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HomeMy WebLinkAboutRDA TAX REV ALLOC BDS 06-06-94A RDA NO. 7 6-6-94 ! nte r-Com OATE: JUNE 1, 1994 TO: WILLIAM A. HUSTON, EXECUTIVE DIRECTOR TUSTIN COMMUNITY REDEVELOPMENT AGENCY FROM: RONALD A. NAULT, TRE&SURER SUBJECT: PROPOSED ~EFUNDING OF THE 1991 AND 1987 RDA TAX REVENUE ALLOCATION BONDS . ! RE COMMENDAT I ON: Receive and file. FISCAL IMPACT No fiscal impact. DISCUSSION: At the January 3, 1994 Redevelopment Agency meeting staff was directed to proceed with an adVance refunding of the 1987 Town Center Redevelopment Bonds. Proposals were solicited for underwriters, Bond Counsel-and pricing advisor. The financing team was selected and began the refunding process. On October 6, 1993, Governor Wilson signed Assembly Bill 1290' (Isenberg). AB 1290 took effect on January 1, 1994, and was sponsored by the California Redevelopment Association ("CRA"). Entitled the Community Redevelopment Law Reform Act of 1993, the bill includes the most sweeping changes in the Community Redevelopment Law in years. The changes affects both existing project areas and new plan adoptions and includes modifications to the definition of blight, the termination of fiscal review committees and time limits on all project areas, the repeal of authority to receive sales tax revenues and a "death penalty" for agencies which do not spend their housing funds. The bill also includes specific authority for commercial rehabilitation loans and assistance to manufacturing facilities and provides options for agencies in meeting their inclusionaryhousing requirement. The changes incorporated in AB 1290 required additional .analysis by the Agency's financial consultant to determine the potential impact of the new legislation on the proposed refundings. As a result of this analysis two related issues were determined to have a significant impact on the refunding. The first and less onerous was the sizing and term of Proposed Refunding Tax Allocation Bonds June 1, 1994 Page 2 the "refunding bonds, the second and more concerning was the project areas "cap", or maximum tax increment collected over the life of the project area of $90 million. Legislation that governs redevelopment agencies iscontained in the Health and Safety code~of the State of California. Per specific language in the Code , 'each Agency must designate a maximum tax increment that it intends to receive over the life of the project area. When creating or amending the plan, careful consideration must be given when determining the tax increment cap. Most consultants will recommend a cap that will adequately fund all potential improvements in the project area but, not attract unnecessary attention by other taxing agencies which may in turn generate a protest. -- -In mitigating a protest the Redevelopment' Agency may lose tax increment well below what a more conservative cap would have generated. At the present time it appears that the current Agency cap imposes a significant impediment on the proposed refunding. A thorough analysis and recommendation prepared by the Agency's Financial Agent, Katz Hollis, is attached. Based on the Katz Hollis analysis, staff is recommending that we not proceed with the refunding to avoid incurring any additional costs that will not be recoverable. At the present time staff is working with our consultant on a'Five Year'Implementation Plan as required by AB 1290. As we continue with this process we will further evaluate the identified refunding options and make additional recommendations to the Agency. Ron~~~er cc: Christine Shingleton Rick Zimmer a: refundng, bnd KatzHollis TO: FROM: MEMORANDUM Ron Nault, Tustin CommuniW Redevelopment Agen. cy Diane Hadland, Katz Hollis SUBJECT: TAX INCREMENT I~IMIT IN THE TOWN CENTER PROJECT DATE: March 26, 1994 As the financing team disenssed earlier this week, Katz Hollis conducted a more detailed analysis of the potential restraints imposed'by the Project's $90 millio, tax ine~t limit. Enclosed are.tables which compare the "remaining" tax increment-limit to debt service on the bonds. We have performed this comparison usin~ two approaches. The first approach incorporates thc armual amounts of tax increment revenues to be received Over the remaining life of the Project under various growth assumpfi~. This comparison, which is summarized on Table t and detailed on Tables lA through IG, was accomplished by adjusting the trefided groxxxh assumption ufilD, ed in the tax increment projection prepared for the Fisefil Consulmm'$ Report:".'-Annual tax increment - revenues are added to revenues received prior to 199394 to calculate cumulative tax increment revenue received to date until the cumulative.total reTaches :t;90 million, the tax increment limit. The second approach utilized is a simplified approach which does not take timing into 'consideration. Under this approach, total principal and interest due on the proposed bonds is added to the amount of tax increment received to date. The implicit housing' set-aside obligation, accumulated hOUsing deficit and County administration charges are also added to the total to arrive at total future obligations. This comparison is sho~vn on Table 2. As indicated by both analyses, the Agency.'s tax i,crement limit curtails the Agency's financing flexibility. On a time basis (Table 1), the Project i~. estimated to nmch an accumulated total of $90 million as early as 2005-06 (12% annual growth assumption) or as late as 2021-22 (0% growth assumption). In reality, the A~eney is likely to reach its tax increment limit sometime in bemeen these two dates. Perhaps more troubling, hox~ver, is a review ofthe stabilized analysis show~ in Table 2. A review of this table indicates that the tax increment limit for the Project poses a eo~ eveh ~.vith the ~xisting bond issue. Under the column labeled "Existing Conditions", the combination of tax increment ~eived to 8~___, remaining bond debt service payments, housing set aside obligations, and estimated County ,administrative charges equal $84.5 million, leaving only $5.4 nfillion in tax increment remaining for other purposes. By ~ the term on the bonds, as previously suggested, the situation worsens because total principal and interest on the bonds increases (see "Proposed Refinancing' on Table 2). ' Please note that although we have i~cluded the Comw/~ve charge as a deduction to the tax increment limi't, our' reading of the Revenue ~and Taxation Code suggests that the charge is a reallocation of taxes and therefore should not fall under th~ tax incremem limit. Because of our recent experience xx4th 'alternative interpretations of the statute by other counties, we have ine~ded it herein until xve can confirm with Orange County its interpretation of this provision. In addition, the follo~s4ng amounts included on the attached tables preliminary and are subject to refinement once ~ve receive the required'information from Agency staff and/or the County:. 1) tax increment received.~o date; 2) the amount of the housing deficit; and 3) the debt service amount included under the "Alternative Refinancing" column shown on Table 2. KatzHollis Ron Nault Tustin Redeve..lopment Agency March 25, 1994 Page 2 Alternative Options The enclosed analysis suggests that the previous recommendation to extend the term on the bonds is only advisable if the tax increment limit can be increased, or if the need for money in the near term is greater than the concern over the cumulative loss of revenues remaining under the tax increment limit (as a result of increased total debt service). The second condition is accompanied by the requirement that mon%' not now a,~filable for debt service (i.e., the housing set-aside) could be made so. We have reviewed the provisions of the 1988 Plan amendment as ,,veil as thc Plan itself, and have preliminarily concluded that the tax increment limit can only be increased through a formal amendment process. As you know, AB 1290 has rendered redevelopment plan amendments more difficult. Hoxvever, if the Agency has specific projects remaining unfunded Fhiqh xx411 have the effect of removing remaining blight in the Project, such an amendment may be possible. The feasibility of a plan amendment should probably be reviewed x~4th Agency Counsel if Agency staff are interested in pursuing an increase in the tax increment limit. Should it be determined that an amendment is feasible and desired,. AB 1290 provides for very specific pass through percentages which are to go to the various taxing entities: These pa.,~xnents would only be effective after the $90 million limit is reached. The current requirement is different than, and in many ~,vays preferable to, the "negotiation" method ~vhich was in effect when the Plan x~s amended in 1988. .. An alternative to a formal amendment process to increase the tax increment limit would be to make additional monies available for debt service to the To,/~n Center Project. This could, be accomplished by a transfer of all or a part of the Town Center Project's housing set-aside requirement to the South Central Project. Such a transfer ~vould not increase the "universe" of dollars available to the Agency from all of its project areas, but can provide the appropriate ~types of dollars for each Project. Section 33334.3 (e) of the Health and Safety Code alloxvs one Project area to deposit less than 20% of tax revenue into the housing fund if the difference between the full 20% requirement and the actual amount deposited is deposited into the Housing Fund by mother Project Area in the same fiscal year. In other words, all or a portion of the To~vn Center's housing set-aside requirement could be met by the South Central Redevelopment Project if the Agency made certain findings. As we are uncertain as to the AgenCY's future plans for the South Central Project Area, we offer this as an alternative to be considered and not'as a recommendation. If it were determined that a housing set-aside transfer would assist in meeting the Agency's goals, the procedure to enable such a transfer is generally relatively simple. Other' potential alternatives include doing nothing or refinancing to a shorter term. Under either of these alternatives, very little in the way of tax increment revenue remains for other ' Agency programs in the Tovm Center Project. As shoxvn on Table 2 under the column labeled "Existing Conditions", approximately $5.4 million in tax increment revenue would be available on a pay-as-you-go basis between now and the end of the Plan. Given preliminary estimates of total principal and'interest due on a 22 year refinancing (which me subject to confirmation by Stone & Youngberg), the amount of axailable tax increment revenue could increase slightly with a refinancing at current interest rates. This alternative is shoxvn on Table 2 under the column entitled "Alternative Refinancing". Under either alternative, however, very little in the xvay of annual tax increment not required for housing purposes xvould be available (particularly in the near term) for administration or other Project costs. Katzflollis Ron Nault Tustin Redevelopment Agency March 25, 1994 Page 3 In addition, given available tax increment revenues (i.e.} annual revenues in excess of annual housing set-aside · requirements), annual debt service requirements for a shorter term bond issue may be too high to receive an insurance commitment, which could affect the interest rate assumptions on the borro[ving. The emplos~nent of a transfer of the housing set-aside obligation, as discussed above, could render'' such a refinancing feasible. Specifically, if the Agency agreed (and adopted the necessary resolutions) to meet the housing set-aside obligation for the ToW~ Center Project with revenues from the South Central Project, revenues available to Pledge for debt service in the Town Center Project would increase by 25%. Unless the housing set aside transfer x~as desired by the Agency for other purposes, a limited amount could be pledged to be transferred from the South Central Project. The actual transfer would only have to occur in the event actual revenues in the Tox~ Center Project were insufficient to meet the annual debt service requirements and the annual housing obligation. Further, South Central's transfer obligation could terminate once tax incre , - Predetermined levels (e ~ -o_ .,~, ........... ment revenues ~n the Town Center Pro' - -o-, 2~ % ,~,~,¥~ annum ae0t service hc,,¢; ...... -- . _ ~Ject increased to and .......~ o,,~-asme reqmrements). This strategy has been employed by sevei-al redevelopment agencies to accomplish r. efinancings in this _stagnant economic environment. The downside of such an approach is that a portion of the annual revenues in the South Ceniral Project area would be subject to a priorits.- lien, at least until revenues in the Town Center Project increased to a self sufficient level. The priority lien on a portion of the revenues in the South. Central Project would preclude the Agency's ability to fully leverage those revenues until such time, if ever,~'as the South Central Project xn-as released from the lien. Once you have had the opportunity, to review the attached tables, we would like to discuss with you potential · alternatives. We are available to p;ovide whatever assistance you need to resolve this matter, including preparing alternative cash flow scenarios and/or presenting the required explanations to the City Council. Please call at your earliest convenience. KatzHollis Tustin Community Redevelopment Agenc7 Town Center Area Redevelopment Project TAX INCREMENT LIMIT SENSITIVITY ANALYSIS (1) (000's Omitted) Table I Growth Trend Trend Assumed 1% 2% 4% 8% 12% Year Tax Increment , CaD is Reached 2021"22 2018-19 2015-16 2012-13 2009-10 2008-09 2005'06 (1) See attached tables for computational details. 0 0 ~0 ~1 o o ~o o o ~ ~oo o o ~ 0 c o o ~ ~o ~o o o o o 0 ' KatzHollis Tustin Community Redevelopment Agency Town Center Area Redevelopment Project TAX INCREMENT LIMIT CALCULATION TI Received through February 23, 1994 (1) Add: Debt Service on Bonds Add: Housing Deficit (85-86 through 91-92) (1) Add: Housing Set-Aside Requirement (2) Add: County Admin Charge (3) Total Tax Increment Limit Additional Tax Increment Available Table 2 Existing Proposed Alternative Conditions Refinancing Refinancing. $24,975,000 $24,975,000 $24,975,000 .41,842,582, (4) 48,561,291 (5) 40,898,000 (1)(6) 2,935,000~ 2,935,000 2,935,000 13,005,000 ~ 13,005,000 13,005,000 1.780.000 1.780.000 1.780.000 $84,537,582 $91,256,291 $83,593,000 90,000,000 90,000,000 90,000,000 $5,462,418 ($1,256,291) $6,407,000 - (1) Approximate amount subject to additional refinement. (2) Estimated at 20% above tax increment limit, less tax increment received through February 23, 1994. '(3) Katz Hollis does not believe that the County Administrative Charge should be part of the tax increment limit. An estimate has been included subject to confirmation with the County on its interpretation. Amount shown equals estimated administrative charges for 1993-94 through 2023-24, assuming a.74.0% annual inflationary inCrease over projected 1993-94 amount of $30,000. (4) Remaining existing bond debt service. (5) Total principal and interest due on proposed refunding bonds through 2023-24. (6) Total principal and interest due on alternative refunding bonds through 2015-16, estimated at an average interest rate of 5.90% over a 22 year term.