Council may stretch RDA limits

The city’s economic development committee has approved giving $250,000 in Chico Redevelopment Area (RDA) money to seed an inherently risky venture capital project, a move that if OK’d by the City Council would represent a questionable use of such funds.

As risk venture capital, the money could be lost, and in any event it would not be repaid to Chico. The city, however, would be required by law to repay itself for the gift money, which would come from its long-term redevelopment bonds over their 30-year lifespan. This bond money represents the RDA operating capital pool. Additionally, such a payback would be two dollars for every one dollar given because of the long-term bond principal and interest costs. Thus such a gift would actually amount to $500,000. It’s analogous to a 30-year fixed-rate $200,000 house mortgage that costs $400,000 to pay off.

Redevelopment is much like urban renewal. It seeks to upgrade a certain area—the Chico RDA, formed in 2004 (its “base year"), is a single project area that covers more than 10,000 acres—by removing specific elements of physical and economic blight defined by law in the record when the city drew its redevelopment plan. Once formed, the RDA goes into debt by floating bonds to pay for this capital renovation. The improvements in turn result in higher property taxes in the area, and this tax money is diverted from the city to the RDA to pay off the bonds.

The 2-1 vote, approved by Councilmembers Maureen Kirk (chair) and Steve Bertagna with dissent by Larry Wahl, sends the proposed project to the full City Council for action, presumably at one of its February meetings. City Manager Greg Jones has signed onto the proposal, as has former City Manager Tom Lando.

If approved by the council, the money would go to Golden Capital Network, a Chico nonprofit entity spun off in 1999 from Tri-County Economic Development Corp. to help small startup companies link with private investors for growth. Jon Gregory, a well-known local mover and shaker, serves as Golden Capital executive director. This “new twist could have Golden Capital do some investing itself,” Gregory has said in a company newsletter.

The gift would be seed money because it would represent half what is needed to match a $500,000 federal (Department of Commerce Economic Development Agency) grant sought by Golden Capital to establish an angel investment fund for regional, not local, outreach. If it gets venture capital money from Chico, Golden Capital will seek the other $250,000 to complete the match from the city of Redding, thus creating the regional tie-in.

In terms of questionable use, the title or introductory page of the 2004-05 Chico RDA budget states: “It should be noted that RDA funds can only be used for capital improvement purposes and are not available under any circumstances for operating expenses other than administration of the agency.”

Wahl expanded on the idea. “The city simply does not belong in the venture capital business where there is no guarantee of return,” he said, adding that private investors should provide the seed money. “It’s just not good use of taxpayer dollars to be involved in something like this. We have stewardship to use the (redevelopment) money for infrastructure.”

Additionally, Wahl said council approval of such action would set a dangerous precedent because it would signal other entrepreneurs to make their own pitches. The councilmember stated, “These people would come and say, ‘Hey, you gave these guys a really good deal. How about a slice for me?'”

Even with council approval, Redding would need to give $250,000 or the proposal would die.