Answers to some Questions on Ditto’s Lane

Dittos Lane Project

On August 22, 2011, Town Manager Greg Larson and Senior Planner Joel Paulson met with LGCA representatives Jak VanNada, Andy Wu, Susan Kankel, and Susan Buxton. Below are Mr. Larson’s and Mr. Paulson’s answers to our questions regarding the Dittos project and its current status.

1. Who initiated the plan to develop the Dittos site?

Answer: Mr. Larson said ROEM entered into an option to buy with the seller, Mr. Gera, in 2009, at which time the Town was approached. Much of this is covered in Sept. 16, 2009 Agency Agenda Report wherein the town entered into the project with ROEM. Mr. Larson provided us with copies. Mr. Larson did not give any names of those involved in securing the property from ROEM.

2. What were the reasons for pursuing this development in light of the fact that all the previous, less dense, projects that had been denied?

Answer: In closed session (due to it being a land use item) Council directed Mr. Larson to negotiate for the property because it met the criteria of being a blighted area and the development was consistent with the General Plan.

• What changed the Town’s thinking to allow such a large project with a land purchase price of $ 3 million, and what led to that decision?

Answer: Mr. Larson stated he had no previous knowledge of reasons for the denials previous to his employment in Los Gatos. He added that for years (under his watch) the property had been considered a viable location for affordable housing. He added that the Dittos property was considered the most blighted area in town.

• How was the $3 million asking price for the property determined?

Answer: Several appraisals had been made with a variety of prices, none of which are publicly documented. Mr. Larson stated the price was fair, at the time, before the real estate downturn in Los Gatos. Mr. Gera had been firm on $5 million, and had gone down to $4 million. ROEM was not bidding against any other party that we were told.

3. Will the Town be able recoup any of the money spent on this project or is it simply gone?
Answer: The response from Mr. Larson comes in two (2) parts. The first deals with the Redevelopment Agency (“RDA”) monies (~$3M) spent in purchasing the Dittos Lane property, and the second deals with funds expended in site preparation, project planning, and concept development (“development costs”). The second part first – the funds expended in site preparation (e.g., erecting story-poles and demolition), project planning (e.g., EIR preparation and traffic study), and concept development (e.g., architectural plans and graphics) are not recoverable costs. In fact the Town and ROEM are working through whether ROEM is owed any additional payments for expenditures that it has either made or is itself obligated to pay to third-parties related to the project, or whether ROEM is obligated to pay the Town back monies that the Town had lent to ROEM ($105K) as an advance towards development costs. The anticipated “spread” is $15K one way or the other.

As to the first part, since the property site was purchased with RDA “affordable housing” set-aside funds, it can only be developed (subject to an open bidding process open to all developers) by the Town acting as the RDA, or its successor in interest (i.e., County or State), as “affordable housing,” unless a private developer is willing to purchase the property from the Town. Any purchase proceeds from a private developer would have to go back to the RDA in order to “replenish” the set-aside funds it expended for the original land acquisition. What the Town could get back from such a sale is an open question with no immediate answer.

4. What are the plans for the property now? Is there any thought to temporary use, like a green space for trail users and dogs?

Answer: Since the State Legislature has enacted legislation to dissolve all RDAs statewide unless an RDA is willing to “pay-to-play,” and that legislation is presently being challenged by an association of RDAs, there is an effective stay upon any conversion to temporary use (e.g., a parking lot). The California Supreme Court is scheduled to hear arguments and render a decision on the matter in early 2012, but it could be years before the issue is finally resolved (note: this second part is “the Lawyer’s” personal opinion). For now, the only expenditure that the Town is legally allowed to make towards the property is for the purpose of maintenance (e.g., weed removal and putting up a cyclone fence around the site in order alleviate the possibility of the site becoming a “public nuisance”).

5. If the RDA goes away, how will the Town unravel their financial obligations for Dittos Lane and senior housing project on West Main.

Answer: That remains to be seen and several options are being considered. One option for the Dittos property (senior housing project on West Main was not specifically discussed) is to sell that property to a private developer. Another is for the Town to simple hand the property over to the County, and if the County doesn’t want it, then the State will likely have to take it over. The Town has no general funds available, and is not projected to have General Fund monies available for quite some time (if ever), to (further) develop the property in any way, shape or form (quote from Mr. Larson –“unless you want to lay-off 20 police officers”), which must in any case be developed as “affordable housing” so long as the Town owns the property (near quote from Mr. Larson – “[i]f anyone is thinking that the Town is going to develop the Dittos property as some sort of park, they’re smoking from the wrong pipe.”).

6. What happens to Dittos if the Redevelopment Agencies are revived following the lawsuit?

Answer: If and when that happens, then Mr. Larson and staff will be making recommendations to the Town Council. However, RDAs in California are not technically “dead,” just in a state of suspended animation. One of the unknowns is whether the so called “pay-to-play” component of the legislation that is now before the California Supreme Court will remain in place. If so, that would require the Town to pay $2.6M in the first year and $600K in all subsequent years in order to keep its RDA, and the Town just doesn’t have that kind of money in its General Fund (~$4M projected budget shortfall for FY 2012). In all likelihood, even if other RDA’s are allowed to continue, Los Gatos will no longer keep its RDA (the Town Council has until 1 Oct. 2011 to decide).

If time allows:

1. An historical building, The Alpine Chalet, was demolished on the same day the permit was granted.

• Was the Town’s procedure for demolishing a historical building followed?
Answer: We were told that the building was red-tagged by (I believe) the fire marshal. “Red tagging” supersedes all other possibilities meaning that the building is considered a hazard to not only residents, but to surrounding population. Mr. Paulson added that the building had not been officially designated historical for any other reason than being built prior to 1940.

• Why did everything happen so fast?

Answer: Once red tagged, they demolish the property immediately as the city, as owner of the property, could be held liable. He stated they had a fiduciary duty to the citizens to avoid such liability issues.

• Was the public or the historical committee advised?

Answer: Does not know if they were. Red-tagging would “rule” and therefore the buildings would be destroyed.

• Was housing procured for the residents who lived there?

Answer: Yes. There were three tenants living at Dittos who the Town was required to relocate to alternative housing and they were provided assistance. No further details were provided by Mr. Larson.

2. At the last meeting with ROEM, they indicated that they are responsible for the development design, construction, and management of the completed project. ROEM stated that the Town was responsible for the road improvements, engineering, appraisals, surveys, and traffic studies. Is this correct?

Answer: In essence that is correct. All further work on the trees, the alley-way, the gathering spot for the hikers, shoring up the hill, etc., would come from the redevelopment funds.

3. Can you tell us how much the Town’s participation (road improvements etc.) beyond the purchase of property would cost? Would these additional expenses be covered by additional Redevelopment funds?

Answer: The cost of these additional expenses had not projected because the development had never gotten to that point in the process. Yes, these additional costs would be paid out of Redevelopment funds. A private developer would have to pay for these improvements.

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