$129.7 million owed as Modesto redevelopment agency dissolves

jnsbranti@modbee.comOctober 9, 2013 

— The city’s now-defunct redevelopment agency has nearly $129.7 million in unpaid obligations, including $77.7 million in loans owed to the city of Modesto.

Exactly when that debt will be paid off isn’t known, but city officials estimate it will take 25 to 35 years.

That’s on top of the 30-plus years it’s been since the city started loaning money to its redevelopment agency. Repayment of the city loans hasn’t been scheduled, according to the redevelopment agency’s recently filed financial documents.

State law requires the agency to repay its other creditors before it repays the city, and three banks are owed more than $50 million for projects.

Modesto officials who oversee the Modesto Redevelopment Successor Agency say those bank debts are “being reduced as time goes forward,” and they noted that the agency owed $135 million in January 2012. So, about $5.3 million in debt has been paid down in almost two years.

Financial reports about the Modesto agency’s debts are confusing, however, in part because staff members contend the state has changed how the agency must calculate what it owes. In July, for example, the agency reported having $128 million in debt, compared with the $129.7 million it lists for January of next year.

That $1.7 million increase was caused by accounting differences, not by increases in debt, assured Steve Christensen, Modesto’s budget manager.

Christensen and Laurie Smith, a member of the Oversight Board and a Modesto employee, emailed responses to The Bee’s questions about the agency’s finances.

The city started its redevelopment agency in the early 1980s to stimulate the economy and eliminate urban blight in downtown Modesto, primarily by using property tax funds. Among its projects were the Shops at Lincoln School, Modesto Centre Plaza, the Ninth Street Garage, Tenth Street Place and the Archway Commons apartments for low-income families.

Until two years ago, the Modesto City Council controlled the agency and it was managed by city staff members. Then state lawmakers decided to disband all California redevelopment agencies.

To wind down the agency, a seven-member Modesto Redevelopment Successor Agency Oversight Board was appointed, supported by city staff members. It must file financial statements with the state Department of Finance, which is in charge of dissolving all redevelopment agencies.

“I’m not sure whether the city really knows what the agency’s debt is because of all the staff turnover,” said Ernie Foote, the public’s representative on the Oversight Board.

Smith and Christensen acknowledge that mistakes have been made.

In financial documents submitted to the state last year, the agency stated its outstanding debt would be $111.7 million by January 2013. That was wrong, but city officials say that error has been corrected.

Now the documents show the Bank of New York is owed nearly $28.5 million, and that debt won’t be repaid for 20 years.

The agency owes US Bank more than $20.9 million, and that loan will take a decade to pay off.

Foote said that’s because over the decades the agency repeatedly refinanced its debt to drag out payments.

The US Bank debt, for example, stems from construction of Modesto Centre Plaza, which was completed in early 1988.

“They refinanced and kept extending the loan,” said Foote, explaining why the 25-year-old community center hasn’t been paid off. “They keep quietly passing the buck.”

Repayments haven’t been scheduled for other debts, such as the $405,000 loan made by the Stanislaus County Economic Development Bank in 2002.

Foote is 85 years old, and he worries that future generations will be stuck paying debts accumulated by the redevelopment agency during the 1980s and 1990s.

“We built Modesto’s whole downtown with RDA funds, and we indebted the people with bonds,” Foote explained. “There are people who think everything is paid for. It’s not. We’ve been misled.”

Dave Thomas, president of the Stanislaus Taxpayers Association, also expressed frustration over how difficult it is to get accurate information about the redevelopment agency’s debt.

Thomas said his taxpayers group always suspected city officials planned to forgive those millions it loaned to the redevelopment agency: “That’s why we were so against this, because it was a gift of public funds.”

Thomas also fears the agency’s bank debts were secured using government buildings – such as 1010 Tenth Street Place – as collateral.

“We’ve been waiting for the other shoe to drop,” said Thomas, who added that he wonders who will end up owning the properties when the agency dissolves.

Some of his questions may be answered Thursday when the Modesto Redevelopment Successor Agency Oversight Board meets to discuss its long-range property management plan, which must be approved and submitted this month to the state Department of Finance. That plan also is supposed to detail all the properties the redevelopment agency owns and what should be done with them after it dissolves.

The city said it will not release copies of the plan until next week.

Researching property records, The Bee found more than 20 parcels owned by the agency in downtown Modesto, including 1024 N. Ninth St., 1014 Ninth St., 1110 Ninth St., 1136 Ninth St., 777 10th St., 1010 10th St., 1012 10th St., 1101 10th St., 1129 10th St., 1133 10th St., 1035 11th St. and 1125 11th St.

The agency also owns numerous parcels without specific addresses on Ninth, 10th, 11th and 17th streets.

Four of those parcels on 10th Street near H Street are part of the block that is the favored site for the proposed $277million courthouse.

Rather than the redevelopment agency simply selling that land to the state for the courthouse, the city of Modesto wants the agency to give the property to the city so it can be sold to the state.

The city is planning to acquire all the land on that 10th Street block on the state’s behalf as part of a complicated deal to build the courthouse there.

Even though the state’s Administrative Office of the Courts is working with the city on that courthouse land deal, the state Department of Finance last month balked at the request to quickly transfer the 10th Street land to the city.

The Department of Finance is overseeing the dissolution of all of California’s redevelopment agencies. It wants the Modesto agency to submit a long-range property management plan that includes all of its properties before it decides who is entitled to take possession of any particular parcel. The state then will decide whether it considers the plan acceptable.

Until it decides, the deal to put the courthouse on 10th Street likely will be delayed.

The Modesto Redevelopment Successor Agency Oversight Board will discuss the long-term property management plan at 10:30 a.m. Thursday at Tenth Street Place, 1010 10th St., in room 3135.

The members of that board are: Modesto Councilman Dave Cogdill Jr., Ernie Foote, Becky Meredith, Stanislaus County Supervisor Dick Monteith, Kandy Schmidt, Laurie Smith and Nick Stavrianoudakis.

Bee staff writer J.N. Sbranti can be reached at jnsbranti@modbee.com or (209) 578-2196.

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