The City of SAN Diego Interim Mayor Todd Gloria September 12, 2013 Judge Robert J. Trentacosta Presiding Judge San

Continued redevelopment in San Diego is desired and is important for the future growth and economic vitality of the City. Response: The City agrees with the finding. Many of the City’s urban neighborhoods continue to lack adequate infrastructure, parks and open space, and community facilities including public safety, quality jobs and housing near public transit, affordable housing, homeless facilities, social services and medical clinics, incentives for small business, quality schools, neighborhood-serving retail, arts and culture, and safe streets for pedestrians and biking. While redevelopment has been eliminated, the need for neighborhood investment certainly has not. Encouraging smart growth and urban infill development, particularly in older neighborhoods and communities that did not benefit from redevelopment as previously constituted is essential to the City’s ability to efficiently accommodate population and employment growth. The City is exploring new tools for community and economic development of neighborhoods via its new Planning and Neighborhood Restoration Department, Civic San Diego, and the San Diego Housing Commission.

A vigorous effort will be required to identify new funding sources and compete successfully for the money to fund the many projects that are ready for development. Response: The City agrees with the finding. Tax increment financing, a local funding tool currently used in 48 states, was a predictable and reliable revenue stream against which bonds could be issued to fund significant neighborhood improvements, preserve historic buildings, remediate contaminated properties, produce and preserve affordable and homeless housing, expand social service facilities, and attract private investment. The City is committed CITY ADMINISTRATION BUILDING • 202 C STREET • SAN DIEGO • CALIFORNIA 92101 Tel.: (619) 236-6633 • Fax: (619) 595-1481 • Email: [email protected] THE CITY OF SAN DIEGO INTERIM MAYOR TODD GLORIA to employing a thoughtful, dedicated and coordinated effort to explore new funding options, assess which options may be appropriate for each community’s needs, and secure funding for future neighborhood revitalization projects and programs. Civic San Diego has already made significant progress in identifying and securing new funding such as the New Market Tax Credit (NMTC) program and the proposed creation of the transit-oriented public-private investment fund.

Because Civic San Diego lacks sufficient qualified staff, it does not have the capacity to compete successfully for funds from these new sources, but it is well positioned to utilize such funds effectively if they can be obtained. Response: The City partially disagrees with the finding. Several Civic San Diego staff members have significant public and private sector experience in securing public and private forms of equity and debt, bond underwriting and issuance, formation of assessment districts, preparing grant applications, and attaining various forms of tax credits. Civic San Diego’s corporate, nonprofit structure uniquely positions the organization to expediently respond to opportunities and secure a variety of new investment sources. This is evidenced by Civic San Diego’s recent allocation of $35 million in NMTCs. Civic San Diego staff retained a highly qualified consultant with a proven track record of applying for, and receiving, hundreds of millions of dollars in NMTC allocations to assist with its qualification, application and lending processes. However, as more funding sources and viable projects or programs are identified, Civic San Diego may need to hire additional staff or bring on additional consultants to manage the responsible investment of the funds.

By examining RDAs outside of California, a new revenue model could be identified for Civic San Diego to replace the tax increment funds the State diverted. Response: The City agrees with the finding. Civic San Diego has, and continues to research funding sources used in other states to finance community and economic development and meet with model agencies from other cities to identify best practices. While no single funding source can replicate the amount of a predictable and reliable revenue stream as generated by tax increment financing, Civic San Diego is working to secure a variety of funds in the forms of grants, tax credits and other equity, and debt that can be used to support neighborhood revitalization projects and programs, particularly in areas adjacent to transit stops and corridors. The objective is to provide efficient access to a variety of general and purpose-driven funding sources for site assembly, infrastructure improvements, public-private partnerships, and economic development programs. These funds may be leveraged, in communities where appropriate, with revenues from special assessment districts, Development Impact Fees, land value recapture mechanisms, or similar special districts.

The Governor of California and the State Legislature have an ethical responsibility to assure that the items that legitimately comprise redevelopment debt are paid out of tax increment revenues. The provisions of Proposition 18 and AB 26 clearly establish this responsibility. CITY ADMINISTRATION BUILDING • 202 C STREET • SAN DIEGO • CALIFORNIA 92101 Tel.: (619) 236-6633 • Fax: (619) 595-1481 • Email: [email protected] THE CITY OF SAN DIEGO INTERIM MAYOR TODD GLORIA Response: The City agrees with the finding. Successor Agency staff are diligently working with the State Department of Finance (DOF) to ensure that responsible obligations of the Successor Agency are funded. In addition, as discussed in more detail in the Response to Recommendation 13-2, the City and Successor Agency have filed several lawsuits against the DOF to challenge its denial of certain debt as financial obligations of the Successor Agency.

The citizenry of San Diego need to remain informed and alert to the actions of the State regarding redevelopment debt. The impact of these actions on the City of San Diego is of particular concern to its citizenry. A means must be found for the citizenry to communicate their concerns to Sacramento effectively. Response: The City agrees with the finding. San Diego’s local representatives in the State Legislature are an important avenue for San Diego citizens to voice their concerns regarding the dissolution of redevelopment and the wind-down process. Successor Agency staff have been communicating with these representatives and have provided several of them with a list of recommended amendments to the dissolution legislation, included as Attachment 1, that would improve and expedite the wind-down process while providing greater benefits to the local communities without negatively impacting the State or other taxing entities. However, there are many issues and concerns that need to be communicated to the State Legislature, and the City needs to have an effective lobbying firm in place to assist in these efforts. This is particularly important given the resolution passed by Council on July 23, 2013 to support proposed State legislation that encourages economic development, affordable housing, and ending homelessness. The City has not had a lobbying firm to represent its interests in Sacramento or Washington since January 2013 when the City’s previous contracts with its state and federal lobbyists were terminated by former Mayor Bob Filner. Since that time, the City Council repeatedly requested information regarding when professional lobbyists would be engaged to represent the City’s interests. In August 2013, then Council President Todd Gloria and Councilmember Lori Zapf sent memoranda to Mayor Filner requesting an update and expressing great concern that the lack of professional representation could have a major impact on the City’s finances. With Mayor Filner’s resignation effective August 30, 2013, Council President Todd Gloria has become the Interim Mayor for the City. Interim Mayor Gloria and the City Council are committed to expeditiously engaging professional lobbyist services in both Sacramento and Washington. In addition, a delegation of City Council Members and San Diego Chamber of Commerce representatives are going to Sacramento in October 2013 to lobby for the City’s interests. It is also important to note that in late 2012, Civic San Diego created a new website (www.sandiegooversightboard.com) that provides interested individuals with all updates and communications from the State DOF; San Diego Oversight Board meeting dates and agendas, actions, and decisions; and schedules containing the status of all real properties and projects that are affected by the redevelopment dissolution process. CITY ADMINISTRATION BUILDING • 202 C STREET • SAN DIEGO • CALIFORNIA 92101 Tel.: (619) 236-6633 • Fax: (619) 595-1481 • Email: [email protected] THE CITY OF SAN DIEGO INTERIM MAYOR TODD GLORIA

The Mayor and City Council need a means of communicating to the Governor and the Legislature in an impactful manner the adverse consequences of the dissolution and the burden of redevelopment debt on the City of San Diego. Response: The City agrees with the finding. As noted in the City’s response to Finding 06, San Diego’s local representatives in Sacramento and the resources of a lobbying firm to represent and advocate for the City’s interests are both critical to help the Mayor and Council communicate the challenges and impacts the City is facing due to redevelopment dissolution. Successor Agency staff have been working diligently and cooperatively with the State DOF to minimize the adverse impacts. However, there are many significant issues that need to be communicated to the State Legislature, and Interim Mayor Gloria and the City Council are committed to expeditiously engaging an effective lobbyist to assist in this effort.

Despite the stated intent of AB 26 to pay the obligations out of tax increment funds, approval to pay the obligations is not automatic. Rather, it is subject to a multi-tiered approval process that has become contentious. This process creates uncertainty and difficulty for cities in planning budgets, and requires reserves far beyond the ordinary. Response: The City agrees with the finding. The City Attorney’s Office, working with Civic San Diego, has developed a list of problems, ambiguities, and conflicts in language within the dissolution legislation that have been the root of many of the disagreements with the State DOF. This list is included as Attachment 1. These legislation problems have resulted in adverse impacts on the City’s budget due to the denial of funding for various enforceable obligations of the former redevelopment agency. In addition, many properties of the former redevelopment agency are currently sitting fallow, creating blight and becoming locations of criminal activity and unsafe conditions in urban neighborhoods. The list—which includes recommended changes to the legislation that would likely resolve many of the conflicts—has been provided to several members of the State Legislature for consideration but thus far no legislation changes have been adopted. Interim Mayor Gloria and the Council are committed to expeditiously engaging effective lobbying firms to represent and advocate for its interests. This is particularly important given that redevelopment dissolution and wind down and the need for a continuing source of revenue for neighborhood revitalization and economic development are issues that could have a significant impact on the City. Due to items disallowed on previous Recognized Obligation Payment Schedules (ROPS), the potential “clawback” of previous payments made under agreements between the City and former RDA that have been disallowed, and other potential future impacts, the City believes it is fiscally responsible to maintain reserves to mitigate such risks to the City’s General Fund.

The ROPS process involves extensive lists of obligations that must be prepared and submitted in compliance with firm deadlines and formatting requirements established by the DOF. CITY ADMINISTRATION BUILDING • 202 C STREET • SAN DIEGO • CALIFORNIA 92101 Tel.: (619) 236-6633 • Fax: (619) 595-1481 • Email: [email protected] THE CITY OF SAN DIEGO INTERIM MAYOR TODD GLORIA The complexity of the process creates the possibility of costly omissions and errors and the rejection of items for minor deficiencies. Response: The City partially disagrees with the finding. The City agrees that the ROPS process is very complex but believes that Successor Agency staff have developed processes and procedures to minimize the occurrence of costly errors. The dissolution legislation stipulates that any payment related to an enforceable obligation must be listed on a ROPS, which include projections prepared up to a year in advance of the anticipated expenditure. Thus, it is critical that all anticipated expenditures be accurately reflected on a future six-month ROPS. The DOF has not approved a process to pay for unexpected expenditures that cannot be reasonably foreseen or inadvertently omitted. Required payments not accurately reflected on an approved ROPS can result in project delays or legitimate work not being performed. While these instances are rare, they can occur. Civic San Diego staff conducts multiple levels of review and quality control on the preparation of each ROPS to minimize these occurrences. Each ROPS is also presented to decision makers in at least three public meetings, with the ROPS posted online.

Civic San Diego has insufficient personnel to focus on both the ROPS process and other important responsibilities assigned to the corporation. Preparing and submitting ROPS is not the only task consuming the time of employees. Responding to items the DOF has disputed and to audit requests and findings is also distracting from the ability of Civic San Diego employees to focus on the full range of their duties. Response: The City agrees with the finding. The dissolution legislation provides insufficient funding to adequately manage the redevelopment wind- down process for many cities in California; the administrative cost allowance is only 3% of the Successor Agency distribution of Redevelopment Property Tax Trust Fund (RPTTF) monies. As a result of the limited funding provided in the dissolution legislation, the City had to reduce the number of staff dedicated to redevelopment activities by 60% in 2012. The legislation also fails to provide funding for a transition period for cities to identify substitute funding sources for neighborhood investment and economic development administration or community engagement. Despite these economic challenges and because of Civic San Diego’s efficient operating structure and processes as well as staff’s extensive knowledge about the ROPS projects, it has been able to competently perform all of the redevelopment wind down functions as well as perform its other duties as assigned by the City.

Because the ROPS approval process is likely to continue for 40 years or more, its time demands as well as the potential for costly errors and oversights cannot be ignored. These issues cannot be addressed effectively without additional qualified staff who can focus on ROPS preparation and submission. Response: The City partially disagrees with the finding. While the bond debt service may continue to require the preparation of ROPS for up to another 30 years or more, the ROPS preparation process is expected to significantly ease as many enforceable obligation CITY ADMINISTRATION BUILDING • 202 C STREET • SAN DIEGO • CALIFORNIA 92101 Tel.: (619) 236-6633 • Fax: (619) 595-1481 • Email: [email protected] THE CITY OF SAN DIEGO INTERIM MAYOR TODD GLORIA projects are completed during the next three years. Civic San Diego is sufficiently staffed to accurately prepare future ROPS. Once many of the properties of the former redevelopment agency are approved by the DOF for transfer to the City, Civic San Diego staff will be well positioned and prepared to implement the many neighborhood revitalization projects that were planned for those sites, such as parks, fire stations, and new housing or mixed-use projects. However, the City recognizes that future additional staff may be required for Civic San Diego to secure new funding sources for neighborhood investment and economic development activities and implement projects and programs.

The Five-Year Work Plan held out a realistic hope of making substantial progress in reducing homelessness downtown. Response: The City agrees with the finding. The City agrees with the finding. However, as noted in the Grand Jury report, the primary funding source in the Five-Year Work Plan to construct supportive housing and provide rental assistance and supportive services has been eliminated by the dissolution legislation. Although redevelopment dissolution ended an important source of funding for the homeless, Civic San Diego, the Housing Commission, and the City continue to aggressively pursue other public and private funds to house the homeless.

The present state of homelessness in the City heavily detracts from the urban renewal progress San Diego has achieved. Response: The City agrees with the finding. Addressing homelessness is an important component of urban renewal and economic development. Redevelopment, through tax increment financing, provided the City with significant annual revenues to finance the production of interim and permanent supportive housing units dedicated to homeless individuals and families. Many of the City’s homeless housing projects recently completed or currently under construction would not have been possible without redevelopment. This includes Connections Housing, 15th and Commercial, COMM22, Celadon at Ninth and Broadway, and Cedar Gateway. In fact, since 2009 more than 311 homeless units have been constructed and more than 100 are currently under construction. These projects have been made possible through an effective partnership between the City, the San Diego Housing Commission, Civic San Diego, and the County of San Diego. In May 2013, the City Council approved Civic San Diego’s Affordable Housing Master Plan, which when implemented will provide an estimated 400 additional homeless units in the City with the limited housing resources remaining from the dissolution of redevelopment. In addition, in June 2013 the City Council approved the Mayor’s budget proposal to extend the operations of the Emergency Homeless Shelter and the Veterans’ Shelter. The City, Civic San Diego, and the San Diego Housing Commission remain active partners on the Executive Leadership Committee in the Campaign to End Downtown Homelessness where, each month, the regions leaders in homeless funding, services, and housing work toward new creative solutions and track progress being made. In the near future, a new reliable and permanent funding source for affordable CITY ADMINISTRATION BUILDING • 202 C STREET • SAN DIEGO • CALIFORNIA 92101 Tel.: (619) 236-6633 • Fax: (619) 595-1481 • Email: [email protected] THE CITY OF SAN DIEGO INTERIM MAYOR TODD GLORIA and homeless housing production will need to be identified. The issues surrounding homelessness are complex and require a comprehensive federal, state and local package of solutions. Interim Mayor Gloria and the Council are committed to expeditiously engaging professional lobbying firms to represent and advocate for the City’s interests in Sacramento and Washington and help to develop this package of solutions.

A means must be found to continue the construction of supportive housing and keep the Five-Year Work Plan active. Response: The City agrees with the finding. The Five-Year Work Plan assumed the availability and dedication of $36.4 million in capital funding for “gap” subsidies and more than $13 million per year in combined rental subsidies and supportive services. That significant amount of financial resources is unlikely to be derived solely from local sources without tax increment financing or another dedicated annual revenue stream. The City, the San Diego Housing Commission, and Civic San Diego continue to monitor and support new State legislation that could create new, permanent, and reliable funding sources dedicated to local affordable housing production and preservation, including supportive housing. In addition, Interim Mayor Gloria and the Council are committed to expeditiously engaging professional lobbying firms to advocate for the City’s interests in support of State legislation that could create new funding sources. In May 2013, the City adopted the Affordable Housing Master Plan prepared by Civic San Diego that provides a specific action plan for maximizing future affordable housing production with the limited resources remaining from redevelopment’s dissolution. A priority of the plan is the production of additional supportive housing for homeless individuals and families.

Information regarding the status of legacy redevelopment projects, the ROPS process, and the other activities of Civic San Diego is difficult for the public to obtain, resulting in a lack of transparency. Response: The City partially disagrees with the finding. Information on redevelopment dissolution is available through a number of resources, including open meetings and websites. However, the dissolution legislation does not provide the funding needed to conduct community outreach and engagement comparable to the level provided before dissolution. Information on redevelopment dissolution, including project updates can be obtained by attending Oversight Board meetings, which are all noticed and open to the public. In addition, Civic San Diego created a new website in late 2012 for the posting of all information related to the dissolution of redevelopment (www.sandiegooversightboard.com). The site contains agendas and minutes from Oversight Board meetings as well as lists, which are updated quarterly, of the status of all former redevelopment projects and real properties owned by the former agency. Links to these lists are also provided on the Civic San Diego website (www.civicsd.com). CITY ADMINISTRATION BUILDING • 202 C STREET • SAN DIEGO • CALIFORNIA 92101 Tel.: (619) 236-6633 • Fax: (619) 595-1481 • Email: [email protected] THE CITY OF SAN DIEGO INTERIM MAYOR TODD GLORIA The City recognizes that, due to the absence of funding provided through the dissolution legislation and the elimination of its entire Communications department, Civic San Diego does not have adequate outreach personnel or other resources to conduct sufficient community outreach and engagement comparable to the level provided prior to redevelopment dissolution. Civic San Diego is planning to optimize its limited resources to the greatest extent possible by using social networking, electronic newsletters, and conducting presentations at a limited number of community group meetings on a periodic basis to communicate the status of projects.