TWENTYNINE PALMS—The City of Twentynine Palms this week initiated what is likely to be one of the last redevelopment projects in the State of California.
Project Phoenix was approved in 2011, at which time $12 million in bonds were sold to undertake the downtown rejuvenation plan, which called for constructing a community center, a 250-seat theater, classrooms, a civic plaza, a park, a walkway, residential units, a wastewater treatment plant, and improvements to the downtown fire station.
Shortly thereafter, however, the legislature passed AB X1 26 and AB X1 27, which shuttered all of the more than 400 municipal and county redevelopment agencies up and down the state, including the one chartered to Twentynine Palms. 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. Muñoz propounded the theory that 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.
The state conversely asserted that since the project was not under way at the time the law was passed, it could not proceed.
The city used the locally composed bond oversight board that was formed as a consequence of the state legislation to recommit the bond money to the Phoenix project. Subsequently, however, the state Department of Finance used its authority to disallow the recommitment. In response, the city appealed and when that appeal was turned down, filed legal action in Sacramento Superior Court, the venue where the legislation required any litigation pertaining to cities’ use of redevelopment money had to be filed. The case was heard by Sacramento Superior Court Judge Michael P. Kenny.
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 and any use of the money for a purpose other than what the city had specified in marketing the bonds to the bond buyers would constitute fraud.
The California Department of Finance in December 2013 told Kenny that the Twentynine Palms Redevelopment Agency, like several others, “rushed to encumber future tax increment revenues” ahead of its 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 California Department of Finance in April 2014 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 2014, the Department of Finance filed an appeal of Kenny’s ruling.
Since that time, the Department of Finance suffered multiple setbacks with regard to several cities’ efforts to control the spending of redevelopment agency money appropriated in 2011. On May 14, 2015, the department sent a letter to several cities, Twentynine Palms among them, announcing it would no longer oppose those cities’ moves to preserve their last remaining redevelopment agency projects.
The city council, which in June voted to authorize Twentynine Palms City Manager Frank Luckino to negotiate the purchase of property necessary to the project at 73551 Twentynine Palms Highway at an acquisition, escrow and inspection price of no more than $216,910.97, this week committed another $885,000 to be spent over the next 12 months in laying the groundwork for the project.
According to Luckino, the $885,000 will be used to acquire further land necessary for the project, undertake planning for the wastewater system and fund what he referred to as “community outreach.” In June, the city council also approved a $92,500 contract with Kosmont Companies, for assistance in facilitating Project Phoenix.
Kosmont specializes in providing cities with economic development, public finance and public/private real estate strategies/transaction assistance. Since 2011 Kosmont has focused on redevelopment successor agency services. It is working to build into the Project Phoenix program post-redevelopment economic incentives and financing mechanisms to assist the city in promoting public-private transactions and financing solutions with private sector constituents, as well as support the city in its efforts to make good on its bond obligations while the successor agency uses the bond money to complete the project. Kosmont is also serving as the city’s real property negotiator, assisting with public outreach, and overseeing a range of third party service providers such as appraisers and demolition, engineering and architectural contractors.
It is possible that the scope of Project Phoenix will increase from the limits of the $12 million effort envisaged in 2011, as Kosmont has been tasked to see whether the city can take advantage of enhanced infrastructure finance districts, entities created by the legislature as a gesture to replace traditional redevelopment agencies.