FREMONT -- The planned Irvington district BART station suffered yet another setback this week even as the City Council unanimously voted to continue funding the station and other redevelopment projects.
Fremont on Tuesday became one of the first cities in the state to retain its redevelopment agency, by agreeing to return millions in agency funds to the state.
City leaders originally thought that would set the stage for its redevelopment agency to issue $140 million in bonds in September to build the BART station by 2015.
However, leading law firms that represent bond underwriters warned Tuesday that the legal uncertainty hanging over state redevelopment made the bonds risky investments -- effectively closing the market temporarily for new redevelopment bond offerings throughout the state.
"It's very disturbing, just to be held hostage," Councilwoman Sue Chan said. "It's beyond description."
Redevelopment is a key tool for cities and counties to fight blight, but the system had proved costly to the state, which has been making up the difference that school districts lost to redevelopment agencies.
To help balance the state budget, lawmakers last month eliminated redevelopment, but gave jurisdictions the opportunity to reconstitute their redevelopment agencies if they sent more property tax revenue back to the state.
Complicating matters for Fremont is that the California Redevelopment Association is preparing to challenge the legality of the state action.
Attorneys for the major bond underwriters fear that the courts could uphold the state action eliminating redevelopment agencies but rule the law that allows jurisdictions to reconstitute them in return for surrendering more funds to the state unconstitutional, city officials said.
For now, the major bond attorneys are refusing to offer opinions that redevelopment agencies are legally permitted to issue municipal bonds, and without such opinions, investors won't buy the bonds, city officials said.
Fremont -- and other cities hoping to issue redevelopment bonds -- now may have to wait for a resolution to the lawsuit, which has yet to be filed, or hope that a court will issue an injunction allowing the bond sales to proceed. The redevelopment group is planning to ask the state Supreme Court to rule directly on the case to get a swift decision, city officials said.
It is the third time this year that uncertainty over redevelopment forced the city to halt issuance of the bonds for the BART station, which city leaders hope will spur development in the Irvington district.
"It's just amazing every hurdle they put in front of us," Councilman Bill Harrison said. "But I have a feeling we're going to get it done somehow."
Cities have until Nov. 1 to decide if they will choose to continue operating their redevelopment agencies. Hayward is still analyzing whether it will choose to keep its agency, and will likely bring the issue to the City Council later this month, assistant city manager Kelly Morariu said.
Union City will likely wait until October before making its decision, said Rich Digre, the director of administrative services.
Contact Matthew Artz at 510-353-700. For more Fremont news go to IBAbuzz.com/tricitybeat.
The bonds problem
WHAT HAPPENED: Tuesday the Fremont City Council voted to retain its redevelopment agency, but it may not clear the way to sell
$140 million in bonds.
WHAT IT MEANS: The city has agreed to give the state millions in agency funds. A court challenge to the state's program, however, could hold up the bonds for a BART station designed to spur development in the Irvington district.