Slow down, RDA group tells city

The Citizens Redevelopment Committee will recommend only five projects costing an affordable $8.5 million in its finalized report that now goes to the Chico City Council for approval at its June 6 meeting.

The watchdog panel, created by the council last winter, thinks the city should not earmark further redevelopment-area spending until it has reviewed total infrastructure needs. “We need to stop, take a step back, and decide how to proceed in a fiscally responsible manner with the most important projects,” said Mark Sorenson, committee chairman.

In no order of priority, the committee’s five projects—picked from a city laundry list of 40 worthy projects—would be: East Fifth Avenue reconstruction; East Eighth Street reconstruction; many new strategically placed fire hydrants; the widening of Highway 32; and improvements at Children’s Playground.

Five weighted criteria determined final project selection: Progress toward the legally required removal of blight; potential for investment payoff via increased tax revenue; fiscal prudence; the likelihood that average voters would find the project reasonable and necessary; and, finally, possible funding sources other than redevelopment for the project.

In regard to this final criterion, committee member Bob Best, who was a prime mover of the effort to establish the oversight group, pointed out that although about half of Chico’s growth comes from annexation, no badly needed “annexation impact fee” exists, as in the case of impact fees on new development. “Annexation does not pay its own way,” Best emphasized. Annexation increases the requirements for financing such services as police and fire facilities, animal control facilities, and recreation facilities.

Indeed, the committee added one high-priority blight project of its own, complete with photographs showing the Meadow Road neighborhood, a newly annexed Chico area off West Eighth Avenue. “There are a lot of such severely blighted areas all over Chico,” Sorenson reported.

The city has a different proposed list of 16 non-prioritized projects that largely reflects the judgment of Tom Lando, former Chico city manager and now a redevelopment consultant for the city. Prominent on the list is a proposed new police station that would cost $17 million but as a city service entity would generate no tax revenue when completed.

In 2004 the Chico Redevelopment Area (RDA) consolidated four previously formed separate RDAs (dating back to 1980) to enclose most of Chico in a single 10,000-acre RDA. This move allowed the new Chico RDA to increase its bond debt ceiling, so last August the RDA issued $75 million in new bonds without specific plans for spending the money.

This move generated a $200 million spending wish list, generated angst among taxpayers, and resulted in formation of the watchdog committee. Best revealed that the RDA directors have committed all but $19 million of the bond money.

RDA borrowing power is critical. When City Council members form a new RDA, they name themselves to serve as the RDA board of directors. The first thing the directors do is borrow money for RDA operating capital through issuing 30-year maturity bonds. They then spend the money on any projects they want. All of these steps can be taken without voter approval.

By law the RDA must incur debt before it can tap into “tax increment” money, its second source of cash. This financing consists of 2 percent of all RDA-area property tax money dating from its year of establishment—1980, 1983, 1985, and 1992 for RDA areas No. 1, 2, 3, and 4 within the 2004 overall consolidation RDA. Most of this sliver of property tax money goes to pay off the bonds.

As Sorenson pointed out, RDA money and city money are separate. In fact, the RDA can legally take $3 million per year from the city general fund with no payback. But if the city had made only a part of the money a loan—even with no repayment schedule—to the newly formed RDA in 2004, the first year of its existence, the loan would have served as the debt legally required for the RDA to draw tax increment money. Such money alone could remove most RDA-area blight without bonds.

Servicing bond debt costs $1 in interest for every $1 in principal payback. It’s analogous to a $200,000 home mortgage that costs $400,000 to pay back over 30 years because the homeowner pays interest charged on the unpaid balance.

Thus bond debt creates an expensive but alternative financing route to any pay-as-you-go new taxes that the public would probably reject in a required vote because the public hates new taxes. Thus the costly RDA, an unrestrained shadow government largely unknown to the public, undertakes lavish spending that half the time fails to remove blight, according to a special statewide report this year by Municipal Officials for Redevelopment Reform.

The controversial, multi-million-dollar new Downtown Plaza Park now under construction offers a prime example of expensive RDA planning, said Best. Moreover, city staff has publicly mentioned the possibility of a new bond issue in as little as five years.