Santa Clara receives $6.2M from San Jose following bitter lawsuit

Santa Clara officials are deciding how the city will spend $5 million earmarked for affordable housing that the city has received from San Jose this week as part of a lawsuit settled last year.

Though the money will go toward affordable housing, the city hasn’t yet identified specific projects or initiatives for the funds. San Jose is also expected to hand over another $1.2 million later this week, money that will be used for specific traffic and transportation improvements, per the agreement between the neighboring cities. For most of that money, San Jose is acting as merely as the middle-man between the two developers involved in the now-resolved lawsuit and Santa Clara, so very little of it will come directly from San Jose coffers.

Santa Clara officials will make recommendations to city councilmembers on how to use the affordable housing funds in the next month, according to a news release Monday.

“We are pleased to receive this $6.2 million to invest in the Santa Clara community on affordable housing and transportation improvements,” City Manager Deanna Santana said in a statement. “We are looking forward to implementing the specific traffic and transportation improvements and proposing a recommendation for the $5 million to the City Council that invests in our community.”

The Santa Clara City Council has been on break since last month, but will return to its normal meeting schedule starting Aug. 20.

The payouts from San Jose, while expected, are a victory for Santa Clara after the two cities engaged in an all-out border war over two new development projects, both of which are now underway.

San Jose’s payments to Santa Clara come after the two cities last year resolved two tit-for-tat lawsuits that delayed for more than a year two large development projects — one near the border of each city.

San Jose sued the city of Santa Clara over its sprawling Related Santa Clara project by The Related Cos., then known as City Place. San Jose officials cited concerns that the project would bring about 6.5 million square feet of commercial space, but fewer than 1,400 homes — which meant San Jose would bear the brunt of housing the new workers.

A San Mateo County Superior Court judge ultimately sided with Santa Clara in the suit, allowing the massive project to move ahead.

But in the meantime, Santa Clara filed its own suit against San Jose for its approval of Federal Realty Investment Trust’s Santana West development, which could eventually include up to 1 million square feet of office space across the street from the popular Santana Row shopping center, primarily citing traffic concerns.

Both cities opted to settle out of court before the Santana West lawsuit was decided by a judge. The result was the promised payments for housing and transportation that are trading hands this week.

Of those payments, $5 million is being paid by Related Co. to San Jose, which is transferring the money to Santa Clara. Federal Realty is paying $850,000 to San Jose, which will also be transferred to the city of Santa Clara, according to documents shared with San Jose Spotlight by San Jose city officials. The remaining $350,000 set to arrive in Santa Clara will come from San Jose coffers, though City Attorney Rick Doyle clarified Wednesday that those funds were being generated via traffic mitigation fees for Santana West.

But San Jose didn’t lose out entirely under the settlement. The South Bay city will get up to $15 million from Related Cos. for traffic mitigation and housing. Santa Clara won’t have to pay any money out of its own coffers to its neighbor, and ultimately, taxpayers will pick up the tab for both cities suing each other.

The agreement also requires about $2.5 million in traffic improvements in San Jose before Santana West is ready for a tenant to move in. Federal Realty started construction on Santana West last week, biting off a 360,000 square foot portion of the multiphase project. The developer doesn’t have a tenant locked in for the building.

Contact Janice Bitters at [email protected] or follow @JaniceBitters on Twitter.

Editor’s note: This story has been updated to reflect that most of the money being paid to Santa Clara from San Jose this week is originating from developers who are paying San Jose as part of the settlement agreement, per settlement documents provided to San Jose Spotlight after initial publication of the story.