LIVE Redevelopment Agency Coverage

Editor’s Note: For the Council Appointment process, CLICK HERE.

Good evening people of Davis! Bernie Goldsmith here, live-blogging from Community Chambers, anxiously awaiting relief from our august editor in chief Kemble K Pope. While this is my first time making an update here, and I am woefully unprepared, I am a fast typer, so I will try to give you an accurate and hopefully entertaining running summary, at least until Kemble comes to take me away at 6:00 pm.

When el cappo does appear, he will be continuing these live-blogging updates HERE.

Today’s meeting starts at 4:30. According to the agenda the real juicy matter of choosing a new council appointment to fill the vacancy on the council will begin no earlier than 6:00 pm. Until then, the council will be occupied by business pertaining to the Davis Redevelopment Project.

Be sure to refresh your memory by checking out our Quick Glance Guide to Council Applicants.

4:30 pm – And we’re off to a slow start. This blog post is awaiting approval, so you won’t be reading this live. Several of the prospective council members are already in the audience. On the dais are Stephen Souza, Rochelle Swanson, and Joe Krovoza.

4:38 pm – Sue Greenwald has just arrived, all in black, and has taken her place at the dais. It appears as though this meeting is about to start.

4:39 pm – Meeting kickoff. Agenda approved. Paul Novazio is introducing a staff recommendation to authorize the issuance of 16 million dollars in non-housing bonds. These bonds will continue to fund certain ongoing projects under the Davis Redevelopment Agency despite the Governor’s proposal to eliminate redevelopment agencies.

4:47 pm – The staff recommends not issuing the housing bonds, because of the interest rate the city can get on them and because the policy of the Governor’s administration regarding these bonds has not been made clear yet.

4:49 pm – The staff has finished its presentation. Joe is asking for a supplement to their report to analyze how this bonding project might effect school district funding in Davis, a matter not addressed in the staff report.

4:50 pm – Paul responds. It is difficult to provide a solid analysis because the proposal from the governor’s new administration and legislation derived therefrom have not yet been released. Additionally, because of differences between funds that come from the state for educational funding and redevelopment agency funding, it is difficult to draw a line between the issuance of these bonds and any impact they might have on school district funding. Paul states that it is likely illegal for the funds raised by these bond issuances to be used to fund the schools. Paul states that the proposal before the council will have a minor (if any) impact on funding for local schools, and so additional work to clarify the report is unnecessary.

4:57 – Questions. Sue’s up. Sue wants to know if the state could force the city to use its non-housing bond issuances or funds for housing, should the city not issue housing bonds. Paul is not aware of any such possibility. He warns that delaying issuance of these bonds could risk disrupting ongoing projects. Brent Hawkins, an attorney from Best Best & Krieger contracted by the city has stated that he is unaware of any such proposal.

Souza is up. He highlights a bill proposed by Senator Wolk that would eliminate the voting requirement for special financing districts. He wants some general information on the use of special financing districts for economic redevelopment. Paul states that the staff has not fully studied the proposal from Wolk, and so cannot answer fully at this time. Hawkins anticipates that the bill proposed by Wolk is not intended to be used as a replacement for redevelopment funding mechanisms.

5:00 – Rochelle is up. More questions about Wolk’s proposal. Hawkins emphasizes that Wolk’s proposal is a completely different animal, not intended as a replacement funding mechanism. Rochelle wants to know how cities the size of Davis will be affected by the elimination of traditional RDA funding and other changing mechanisms for funding. Hawkins states that there have been proposals leaked to create radical changes to the nature of RDA’s to focus on extremely underdeveloped and impoverished areas, a proposal which was completely unsupported. In his opinion, there can be no comment made until these proposals play out.

Sue is up. She raises constituent concerns about abuses in RDA funds, for uses such as large sports arenas or for auto dealer subsidies. Sue wants to know whether it’s possible under state law and proposition 22 to make reforms of RDA’s to prevent these kinds of misuses of RDA funds. Hawkins states that this is absolutely the case. Prop 22 only forbids the state to take money from RDA’s to use for state purposes – it does not restrict the ability of states to put restrictions on the way that redevelopment agencies can use money. Sue expresses approval of this state of affairs.

Stephen is up again. He wants to know about the capacity of RDA’s to help school districts in CIP circumstances, for instance, to renovate the administration building. He wonders if any such idea has been floated regarding this proposal.

Sue wants to know if she can leave the room while this is discussed because she is conflicted out. Stephen changes the question to address whether *any* school district administration building could be fixed using such funds.

Paul states that under certain circumstances if there is a project within a redevelopment project area or which has a nexus that benefits a redevelopment project area, current law does not preclude the use of these funds for such purposes. He doesn’t believe that any school administrators have discussed using the funds for these purposes or discussed any specific projects which may or may not be eligible for this money.

Hawkins states that agencies are authorized to pay for the land or construction of public facilities within the redevelopment area or outside the redevelopment area given the right circumstances.

Stephen wants to know what a “defined project” means. Answer: These projects are derived from the 5 year plan under the RDA. Stephen wants to know whether we have shovel ready projects at this time. Staff responds that a few smaller projects are shovel ready, but that some of the larger projects require additional commitments of funds before they can be developed to the point of being shovel ready. It will require at 6-12 months after financing for these projects to be shovel ready.

Stephen wants to know whether the city of Davis has any obligation to contribute to the state’s attempts to balance their budget. Staff answers that the city has already contributed to balancing the budget by virtue of local revenues siphoned off to finance state projects and budget shortfalls. He gives the example of 27 million dollars in local property tax dollars being siphoned by the state. He gives another example of the state performing a one time shift of redevelopment funds to cover a state budget shortfall.

5:17 – Joe moves to open public comment. Steve Williams, resident of Davis. He supports staff’s recommendation because redevelopment funds are an important tool for the city to enhance the quality of life.

Michael, president of the DDBA – DDBA sent staff a letter of support urging council to secure the RDA funding while it is still able to do so. He urges a unanimous vote in favor of the staff’s recommendation. RDA funding is essential to achieve the council’s stated goals of improving the quality of life for the Davis community.

Chuck Roe – Voices general support for RDA’s and the projects they undertake. He supports the staff’s recommendation.

5:20 – Back to the council for discussion. Rochelle wants some general discussion on prop 22 from Attorney Hawkins. Hawkins thinks the governor’s proposal violates proposition 22, but we won’t find out until the proposal passes and it reaches the judiciary.

Joe asks Paul – What other cities are contemplating a priority issue of bonds to take the RDA funding while they can? Paul responds most other redevelopment agencies and their boards are moving in this particular direction. Some agencies have been more aggressive than the proposal offered by staff, securing funding in some instances without specific projects to apply them to. Other cities have no projects lined up to fund, and so are unable to aggressively seek out RDA funding. Paul’s opinion is that his proposal is best for our city, without regard to what other cities are doing.

Hawkins adds that he believes all other agencies in the state are evaluating how to respond to this, and that their responses differ with their circumstances. All agencies, he stresses, have this issue foremost in their mind right now.

The financial advisor: 1 to 1.5 billion dollars in public debt will be hitting the bond market, all at the same time, during the worst bond market in 15 years. Every client the advisor has is looking to issue bonds. There will be a glut on the market of these bonds, so interest rates will going up. Accordingly, the interest rate numbers before the council today are good for today, but there will be a moving target.

Ed: If every city is looking to race to the market with redevelopment agency bond offerings before the governor’s proposal can shut off this funding source, the market will be bloated with such offerings and the interest rate available on this debt will go up.

Rochelle wants to know what the potential cost of borrowing this money will be. She also asks the legal council whether the city will have to wind down the debt after RDA’s are eliminated or whether the city can create a succorssor entity.

Financial advisor: Cost of carry of this debt will be around 7%. So the city will have significant debt financing expenses for every day it draws this money down before it can use the money. He states that borrowing this money in advance might cause the city to carry this debt for 6 to 12 months before it otherwise would have. The cost of this early bond issuance will be around a million dollar in carrying costs.

Hawkins states that the proposal seen from the governor so far would have all of the RDA’s assets transfered to a successor agency, in this case, the city council. That burdens the council with paying off the unwound agency’s debt. It is difficult to provide answers or guidance in this instance because the governor’s proposal has almost no detail – it is still somewhat unclear what will happen to RDA assets. Under the new model, there will probably be an oversight committee regulating the use of these RDA assets, despite that they are in the hands of the city council.

5:30 – Rochelle wants to know whether there are any mechanisms that would shorten the time that the city is holding these bonds, or accelerate existing projects to avoid this carry cost. Paul – it will be hard to hold off on the issuance of the debt in this environment, but staff can endeavor to accelerate existing projects.

Joe asks for a motion, in the interest of time. Sue moves staff recommendation. Joe seconds. Sue speaks to the motion. Sue thinks we will lose money if we do not approve this bond issuance. Sue thinks borrowing this money will make the city money because of revenue enhancement.

Bernie: I’m not sure if it’s appropriate to be editorializing, but the point made by the financial advisor is worth consideration. It is very disadvantageous for the city to “front load” its RDA bonds and enter into the bond market at the same time as so many other California municipalities, especially given the unfavorable market conditions for such issuances. Interest rates will be very high. If this debate is occurring in other council chambers across the city, look at your mutual fund holdings in California muni bonds to take a nose dive over the next month or so. This is my personal view.

Rochelle states that this should be pursued with caution. The city needs to balance the risk of issuing these bonds and what is best for the community. She supports the staff recommendation but with a cautionary note.

Stephen Souza points out the high cost of issuing these bonds at this time due to the terrible municipal bond market. Given the market conditions, the money will be borrowed at a high cost, and this debt will be carried for up to six months, incurring interest rate expenses it otherwise would not have.

Joe: The low cost of construction at this time will offset some of the negative arbitrage of carrying this debt for a length of time without spending it. He thinks Davis can put this money into excellent use.

5:49 – Comments closed. Choo choo! It appears the train is heading towards unanimous approval. All approve. Motion carries, 4-0.

5:50 – Meeting is in recess.

CLICK HERE for continuing coverage of the City Council meeting and appointment of it’s new member.