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Home My WebLink AboutRDA SO CENT FINCL RPT 12-06-82~ ~"~' ~" ~m~ _~.~ REDEVELOPMEN'~ AGENCY Dec Inter-Corn TO: FROM: SUBJECT: REDEVELOPMENT AGENCY BILL HUSTON, EXECUTIVE DIRECTOR SOUTH/CENTRAL PROJECT AREA FINANCIAL REPORT RECOMMENDATION: That the Agency direct staff to proceed with the steps required to establish the South/Central Project Area. BACKGROUND: The Redevelopment Agency has previously reviewed the preliminary plan prepared by the Planning Agency for redevelopment of the South/Central Project Area. State redevelopment law provides that the Redevelopment Agency is responsible for preparing a draft redevelopment plan for the area to be considered by the City Council through a public hearing process. The Agency deferred preparation of the South/Central Area Plan until the Agency's financial consultant completed its financial review of the proposed project area. The consultant's financial review is attached to this memorandum. DISCUSSION: The financial feasibility of the South/Central Project Area is dependent upon capturing the increases in assessed valuation projected to occur with proposed new development. Since the major portion of projected tax increment is attributable to projects anticipated to occur within the next two fiscal years, it would be financially prudent to create the project area this fiscal year in order to establish fiscal year 1982-83 as the base year for purposes of computing future tax increment. It should be recognized however, that the initial financial viability of the South/Central Project Area depends upon the projects which as pointed out in the financial report may or may not occur. The financial consultant's report includes a projection of tax increment (Table A) and schedule of development in the South/Central Project Area (Table B). As pointed out in the report, two projects {16620-74 B Street and the Warmington project on Newport Ave.) which have been approved by the City may not be built. Because of that, their combined market value of $25,046,000 has been omitted from Tables A and B. Tables A-1 and B-1 show the effect upon tax increment income assuming these two projects are built. Since redevelopment is a long term process, it can be assumed that economic conditions will eventually improve and that other projects will proceed in the future thereby creating tax increment income. ~The rate at which the Agency can proceed with projects f ~ed with tax increment income will depend upon the pace of development in the South/Central Area. The Town Center Project Area has a more diversified land use and tax base and therefore tax increment income grew at a rate which provides the Agency more flexibility in the scheduling and financing of projects. The scale and pace of redevelopment activities in the South/Central Project Area will necessarily be constrained by less income. In considering creation of the South/Central Project Area the Agency should take into account the following policy issues: Each year 20% of the tax increment income will have to be set-aside in an account for low and moderate cost housing. State law provides that the 20% set-aside can be accumulated and expended outside the project area but within the City. The Agency could provide financial assistance for a particular project or combine the accumulated funds with another program such as the Housing and Community Development Act housing rehabilitation program. The Agency can directly or indirectly participate in providing or rehabilitating low and moderate income housing. The key is that Agency will be obligated by law to expend monies for low and moderate housing. In addition to the 20% set-aside the Agency will be obligated to ensure the replacement of low and moderate income housing within the project area that is destroyed. This would be the case whether or not the Agency is directly involved in a development project. This obligation will require a replacement housing plan to ensure that replacement units are and remain available for low and moderate income persons during the life of the South/Central Project Area. In order to receive tax increment income, the Agency is required by State law to incur debt. Because of the relatively small amount of projected tax increment income, bonding would not be a viable financial tool during the first six years. Other means, such as short term financing or advancing funds from the Town Center Project Area would be preferrable. Staff would recommend that General Fund income not be used to create debt through loans to the South/Central Project Area. Other means, such as those mentioned above and the possibility of the Agency contracting with the City to finance capital improvement projects in the South/Central Area (and thereby creating a debt of the Agency) could be explored. Taxing agencies affected by the loss of potential property tax revenue as a result of tax increment flowing to the Agency are entitled by State law to request that the Agency share its income with them. The Agency is required to determine whether a financial burden will be placed upon another agency as a result of creating a project area and freezing the tax base. However, the Agency has discretion as to whether it will allocate a share of its tax increment income. The burden of showing a financial hardship due to a redevelopment project is upon the agency requesting a share of the tax increment income. KatzHollis December 2, 1982 Mr. William A. Huston City Manager City of Tustin 300 Centennial Way Tustin, California 92680 Dear Mr. Huston: In response to Agency staff's request, a revised six year projection of tax increment for the proposed South/Central Redevelopment Project has been prepared and is enclosed for review. The revised projection reflects a significant reduc- tion in tax increment revenues due to changes in new develop- ment assumptions and allowances for the 20% housing set- aside requirement under the California Redevelopment Law. The initial tax increment projection which was forwarded to the Agency on November 12th indicated that the potential new development identified by Agency staff was in some instances unlikely to occur according to estimated development schedules and, given a continuation of current economic conditions, might not occur at all. In discussions with developers during the course of our analysis, two of the six identified developments were specifically noted as being in a state of uncertainty. They are the proposed Cexton development located at 15520-74 South "B" Street and the proposed Warmington development located at 14881 Newport Avenue. The estimated total market value of these developments is $25,046,000. These developments have been omitted from the revised projections in order to more realistically reflect anticipated development within the proposed redevelopment project area. As previously noted, the California Redevelopment Law requires that all newly adopted redevelopment projects be subject to the reservation or setting aside of 20% of the project's annual tax increment revenues for the purpose of providing low and moderate income housing. The 20% housing set-aside coupled with the adjustment of tax revenues resulting from the changes in the projected developments reduce estimated annual incremen- tal revenues in the first year that the project would receive tax revenues by $252,000, or 71 percent. A bonding capacity computation based on the adjusted tax revenues is enclosed. Tax revenues projected in 1985-86 (fourth year of the project) would support a gross tax alloca- tion bond issue of approximately $1,000,000 and provide the Agency with net bond proceeds of approximately $730,000. KatzHollis Mr. Willi-m A. Huston City of Tustin December 2, 1982 P~ge 2 The analysis, as presented, represents a conservative view of the proposed projects' development potential and tax revenue flow. The ability to fund capital improvements of any magnitude appears limited; however, to the extent that additional new construction takes place beyond that identified within the proposed project area, and/or to the extent that property ownership changes occur,. the revenues to the Agency may be increased beyond those currently shown. If you have further questions or require additional information, please contact our office. Sincerely, KATZ, HOLLIS, COREN & ASSOCIATES, INC. Gary G. Jones Enclosures GGJ/mm I o~o~ ~ O0 O0 O0 O0 ~0 O0 *'-30 ~. 0 KatzHollis Table C Tustin Redevelopment Agency Proposed South/Central Project (Low Estimates) Bonding Capacity of 1985/86 Tax Increment 120282 Incremental Tax Revenues Less: 20% Housing set-aside~ 25% Coverage (1) Net Amount to size Bond Issue $(40,000) (32,000) $199,000 (72,000) $127,000 Gross Bond Issue (20 years, 11%) Less: 3% Discount Issuance cost Bond Insurance Sub-total Less: 1 year's Debt service in Reserve Fund $(30,000) (100,000) (20,000) $1,010,000 (150,000) $860,000 127,000 Net Bond Funds Available $733,000 (1) Funds from coverage factor assumed to be retained in reserve trust J2J2/~2 i.~ lnter-C~m REPAY&~ENT OF COM~iUNITY EE~VEL~ENT AGE~Y LOANS FRO~ THE G~N~.AL FUND VIA 'TELECOPIER ........... City ol ~ ~s ~e ~e by t~ City'. .1GR =~e;D:t 2j2~82