Downtown windfall on the down low

Surely downtown residents would be thrilled to discover the city kept a secret stash totaling $23.5 million that could only be spent filling downtown's potholed streets, building parks, leveling uneven sidewalks, or funding public safety projects. Some won't be thrilled to find out that there is such a stash — there has been since 2005 — but councilmembers who served on the redevelopment agency now known as the Successor Agency and executives from Centre City Development Corporation (now named Civic San Diego) so far have refused to touch it.

Beginning in 2005, officials at the former redevelopment agency have been holding on to $2.7 million a year in development impact fees, money that goes to pay for infrastructure improvements. The reason for the stockpile of cash: in 2004, city councilmembers, at the request of Civic San Diego staff, agreed to combine developer fees with revenues from redevelopment tax increment.

That decision, according to a March 4, 2014, report from Civic San Diego, now prevents the city from accessing $13 million of that $23.5 for at least another year because the State of California's Department of Finance can choose to audit the Successor Agency's reserves.

Since "2005, the City has collected approximately $23 .5 million from new developments," reads a March staff report from Civic San Diego. "However, over $13 million of these funds are subject to a State of California audit before becoming available for expenditure, as the funds were exchanged between the former Redevelopment Agency and the City. It is anticipated that the status of these funds should be resolved sometime during FY2015; however, in order to be conservative, this report does not assume the use of these funds…. At this time, $9.96 million in [development impact fees] are available for expenditure."

And while Civic San Diego and the city have a valid reason to withhold the $13 million, nowhere in the report does it state why the remaining $9.96 million will be hidden away for another year. In fact, during this coming fiscal year, only $174,470 will go toward fixing downtown's infrastructure and $673,896 will be spent on ADA compliance, leaving a total of $22 million locked away in the Successor Agency's coffers.

"Civic San Diego admitted they commingled private downtown Development Impact Fee revenue with the Successor Agency (former Redevelopment Agency), and that is illegal. They hoarded the $23.5 million in private impact fees for nine years, and is now trying to blame the State Department of Finance and the end of redevelopment for their shady accounting practices," says Katheryn Rhodes, homeless advocate and longtime Centre City critic.

Rhodes points to Government Code 66006, a state law that makes it clear the local agency in control of developer impact fees "shall deposit it with the other fees for the improvement in a separate capital facilities account or fund in a manner to avoid any commingling of the fees with other revenues and funds of the local agency, except for temporary investments, and expend those fees solely for the purpose for which the fee was collected."

Section (e) goes on to say that "untimely or improper allocation of development fees hinders economic growth and is, therefore, a matter of statewide interest and concern. It is, therefore, the intent of the Legislature that this section shall supersede all conflicting local laws and shall apply in charter cities."

But according to former chief of staff for councilmember Mark Kersey and new deputy chief operating officer for neighborhood services David Graham, the $848,374 does not represent the entire expenditure. Instead, he says, the amount goes into a larger set of capital improvement projects, to be considered by the Capital Improvements Program Review and Advisory Committee, in the mayor's budget, as later approved by the city council.

"Before the end of [the Redevelopment Agency]," says Graham, "up until last year, the [agency] possessed the Developer Impact Fees. The reason and rationale for allowing the [Redevelopment Agency] to hold onto the impact fees was [the agency] was already doing infrastructure projects downtown. When it ended, the developer impact fees got caught up in the quagmire or the wind down of redevelopment. Because of that, the State Controller has the authority to audit any successor agency. The state controller could audit and determine, wrongly so, that the $13 million of the overall DIF was part of redevelopment, which Successor Agency could have to pay that back.

"The $848,374 is not the expenditure of developer impact fees, it’s a list of projects that go into the [overall] basis calculation."

Andrew Phillips, president of Civic San Diego, declined to comment for this article.