By LORI A. CARTER
THE PRESS DEMOCRAT
The Petaluma City Council has approved a complicated private funding agreement to borrow $12 million for the Rainier Avenue underpass and Old Redwood Highway interchange redevelopment projects.
The multi-party deal, approved unanimously late Monday night, is designed to prevent the state from taking funds from the city redevelopment agency. Gov. Jerry Brown has proposed eliminating local redevelopment agencies throughout the state and taking their funds to help fill the state budget gap.
The timing was crucial, City Manager John Brown told the council, saying the state Legislature may act this week to restrict redevelopment borrowing activity.
“We’re really at this point racing the clock,” he said.
In 2007, Petaluma approved a five-year redevelopment plan that included $75 million in various programs, including local and regional transportation projects. The plan anticipated borrowing about $65 million through bond sales and using $10 million in tax revenues generated by improvements in the redevelopment areas.
The city completed the first half of the financing plan, borrowing $32 million. In 2009, it decided to scale back the size of the second round of borrowing to about $16 million because of the economic slowdown and reduced tax revenues.
Brown said it is in the city’s best interest to fast-track the financing for redevelopment projects in case the Legislature prevents local redevelopment agencies from any future borrowing.
The fastest way to do that is to borrow money from a private source instead of the more typical issuance of tax allocation bonds, the city’s bond underwriters advised.
“This is essentially a negotiated sale with a bank,” Brown said.
The city intends to borrow $12 million — and potentially as much as $15 million — at 5 percent interest from JP Morgan Chase bank. The payback period is faster than it would be on the bond market, Brown said, but the interest rate is better.
Because of the speed of the negotiations some of the finer details aren’t yet nailed down, he said.
JP Morgan Chase will require the city to get county approval for the plan because of the way the taxes on the redevelopment parcels are collected and distributed.
About $7 million of the loan proceeds would fund the next phase of the Rainier Avenue cross-town connector, planned as an underpass below Highway 101.
The other $5 million would go toward the Old Redwood Highway interchange with Highway 101. The city had hoped to use as much as $10 million from traffic impact fees for that project, but those funds haven’t materialized.
Councilman Chris Albertson worried whether the state could undo the loan agreement.
Contract law would likely prevent any state or federal reversal effort, City Attorney Eric Danly said.
Councilman Mike Healy said it was frustrating watching how Sacramento intends to handle redevelopment programs, referencing Prop. 22, which voters passed in November.
That was “designed to prevent Sacramento from raiding the redevelopment cookie jar and Sacramento’s response to that is to say now they want the entire cookie jar, thank you very much,” he said. “I think that’s going to leave them vulnerable to legal challenges in the courts.”