Madeline Albright recently stated words to the effect, "Leaders should make decisions based on facts, not on wish-making." The recent actions of Council are a subject of debate regarding the proposed sale of City-owned real estate. Here are the facts!
Why must Victoria Crescent and Parcel C be sold now?
When I was elected last June, I joined a Council that inherited a horrendous financial mess (over $314 million dollars of debt) which continues until the present time. This has required that the Council take extraordinary steps to keep us solvent. We are making tough decisions to stop wasteful spending and keep the City solvent.
The reality is, we are at a point where the sale of Victoria Crescent and Parcel C is necessary. There is no other viable way for the City to avoid insolvency.
- Due to ongoing and accumulating obligations, including unpaid debt to Oliver Company for work done on Sycamore North last year, the City owes about $2 million dollars. This debt is secured by a note against Parcel C. This debt is now due and payable.
- As the result of changes at Sycamore North to eliminate the affordable units from the housing mix, the City owes CALHFA a total of $5.3 million dollars. This debt is now due and payable.
- The City also owes about $5 million dollars to AMBAC as settlement of their lawsuit against the City and redevelopment agency this year. This debt is now due and payable, and we will soon be accruing interest on that debt. The debt is secured by notes on Parcel C and Victoria Crescent. This settlement agreement was the only thing that kept the City from having to declare bankruptcy in March of this year, and has kept the City solvent up to this time.
These facts and more information will be reviewed and discussed at the upcoming Town Hall Meeting that Council recently agreed to hold.
CBRE Commercial Brokers were selected to market these two parcels for the City. The properties were offered to all interested parties in the commercial development industry. In addition, Parcel C was offered to Bio Rad for expansion of their facility or as a possible location for a hotel. Bio Rad expressed no interest in the parcel. After four (4) months, all offers were brought before Council for review. Of the nine offers received, there were no offers for commercial development for either parcel. All of the offers were for either multifamily or single family residential development.
Council was disappointed that there were no offers for commercial development, but with the $12.3 million dollars in debts, and accruing interest, the City was left with little choice but to select the best offers, move forward and secure the deals. These deals are not final, and may not close unless the entitlements that are sought by the buyers are achieved. There are no guarantees that the property use changes requested by the buyer will happen, which puts the City at continued financial risk.
In the background of all this is the State of California. With the elimination of Redevelopment Agencies throughout the State, all former redevelopment agency owned-parcels are subject to what is called "clawback" by the State. The "clawback provision,"(Section 34167.5) California Health & Safety Code provides that the state auditor-controller:
"...shall review the activities of redevelopment agencies in the State to determine whether an asset transfer has occurred after January 1, 2011, between the city or county, or city and county that created a redevelopment agency or any other public agency, and the redevelopment agency."
"If such a transfer did occur and if such asset is not contractually committed to a third party for expenditure or encumbrance, AB 26 provides that, to the extent not prohibited by law, the state audit-controller shall order the available assets to be returned to the successor agency". The successor agency is required to dispose of real estate assets to pay debt. Assets are to be disposed of "expeditiously and in a manner aimed at maximizing value" ( Section 34177(e). As noted in the West County Times article this week, Hercules has in excess of $314,000,000 in debt and the State has notified all former redevelopment agencies of the clawback.
Unless sufficient funds are secured from the sale of these parcels, Hercules could be looking at the possibility of bankruptcy once again. There is no other viable way for the City to pay the outstanding $12.3 million dollars. We have no reserves and no other sources of funding to pay these debts. I do not believe it is possible to avert bankruptcy without selling these parcels.
If the City becomes insolvent, and goes into bankruptcy, we will not receive grant funding from State, Federal and Regional authorities for the Intermodal Transit Center project or any other project. In a time when we are relying on grant funds to move forward on the ITC, for this reason and many more, the City must remain financially solvent.
These are the facts and for these reasons I believe that the City must sell these parcels now to pay our debts.