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HomeMy WebLinkAboutRDA FINANCIAL PLAN 08-16-82DATE: August 11, 1982 REDEVELOPMENT AGENCY No. 4 8-16-82 I ter-Com TO: FROM: SUBJECT: REDEVELOPMENT AGENCY BILL HUSTON, EXECUTIVE DIRECTOR STATUS REPORT - REDEVELOPMENT AGENCY FINANCIAL PLAN RECOMMENDATION: That following the Agency's review of Phase i and 2 of the financial plan, it determine the Agency's project priorities at the August 30, 1982 meeting. BACKGROUND: The Agency authorized the consulting firm of Katz, Hollis, Coren & Associates to prepare the Agency's financial plan. The purpose of the plan is to project the Agency's tax increment income for the next ten years and following the Agency's determination of its project priorities, recommend the phasing and financing of those projects. To date the consultant has completed the analysis of taxable value and tax revenues generated by the Town Center Redevelopment Project and has prepared a ten-year projection of the Agency's tax increment revenue. Also completed are preliminary financing strategies which provide three alternative ways to finance projects. Copies of both reports are attached. DISCUSSION: The purpose of this agenda item is to have the consultant review the phase 1 and 2 reports with the Agency. These reports provide the framework for the next phase of the financial plan which is the consultant's specific recommendations concerning the financing of the Agency's projects. The Agency has scheduled a session on August 30, 1982 for the purpose Of determining its project priorities. Because the financing options depend upon the types and cost of projects, the Agency will have to establish its priorities before the next phase of the financial plan can be completed. Once that is done, and the Agency has approved the final financial plan, it will be in a position to issue bonds. Prior to the August 30, 1982 meeting, staff will submit a report to the Agency which lists the various projects discussed to date, the preliminary costs and phasing. It is important to note that the financing strategies shown in the attached report are based upon the consultant's estimate of tax increment income during the next ten years. The estimate takes into account projects for which building permits have been issued or projects which are expected to be completed in the next ten years. The attached report lists the projects. A 2% growth factor is also used based upon the minimum that could be expected pursuant to Proposition 13. The reason for using the 2% growth rate is because prospective buyers of Agency bonds will consider that to be the rate at which the Agency's tax increment income will grow in future years. The consultant is al so preparing a trend analysis which based upon historical trends, will show what future tax increment income would amount to assuming a higher growth rate. The trend analysis takes into account re-sale of properties and the corresponding reassessment of the property's value which affects tax increment revenue. Having the trend analysis will illustrate to the Agency the difference in future tax increment income between the 2% growth rate and a higher growth rate based upon past trends. This will provide the Agency greater flexibility in determining its project priorities since it can expect additional income {the amount of annual tax increment received which exceeds the annual cost of paying off the bonds) to be available in future years for projects not funded through the sale of bonds. The financial consultant will explain this approach in greater detail. WH:dmt KatzHollis July 19, 1982 Mr. William A. Huston City Manager City of Tustin 300 Centennial Way Tustin, California 92680 Dear Mr. Huston: We have completed our analysis of taxable value and tax reve- nues generated by the Town Center Redevelopment Project and have also prepared a ten-year projection of future incremental tax revenues for the Project. Pursuant to our contract with the Agency, this interim report details our findings concern- ing these first two activities. Tax increment revenues have increased at a steady and substan- tial rate during the past four fiscal years (1978-79 through 1981-82). This is primarily due to the extensive new develop- ment activity which has occurred during these last years. Based on our discussions with City and Agency staff concerning the rate of historical new development activity as well as our experience relative to the taxable value of such construction, we have found no irregularities in the Project Area incre- mental tax revenues. Our review of 1981-82 taxable values for the Town Center Project involved a parcel-by-parcel check of both the secured and unsecured'local tax rolls. The 1981-82 parcel listing as reported by Orange County was verified against the Assessor's parcel maps for accuracy. No parcels were found to have been omitted from the County's listing and no parcels outside of the Project Area were mistakenly included in the tabulation. Upon verification of the parcel listing, the secured taxable values were examined for the purpose of corroborating the actual Project Area total taxable value as reported by the County with our independent determination of the local secured taxable values. This comparison did not indicate any discrepancies between our tabulation of local secured 1981-82 values and those values reported by the County. The verification of unsecured taxable value within the Project Area involved a more cumbersome procedure. As you are now aware, these values have been accumulated by the County and are listed by unsecured tax bill number within the appropri- ate tax rate area. However, this information is not available for public inspection without prior approval from the County, which means that under standard conditions the unsecured Katz Hotlis Coren & Associates, Inc. Financial Consultants The Ovlatt Building 617 South Olive Suite 710 Los Angeles, CA 90014 (213) 629-3065 KatzHollis Mr. William A. Huston City of Tustin July 19, 1982 Page 2 values are not made available. We were able, however, to obtain ac- cess to the records maintained at the Orange County Assessor's Office and complete an analysis of the unsecured values. All unsecured values shown on the County records are also cross- referenced by assessor's parcel number. This enabled us to verify whether nor not all the unsecured assessments listed within the Town Center Redevelopment Project had been indexed correctly. We prepared a tabulation of the unsecured parcels and the taxable values of those parcels and the taxable values of those parcels within the Project for the purpose of independently checking unsecured values as reported by the County. Upon the completion of our analysis, we have again concluded that there are no significant errors or omissions in the reported unsecured taxable values for the Tustin Town Center Redevelopment Project. While our tabulations indicate a minimal difference from those reported by the County, this discrepancy is less than 1% of the County unsecured total. For this reason, we accept the County's 1981-82 reported unsecured taxable value as accurate. Upon completion of the verification of 1981-82 taxable values as noted above, we proceeded to prepare a ten-year tax increment projection for the Tustin Town Center Redevelopment Project. The biggest factor affecting estimates of increment tax revenues in future years is the new development which is currently underway or timely committed to be constructed within the Town Center Project. With the assistance of Agency staff and information supplied by the City's Building Department, we were able to identify numerous developments which would significantly affect future increment levels. The developments that were identified include the following: 1) developments completed prior to the March 1, 1982 lien date; 2) developments that were under construction as of March 1, 1982 with partial value in place and completion anticipated prior to the March 1, 1983 lien date, and 3) developments that were scheduled to begin construction after the March 1, 1982 lien date. Developments which were only partially completed as of a lien date, were assigned an estimated value to be added to the tax rolls based on the progress of construction at that point in time. All valu- ations attributable to individual developments reflect a combined assessment based on our experience with the valuation approach and procedures utilized by the County, comparable valuations for similar developments in Southern California and current valuation estimates as reported by the Marshall Valuation Service. The assumptions of new development which provided the basis for the Tax Increment Projection are detailed in Schedule C. The correlating KatzHollis Mr. William A. ~uston City of Tustin July 19, 1982 Page 3 annual new construction taxable value is shown by project in Sched ule B. The Tax Increment Projection is shown as Schedule A. A number of additional assumptions were made relative to the Schedule of New Development (Schedule B) which should be discussed. All tenant improvements and personal property estimates have been made on a value per square foot basis. The square footages used in deter- mining these values is equivalent to approximately 85% building ef- ficiency. Surface parking estimates have been based on the number of spaces which would be required to serve these developments per City Codes. New office buildings are required to have one parking space for each 300 square feet of area and new retail structures required one space for every 250 square feet of area. Added value based on improvements from surface parking reflected a per square foot dollar value for each space and assumed that the minimum number of spaces required by Code would be provided. The Movie Theatre in the california Pacific Properties development presented a unique problem. The developer of the project had not progressed with his plans to the point of determining the number of seats which would be in the four-plex theatre. A formula for deri- vation of the number of seats based on building square footage and interior arrangement was established for estimating the number and value of each theatre seat. Taxable value shown is a projection of these unit values. It should be noted that, based on information supplied by Agency staff, no change in land valuation has been assumed in this projection. We were not made aware of any Agency or privately owned properties that were intended for sale or resale to accomplish the scheduled developments. The Tax Increment Projection shown in Schedule A reflects the new development values separated by real and personal property cate- gories. Real property taxable values reflect the prior year's total increased by the 2% maximum allowable under Proposition 13. An exception to this occurs in the 1982-83 total. Because of the 1981-82 Project Area values include $22,880 in hold over business inventory assessments, this amount has been subtracted prior to the 1982-83 2% increase. Business inventory value is now exempt from taxation; it is therefore assumed that the $22,880 represents escapes from prior tax years and will not appear in future values. The 1981-82 business inventory subvention revenue has been kept at a constant level throughout the projection. The current budgetary con- straints being experienced by the State of California have curtailed the application of inflationary increase to the factored business KatzHollis Mr. William A. Huston City of Tustin July 19, 1982 Page 4 inventory value, as has been the case in the two previous years. If this situation continues the Agency's 1982-83 business inventory sub- vention payment should approximate the 1981-82 payment. Due to the uncertainty of predicting the State financial position in future years and its affect on any subvention payment to local entities, we have kept the business inventory amount constant. Taking these disparate factors into consideration, we have estimated that Town Center Redevelopment Project's incremental tax revenues as shown in the final column of Schedule A. Revenues are projected to increase steadily through the 1986-87 fiscal year as taxable values increase due to the new development in the Project Area. The addi- tional taxable value due to new construction, coupled with the 2% real property value increase per Propositon 13, yields a 45% rise in taxable value between the 1981-82 and 1986-87 fiscal years. All valuation increases in subsequent years are attributable solely to the 2% increase. The increase of incremental revenues between 1981-82 and 1986-87 from an estimated $1,121,000 to $1,773,000 is approximately 58% (an under- estimate of $15,000 between our 1981-82 tax increment figure and actual revenues received is assumed to be prior year revenues paid to the Agency in the 1981-82 fiscal year). Revenues increase at rates less than 2% per annum in later years due to an assumed decrease in the average Project Area tax rate. The rate has been assumed to fall by amount equivalent to 10% of the 1981-82 override rate. As Project Area valuation increases and voter-approved indebtedness is repaid, the tax rate will experience a decline reflective of the rates shown on the Schedule. This concludes the initial segment of our Phase I activities in our contract. We look forward to working with you on the financial aspects of the Town Center Redevelopment Project in the near future. Please contact our office with any questions you may have. Sincerely, KATZ, ~OLLIS, ~2QREN & ASSOCIATES, INC. Keith M. Breskin GGJ/KMB: r r Enclosures 0 r~ 0 o 0 ~0 4-) ~ n.O .,~ E~ 0 ~ ..~ ~H 0 I.~ ~ 0 I'~ i.n ~.1 o i',,,, i.n f',,I o I I I I I I I I I 0 r.~ 03 0 0 4J 0 0 0 0 0 Z Z 0 ~ 0 ~ ~ 0 ~ ~ I ¥ & 00~ o ~ KatzHollis 071682 Schedule C Tustin Redevelopment Agency Town Center Redevelopment Project NEW DEVELOPMENT ASSUMPTIONS Description: Development Schedule: Stevens Square - 210 - 250 West Main An eight building complex with 55,362 square, feet of office. Construction started third quarter 1981. 85% valuation March, 1982. 100% valuation March, 1983. Tenant Improvements/ Personal Property: 100% valuation March, 1983. 730 E1 Camino Description: Development Schedule: New Value/Transfer of Ownership: A 39,679 square foot 3-story office condominium with 132 parking spaces at ground level. Construction time projected from third quarter 1982 to second quarter 1983. 90% valuation March, 1983. 100% valuation March, 1984. 100% valuation March, 1984. 750 E1 Camino Description: Development Schedule: Fixtures/Improvements: A fourteen unit addition to an exist- ing motel. 100% valuation March, 1982. 100% valuation March, 1982. KatzHollis Tustin Redevelopment Agency NEW DEVELOPMENT ASSUMPTIONS Page 2 150 E1 Camino Description: Development Schedule: Tenant Improvements/ Personal Property: A 43,056 square foot office building with surface parking of 144 spaces. Construction started third quarter 1981. 60% valuation March, 1982. 100% valuation March, 1983. 100% valuation March, 1983. 445 South "C" Street Description: Development Schedule: 2-level parking structure with 211 spaces. Construction started first quarter 1982. 100% valuation March, 1983. 180 South Prospect Description: Development.Schedule: .A 15,000 square foot office building with surface parking of 50 spaces. Construction started second quarter 1982. 100% valuation March, 1983. Tenant Improvements/ Personal Property: 100% valuation March, 1983. KatzHollis Tustin Redevelopment Agency NEW DEVELOPMENT ASSUMPTIONS Page 3 145 West Main Description: Development Schedule: Tenant Improvements/ Personal Property: A 5,840 square foot office building with surface parking of 20 spaces. Construction started first quarter 1982. 15% valuation March, 1982. 100% valuation March, 1983. 100% valuation March, 1983. 17496 Holt Avenue Description: Development Schedule: Tenant Improvements/ Personal Property: A 6,605 square foot office building with surface parking of 22 spaces. Constructed projected from first quarter 1983 to third quarter 1983. 15% valuation March, 1983. 100% valuation March, 1984. 100% valuation March, 1984. 18302 Irvine Boulevard Description: Development Schedule: Tenant Improvements/ Personal Property: A low-rise office of 45,536 square feet with 1,708 square feet of retail with surface parking of 159 spaces. Constructed projected to begin third quarter 1982. 50% valuation March, 1983. 100% valuation March, 1984. 100% valuation March, 1984. KatzHolli$ Tustin Redevelopment Agency NEW DEVELOPMENT ASSUMPTIONS Page 4 SW of Newport and Main Description: Development Schedule: Tenant Improvements/ Personal Property/Fixtures: A three building mid-rise development with a four-story parking structure of approximately 900 spaces. Building A - a four-story 100,000 square foot structure consisting of 80,000 square feet of office, 15,000 square feet of retail and a 5,000 square foot restaurant. Building B - a five-story 152,500 square foot structure consisting of 123,000 square feet of office, a 16,500 square foot movie theatre, an 8,000 square foot restaurant and 5,000 square feet of retail. Building C - a five-story 96,580 square foot office building. Building A projected to begin second quarter 1984. 50% valuation March 1, 1985. 100% valuation March 1, 1986. Building B - projected to begin fourth quarter 1982. 10% valuation March 1, 1983. 85% valuation March 1, 1984. 100% valuation March 1, 1985. Building C - projected to begin second quarter 1984. 50% valuation March 1, 1985. 100% valuation March 1, 1986 Parking structure projected to begin second quarter 1984. 50% valution March 1, 1985. 100% valuation March 1, 1986. Building A - 100% valuation March 1, 1986. Building B - 100% valuation March 1, 1985. Building C - 100% valuation March 1, 1986. KatzHollis August 10, 1982 Mr. William A. Huston City Manager City of Tustin 300 Centennial Way Tustin, CA 92680 Dear Mr. Huston: As discussed in our meeting of July 20th, we have prepared several preliminary financing strategies for the Tustin Town Center Redevelopment Project. The funds which would be available are outlined on the attached schedules and described below. Schedule No. 1 projects the amount of funds which would be available should the Agency choose to sell a bond issue based solely on 1982-83 incremental tax revenues. Assump- tions are made which are indicative of the current tax allocation bond market. These assumptions include a cover- age factor of tax increment revenue equivalent to 25% of annual debt service, discounted bids at 5% of the gross bond issue, issuance costs of $ 150,000 and, insurance coverage on bonds with costs estimated at 2% of the gross bond issue amount. It is further assumed that one year's annual debt service will be required in a reserve fund. A 1982-83 tax allocation bond issue based on $ 1,174,000 in projected incremental revenues wouldlyield approximately $ 5,431,000 in net bond funds given the assumptions noted above and as detailed in Schedule No. I. Schedule No. 2 illustrates the effect of selling a short term tax allocation note in 1982-83 to be refunded by a subsequent bond issue in'1985-86. The purpose of this approach would be to provide interim funds to finance a portion of needed public improvements until tax increment revenues as projected are sufficient to support a tax allocation bond issue of sig- nificant size. We have assumed that a note of $ 3,500,000 would be adequate to pay for public improvements scheduled in the three year period beginning with fiscal 1982-83. Katz Hollis Coren & Associates, Inc, Financial Consultants The Oviatt Building 617 South Ohve Suite 710 Los Angeles, CA 90014 (213) 629-3065 KatzHollis Mr. William A. Huston City Manager August 10, 1982 Page 2 The follow-up bond issue in 1985-86 would yield $ 7,556,000 in net proceeds, from which $ 3,500,000 would be spent to retire the interest-only note. The net bond funds, combined with excess tax increment above the note issue interest payments in years 1983-84 and 1984-85, would result in total available funds amounting to $ 8,956,000 exclusive of any interest earnings on idle funds. The alternative of issuing two series tax allocation bond issues is shown in Schedule No. 3. In this analysis, a Series A bond issue is sold in 1982-83 for the net amount of $ 5,431,000 as shown in Schedule No. 1. As incremental tax revenues increase, a Series B issue becomes feasible. Assuming that a Series B issue was sold in 1986-87, based on estimated revenues, the net funds available from this sale would be $ 2,745,000. The net available incremental tax revenues after Series A debt service in 1986-87 would therefore support approximately $ 2.7 million with excess tax revenues above debt service in the three fiscal years between bond issues increasing the total net available funds to $ 8,946,000 exclusive of any interest earnings on idle funds. While all the financing tools which may be available to the Agency have not been presented, this information provides a general idea of how annual revenues could be capitalized to meet Project imple- mentation costs. Upon the prioritization of a capital improvement program within the Project Area, we will analyze these and other methods of financing in an effort to determine how to maximize the Agency's ability to fund such programs in a timely manner. Please contact our office with any questions you may have. Sincerely,' KATZ, HOLLIS, COREN & ASSOCIATES, INC. Gary G. Jones GGJ:KMB:lsf Enclosures KatzHolli$ Schedule 1 Tustin Redevelopment Agency Town Center Redevelopment Project BONDING CAPACITY OF 1982-8S TAX INCREMENT 1982-83 TAX ALLOCATION BOND ISSUE Incremental Tax Revenues Less: 25% Coverage (1) Net Amount to Size Bond Issue Gross Bond Issue (20 Frs, 12%) Less: 5% Discount Issuance Costs Bond Insurance $(350,000) Sub-Total Less: 1 Year's Debt Service'in Reserve Fund Net Bond Funds Available (150,000) (140,000) $ 1,174,000 (235,000) $ 939.000 $ 7,010,000 (640,000) 6,370,0O0 939,000 5,431,~00_ (1) Funds from coverage factor ass,,med to be retained in reserve trust funds. KatzHollis Schedule 2 Tustin Redevelopment Agency Town Center Redevelopment Project 1982-83 SHORT TERM NOTE TO BE REPAID BY 1985~86 'BOND ISSUE 1982-83 Note Issue (3 year term) Gross Note Issue Less: Issuance Costs 1 Year's Interest Reserve Available For Improvements 1985-86 Bond Issue Incremental Tax Revenues Less: 25% Coverage (1) Net Amount to Size Bond Issue Gross Bond Issue (20 yrs~ 12%) Less: 5% Discount Issuance Costs Bond Insurance I Year's Reserve Note Interest (Year 3) Sub-Total Plus: Note Reserve Net Bond Funds Less: Note Retirement Net Available For Improvements Total Funds Note Issue Funds (Net) Bond Issue Funds (Net) 1983-84 Excess Tax Increment 1984-85 Excess Tax Increment Total Funds Available $ (30,000) $ (420,000) $ (484,000) (15o,ooo) (194,000) (1,296,000) (420,000) $3,500,000 (450,000). $3,050,000 ' $1,620,000 (324,000) $1.296.000 $9,680,000 (2,544,000) $7,136,000 420,000 $7,556,000 L3,5oo,ooo) $4,056,000 $3,050,000 4,056,000 870,000 980,000 $8,956.000 (1) Funds from coverage factor assumed to be retained in reserve trust funds. KatzHollis Schedule 3 Tustin Redevelopment Agency Town Center Redevelopment Project SERIES A AND SERIES B BONDING CAPACITY 1982-83 Series A Bond Issue Incremental Tax Revenues Less: 25% Coverage (1) Net Amount to Size Bond Issue $ 1,174,000 (235,000) $ 939.000 Gross Bond Issue (20 yrs, 12%) Less: 5% Discount Issuance Costs Bond Insurance Sub-Total Less: 1 Year's Debt Service in Reserve Fund $(350,000) (150,000) (140,000) 7,010,000 (640,000) 6,370,000 (939,000) Net Bond Funds Available $ 5.431.000 1986-87 Series B Bond Issue Incremental Tax Revenues Less: 25% Coverage (1) Series A Debt Service Net Amount To Size Bond Issue Gross Bond Issue (20 yrs, 12%) Less: 5% Discount Issuance Costs Bond Insurance $(355,000) (939,000) $(179,00~) (lOO,OOO) (72,OOO) $ 1,773,000 $ 1,294,000 $ 479.000 $ 3,575,000 (351,000) Sub-Total Less: 1 Year's Reserve Net Bond Funds Available $ 3,224,000 (479,000) $ 2.745.000 Total Funds 1982-83 Series A Bond Issue 1983-84 Excess Tax Increment 1984-85 Excess Tax Increment 1985-86 Excess Tax Increment 1986-87 Series B Bond Issue $ 5,431,000 116,000 226,000 446,000 2,745,000 Grand Total Agency Funds $ 8.964.000 (1) Funds from'coverage factor assumed to be retained in reserve trust funds.