The California Department of Finance has reversed its decision and will allow Modesto to use property tax revenue to make more than $3 million in debt payments on behalf of its former redevelopment agency.
This is good news for the city and means Modesto won't have to make the payments from its financially stressed $102 million general fund, which primarily funds police and fire.
The Department of Finance denied the use of property tax revenue in October. It notified the city Tuesday that it now would allow use of property tax revenue after the city appealed the October decision and provided the department with more information earlier this month.
Cities and counties formed redevelopment agencies to eliminate blight and spur development. The agencies were funded by a portion of the property taxes generated within their boundaries. They issued bonds to raise large amounts of money to do high-impact projects. And they used their property tax revenues to pay off the debt.
When the state abolished redevelopment agencies in February, it required cities and counties to set up what are called successor agencies to pay the debts of their former redevelopment agencies. The successor agencies receive property taxes, and the Department of Finance approves their payments.
Big projects, big debt
In Modesto's case, the Department of Finance was not allowing a $1.936 million payment for debt issued to build Modesto Centre Plaza in the late 1980s and a $1.329 million payment for debt issued to build Tenth Street Place and its parking garage in the late 1990s.
Modesto's successor agency owes about $48 million on the debt for Tenth Street Place, the parking garage and Modesto Centre Plaza. The agency will be making the $1.936 million payment until 2023 and the $1.329 million payment until 2034.
In an October denial letter, a Department of Finance analyst wrote that because Modesto's redevelopment agency had not pledged property tax revenue but other types of revenue to pay off the debts, the state would not approve the $3.27 million payments.
But Modesto officials said that was an incorrect analysis and provided additional information for the department's review. In the Tuesday letter, the analyst wrote that department officials now agree property tax revenue had been pledged.
The debt payments are due in the spring.
Bee staff writer Kevin Valine can be reached at kvaline@modbee.com or (209) 578-2316.
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