The latest dispatch from the frontline of the battle over the future of redevelopment in California, comes to us from the State Treasurer, Bill Lockyer. According to the Los Angeles Times, (Jessica Garrison, Cities Go On a Binge of Bond-Selling, L.A. Times, March 13, 2011, at p. A37) California redevelopment agencies have been approving future projects en masse, not because there is a building boom in the offing, but because they want to spend or lock up uncommitted redevelopment funds, so that if Governor Jerry Brown succeeds in abolishing future redevelopment in California (as is his want) those cities will get to hang on to this money, and won’t have to pay it to schools etc..
“Municipal redevelopment agencies sold nearly $700 million in bonds between Jan. 1 and March 9, com[pared with $1.2 billion for all of 2010, according to state figures.”
The market, however, has its misgivings and some of these bonds have had to offer 7% to 9% to find buyers. And remember, those fancy interest rates are tax-free. In other words, California cities, many of which are on the verge of insolvency, are going deeper into debt as fast as they can. True, those are revenue bonds so that if and when they default it will be the bondholders, not the city treasury, that will be on the hook. But even so, given the prevailing economic conditions, we have trouble understanding how those cities expect to service those new bonds, since they can’t possibly build all those projects at once. And until they are built, and new incremental tax revenues start rolling in, who is going to pay interest to the bondholders?
Stay tuned, and find out.