19920527 City Manager Memo to City Council re RDA Loan Repayment to City 1110 1110
MEMORANDUMRANCHO PALOS VERDES
TO: HONORABLE MAYOR & CITY COUNCIL
FROM'. CITY MANAGER
DATE: MAY 27 1992
SUBJECT: RDA LOAN REPAYMENT TO CITY
Recently questions have been raised concerning timing of the
repayments on City loans made to the Redevelopment Agency. The
questions arise in part because there are different repayment
provisions for the three separate types of loans or advances made
to the RDA. These are: City loans for Portuguese Bend, City loans
for Abalone Cove and County loans for Abalone Cove. This issue has
been reviewed and the Staff believes the City's position has been
consistent from the beginning.
The specific issue being raised by some residents in the landslide
area is whether the City should be paid back at this time for its
advances (loans) made against the $10 million bond Horan settlement
or wait until the bond debt is fully paid or secured. This
question appears to be based on the recollections of some residents
that statements were made indicating City debt would be "junior" to
other loan obligations. The attached minutes from the December 19,
1989 RDA meeting are also referenced to further that position. The
minutes read in part; "Another discussion ensued regarding the City
loan to the agency and the fact that it is junior to other loans;
that the City's loan does not get paid until all other Agency debt
is paid or the Agency gets funds from some other sources" .
To understand that statement and put it in proper context, it is
important to understand that the only outstanding City loan to the
Agency as of December 19, 1989 was a loan for work done in the
Portuguese Bend area. The City had no outstanding Abalone Cove
area loans at that time. Lacking any evidence or information to
the contrary and having discussed the matter with various
individuals who were on the RDA Board at that time, staff believes
the minutes could only have been referring to Portuguese Bend loans
- not to Abalone Cove loans.
To my knowledge, there has never been any question that loans for
the Portuguese Bend area would not be paid back immediately and
further that such Portuguese Bend loans could not be repaid from
the $10 million County Bond proceeds. In fact, no repayment for
Portuguese Bend loans has been made nor is any repayment currently
anticipated.
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Loans made on behalf of the Abalone Cove area have, however, always
been made with the assumption that they would be repaid out of the
$10 million County Bond proceeds. Because of the various delays in
carrying out the Horan settlement agreement, both the City and the
County advanced funds in anticipation of the bond money. These
loans were really advances made in expectation that the bond
proceeds were imminent and these were to be very short term loans
from the City's and the County's general funds. Unfortunately the
delays continued for some time, and not only did we not receive the
money in a timely manner, but the lapse of time has also been the
cause of some of the public's confusion over this matter.
The County's $1.5 million loan repayment was reimbursed from the
bond proceeds before forwarding the balance to the RDA. The City
is now requesting that the RDA repay City advances prior to the end
of this fiscal year. This is critical since the 1991-92 budget was
adopted based on the assumption that at least a portion of the
Abalone Cove Loan was to be repaid. Failure to do so will require
the City to cut an equivalent dollar amount of Citywide services
from next year's budget. It is important to understand, however,
that the City's position on this issue is not due to any current
fiscal problems the City may be facing. As the staff understands
it, this has been the City's position from the beginning.
A few final comments about the quoted excerpt from the December 19,
1989 RDA minutes and related matters may be in order. Although
that excerpt from the minutes may have reflected Council policy at
the time as it related to Portuguese Bend loans, it does not
accurately reflect the City's and the RDA's legal obligation under
the Horan settlement agreement.
The Horan agreement requires that only 50.9% of the tax increment
be set aside for County Bond debt service. Under redevelopment
law, an additional 20% must be set aside for low/moderate housing.
However, as the time approached for the County to hold its public
hearing on the formation of the assessment district, the City
Council adopted Resolution 90-24 which stated in part that "all tax
increment necessary to cover County Bond debt service" would be set
aside and reserved. The wording of the resolution still allowed
the RDA to utilize any tax increment above that needed to cover the
projected annual debt service for other legal redevelopment
purposes. As with other City resolutions, the City Council has the
right to amend or rescind that resolution; but at a minimum we
would still be bound by the requirements of the Horan Settlement
agreement as stated at the beginning of this paragraph.
My understanding of the Resolution 90-24 's purpose was to assure
Abalone Cove residents that to the extent possible, County Bond
debt service would be assured through the use of tax increment,
rather than assessment liens, thereby minimizing protests at the
Board of Supervisors ' public hearing on the establishment of the
assessment district. Despite these efforts, there was still a
majority protest to the assessment district resulting in the
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majority protest being overridden by the County Board of
Supervisors. With the establishment of the district, the County
was finally in a position to issue $10 million in bond proceeds,
but before they could do so, two lawsuits were filed against the
establishment of the assessment district in order to eliminate
liensplaced on property within the area. In response to the
lawsuits, the County indicated they were not prepared to move
forward with the issuance of the bonds.
At the request of the City and the Horan plaintiffs, Judge Chernow
then issued an order requiring the County to issue the bonds and
forward the $10 million (less County advances) to the RDA. At that
point the County basically had two choices - comply or appeal the
order. In a compromise solution they agreed to comply subject to
a stipulation by the Redevelopment Agency that the RDA would place
all tax increment necessary to amortize the debt service on the
bonds, in a separate fund. This stipulation must be complied with
until the lawsuit is settled or tried. After that, we will
presumably again be controlled only by the original Horan
settlement requirements or any Council Resolution still on the
books at that time.
Hopefully, the information in this memo will help everyone
understand the events leading up to the issuance of the Bond
proceeds, as well as the City's and the RDA's legal obligations
concerning repayment of debt. I will be happy to review any of
these matters with you or answer any questions you may have.
PDB:bu
c:rdapay.cm