Ruling threatens millions slated for downtown Sacramento redevelopment
By Ryan Lillis
The Sacramento Bee Published: Thursday, Jan. 5, 2012 - 12:00 am | Page 1A
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Millions of dollars in subsidies that had been slated for two of downtown Sacramento's signature development projects are threatened by a court ruling last week that eliminated redevelopment agencies.
The renovation of the most blighted blocks of the K Street Mall and the years-long development of the downtown railyard were scheduled to receive more than $80 million in redevelopment money in coming years.
None of that money has been spent, and only about $15 million has been formally allocated, leaving the remaining funding in peril after the state Supreme Court upheld the Legislature's decision to abolish redevelopment agencies.
"This is a tremendous blow to the prospects for redeveloping the areas of Sacramento that need the most help," City Manager John Shirey said.
Along K Street, where the city is working with two development teams to revamp the 700 and 800 blocks, the elimination of redevelopment agencies could have a mixed effect.
The city has spent decades – and millions in public money – accumulating properties along those blocks, a dilapidated stretch just east of Westfield Downtown Plaza.
City development officials are confident the plan to build housing, restaurants, boutique shops and a live-music venue on the 700 block will not lose redevelopment funding and will continue.
In June, the City Council unanimously approved a development agreement and financing plan for the $47.7 million project. In doing so, the council allocated $14.7 million in redevelopment funds, an action that downtown development manager Leslie Fritzsche called "an enforceable obligation."
The issue gets more complicated on the 800 block of K Street, where developer David Taylor has proposed housing and retail.
Taylor counted on using up to $19 million in redevelopment funds owed to him as part of his purchase of the downtown Sheraton hotel from the city. Both Fritzsche and Taylor said they are cautiously optimistic the funding will still be available, given that the money is tied to the 2008 Sheraton deal.
"Technically, there's a question of whether that is redevelopment money," Fritzsche said. "The jury is still out."
While the city has a development agreement with D&S Development on the 700 block of K Street, no such agreement exists with Taylor. That means the city has not formally agreed to hand over control of its redevelopment properties, leaving the project in jeopardy as a result of the Supreme Court decision.
What's more, part of Taylor's plan calls for building affordable housing at the corner of Eighth and L streets, a plan that relied upon redevelopment dollars.
"It keeps us in limbo," Taylor said.
If a funding gap results from the court ruling, Mayor Kevin Johnson said, he believes the city and the development teams would come up with the funding needed to follow through on the projects.
"I don't see us taking a step backward with K Street," the mayor said.
Further north, a financing plan for the massive redevelopment of the long-vacant railyard had called for $50 million in redevelopment money to help with $750 million in infrastructure work.
While the redevelopment funds represent a relatively small piece of the total financing package, Fran Halbakken, the city development manager overseeing the railyard project, said "developers typically look for that (funding) to come in the early part of the project" to help jump-start development.
Developers also likely would have relied on tax increment money – the primary redevelopment revenue source – to build affordable housing in the railyard, officials said. Shirey said that without redevelopment help, "once we finish work currently in the pipeline, we're dead" on the railyard development.
Representatives for Inland American, the firm that owns the site, could not be reached for comment Wednesday.
The process for determining the fate of redevelopment funds has yet to begin.
First, county auditors are expected to determine how much money has been legally obligated to redevelopment projects. Then, government oversight committees will likely be formed to operate redevelopment holdings.
With so many interests in play, "the farther along a project is, the more likely it is to continue," said William Fulton, publisher of the California Planning and Development Report.
Downtown advocates don't want to see that uncertainty halt recent progress.
"We cannot afford to lose momentum," said Michael Ault, executive director of the Downtown Sacramento Partnership. "If some of this work is in a bit of a holding pattern, we've got to keep pushing on other projects."
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