Regional News

Unfinished Business

SAN FRANCISCO - The small city of Half Moon Bay remains dangling on an $18 million hook after a bill that could have provided a cheaper resolution to a costly lawsuit died with the regular session of the California Legislature.

California lawmakers have been unable to produce a budget so far for the fiscal year that began more than two months ago, but they approved a flurry of bills last weekend while others were left to die with the Aug. 31 deadline to pass legislation.

Half Moon Bay, a city of about 13,000 and a general fund budget of about $11 million, last year lost a lawsuit brought by a developer. A federal judge awarded the developer $37 million after finding that the coastal city south of San Francisco was to blame for constructing the storm drains that turned the developer's property into a wetland that cannot be developed under state law.

With talk of bankruptcy in the air, the city agreed to a settlement in April, in which Half Moon Bay agreed to obtain state legislation to allow the tract to be developed, or pay $18 million.

A bill to do so passed the Assembly, but stalled in the Senate amid protests from environmental groups opposed to coastal development.

Efforts to find an acceptable compromise could not beat the deadline, said Orrick, Herrington & Sutcliffe LLP attorney John Knox, who is representing the city in the case.

"Essentially, the clock ran out on us," he said.

In the final compromise attempt, the city's state senator, Leland Lee, D-San Francisco, amended a horse-racing bill to appropriate $10 million from California's 2006 housing bond measure to purchase the property as a park, but the measure died in committee.

"It was the end of the session and there wasn't time to work out a compromise," Knox said. "We're continuing to work with the Legislature and we're continuing to hope we can come out with something."

Without legislation next year allowing development for the tract, the city is likely to have to access the bond markets to pay the $18 million settlement.

According to Half Moon Bay's most recent comprehensive annual financial report, as of June 30 the city only had $365,000 in outstanding bond debt. That debt represents the smallest part of a multi-city pool of lease revenue bonds issued in 2001 through the Association of Bay Area Governments. The three major credit rating agencies do not maintain any ratings on Half Moon Bay.

Other public finance proposals fared better than Half Moon Bay's as the legislative session wound down.

Lawmakers approved a bill to authorize $5 billion in lease-revenue bonds to finance court projects around the state, to be funded by increased fines and court fees.

They also adopted a bill that would give state Treasurer Bill Lockyer a new agency with bond-issuing powers, the California Transportation Financing Authority, which would be authorized to provide new capacity or improvements for the state transportation system through revenue bonds.

Earlier in August, they also approved a bill authorizing the California Alternative Energy and Advanced Transportation Financing Authority, chaired by Lockyer, to enter into bond-financed power purchase agreements with public and private entities for the purchase and sale of alternative-source energy or projects.

In August, legislators also passed two bills designed to increase oversight of conduit bond issuers.

One bill would require joint-powers authorities offering conduit financing to health care facilities to apply the same community service requirements to borrowers applied by the California Health Facilities Financing Authority, which is run out of the treasurer's office.

CHFFA officials say their new-money issuance has declined because hospital borrowers believe the process is much easier using less-regulated joint-powers authorities as conduit issuers.

Lawmakers also passed another bill aimed at imposing "additional transparency and accountability requirements on conduit financing providers in California," according to a legislative staff analysis.

The bill would require audits of the conduit issuers that include increased fee disclosures, disclosures of authorized but unissued debt, and also require the conduit issuers to make online postings of their meeting agendas, staff reports, and audited financial reports.

Other legislation approved on the final weekend includes a bill allowing the Los Angeles County Metropolitan Transportation Authority to go to the voters this year for a half-cent sales tax, which would require approval from two-thirds of voters. Another last-minute measure would allow local officials to divert property-tax increment revenue to pay for public facilities and amenities within so-called transit village development districts, which link mixed-use developments to transit systems.

Other significant legislation approved earlier in the session includes bills that:

* Allow school districts to ask voters for general obligation bonds to finance teacher and employee housing.

* Impose fees on containers moving through the state's three biggest ports, and allow fee revenue to back bonds to finance congestion relief and air quality projects.

* Authorize the use of so-called Mello-Roos taxes to back bonds that would be used to finance renewable energy and energy efficiency improvements on private property.

* Authorize local governments to provide up-front financing to property owners to install solar or other renewable energy-generating devices or energy efficiency improvements to their properties through a system of contractual assessments.

* Authorize Riverside County to add high-occupancy toll lanes to the Route 91 freeway there.

Legislation that failed included multiple attempts to authorize lease-revenue bonds to finance prison health care projects that a federal receiver is demanding or else he will simply take the necessary money from the state treasury.

A bill asking voters to approve $2 billion in state general obligation bonds to fund energy efficiency and carbon reduction-related programs in state buildings also died, as did a $4 billion bond measure for libraries.

The ultimate fate of the bills that were approved may depend on the resolution of the budget impasse - assuming it is resolved.

The Republican minority in both houses has insisted on no new taxes to close the $15 billion general fund deficit; Democrats have balked at cutting that much; and Gov. Arnold Schwarzenegger has said he will insist on significant budget reform measures while resisting budgetary borrowing to close this year's deficit.

The Republican governor now has the month of September to sign bills, veto them, or allow them to become law without his signature.

Schwarzenegger has threatened to veto every bill presented to him if a budget is not adopted, though he later made an exception in order to sign a bill that he favored, which modified some of the language in the $9.95 billion high-speed rail bond measure on the November ballot.



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