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Santa Clara City Observer: Dec. 23, 2015

Santa Clara City Observer

RDA Dissolution Settlement: Santa Clara Keeps Convention Center, $320+ Million of RDA Properties to be Sold

The end of the Santa Clara Redevelopment Agency dissolution that began four years ago is finally in sight. Santa Clara will lose 153 acres of Northside real estate worth more than $320 million, as well as roughly $12 million in annual land leases.

Last week the RDA Successor agency approved a proposed settlement agreement with the county in the dispute over the shuttered RDA’s real estate assets – the state-mandated “Long Range Property Management Plan.”

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The good news is that the City will be able to buy back the Santa Clara Convention Center for $15 million – after various credits, the City will only pay $4.1 million.

The bad news is that more than $320 million in City land to which the Santa Clara RDA held the title has been handed over to the County to be sold. The county was explicit in its demand to “maximize” return from the sale. In addition, the City will pay the county an additional $9 million in back lease revenues and $7 million in property tax increment* used to build the Northside branch library. The settlement also gives the Martinson Daycare property to Santa Clara Unified. Santa Clara loses $12 million in annual lease revenue from the properties.

The proceeds of the sales will pay off outstanding RDA debt and the balance will be distributed to the county taxing entities. Santa Clara Unified will receive 40 percent of the proceeds, and another 40 percent will be divided among Santa Clara County, Santa Clara Valley Water District, and West Valley Mission Community College District. The City of Santa Clara will receive 20 percent.

Santa Clara Unified got $8 million last year from Santa Clara RDA dissolution funds. Although the district serves part of North San Jose, it receives nothing from the shutdown of San Jose’s RDA because those revenues will be paying off debt for decades.

The other school districts serving Santa Clara – Campbell and Cupertino – get nothing from the settlement because the RDA properties weren’t in their boundaries.

Last February, a Sacramento Superior Court ruled that under the 2011 law shutting down California’s redevelopment program, RDA-owned assets had to be turned over to the RDA Successor agency – governed by an Oversight Board, the majority of whose members are county appointees – to be liquidated to pay off debt. Money remaining is distributed to county taxing agencies.

The properties will be sold on the open market as “expeditiously” as possible, according to the proposed settlement (www.tinyurl.com/o36dapk). The Oversight Board gets the last word on sales and can “direct an additional solicitation or alternative disposition strategies to maximize value” according to the proposed agreement.

Sales of large parcels in Santa Clara’s priciest zip code could be expected to draw a stampede of buyers. But long-term leases encumber all of this real estate, likely complicating sales.

Great America’s lease runs until 2074. Techmart’s lease runs until 2053, with options for two 10-year renewals. The Hyatt hotel’s lease goes out to 2035, with four 10-year and one 9-year renewal options. Hilton Santa Clara’s lease runs until 2049, with three 10-year renewal options. And Irvine’s lease – Gateway Parcel 2 – goes out almost to the next century, 2092.

An irony in all this is that the City purchased Great America in 1984 to keep it from being developed into a high-rise office park. (RDA debt and revenues weren’t used to buy that property). The City sold the amusement park and collected lease revenues for 25 years.)

*Tax increment is the additional property tax resulting from redevelopment projects. The tax increment flowed directly to the RDA to pay off development bonds. After Prop 13, municipalities began using RDAs to increase revenue, since they couldn’t increase taxes to match increasing costs.

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