Wednesday, December 01, 2021

FIRST HOTELS – NOW THE ARENA: REDEVELOPMENT DEBT GROWS

WILL THE STADIUM BE ADDED TO THE LIST?

July 6, 1991

By Yolanda Reynolds

On Tuesday afternoon the San Jose City Council voted to issue $80 million of Tax Allocation Bonds to pay for the controversial Downtown Arena.

During the arena debate, the citizens of San Jose were promised that the arena would not cost more than $100 million. Already the admitted cost has increased to $125 million.

During the debate, arena opponents said that that the actual cost of the arena would go far beyond the promised $100 million due to interest payments (debt service) for the bonds that would have to be issued to finance the arena.

The arena supporters said not to worry; the bonds would be tax exempt and that arena profits would quickly cover the debt service.

Several month ago, the City was informed that the arena could not be funded with tax exempt bonds.

The Council’s decision to issue the bonds for the arena will require the borrowing of money at what is hoped will be an average interest rate of 7% on a 30-year loan for the $80 million bond issue

Frank Taylor, Redevelopment Agency Chief, states that he expects that annual debt service for the 30 years will be $6.5 million. If that is so, overt the thirty years the actual interest cost of the arena will be at least $195 million.

Tuesday, when the Redevelopment Agency Board approved the Bond issue, it was specified that the interest rate could go as high as 9% per year and that the debt service could reach $10 million per year. Should that be the the lowest interest available to the City, the interest costs for the arena would then actually be at least $300 million.

Across the nation, questions are being asked about the funding of municipal bond issues. According to a recent report by Charlotte-Anne Lucas, a San Francisco Chronicle reporter, the State of Florida has enacted measures to more tightly control such bonds dealings after discovery of serious abuses.

Lucas reports that, in California there have been serious violations of trust by elected officials. She gives as examples of such violations, the findings by the Stanislaus Grand Jury that “botched county bond deals were never spent and resulted in an annual cost of %5000,000 to the taxpayers.”

The Jury said that the county officials did not understand simple financial and legal concepts…related to public financing.

Ln addition, Lucas says that “state and local financial disclosure documents show that local officials receive thousands of dollars in campaign contributions and are routinely wined and dined by bond underwriters and lawyers who make millions of dollars in fees on each issue.”

The Contra Costa Grand Jury issued a report that was “harshly critical of all the county’s redevelopment agencies for saddling the cities with debt.”

In a recent San Francisco Chronicle article is was pointed out that, in Contra Costa County, redevelopment projects had accumulated $500 million in debt and siphoned off $40 million in property taxes that would have gone to other public agencies. Contra Costa County brought a lawsuit to halt another downtown redevelopment plan – for Pleasant Hill, a town in Contra Costa County.

Another City in that County is experiencing mixed results front a redevelopment plan for downtown Concord. Lt has produced much empty office and retail space and is having great difficulty in launching a theater district.

Throughout the State, Redevelopment critics say that while the original intent of redevelopment was the improvement of blighted areas the role of redevelopment has been dramatically and improperly expanded. Many business people feel that city governments are unfairly using taxpayer’s money to compete with private enterprise.

San Jose’s Redevelopment program, siphoned off at least $70 million in 1990 from the city, the County and the State’s General Funds. Almost every city in the County has a Redevelopment program. It is no wonder the state, the counties, and many cities are experiencing such financial problems. The presence of a recession means these problems have become even more critical.

In San Jose, the City/Redevelopment Agency hast had a difficult time with many of its “revenue producing investments.” This last week, the City made its third amendment to the agreement with City Retail Company, which was hired to provide retail consulting services and assistance for implementing the Agency’s Downtown and San Antonio (Pavilion) Development strategy.

The Pavilion is still empty; many small business people have tried to operate a business there but have failed. The latest strategy at the Pavilion is to make it a night club area. Prior to that it was a “restaurant area” and before that, the Pavilion was a “destination, upscale shopping area.”

The original agreement with City Retail Company was to recruit restaurants, in addition to other type of retail operators and thereby “creates a high volume pedestrian-oriented retail environment and day and night time activities downtown.” Redevelopment Agency Chief, Taylor, in a recent memo, states that he has decided that it is best nor to recruit or subsidize new restaurants for a period of time.

Taylor’s decision should be welcome news not only to the taxpayers, but to existing downtown restauranteurs who have seen their businesses suffer from competition by city subsidized restaurants.

Some people defend Redevelopment based on the number projects that they have built and the amount of debt that they have incurred. Critics say that Redevelopment can only be claimed a success if it is shown that subsidies are not necessary to lure businesses to a redevelopment area.

In San Jose, it is nearly impossible to ascertain the total amount of Redevelopment subsidies. It is estimated that hundreds of millions of dollars have been spent in subsidies in the last ten years. One of the largest City single investments will be that will be that made to build the area, which will most directly benefit the arena operator, the Gund Brothers, other subsidies have been made to the Fairmont Hotel and most of the other downtown hotels in San Jose.

The City has set aside $40 million in the 1991-92 Redevelopment budget for “Economic Development.” That sum is the same amount that San Jose Mayor, Susan Hammer has said that she has set aside for they proposed $149 million stadium. How the remaining money needed to fund the stadium will be raised is not certain, but there have been suggestions that the needed funds would come from fees or taxes that every San Jose citizen in the city would have to pay. Certainly, the money will eventually be extracted from the taxpayer.

There are serious issues to be addressed regarding any proposal for a stadium; including the use of Redevelopment dollars (taxpayer money) for a venture that profits private individuals – the multimillionaire club owner and the ball players, whose salaries are in the six figure range.

In the recent election, the citizens of San Jose voted down Measure H, which asked the voters, “Shall the City of san Jose participate in the building of a sport facility for a major league baseball with the use of tax dollars? The response from San Jose voters was 134,523 yes and 138,014 no votes. 138,000 VOTERS AGAINST THE USE OF TAXPAYER MONEY FOR A BALLPARK. This vote was taken even before the extent of the City’s budget crisis was known.

Somehow, that clear response has been ignored by the new mayor and other stadium boosters. In San Francisco, a similar venture had to be voted down twice. This proposal, which includes the use of Redevelopment funds (taxpayer money is arousing steadily increasing opposition from the taxpayers, including county residents who feel that the entire county is paying for San Jose projects of dubious merit.

The County is facing the largest shortfall of revenues that it has faced in many years, at a time when there are serious social problems that need immediate attention.

San Jose City officials even now admit that they expect to have to cut the budget by $10.5 million next year.

The State of California is reducing its budgets for education and thrusting many social services it normally provided onto the already financially strained counties.

The State is also imposing fee and tax increases on almost every consumer purchase, plus asking for increased utility taxes in order to balance this year’s budget.

If you have concerns regarding Redevelopment policies and the planned stadium let your City Council and County representatives and all those involved in bringing the stadium to San Jose know of your concern.

For the City in San Jose call 277-4237; the County 299-2323. © La Oferta Newspaper.