SAN FRANCISCO — A feud between San Jose, Calif., and Santa Clara County over redevelopment tax money appears to have ended before triggering a threatened default, but not before spreading uncertainty across the sector.
Leaders from both localities said they met and reached a deal in which the county would transfer more tax revenue from San Jose’s former redevelopment agency to the city.
City officials said that will prevent a default on tax-allocation bonds issued by San Jose’s redevelopment agency.
“The city and the county did meet. And as a result of that meeting, the county transferred $6.9 million this morning and that along with some other money is sufficient to prevent the payment default on our senior and subordinate bonds,” said Julia Cooper, San Jose’s acting finance director.
The redevelopment agency was shuttered as part of the statewide elimination of such agencies that took effect this year.
The city and county were fighting over revenue from former San Jose agency revenue.
Earlier this month, the county said it would withhold $20 million of tax increment revenue. City officials said that would result in missed Aug. 1 debt service payments.
California Controller John Chiang’s office ruled last week that Santa Clara County must pass the disputed redevelopment tax revenue slated for bond payments to San Jose, but the city said the country’s subsequent transfer fell $10 million short.
Cooper said without the money San Jose would have defaulted on debt payment due on $93 million of subordinate, non-housing tax allocation bonds.
Santa Clara County Executive Jeffrey Smith said the two sides came to an agreement partly because San Jose produced new information that changed the calculations of how much money should flow to the city according to the law that closed down California’s redevelopment agencies.
“Both parties reassessed the debt and agreed that the total $77.4 million amount dispersed from the trust fund would be enough to service all bonded debt,” Smith said in an email.
Tax increment revenue collected for former redevelopment agencies is put into a trust fund overseen by county auditor-controllers before being distributed.
Smith said both sides will evaluate a new trailer bill in the budget, which was signed into law Wednesday, to address some of the concerns about the dissolution of the state’s redevelopment agencies, and to deal with any possible future issues in order to make sure all debt service will be paid until the redevelopment bonds mature.
Different interpretations of the original legislation that dissolved the state’s redevelopment agencies caused the two sides to fight over what debts owed by the city’s former redevelopment agency should be paid first.
The two sides disagreed on where “pass-through payments,” which go to the county from the redevelopment tax revenue, stand in line of seniority.
They also disagree on the use of special tax revenue for redevelopment agency debts.
The differences led to a series of salvos between the city and the county in the form of letters that included questions of honesty.
The uncertainty caused by the battle led Moody’s Investors Service to downgrade $1.75 billion of the city’s redevelopment agency debt to junk level earlier this month.
Moody’s also said the dispute highlighted concerns that led it to downgrade all California redevelopment tax allocation bonds to junk.
JPMorgan also held back on a long-term commitment on a letter of credit backing $94 million of the city’s redevelopment bonds because of the trouble.
