19920505 CC SR Repayment of Advances to RDA from City - Loan Agreement between RDA and City FY 1991-92 • 1qoo•
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MEMORANDUM RANCHO PALOS VERDES
TO: Redevelopment Agency Board of Directors
FROM: Mark A. Rohloff, Deputy Executive Director
DATE: May 5, 1992
SUBJECT: Repayment of Advances to RDA from City -
Loan Agreement Between RDA and City - FY 1991-92
RECOMMENDATION
1. Authorize the repayment of $819,956 (in both principal and
interest) in loans made by the City of Rancho Palos Verdes to
the Redevelopment Agency to fund improvements in Abalone Cove.
The above amount will be repaid from County Improvement Bond
proceeds. The net balance on the loans as a result of this
repayment shall be $0.
2. Authorize the Agency Chairman to execute the attached Loan
Agreement between the Redevelopment Agency and the City of
Rancho Palos Verdes to fund Redevelopment Agency activities in
Fiscal Year 1991-92 for the Portuguese Bend RDA Fund. The
proposed loan will fund RDA activities in the amount of
$165,000 in FY 1991-92.
BACKGROUND
On January 29, 1991, the Agency Board entered into a loan agreement
with the City of Rancho Palos Verdes to fund Agency activities in
the Redevelopment area. As the current loan agreement states, the
loan matures concurrently with the close of the fiscal year. The
purpose of this maturity date is so that the loan may be updated on
an annual basis to consolidate loans in previous years with any
repayments or additional loans.
On July 25, 1991, the County of Los Angeles issued $10 million in
County Improvement District Bonds as part of the Horan Settlement.
These funds are now available to fund activities in Abalone Cove.
After setting aside funds for loans made to the Abalone Cove Fund
by the County and the City, and after the set aside of $1 million
to establish a maintenance trust fund, approximately $6.5 million
remains in' the fund. In the case of Portuguese Bend, however, the
RDA does not currently have the resources to fund these projects;
therefore, an additional loan from the City is necessary.
The details on the two separate RDA funds and the City loans made
to them are as follows:
411 110
1991-92 Loan Agreement with City
May 5, 1992
Page 2
Portuguese Bend Fund
When the City of Rancho Palos Verdes adopted its 1991-92 budget,
$150,000 was budgeted to be transferred to the RDA. This amount
was adjusted to $125,000 as a result of mid year budget reductions
by the City. An additional $40,000 is also needed to fund the
repairs to culverts under Upper Narcissa Drive and Sweetbay Road in
the Portuguese Bend Community Association. Although this area is
technically in the vicinity of the Abalone Cove landslide area, the
Landslide Subcommittee recommended that money from the Horan
settlement not be spent for these repairs, and that the repairs be
paid for out of the Portuguese Bend Fund through an additional loan
from the City. The attached loan agreement incorporates all
previous loans made by the City to the Portuguese Bend Fund into
one loan agreement, and includes the additional $165,000 proposed
to be loaned to the Agency for FY 91-92. The total principal
amount loaned to the Portuguese Bend Fund through June 30, 1992,
shall be $1,762,552. With accrued interest, the amount owed by the
Portuguese Bend Fund is $2 ,090,374.
Abalone Cove
As of June 30, 1991, the City had loaned the Redevelopment Agency
$738,859. After reviewing the charges made to the Abalone Cove
Fund from 1987 to 1991, staff identified expenses totalling $39,502
which could be construed as not being eligible for funding with
County Improvement bond proceeds. These expenses include design
costs for the proposed sewer system in Portuguese Bend, assessments
paid to the Abalone Cove Landslide Abatement District, expenses
associated with the RDA's membership in CMANC, legislative services
provided by Del Smith, and construction of the decorative wall by
Wayfarer's Chapel as part of the PV Drive South reconstruction
project. When accrued interest of $120,239 (10% compounded
annually from the dates which funds are advanced up to May 31,
1992) is added to the adjusted principal amount of $699,357, a
total of $819,596 is owed by the Abalone Cove Fund to the City.
Some questions have been raised about the City's 10% interest rate
and whether such a rate is justified when interest rates are as low
as they are at this time. City loans to redevelopment agencies
vary in types and terms from city to city. However, because loans
to RDAs in their early stages are virtually impossible to obtain,
due to the RDA's low initial tax increment, the current commercial
loan market is not necessarily a proper comparison. When the City
made the loans to the Abalone Cove Fund, there was still doubt that
the County Improvement Bonds would ever be issued in the first
place. Had the bonds not been issued, repayment on these loans
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411 110
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1991-92 Loan Agreement with City
May 5, 1992
Page 3
would have been more difficult. The Agency Board may want to
request that the City reduce the interest rate on the loans, or
that the interest be forgiven in part, or in total. Based on
previous agreements, the 10% interest rate is appropriate and
consistent with the rate paid by other redevelopment agencies to
cities which loan them funds.
The $819,596 proposed to be repaid by the RDA is more than the
$400,000 which the City budgeted to be repaid in FY 91-92. At the
time the FY 91-92 budget was being prepared, it was unclear what
funds, if any, would be available to repay the City. It was
acknowledged at the time that staff knew that $400,000 was not the
full amount, and that the fiscal year 90-91 audit would verify the
full amounts owed. With more complete information, the City would
have budgeted the full amount.
Because of the continuous controversy over the loans made to the
Abalone Cove Fund, staff recommends that closure be made on this
matter and that all funds loaned to Abalone Cove be paid in full at
this time, as the Agency had indicated to Judge Chernow when the
loans were initially made. This full repayment is consistent with
County loans made to Abalone Cove which were repaid to the County
out of the initial bond proceeds.
The Abalone Cove loan is to be repaid out of County Improvement
Bond proceeds, which has been the understanding since the City
began making loans to the Abalone Cove Fund. Funds advanced to the
Abalone Cove Fund are eligible for reimbursement to the City, based
on a July 13 , 1990 court order by Judge Eli Chernow which was
agreed to by the City, Redevelopment Agency, the County of Los
Angeles, and the Horan litigants' representative.
Respectfully Submitted, Reviewed:
/e(a&
Mark A. Rohloff Paul D. Bussey
Deputy Executive Director Executive Director
Attachment: Loan Agreement - 1991-92
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