When Gov. Jerry Brown projected more than $3 billion in savings by dissolving the state’s redevelopment agencies – local vehicles for incentivizing development of blighted land – $685 million of that was slated to come from line-by-line reviews of what cities and states claimed as their own. 


Now Monterey is one of many cities doing battle with the state in hopes of clinging to every dollar possible, fighting what city officials call “state clawbacks.” 


City Finance Director Don Rhoads and Housing and Property Manager Rick Marvin were in Sacramento Nov. 27, after the Weekly’s deadline, attempting for a second time to persuade state finance officials to let the city keep what’s left of the wreckage. Monterey’s former redevelopment agency dissolved after a 2011 California Supreme Court decision upheld the bill ABx1 26. 


The bill threatens to hand the state $1.5 million in city housing funds and a $2 million city balance from selling 10 affordable-rate condos. 


“I think the odds are good we explain away the $1.5 million item,” Rhoads wrote in a Nov. 14 email to City Manager Fred Meurer and other officials. “I think the odds are even on the $2 million item.”


City officials had planned on using that cash for affordable housing downtown, where incentives and low-interest loans can entice developers to include below-market-rate units. 


“[Without redevelopment], it’s going to be very difficult to provide affordable housing,” Marvin says. 


The disputed $3.5 million for affordable housing amounts to only a small fraction of the $136 million in total redevelopment debt the city has inherited. But it could put the future of Monterey’s affordable housing in jeopardy.


In 2009, the city sold 10 condos for $3.3 million at the Ocean Harbor House, where darkly stained wood gives an organic touch to geometric, pointed rooftops adjacent to Del Monte Beach. 


It looks more like luxury than affordable housing, but until recently, the city of Monterey maintained popular, affordable condos there. The tide turned in 2009, when the Ocean Harbor House Homeowner’s Association decided to assess fees on each condo owner to support a $5 million seawall need to curb erosion below. City officials calculated the condos would become too expensive to qualify as affordable. 


So they sold the units, with plans to reinvest in affordable housing elsewhere. But they might have waited too long. 


With $1.3 million already promised to the Monterey Hotel, the city planned to invest the remaining $2 million condo balance into other housing projects. 


But the Monterey Hotel developer, Cambria-based PRI, LLC, hasn’t moved forward with the proposed hotel expansion, retail improvements and 18 apartment units since defaulting on a loan four years ago, when a court-appointed receiver took over. 


The property is slated to go back to PRI by year’s end, and developer Dirk Winter says they’re on track to keep building – but sees limited prospects for affordable units without redevelopment funds in the future.. 


“I don’t think there’s any way to get involved with affordable units without significant incentives,” Winter says.


Marvin paints a grim post-mortem portrait of city-owned affordable housing without redevelopment agencies as vehicles to supply cash. When the owner of an affordable unit sells, the city gets the right of first refusal to buy it back. But if the city doesn’t have the spare cash to do that, those 129 units will gradually turn over to market rate, Marvin speculates. 


“We’re trying to do as much of what we did in the past,” he says. “Our program will decline over time.”


For example, the city had planned to loan developer Doug Wiele of Foothill Partners, who built the Trader Joe’s shopping center in Monterey, $1.2 million for 10 affordable units in a mixed-use building on Munras Avenue. If the state claws back the disputed $2 million, that cash disappears—as do the affordable apartments.

"How do you make a unit affordable?" Wiele says. "A subsidy has to come from somewhere."


The California Department of Finance will issue a decision on Monterey’s disputed funds by Dec. 15. Meanwhile, the State Controller’s Office is currently doing its own line-by-line audit. 


Among the items they’re reviewing, according to city officials: 126 acres of the former Fort Ord that were transferred to the city well before the end of its redevelopment agency.


The controller is also auditing the city-owned Cannery Row parking garage and Monterey Conference Center to examine more potential claw-backs, according to city officials. A spokesman for the controller would not confirm any details of the audit before it’s complete.


“I am not signaling a call to panic yet,” Rhoads wrote in the Nov. 14 email. “But note that the state is operating in a mode I haven’t seen in my 27-year career.”

This story has been updated to reflect the following correction: Of the city's $3.3 million in proceeds from selling affordable condos at Ocean Harbor House, $1.3 million has already been allocated to the Monterey Hotel. The remaining $2 million balance, which is the subject of the state dispute, is dedicated to other housing projects.