SILICON VALLEY/SAN JOSE BUSINESS JOURNAL
- JUNE 13, 2003

"County bills San Jose $35M"

- Timothy Roberts

Santa Clara County has sent the San Jose Redevelopment Agency a bill for $35 million and wants it paid by the end of the month.

The bill is for payments the county is owed from the 2001 settlement of a lawsuit over the sharing of property tax revenue from San Jose's redevelopment areas.

It foreshadows a showdown over the payments at a time of budget shortfalls.

Because of budget problems, city officials have been threatening not to make the payments this year. But county officials made their expectation clear in the bill dated May 28. Due date: June 27.

The city and county will come face to face Tuesday, June 17, as they begin a series of meetings aimed at ironing out their differences.

"I have an open mind about the city's needs, having served on the City Council for 14 years," says County Supervisor Jim Beall, who will represent the county in the meetings. "But I'm also expecting the city to meet its legal commitments."

"If the money isn't there, it isn't there," says Councilwoman Linda LeZotte, who along with Councilman Ken Yeager will represent the city. "But we also need to honor the agreement in front of us."

At stake is the control of millions of dollars in property tax revenue for years to come.

The redevelopment agency, which has been involved with every major downtown San Jose development for two decades, wants the money to build affordable housing, retail and office developments and neighborhood improvement projects citywide.

The county says it needs the money to build health clinics, affordable housing and other social service programs.

At the heart of the dispute is the way that redevelopment agencies collect property tax.

Once a redevelopment area has been established, any increase in property tax revenue goes to the redevelopment agency. The agency says that the increase is caused by its improvements in the redevelopment zone.

But the county says that it deserves a portion of the property tax increase because it must pay for the social services needed to serve the area.

It has been fighting the city over the agency's tax funds for a decade.

In 2001, the city and county settled a lawsuit the county had filed over the issue by agreeing the agency would pay the county $208 million over 10 years.

In return, the county agreed not to oppose the city's efforts to extend the bonding capacity of the agency beyond 2004, when much of the agency's ability to incur debt is scheduled to end.

Then came the budget problems of 2003.

Mr. Beall first got a hint of trouble at a meeting in March of the Santa Clara Valley Housing Leadership Council. The speaker was Susan Shick, the executive director of the San Jose Redevelopment Agency.

She warned that the budget cuts coming from the state would imperil the agency's ability to meet its obligations. Mr. Beall took note.

The county was skeptical that the redevelopment agency wouldn't have the money it needed, given that its property tax revenue had increased from $141.07 million in 2001 to a projected $198.52 million this year.

Redevelopment Agency revenue is running $82 million above what had been projected for the last three years, says John Guthrie, the county's finance director.

Revenues have been running ahead of projections, said Sharon Landers, deputy executive director at the agency, but they are projected to be flat in coming years, and the agency has had to reduce its spending.

The 2003 figure alone is running $41.29 million above what was expected when the agreement was signed, providing the agency with what county officials see as a windfall out of which the agency should be able to pay its commitments.

In May, Mayor Ron Gonzales and other City Hall staffers were startled to see that Ms. Shick had cut $19,035,816 in funds due the county this year out of her agency's budget.

Mr. Gonzales ordered it put back in and the agency had to scramble to find ways to cut $19 million elsewhere from its budget. That amount would be added to $16 million budgeted to be paid to the county this year.

"The mayor was very emphatic that we had to put the money back," said Joe Guerra, the mayor's budget and policy director.

Asked about the budget surprise, Ms. Shick said, "The agreement (with the county) says we can renegotiate if there are big changes in the state budget that affect us."

True, says County Attorney Ann Ravel. But those negotiations haven't even begun.

"There is a provision in the agreement that allows for negotiations if changes in the law make it difficult for the city to make the payments," she says. "But it doesn't require us to agree."