HomeMy WebLinkAbout06 PROMISSORY NOTE SETTLEMENT AGREEMENT WITH THE STATE OF CALIFORNIA DEPARTMENT OF FINANCEAgenda Item 6
Reviewed: I
AGENDA REPORT City Manager
Finance Director
MEETING DATE: NOVEMBER 18, 2014
TO: JEFFREY C. PARKER, CITY MANAGER
FROM: SUCCESSORY AGENCY
SUBJECT: PROMISSORY NOTE SETTLEMENT AGREEMENT WITH THE
STATE OF CALIFORNIA DEPARTMENT OF FINANCE
SUMMARY:
Approval is requested to enter into a Promissory Note Settlement'Agreement ( "Settlement
Agreement') with the State of California Department of Finance ( "DoF ").
RECOMMENDATION:
It is recommended the City Council take the following actions:
1. Approve the attached Promissory Note Settlement Agreement with DoF; and
2. Authorize the City Manager to execute and transmit the Settlement Agreement to
DoF; and
3. Authorize the Finance Department to appropriate $5,000,000 from Fund 189 (Land
Held for Resale) and send payment as instructed by DoF upon execution of the
Agreement.
FISCAL IMPACT:
As outlined in the Settlement Agreement, the City will make a $5,000,000 payment
against the Promissory Note between the City and the former Tustin Community
Redevelopment Agency. This will leave a balance of $16,404,683 to be paid off in four
annual payments starting in December 2015. The final payment will occur by December
31, 2018.
Agenda Report
November 18, 2014
Page 2
CORRELATION TO THE STRATEGIC PLAN:
The Settlement Agreement contributes to the City's Strategic Plan Goal C, by negotiating
a prudent agreement that fulfills a contractual obligation while sustaining long -term
financial strength.
BACKGROUND:
On December 2, 2008, the City Council adopted Resolution No. 08 -83 and the former
Tustin Community Redevelopment Agency Board adopted RDA Resolution No. 08 -06,
authorizing the City to issue a Promissory Note ( "Note') in the principal amount of
$18,881,750 and authorizing the former Tustin Community Redevelopment Agency
( "Successor Agency ") to purchase the Note. The City used the funds to acquire
approximately 34 acres of land adjacent to the 55 freeway, south of Edinger Avenue. The
property was acquired for new freeway ramps and the extension of Newport Avenue.
Unless amended and /or extended, the Note incurred interest at 4.25% and was to be paid
off by December 1, 2013.
In June 2011, the State Legislature and the Governor passed legislation that dissolved
Redevelopment Agencies ( "Dissolution "). As part of the Dissolution, loans where former
Redevelopment Agencies borrowed money from cities were either disallowed or
reinstated under certain conditions and at a Local Agency Investment Fund ( "LAIF ")
interest rate at the time of reinstatement. Despite the disparate treatment, Dissolution
requires all loans where cities borrowed funds from former Redevelopment Agencies to
be repaid and at the interest rate stated in the loan.
On May 13, 2013, the Successor Agency submitted a request to DoF for a Finding of
Completion ( "Finding "). The Finding would allow the Successor Agency to utilize the
MCAS Tustin 2010 Tax Allocation Bonds for their intended purpose and to seek
reinstatement of loans where the Successor Agency borrowed funds from the City. In
July 2013, the DoF declined issuing the Successor Agency a Finding, stating the Note
was effectively due at the time the City requested a Finding as opposed to the Note's
December 1, 2013 due date. The City and Successor Agency filed a Petition with the
Superior Court of California, challenging DoF's denial of the Finding. On April 24, 2014,
the Honorable Timothy M. Frawley, California Superior Court Judge, issued a Writ of
Mandate compelling DoF to issue a Finding. DoF issued the Finding on May 1, 2014.
Since that time, staff have been negotiating a Settlement Agreement with DoF to pay off
the Note. Although DoF has denied the Successor Agency's efforts to reinstate loans
Agenda Report
November 18, 2014
Page 3
where the Successor Agency owes the City over $42,000,000, staff have moved forward
with attempting to reach an agreement on the Note.
What has been agreed upon by staff and DoF is as follows:
1. Although the City sought from DoF a similar application of the LAIF variable rate
calculation being used on funds owed to a jurisdiction, the City and DoF have
agreed to use the LAIF rate as of December 2008, which was 2.54 %. This is a
significant reduction to the interest rate in the Note of 4.25 %.
2. The Principal balance to be paid off is $21,404,683, the amount that was due on
December 31, 2013 at 2.54% interest rate.
3. Upon execution of the Settlement Agreement, the City will make a $5,000,000
payment.
4. The remaining Principal is $16,404,683 and will be paid in four annual
installments of $4,101,171. The final payment will be due on December 31, 2018.
The Principal balance will not accrue interest during this four year period.
5. The Settlement Agreement will resolve claims related to the Note, and those
claims only.
6. The Settlement Agreement will not prejudice the parties' rights with respect to
any other disputes between them.
7. DoF will dismiss its pending cross - appeal regarding the Finding issue.
Staff is requesting the City Council approve the Settlement Agreement and authorize
the City Manager to execute the Settlement Agreement. In order to make the initial
payment, $5,000,000 will need to be appropriated from Fund 189. Staff will be available
to answer any questions the City Council may have.
Jerry Craig
Economic ja ve p e & Housing Manager
Promissory Note Settlement Agreement