(October 1) TWENTYNINE PALMS — Twenynine Palms city officials remain optimistic that the proceeds from the bond sales made by the city’s redevelopment agency more than three years ago will be available to complete Project Phoenix, despite pending court appeals by two state agencies.
Project Phoenix was an undertaking by the Twentynine Palms Redevelopment Agency that aimed to construct a community center, a 250-seat theater, classrooms, a civic plaza, a park, a paseo, residential units, a wastewater treatment plant, and improvements to the downtown fire station. The project was put in jeopardy in 2011, however, when the legislature passed AB X1 26 and AB X1 27, which shuttered more than 400 municipal and county redevelopment agencies up and down the state. The state sought to reroute redevelopment money to law enforcement and education efforts in that closure.
Twentynine Palms, however, intrepidly pushed ahead with the project, based upon Twentynine Palms City Attorney A. Patrick Muñoz’s assertion that the project had been initiated prior to AB XI 26 and AB XI 27 going into effect. According to Muñoz, the state law ending redevelopment function is trumped by federal securities regulations, meaning the money the Twentynine Palms Redevelopment Agency bonded for in 2011 must be utilized only for the purpose that bondholders were told the money would be applied toward.
Muñoz asserted in filings with the Sacramento Superior Court that the non-taxable bonds issued in 2011 created specific obligations between the city, as the issuer, and the bond purchasers, and as such are enforceable obligations. If the city allows the state  to use the money for a purpose other than what the city had specified in marketing the bonds to the bond buyers, that would constitute fraud, according to Munoz.
The city filed its paperwork in Sacramento Superior Court because AB X1 26 and AB X1 27 contained language requiring any legal challenges to the law take place there. In is petition, the city asked that the court overturn the Department of Finance’s finding that the city was prohibited from proceeding with Project Phoenix and that the bond proceeds be spent in accordance with the state’s dictates.
The state Department of Finance, the entity against whom the city filed its suit, last December told Sacramento Superior Court Judge Michael P. Kenny that the Twentynine Palms Redevelopment Agency, like several others, “rushed to encumber future tax increment revenues” ahead of their legislated demise in December 2011. The department alleged that in March 2011, Twentynine Palms “conceived, authorized, issued and sold” $12 million in tax allocation bonds for the Project Phoenix downtown development and an affordable housing plan without contracts to build or a definite plan for spending the proceeds.”
Ultimately, however, Kenny ruled against the Department of Finance in April and granted the petition for a writ of mandate on behalf for the city of Twentynine Palms as successor agency, allowing the city to utilize the bond money for the fulfillment of Project Phoenix.
In June, the Department of Finance filed an appeal of Kenny’s ruling. The department now faces an October 20 deadline for the department to file a brief in which it must lay out its reasoning as why the city should not be entitled to proceed with Project Phoenix. The State Controller has joined with the Department of Finance in asserting that Kenny erred in his April ruling and the city should not be allowed to utilize the bond funding for the project. Specifically, the controller took issue with the city having transferred into the former redevelopment agency’s account $2.1 million to pay for the acquisition of four properties on Donnell Hill related to the Project Phoenix effort.
That matter may have been complicated by the consideration that a member of the bond funding oversight board, Owen Gillick, had profited in the sale of two of those properties, which he owned. Gillick’s functioning as an oversight board member came after the fact, leaving the controller with no issue to exploit.
According to a consultant working for the city in the capacity of community development director, Matt McCleary, Twentynine Palms has been audited several times by the state since the dissolution of the redevelopment agency. The State Controller has taken issue with redevelopment agencies repaying loans they may have received from their cities prior to the redevelopment agency dissolutions. Some municipalities have contested those restrictions, however.
McCleary provided the city council with an update of the situation with regard to the Project Phoenix funds on September 21. McCleary said the city may be assisted in its effort to recoup the redevelopment money by Assembly Bill 2493, which allows proceeds from bonds issued between January and June 2011 to be used if the successor agency can prove that there were some specific projects in place prior to 2011 to use the proceeds. Assembly Bill 2493 is awaiting the signature of the governor.
The city has grounds to establish that it had tentative plans to use the bond money, since Project Phoenix had been on the drawing boards in one form or another since 2009. Nevertheless, according to deputy attorney general Michael Witmer, the $12 million of the tax allocation bonds issued by the city – offered to bondholders in March 2011 – while earmarked for Project Phoenix, contained no concomitant contracts to build anything or a defined plan of how the bond proceeds were to be expended.