September 30, 1993 - From the September, 1993 issue

Housing Advocate Conflicted Over Library Sale Lease-Back

By Jan Breidenbach, Executive Director of the Southern California Association of Non-Profit Housing

The affordable housing community originally got involved in the sale lease-back of the Central Library because the City was going to pay for the costs of the transaction with Bunker Hill tax increment money and that  money has historically funded 40% of city's annual affordable housing program. As we were involved in the process of opposing the deal for our own reasons, all sorts of other policy questions started being raised.


"We could lose a whole lot more if this deal were found to be unconstitutional. So that’s the risk in our view that we don’t necessarily want to take."

Some have raised the question of whether or not the deal is legal in dealership form, if you take the proceeds from the sale and put them in the city coffers. There's a law that says redevelopment money, tax increment money can be outside the redevelopment project for housing and for other public benefit. That law has actually never been challenged. And there's hope that even though it is a good law, that it's in violation of the Constitution. And this deal could challenge law. We could lose a whole lot more if this deal were found to be unconstitutional. So that's the risk in our view that we don’t necessarily want to take.

There's also the question that came up that has to do with the fiscal responsibility of it; what happens when Philip Morris goes bankrupt. And I know the answer immediately was the money will be will be placed into it's own corporation where it will become the asset of that corporation. And that will make it a bankruptcy shield. And that may be true, I'm not questioning whether or not that could be true, the question is we don’t known that it’s true. Bankruptcy is very complex. When the government wants to get you because you re bankrupt and they want to take your assets there may or may not be a firewall between Philip Morris and bankruptcy. In order to claim the tax credits the corporation has to have income. So obviously you could put the building into a separate corporation and shield it, but can you really shield it if you are actually using that building to claim tax credits and accelerated depreciation? Yes, there are lawyers who say “Oh, no. It's the perfect shield." But unfortunately there are others who say it may not be. That's the great risk that the city council members don't want to take, they don't want to lose their library. Mortgaging other buildings is not necessarily an issue for them, but they don't want to give up the library.

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We recognize the city has a fiscal crisis and we recognize we 're not going to have the flow of money that we may have had in the past, the same as everybody else, but it's a complicated situation and it's very hard to turn away from what looks like quick cash. We still don't know that this quick cash doesn't have too many strings attached to it. If it is challenged legally, and it all gets tied up, and the money has to be given back, then were does the housing funding come from? 

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