SAN FRANCISCO — California Gov. Jerry Brown has vetoed legislation that would have helped the San Jose Redevelopment Agency avoid a $100 million default.
The veto leaves JPMorgan without clear legal authority to extend an expiring credit facility that secures about $100 million of the RDA’s variable-rate debt.
A spokesman for JPMorgan said the firm has been working with the city of San Jose to fix the problem, but said the veto “leaves no one with the legal authority to execute an extension of the letter of credit to avoid default.”
The head of the agency, Richard Keit, said the vetoed legislation was unnecessary, even though it would have provided reassurances to JPMorgan.
“No one wants a default,” Keit said in a statement. “The agency’s view is that JPMorgan can unilaterally extend the letter of credit, and we will continue to work with them to find a mutually satisfactory solution.”
The state Senate Budget Committee designed the vetoed bill to clean up several aspects of this year’s major RDA legislation, which abolishes redevelopment agencies unless they agree to make payments to the state meant to help close this year’s budget deficit.
The proposed cleanup bill, among several other provisions, would have explicitly authorized RDAs to extend expiring letters of credit. Brown vetoed the bill late Monday afternoon.
Brown said in a veto message that it would be premature to change the legislation until the state Supreme Court rules on a lawsuit challenging the redevelopment legislation. A decision by the court is expected before Jan. 15. In the meantime, agencies are barred from engaging in any financing.
That has kept the San Jose RDA from extending a letter of credit from JPMorgan that expires on Nov. 25 supporting almost $100 million of variable-rate debt.
Expiration of the letter of credit would trigger a tender offer on the bonds by JPMorgan and subsequently the city would have to make higher payments in a shorter time frame on the outstanding $95 million — money the city and the RDA say they don’t have.
A similar situation exists with the Rocklin Redevelopment Agency, which faces the loss of a $3.4 million letter of credit.
The California Treasurer’s Office said it has been working with San Jose and Rocklin on finding another solution outside of the vetoed legislation.
San Jose is expecting up to a $115 million general fund deficit for the next fiscal year after closing a similar-sized hole in this year’s budget with steep cuts.
The city already is supporting the Redevelopment Agency this year with $10 million from its general fund to pay debt service because of decreasing property values that cut the agency’s revenue from tax growth.
San Jose is also on the hook for $63 million in loans it has made to its RDA.
The agency has a $156.4 million debt-service payment due this fiscal year on agency-issued bonds and the city has a $25 million payment due on debt secured by the city.
San Jose joined the lawsuit against the redevelopment agency legislation.
To keep its agency from being abolished, San Jose would have to pay about $50 million this fiscal year to the state if the new law stands and $10 million to $11 million on an ongoing annual basis.