Ed Maduli, Vice Chancellor of Central Services for the West Valley–Mission Community College District. “This is all coming at one time. I'm not sure we'd have time to do our due diligence with all of these numbers.”
“The information that was distributed to the board didn't include today's presentation, with the detailed numbers, the math, the depiction of the properties,” replied Montoy.
Despite the lack of handouts, Tiedermann continued her presentation, describing limitations the leases placed on the owner, potential losses and liabilities (including labor strife) if Convention Center operations are disrupted – especially with the Super Bowl one year away.
“This oversight board has no means of paying for anything,” said Board Chair, Gilroy Mayor and former Santa Clara Valley Water District Board Member Don Gage. “The fallout, I can't speak to that. But putting it on the ROPS doesn't mean you're going to get it. We really have to understand why and what, and today we didn't have that presentation.”
Mayor Jamie Matthews and Santa Clara City Manager Julio Fuentes replied by explaining that the City is also under constraints.
“It's not so simple [as saying] 'you can just continue to subsidize it,'” said Matthews. Subsidizing something the City doesn't own “is an illegal gift” of public funds, he said, concluding with some frustration, “We consistently put out one offer after another to try to settle. Not a single time have we gotten a response back.”
“The SA and the City are separate entities,” Fuentes said. “The board for the City is the City Council. The board for the SA is [this] Oversight Board. My City Council can't make decisions for the SA. We're trying to work with you, and prepare those agreements for reimbursement on the ROPS.
“You have to maintain those obligations and pay those costs so you won't go into default,” he continued. “Time is of the essence and you're going to have to move forward to meet your obligations. But as far as our running the Convention Center as we do now, we will not be doing that in the near future.”
“I'm certainly not going to make any decisions without all the information,” responded Gage. “If it doesn't get on here, it may have to wait until the next one. But to make an incorrect decision and have it turned around by the Department of Finance, doesn't make a whole lot of sense.” Clearly, the working assumption was the City would pay the bills, fearing an ugly default with extensive repercussions, while the county kept collecting lease revenue.
“I have to make you fully aware that the city has maintained title to the property, and because of that we have continued to backfill the obligations because we were not allowed to use the lease revenues,” reiterated Fuentes. “Now that we will … not have any fee title [ownership], we cannot use City funds or resources to subsidize it. There could potentially be a default because we can't pay for those obligations.”
Former County Finance Director John Guthrie got the message. “We have to do what's required by our fiduciary duties and the court order,” he said. “It is not in our interest … or anyone's interest to close down this operation. We'll be moving forward with dispatch, figuring out how to keep the Convention Center operating in the short term. That's what we have to deal with by next Friday. The longer term is what we have to work out with the city. I want to assure people, we want to work with the city to make sure this Convention Center stays open.”
The Oversight Board continues this discussion on Feb. 27 at 2 p.m. For more information, visit santaclaraca.gov/index.aspx?page=218. Meeting video is available at santaclaraca.gov/index.aspx?page=1504. The elected body responsible for Oversight Board conduct is the County Board of Supervisors (http://www.sccgov.org/sites/bos).