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City Council’s Discounted Loan to Developer Called Illegal

July 8, 2013
By
Oversight Attorney Paula Crow

Oversight Board Attorney Paula Crow

It is illegal for the City Council to allow Bay Street Mall developer Madison Marquette to pay back just $12 million on an $18 million dollar loan, according to the attorney for Emeryville’s Oversight Board. The county-level board is charged with monitoring the city’s transition after the elimination of state redevelopment funds.

The City Council last week voted 3-2 to allow Washington DC-based Madison Marquette to repay just $12 million on a promissory note owed to the city’s former Redevelopment Agency for $18.345 million. The City Council majority (Ruth Atkin, Nora Davis, and Kurt Brinkman) supported the loan discount, while Council members Jac Asher and Jennifer West voted against it.

“Payoff of the promissory note for the discounted amount of $12 million is prohibited … The former redevelopment agency has no authority to modify any existing agreements with any entity, including forgiving all or part of any balance owed on a loan, or changing any term of a loan,” wrote Oversight Board Attorney Paula Crow, in a memo included in the Board agenda packet for its Tuesday, July 9, meeting.

City Attorney Mike Biddle (L) with former City Manager Patrick O'Keeffe

City Attorney Mike Biddle (L) with former City Manager Patrick O’Keeffe

The City Council thought it could forgive Madision Marquette $6.5 million of the loan based on information provided by Helen Bean, Emeryville’s Director of Economic Development and Housing. In an April 16 memo to the Council, Bean argued that the present value of the $18 million balance, at a 7 percent capitalization rate, equals the payoff amount of just $12 million. And City Attorney Mike Biddle advised the Council that this action was legal. (Biddle initially failed to include Ms. Crow’s latest memo in the Oversight Board packet for tomorrow’s (Tuesday) meeting and did not do so until she reviewed the the packet and complained that her memo was not included.) This is the second major screw-up by Biddle involving city redevelopment money. The first, brought to light by attorney Crow in May 2012,  was when he tried to execute a contract with the state for $21 million in redevelopment funds two days after state redevelopment was eliminated. The money was to be used for the planned Center of Community Life, a joint city-school district project creating a central campus for the city’s elementary and high school as well as a community center with playgrounds, “paths and plazas,” and space for social service providers.

“I’m amazed that the cockamamie rationale presented for this gift to Madison Marquette could make it through the City Council,” said Oversight Board Member Greg Harper, who is also president of the AC Transit Board. “The $18 million loan is rock-solid, secured by a lien on the property, which is probably bothersome to Madison Marquette for a sale or re-financing of Bay Street Mall. But that’s the deal the developer made and is no reason for the taxpayers to take a $6 million loss. My congratulations to Ms. Crow for calling this out.”

The Oversight Board meets 5:30 pm Tuesday, July 9 in City Council Chambers, Emeryville City Hall.

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