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County Sues San Jose Redevelopment Agency and City for Breach of Contract

Action Necessary to Stop Transfer of Assets

SANTA CLARA COUNTY, CALIF. – Today, the County of Santa Clara filed a complaint in Santa Clara County Superior Court about the failure of the San Jose Redevelopment Agency (SJRDA) to pay $62.9 million that it owes to the County. The Agency agreed to make these payments in 2001 in exchange for the ability to take hundreds of millions of dollars of property taxes that would otherwise have gone to the County but were instead diverted to the Agency for redevelopment projects. The City is also a party to the 2001 agreement. The County filed a complaint arguing, among other things, that the two entities are in Breach of Contract. It also asked the Court to issue an injunction to prevent the Redevelopment Agency from transferring ownership of certain properties to the City and other properties to a new joint powers authority it is creating called the San Jose Diridon Development Authority.

“The last thing the County wants to do is file a lawsuit,” said Chief Operating Officer Gary Graves. “The highly unusual actions being taken by San Jose and the Redevelopment Agency to transfer assets from the Redevelopment Agency have left us no choice.”

Under California law, if a city designates an area for redevelopment to address urban blight, the agency receives property-tax revenues known as Tax Increment. This incremental increase in property taxes occurring after the establishment of a redevelopment area would otherwise go to the county, schools and other local governments in the area. To address the diversion of these revenues, the County, City and the SJRDA entered into an agreement for tax sharing that goes back to 1993 and was amended and restated in May of 2001.

The $62.9 million owed by SJRDA is comprised of three years of back payments and interest, including $26.1 million for fiscal year 2008/09, $21.4 million for fiscal year 2009/10, and $15.4 million for part of fiscal year 2010/11.

The County has been in negotiations with the SJRDA about past due payments since late 2009. During that same time period, the San Jose Redevelopment Agency received $589.76 million in Tax Increment revenues – money that would have otherwise gone the schools, the City, and the County for essential health care and safety net services for children and families in need.

“It is clear that for the past several years, the San Jose Redevelopment Agency has failed to live up to its moral and legal obligation to properly distribute funds that it owed to the County,” said County Executive Jeffrey V. Smith. “These are funds that County has been depending on to help balance the budget and preserve services.”

On January 25, 2011, the County Board of Supervisors was forced to take action to address a $55 million deficit in the County’s fiscal year 2010/11 budget. These cuts included eliminating 106.2 full-time equivalent positions in various County departments. Many of these cuts could have been avoided if the County had received its overdue Tax Increment Allocation Payments.

The County’s fiscal year 2011/12 budget deficit is currently projected to be $230 million and balancing the budget will require devastating cuts in many County departments and likely will result in cutting many more positions. These cuts are expected to significantly and adversely impact the County’s ability to provide important services to the public. The past-due Tax Increment Allocation Payments, plus interest, as of February 28, 2011 total approximately $62.9 million or approximately 27% of the projected fiscal year 2011/12 budget deficit.

“We have exhausted all other avenues to protect the County’s rights,” said County Counsel Miguel Márquez. “We are asking the Court to step in and prevent the City and the San Jose Redevelopment Agency from taking any actions that would preclude the County from recovering what it is owed.”

The Court has scheduled a hearing on the County’s motion for Monday, March 14 at 10 a.m.

Media Contact: Gwendolyn Mitchell/Laurel Anderson, Office of Public Affairs, (408) 299-5119, Miguel Márquez, County Counsel (408) 299-5902
Posted: March 9, 2010


Last updated: 6/22/2017 12:55 PM