SAN FRANCISCO — The battle between San Jose and Santa Clara County over tax revenue from the city’s former redevelopment agency has gotten ugly.
State Controller John Chiang’s office ruled last week that Santa Clara County must pass disputed redevelopment tax revenue slated for bond payments to San Jose, as the “successor agency.” The city has said without the money it would default on tax allocation bonds.
Then on Monday, the county wired $10 million less of the contested tax money collected than the city had expected to receive as a result of the controller’s decision, according to San Jose officials.
Earlier this month, San Jose said the county intended to withhold $20 million of tax increment revenue, which could cause the city as the successor to the redevelopment agency to miss debt service payments on senior non-housing tax allocation bonds due Aug. 1.
The scrap between two of the largest local governments in California is tied to the dissolution of redevelopment agencies in California earlier this year, which has left confusion over the interpretation of the law in its wake.
The two sides disagree with 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 RDA debts.
The controller’s office sided with San Jose over the use of the tax revenue.
In a blunt letter on June 15 to the oversight board of the former redevelopment agency, County Executive Jeffrey Smith dismissed the default claims by San Jose officials.
“Candidly, the city of San Jose’s lack of candor and misrepresentation of events and issues in that memorandum obfuscates the fact that the San Jose Redevelopment Agency was insolvent even prior to ABX1 26,” Smith said in the letter. “The city is engaged in a campaign of misinformation and accusations in an attempt to blame the County of Santa Clara for its own problems.”
Smith went on to say San Jose officials have been “making inaccurate statement to the financial markets and the Legislature.”
In response to Smith’s letter, San Jose City Manager Debra Figone fired back that “these extremely serious allegations are false and need to be retracted immediately.”
She said the former redevelopment agencies financial problems are nothing new and have been discussed in public for years.
“The fact that there is a structural deficit between the project redevelopment tax revenues and the former agencies enforceable obligations, which will continue for the next few years, is not in dispute,” Figone said in her letter to Smith. “The issue at hand is who has first call on the tax revenues and where in the ‘waterfall’ does the insufficiency fall.”
Figone said there are “just barely” enough tax revenues available to pay holders of the tax allocation bonds issued by the former redevelopment agency if all revenues pledged to bond holders are remitted to the trustee.
She restated what the Mayor Chuck Reed said earlier this month: if the county takes $19.3 million in tax revenue pledged to bondholders, the city will be unable to make the Aug. 1 debt service payments.
Smith has claimed that the city has the resources to make the debt service payments.
Last year, a new law upheld by the state Supreme Court dissolved California’s 400 redevelopment agencies. Since then, there’s been a scramble by the “successor agencies” — in most cases, including San Jose’s, the municipalities that had created them — to dissemble their debts and assets.
The process involves a local oversight board, county auditor-controllers, the state controller’s office and the state Department of Finance.