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Everyone Loses as $30 RDA Stadium Money Dispute Heads Back to Court

Engineering systems philosopher John Gall observed 30 years ago that, “Systems tend to oppose their own proper functioning.” Certainly ample proof of Gall’s principle can be seen in the California Finance Department’s slap down of an agreement between Santa Clara’s RDA Successor Agency Oversight Board and the San Francisco 49ers Stadium Company over the distribution of $30 million in Santa Clara RDA money earmarked for stadium construction.

The point of the agreement was to provide additional money to local schools while satisfying the terms of a contract between Santa Clara’s RDA and the football team, and avoiding the costs of a lawsuit.

By rejecting the agreement, the state’s action blocks millions of desperately-needed dollars for schools, and starts legal meters running for a court battle. In short, a loss for everyone immediately concerned – and ultimately, the state in terms of its operating costs.

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The Finance Dept. decision was based on a requirement that all redevelopment-related contracts needed to be signed before the legislature and Gov. Jerry Brown approved the 2011 law ending the state’s redevelopment program.

“This settlement agreement requires the Agency to enter into a new contract,” the state’s Local Government Consultant Steve Szalay wrote to the Santa Clara City Manager’s office on October 10. “[The law] prohibits the Agency from creating new enforceable obligations and prohibits the transfer of any revenues of the Agency to any party, public or private, except pursuant to an enforceable obligation on an approved Recognized Obligation Payment Schedule (ROPS).”

The city calls that interpretation legalistic hair-splitting. While the lawsuit settlement was indeed signed after that cut-off, the original agreements that were the subject of the dispute significantly predate the legislation.

This was also the opinion of the judge who first reviewed the lawsuit last summer.

In a hearing about his restraining order blocking the county from distributing the now-legendary $30 million, Sacramento County Superior Court Judge Lloyd Connelly questioned Santa Clara County’s arguments for taking the money in the first place, starting with the notion that the Santa Clara Stadium Authority was a “money washing” operation designed to skirt state law.

“When you look at the these contracts [the stadium term Sheet and Measure J],” Connelly said in the hearing, “both in a general context…predate significantly the governor’s call for the elimination of the Redevelopment Agency…You see that there’s something at work here more than some effort to abrogate the elimination of the Redevelopment Agencies in terms of preserving their [the RDA’s] money and their ability to spend it.

“If the [Oversight] Board did not understand that, as it appears to me, these are enforceable contracts, and StadCo is not going to disappear, and…this could turn into the proverbial oil commercial where you are paying the amount of contract, plus interest, plus potential damages. That’s an evaluation to be undertaken with care, and there’s no evidence here that that’s been done.”

Connelly explained that his restraining order was based on the strong probability that the 49ers would prevail in their argument that these were legally enforceable contracts.

“The Court has no doubts because of the situations…the Auditor-Controller will distribute the funds immediately [to county taxing entities] in absence of this TRO issuing,” said Connelly. “So I believe those factors as a whole rise to enough irreparable harm in conjunction with what the Court determines to be a…likelihood of prevailing.”

From here, the lawsuit returns to court for a hearing on March 22, 2013, according to City Attorney Richard Nosky.

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