THE BLOG

U.S. City Faces $30 Million Dollar Lawsuit With Money It Doesn't Have

07/02/2012 05:22 pm ET | Updated Sep 01, 2012

Spending money that you don't have seems to be an American tradition. It happens with everybody, from individuals to small businesses, to large corporations. But what happens if you're not an individual? What happens if you're not a small business? What if you are in entire city? What happens when an entire city spends money that it doesn't have?

The answer is painfully simple -- your creditor comes looking to get his money, whether you've got it or not.

Santa Clara is a Silicon Valley city that spent time, and lots of taxpayer funds, to attract the San Francisco 49ers. Through a referendum and vote, the city managed to arrange to have the team call Santa Clara their new home. But there was one minor detail in this deal though -- a $1.2 billion dollar stadium would have to be built. So where does a city "get" $1.2 billion dollars?

Now, on the surface, the deal seemed pretty cut and dry -- the 49ers would provide some $800 million of the cost, while the city would somehow cover the rest. Skip ahead six months or so, where the city finds itself having to obtain a loan for $850 million dollars, while still covering another $30 million dollars that it promised the team, using money from wherever it could find it. In Santa Clara's case, that money would be coming from RDA tax funds.

On June 22, the Oversight Board, in charge of disbursement of former Redevelopment Agency (RDA) funds, voted 4-3 to NOT allow RDA property tax dollars to be used for stadium funding.

You can see where this is going...

Now the 49ers have filed a lawsuit to get the $30 million in RDA funds from the city, whether the city has the money or not. Think of it as a kind of "$30 million dollar overdraft fee." So the city now finds itself in a quandary -- cover a $850 million dollar loan, AND deal with a $30 million dollar lawsuit, when there is no money to be found.

When asked about the situation by KQED reporter Peter Shuler, Mayor Jamie Matthews said "The reality of it is that you can take any monies and then apply it to any good cause," said Matthews. "But the fact of it is that these monies were promised and under contract. They're an enforceable obligation. You can't get away with undoing enforceable obligations just because you feel like there's something in the future that you'd like to spend money."

So I guess "something in the future that you'd like to spend money" includes libraries, school improvements, and city services. Apparently these are expenses that the mayor deems "like to spend", as opposed to being priorities, in his own words.

It's bad enough when you spend money that doesn't exist. It's even worse, when you're an entire city.

With so much at risk, one has to wonder why a city would go through all that trouble, for an expense that takes away so much from it's own citizens.