RDA IOU: Downtown Redevelopment Project Area Owes City Gen'l Fund Over $90 Million; Repayment To City Expected To Start in 2015
(July 8, 2003) -- LB's Downtown Redevelopment Project Area owes LB taxpayers over $90 million...which is scheduled to begin being repaid in 2015, LB Community Development Director Melanie Fallon told a study session of the City Council today.
"Downtown [Project Area] does not have sufficient funds, as I think most of you know, at this time to begin making regular payments to the General Fund now. However stating in 2015, the Downtown Project Area can begin to pay its debt to the city of Long Beach by using the tax increment that would have otherwise been retained by L.A. County," Ms. Fallon said.
LBReport.com posts a transcript of the salient portion of Ms. Fallon's presentation below.
The Council study session took place against the backdrop of a process that could lead to the controversial merger of all Redevelopment Project Areas, favored by city staff and begun by majority of the incumbent RDA board. (LBReport.com plans to post separately portions of the study session dealing with the merger).
Our transcript below on the debt issue is unofficial, prepared by us; not all speakers or their words are included; ellipses indicate deletions; bracketed material by us for clarity.
Melanie Fallon, Dir. Community Development Dept.: ...The Downtown [Redevelopment] Project Area owes the City over $90 million.
Some people have stated that this is a bad thing and I know we've had a number of debates about this but for redevelopment agencies, generally debt is a good thing and debt to the city is the best kind of debt because we can use it to leverage and work together.
There are really three reasons why Agency debt is good. First of all, redevelopment agencies under state law must have debt to collect [property] tax increment from the County.
Two, debt to the city gives the Agency a legal basis to transfer money to the General Fund. As you know, occasionally the Agency does transfer funds to the city and we would not be able to transfer money to the city unless we had debt. And third, debt to the city allows the city to collect tax increment after a project area terminates. And this is really the crux of this issue and I want to repeat it.
Debt to the city would allow the city, not the Redevelopment Agency but the city, to collect tax increment after a Redevelopment Project Area terminates. State law mandates that redevelopment activities must stop in a redevelopment area after 30 years. However, the project area can continue to collect tax increment for about an additional ten years after redevelopment activities have ceased but only to pay its debts.
So if you take the Downtown Project Area for example. The Downtown Project Area was adopted in 1975, and redevelopment must end in the Downtown Project Area in 2015. The Downtown can expect to collect $169 million in this ten year period after redevelopment activity ceased. So from 2015 to 2025, there is a possibility of tax increment of $169 million flowing out of that project area...
If the Downtown Project Area only has debts amounting to $90 million, L.A. County would keep $79 million of the $169 million that will be generated during that 10 year period. However the Downtown Project Area has a debt to the city and will be able to collect the tax increment and use it to repay the General Fund. So in the 10 year period from 2015 to 2025, the city has the ability to collect $90 million in tax increment from the Redevelopment Agency.
I want to stop for a moment and explain this debt. Where did this $90 million debt come from? This debt is not a result of loans from the General Fund to the Redevelopment Agency. The city of Long Beach received federal grants in the 1970's, some were UDAG grants [Urban Development Action Grants], some were block grants, there were a number of other federal grants that were received during this time period. The city could have spent these grant funds itself. Instead, the city loaned the grant funds to the Redevelopment Agency. The Agency spent the grant funds on the same kind of programs that the city would have spent these funds on. The end result is that the Downtown Project Area has a useful debt to the General Fund without there ever being the transference of any General Fund monies to the Redevelopment Agency.
Downtown [Project Area] does not have sufficient funds, as I think most of you know, at this time to begin making regular payments to the General Fund now. However stating in 2015, the Downtown Project Area can begin to pay its debt to the city of Long Beach by using the tax increment that would have otherwise been retained by L.A. County.
Ms. Fallon also addressed other issues of RDA debt in connection with the possibility that Sacramento lawmakers might (now or in the future) tap RDA monies for ERAF (Education Revenue Augmentation Fund).
Melanie Fallon, Dir. Community Development Dept. ...The State Senate has proposed that redevelopment agencies contribute a one time $250 million dollar sum to help close the state's budget gap for the next fiscal year. If this proposal is approved, our Redevelopment Agency in Long Beach would contribute $2.8 million to the state. This payment is already included in the [Redevelopment] Agency's adopted budget for next year...The state's ERAF proposals however for this year do not affect the merger because we have already set aside the funds needed for an ERAF payment.
Staff was also asked the question, what if merged project areas sold a large bond issue and then the state came after the Agency for more money?...Would the General Fund have to make those payments if the Agency was unable to do so?
The answer to that is that it is very unlikely that the General Fund would have to provide funds for the Agency's bond or ERAF payments. First, only the Redevelopment Agency is responsible for Agency bond payments. There is no promise that the city will pay if the Agency defaults on our bond payments. Second, it would take in the earliest time frame 12 to 16 months before a decision could be made whether we merge or not, making it unlikely that a potential merged project area could issue bonds before the beginning of calendar year 2005. By then we would know if the state of California had any additional great plans of taking redevelopment money. Third, every bond issue that the Agency does must be approved by both the Redevelopment Agency and the City Council. Staff would apprise the City Council and the Agency of any ERAF risk when asking for approval to issue bonds.
However, I have also been asked about the worst case scenario: what if the Redevelopment Agency were to merge the redevelopment project areas and then issue all the bonds it possibly can in fiscal year 2005. Also suppose in this worst case scenario that soon after the state of California were to impose an unexpected ERAF requirement, where would the money come from? After a bond issue, the Agency will always have some available revenues. The bond buyers will not let us pledge more than 80% of our unencumbered revenue even with a merged project area.
In fiscal year 2005, 20% of our unencumbered revenues would be at least $2 million. Also, under the currently proposed ERAF legislation, the Redevelopment Agency could use up to half of its housing set aside for ERAF payments, which would provide at least another $3.8 million...
If the ERAF payments were more than the Agency could pay, then the General Fund could possibly be responsible for any remaining hypothetical ERAF payment in the future...
During the period allowed for public comment, 6th district resident Lewis Lester drew stunned silence by raising an issue [to our knowledge] not seriously addressed in weeks of redevelopment controversy: whether additional redevelopment activity really is in taxpayers' or the city's best interests...and whether other options instead of redevelopment could better achieve desired goals.
Mr. Lester: Councilwoman Richardson spoke of frustration and I understand where she's coming from and I'm going to speak from my frustration.
About a year ago when the Councilwoman began this discussion, if I remember correctly it was on the basis of her looking around her district and realizing she didn't have parks, she didn't have enough libraries or big enough libraries. She didn't have a number of public facilities in her district that a number of you would like.
The first and second district need parking garages. Tonia [7th district] needs supermarkets and just about everything else. The 6th district needs a few other improvements and so, the Councilwoman also realized that there was no money and so she fixed her eyes on redevelopment. And this whole discussion has been about redevelopment. And we're studying a merger of redevelopment.
But at no point have we talked about doing a study and saying, 'I need parking garages. I need parks. I need supermarkets and what other way other than redevelopment can we do that?'
Can we use JPA's [Joint Powers Authorities] with the School District? Can we use JPA's with MTA? Can we do assessments? Can we do a number of different things?
There are cities all over this state, there are 430 some odd cities, many of them have Redevelopment Agencies, many of them don't. The ones without Redevelopment Agencies still need parks, still need parking garages, still need supermarkets and a whole slew of other facilities.
They provide them without redevelopment and they provide them without merging their project areas.
I'm asking, if we're going to do a real study, you've got to quit asking the question, 'Should we merge?' You've got to ask the question, 'What other options do we have other than merger?' Expansion is one, redevelopment merger is another, but can we do it without redevelopment?
We have a Long Beach Financing Authority which is a JPA, which we issue a number of bonds out of through the RDA. There are a number of ways we can use JPA's to help us. There are a number of ways we can use assessments in creating different districts, parking districts, lighting districts, park and rec districts. There are special districts that can be created and financed by taxpayers and the entities that want them, and we're focused on redevelopment.
We've got all these brains here, who have degrees in public administration and urban planning and we're stuck on redevelopment, as if this is the only solution to our problems when cities all across the state and all across the country are looking at other means.
We've got to be creative and we can't bond our way out of debt. We're learning that in Sacramento.
July 2003: Divisive, Acrimonious Council Battle Produces 5-3 Vote Giving Mayor Retroactive Power To Fill RDA Board Vacancy On Her Terms
Requires PACs To Send Mayor Double The Number Of Potential Appointees From Whom She Can Select New RDA Boardmembers
Mayor Says It's Motivated By Desire For Diversity, Not Merger
June 2003: Redevelopment Merger & The Mayor: O'Neill Seeks Council OK For Retroactive Change In Rules Governing Appointment Of New Redevelopment Agency Board Members
June 2003: Redevelopment Agency Bd. Votes 4-3 To Proceed Toward Possible Merger of All Project Areas While City Hall Creates Redevelopment Strategy, Defeats Substitute Motion 3-4 For Independent Study First
Councilwoman Reyes-Uranga Tells City Mgr. She's Concerned Abt. Adequacy Of Community Outreach...And Wants Redev. Strategy With Ind. Study First
June 2003: City Mgt. Recommends Merging All Seven Existing Redevelopment Project Areas...And Adding New Territory To North & Central Project Areas