TITLE
Recommendation to declare ordinance determining it will comply with the Voluntary Alternative Redevelopment Program pursuant to Part 1.9 of Division 24 of the California Health and Safety Code in order to permit the continued existence and operation of the Redevelopment Agency of the City of Long Beach, California; declaring the urgency thereof; and declaring that this ordinance shall take effect immediately, read and adopted as read. (Ordinance No. ORD-11-0016) (Citywide)
DISCUSSION
On June 29, 2011, Governor Jerry Brown signed the California State Budget, including Assembly Bills 1X 26 and 1X 27 (ABX 26 and ABX 27). These two bills went into immediate effect, significantly modifying the California Community Redevelopment Law.
ABX 26
ABX 26 suspends all new redevelopment activities by restricting redevelopment agencies' authority to incur new debt by adopting new or modifying existing obligations, to dispose of or acquire assets, or to prepare environmental impact reports, among other activities. ABX 26 also prescribes the steps redevelopment agencies must follow to wind down their activities in anticipation of their dissolution as of October 1, 2011, including preparation of an enforceable obligations schedule. (An enforceable obligation is generally defined as debt service on bonds or a third-party contract.) ABX 26 specifically excludes loan agreements and asset transfers between the City and the Agency as enforceable obligations, thereby voiding such agreements. After October 1, 2011, successor agencies and oversight boards would commence the redistribution of redevelopment agencies' assets.
ABX 27
ABX 27 establishes an alternative voluntary redevelopment program (Voluntary Program) that exempts participating redevelopment agencies from the provisions of ABX 26, including nullification of City and Agency agreements. To participate in the Voluntary Program, the legislative body of the community (e.g., the Long Beach City Council) must enact an ordinance by October 2011, committing the City to pay a certain amount of money into a Special District Allocation Fund (SDAF) and the Educational Revenue Augmentation Fund (ERAF) on an annual basis starting in Fiscal Year 2011-2012 (FY 12).
The Voluntary Program payment is determined by the California Department of Finance (DOF) based on a statewide formula of financial data reported by redevelopment agencies for the State Controller's FY 09 annual report. The State's formula is based on generating $1.7 billion for FY 12 and $400 million or more in subsequent fiscal years. By August 1, 2011, the DOF will notify the City of the exact voluntary payment amount for FY 12. Current estimates place that payment at approximately $34 million for FY 12 and $8 million annually thereafter, starting in FY 13. Payments after FY 12 may increase or decrease as the ratio of annual bond debt service obligations to annual tax increment revenue fluctuates amongst redevelopment agencies statewide. In addition, if the Agency issues new bonded indebtedness after November 1, 2012, it will be required to increase its pass-through payments to school districts annually thereafter. The Voluntary Program payments are due in two equal installments on January 15 and May 15 of each year.
Despite the considerable financial constraints being placed on the Agency and its use of tax increment, and despite the challenges being mounted as to the constitutionality of ABX 26 and ABX 27, in order to retain the City's most successful revitalization tool, participation in the Voluntary Program is recommended under protest. Redevelopment projects have created market-rate housing, affordable housing, office space, manufacturing facilities, and retail services in underserved areas. Redevelopment activities have assisted public safety through the construction of the North and West police stations, Fire Station #12, and the installation of surveillance cameras. Redevelopment has contributed to the reduction of crime through the acquisition of nuisance properties and participation in the City's graffiti program. Redevelopment has also helped increase public safety by providing facilities to keep young people engaged, such as Mark Twain Library, Orizaba Park, Seaside Park, Davenport Park, and Admiral Kidd Park and Teen Center. During the period from 2002 through 2010, the Agency spent more than $148 million on public facilities and improvements.
Pursuant to ABX 27, the City may enter into an agreement with the Agency whereby the Agency agrees to transfer a portion of its tax increment to the City, in an amount not to exceed the annual remittance required that year. The purpose of the agreement is to provide for the transfer of funds by the Agency to the City in an amount sufficient for the City to make the required remittances to the County Auditor-Controller. It is recommended the City Council authorize the City Manager to execute such a Remittance Agreement with the Agency and to take the actions necessary to facilitate the Agency's participation in the Voluntary Program. The intent of the agreement is to rely on Agency funds to make the Voluntary Program payment.
ABX 27 allows agencies to use their FY 12 Low and Moderate Income Housing Set-Aside (Housing Set-Aside) allocation for the Voluntary Program payment, if findings are made that there are insufficient other moneys to make the payment. The necessary findings will be made by the Agency, if it is reestablished, in September. It is recommended that this option be utilized to assist the City in making the FY 12 payment. It is also recommended that the agreement between the Agency and the Long Beach Housing Development Company be amended to defer the FY 12 Supplemental Educational Revenue Augmentation Fund (SERAF) loan repayment. This will allow an additional $4.1 million to be committed to the FY 12 SDAF payment. The remainder of the FY 12 payment would come from the deferral of projects in all redevelopment project areas.
The proposed apportionment of the Voluntary Program payment, based on the estimated Voluntary Program payment and projected Housing Set-Aside, is set forth below. It should be noted that the actual apportionment may be revised once the Agency readopts its FY 12 budget and determines which projects are eligible to proceed.
|
- |
Central |
$ 1,270,000 |
|
- |
Downtown |
2,530,000 |
|
- |
North |
6,500,000 |
|
- |
WLBI |
1,250,000 |
|
- |
Poly High |
4,065 |
|
- |
Housing Set-Aside |
18,391,731 |
|
- |
Deferred SERAF Loan |
4,180,470 |
|
|
Repayment |
|
|
|
TOTAL |
$34,126,266 |
In addition to committing to make the Voluntary Program payment, the attached Ordinance provides that while the City will comply with ABX 27, it reserves the right of the City and the Agency to challenge the validity of ABX 26 and ABX 27.
This letter was reviewed by Chief Assistant City Attorney Heather A. Mahood on July 26, 2011 and by Budget Management Officer Victoria Bell on July 25, 2011.
TIMING CONSIDERATIONS
City Council action is requested on August 9, 2011, in order to exempt the Agency from the onerous provisions of ABX 26 as soon as possible. The Ordinance is an emergency ordinance and would go into immediate effect upon the second reading; however, to meet the requirements of the City Charter, reestablishment of the Agency would not occur until thirty days after the second reading.
FISCAL IMPACT
In addition to abolishing redevelopment agencies, ABX 26 abolishes the concept of tax increment. Tax increment revenues that would have been allocated to redevelopment agencies will instead be treated as general property tax revenue, which will be allocated to successor agencies to pay enforceable obligations, and then to cities, counties, schools, and special districts in accordance with existing property tax allocations. The following table presents the estimated net property tax allocation to the General Fund under ABX 26.
Estimated Net Property Tax Allocation Under ABX 26 |
|
FY 12 |
|
FY 13 |
Revenue Distribution |
|
|
|
Projected Gross Tax Increment |
91,958,000 |
|
94,835,000 |
|
|
|
|
Less Enforceable Obligations |
|
|
|
Debt Service on Bonds |
(29,242,000) |
|
(29,068,340) |
LBHDC SERAF Loan Payment |
(4,180,000) |
|
(4,180,000) |
Third-party Contracts |
TBD |
|
TBD |
Net Property Tax for Allocation |
58,536,000 |
|
60,760,875 |
|
|
|
|
Net Property Tax Allocation |
|
|
|
Non-City Districts (78.3%) |
45,834,688 |
|
48,222,355 |
City (21.7%) |
12,702,312 |
|
13,364,305 |
|
|
|
|
As the above table shows, if the Agency is dissolved under ABX 26, approximately $58 million in "net" property tax revenue would be available for allocation to cities, counties, schools, and special districts next year. This estimate reflects an upper limit of the revenues that would be available for allocation because the Agency has enforceable obligations it must fulfill, such as construction contracts for the North Fire Station and the Westside storm drain improvements, and a commitment to fund off-site improvements for the new State courthouse. In addition, administrative costs for both the successor agency and the county auditor-controller, which are allowed under ABX 26, have not been included in the above estimate. The City would receive approximately 21.7 percent of each tax dollar remaining after the enforceable obligations have been paid, or an estimated $12.7 million in FY 12.
While the estimated property tax allocation under ABX 26 may be $12.7 million, the net fiscal impact is considerably less. As previously mentioned, agreements between the Agency and the City would not be considered enforceable obligations, and are invalidated by ABX 26. As a result, the General Fund will no longer benefit from annual Agency loan repayments, the payment of the CityPlace garage debt service, and support of redevelopment activities implemented by other City departments, such as targeted code enforcement, graffiti abatement, and current pass-through payments which have
already been budgeted. After all of the Agency's assistance to the City is taken into account, the net funds available in FY 12 are estimated to be less than $729,000.
Estimated Net Fiscal Impact |
|
FY 12 |
|
FY 13 |
Property Tax Allocation |
12,702,312 |
|
13,364,305 |
|
|
|
|
Less Current Tax Increment Payments |
|
|
|
Tax Increment Pass-through |
(2,930,165) |
|
(3,073,790) |
City Loan Repayment |
(3,063,280) |
|
(800,000) |
Budgeted Support for GP and other City Funds |
(5,980,000) |
|
(6,099,600) |
Net Fiscal Impact |
728,867 |
|
3,390,915 |
|
|
|
|
There are two caveats to the estimated net fiscal impact that should be noted. First, it does not reflect the allocation of Redevelopment Agency carryover funds, estimated at $66.6 million in the FY 12 budget. Under ABX 26, carryover balances would be allocated in the same manner as current tax increment revenues. However, it is unclear at this time how much would actually be available for allocation since a number of Agency obligations under third-party agreements are tied to these carryover funds, which also includes bond proceeds already earmarked for public improvement projects, such as the East Police Station and North Library.
Second, the estimate does not take into account proceeds from the sale of former Agency assets. Under ABX 26, the successor agency is required to expeditiously dispose of assets and properties of the former redevelopment agency in a manner that maximizes their value. All proceeds from the disposition of such assets will be allocated like the property tax revenue described above. The market value of the Agency's real estate assets is presently unknown. While not factored into this analysis, carryover funds and proceeds from the sale of Agency assets could result in an additional one-time allocation of property tax revenues. As such, the estimates presented in this analysis should be interpreted as the annual ongoing fiscal impact.
Lastly, over time, the City would not be able to collect the full amount of debt repayment that is due pursuant to its agreement with the Agency. The current outstanding principal amount is $119 million with an additional $51 million in interest. Under the agreement, this debt is repaid upon the conclusion of individual project areas, thereby ensuring continued revenue to the City in the form of debt repayment for future years. It is also unknown whether the City would be able to retain the rights to debt repayment if the Agency is abolished.
For all the reasons above, it is unlikely the City will reap significant financial benefits from the dissolution of the Agency. Aside from direct financial support to the General Fund, the City would no longer benefit from direct investment in economically challenged neighborhoods. It is, therefore, respectfully requested that the Agency be allowed to continue its mission of eliminating blight, improving neighborhoods, promoting economic development and enhancing the quality of life for residents, businesses and community stakeholders.
SUGGESTED ACTION
Approve recommendation.
BODY
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF LONG BEACH, DETERMINING IT WILL COMPLY WITH THE VOLUNTARY ALTERNATIVE REDEVELOPMENT PROGRAM PURSUANT TO PART 1.9 OF DIVISION 24 OF THE CALIFORNIA HEALTH AND SAFETY CODE IN ORDER TO PERMIT THE CONTINUED EXISTENCE AND OPERATION OF THE REDEVELOPMENT AGENCY OF THE CITY OF LONG BEACH, CALIFORNIA; DECLARING THE URGENCY THEREOF; AND DECLARING THAT THIS ORDINANCE SHALL TAKE EFFECT IMMEDIATELY
Respectfully Submitted,
AMY J. BODEK, AICP
DIRECTOR OF DEVELOPMENT SERVICES
APPROVED:
PATRICK H. WEST
CITY MANAGER