Reason and rationality prevailed at the Board of Supes meeting Tuesday, when the seriously flawed proposal to bailout the Treasure Island developers hit the floor.
The “alternative financing” plan Mayor London Breed and Sup. Matt Dorsey sponsored would have had the city loaning the developers $115 million at a time when the city has a projected deficit of $245 million, ballooning to $555 million next year.
With renewed scrutiny of the proposal’s numbers, the Board had to face up to the reality that the city and the developer are in big financial trouble. They simply don’t have the resources to risk the loan at this point. The cost of this fiscal prudence may be further delays, an embarrassing admission for those who have been urging a strategy of “doubling down” on the project so as to “not lose momentum.” A Plan B is needed.
But the immediate next move was to save face.
Dorsey, who had previously stated multiple times that that his top priority was to pass the proposal and move the city closer to its state-mandated new housing construction goals, was given the first opportunity to walk it back. He implicitly recanted his pledge to see his proposal through. He expressed gratitude to Sup. Connie Chan for “her thorough review of these budget items and for her contribution to keep everything on track and as fiscally prudent as possible.” He went on to thank Board President Aaron Peskin “for his counsel as always and his support.”
In essence, he accepted a version of the bill, as amended by Peskin and Chan, that would put the bailout money on hold and might ensure that it never gets spent.
Still Dorsey, who for months had led the chorus urging everyone to not lose the project’s momentum, now said the amended proposal would “keep the TI project on track and moving forward” and the “project’s momentum continues to the next major development stage” without explaining how that will be done.
Peskin, ever gracious in victory, thanked Dorsey for all his work. Then Chan, to decrease the risks inherent in Dorsey’s original plan, proposed her and Peskin’s amendments to the Alternative Financing plan:
—That the COPs (Certificates of Participation, a form of city bonds) would be issued in three tranches, one per year (first year $50 million, second year another $50 million and third year $15 million).
—That issuance of the COPs wouldn’t start until after the city revises its 10-year capital plan to hold the issuance of the COPs accountable to the city’s long-term plan. (That could take at least a year, maybe three.) The idea was to make sure that this bailout didn’t crowd out all other necessary spending.
—The city would defer debt service fees to the last year.
—Before each of these three tranches are issued, a performance review and assessment must be done for transparency and accountability.
Peskin said this all had the support of TIDA and the Mayor’s Office of Economic and Workforce Development.
The board passed the measure unanimously with all of Chan’s and Peskin’s amendments.
Peskin went on to emphasize that the board will vote in the future to issue the COPS only if and when there is sufficient capacity in the bond fund that doing so will not compromise the rest of the capital plan — once the board updates it and incorporates the Stage 2 Alternative Financing plan into the COP program.
All this begs the question: How will the Treasure Island housing development be finished? Some of the long-promised affordable housing is slated to be built in the Stage 2 area of the development. But before the buildings go up, the infrastructure to support it has to be installed. How will that be paid for? Who will do the work? And when?
The billions invested already in the project don’t allow for it to be all mothballed. Nor do the plans of hundreds of residents and business owners who have invested years and their dreams in the island.
If the city was the investor of last resort, who do the developers turn to to get a loan for the next batch of infrastructure? It is a public secret — memorialized in the lawsuit among the members of the developer group and the failure of the city and the developers to sell the COPs on the market — that this is a bad investment.
So what is the next move?
Obviously a reassessment is in order. If both TIDA and the developers had agreed to Peskin and Chan’s changes, they may have started an internal discussion of this and may have something to put on the table for discussion.
At the same time, TIDA is evicting residents in the old Navy housing Gateview area (the north and northwest part of the island) and is planning to demolish those buildings. As the production of new housing is stalled and the city and developers are figuring out the money, perhaps they should keep the old housing in the meantime. We don’t know how long this will take, and keeping people where they are may be least disruptive option.
