RPVCCA_SA_SR_2013_12_03_C_RDA_Dissolution_Status_&_UpdateCITY OF
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
REVIEWED:
Staff Coordinator:
HONORABLE CHAIR AND MEMBERS OF THE BOARD OF
DIRECTORS OF THE SUCCESSOR AGENCY TO THE RANCHO
PALOS VERDES REDEVELOPMENT A~CY
DENNIS McLEAN, FINANCE OFFICER ~
DECEMBER 3, 2013
REDEVELOPMENT DISSOLUTION STATUS AND UPDATE
CAROLYN LEHR, EXECUTIVE DIRECTOR Q.9_
Kathryn Downs, Deputy Director of Finance & Information
Technology lCe0
RECOMMENDATION
Receive and file this report.
BACKGROUND AND DISCUSSION
Dissolution Status
Since the former Redevelopment Agency (RDA) was dissolved on January 31, 2012, the
following steps have been completed to wind down the business of redevelopment.
1. The City elected to become the Successor Agency to the RDA, with the City Council
serving as the Successor Agency Board.
2. The Successor Agency Board adopted an Enforceable Obligation Payment
Schedule.
3. The City and Successor Agency adopted a Cooperative Agreement for Successor
Agency administration.
4. An Oversight Board was created, with seven Members appointed by the various
taxing entities they represent.
5. The City elected to assume the housing function and assets.
6. Surplus cash has been remitted to the county for distribution to the taxing entities.
7. Various financial review procedures have been completed.
8. A Long-Range Property Management Plan was adopted by the Successor Agency
Board and approved by the Oversight Board.
SA C-1
REDEVELOPMENT DISSOLUTION STATUS AND UPDATE
December 3, 2013
Page 2 of 3
The steps of dissolution that have not yet been completed follow.
1. Obtain an Oversight Board finding that the City's consolidated loan to the former
RDA was made for legitimate redevelopment purposes.
2. Transfer land to the City after the Long-Range Property Management Plan is
approved by the state (perhaps as soon as 2014).
3. Continued disposition of the Portuguese Bend Club Homeowners' Association note
receivable (balance of $159,940 at June 30, 2013 with payoff expected August
2016).
4. Ongoing repayment of the former RDA's debt to the county using proceeds from the
Redevelopment Property Tax Trust Fund (payoff is expected in 2027 per the bond
debt service schedule).
5. Repayment of the former RDA's debt to the City (may begin in FY14-15).
City's Consolidated Loan
The Oversight Board is expected to meet on December 11, 2013 to consider making a
finding that the City's Consolidated Loan to the former RDA was made for legitimate
redevelopment purposes. If the Oversight Board makes the finding on December 11th, it
will become effective on December 1 ath if the state does not request a review. If the state
requests a review, it will have until January 27, 2014 to approve the Oversight Board's
finding or return it to the Oversight Board for reconsideration. Once approval of the City's
Consolidated Loan (including repayment terms) is received from the state, repayment may
begin during FY14-15.
Prior to dissolution, the City's Consolidated Loan accrued interest at a rate equal to the
Local Agency Investment Fund (LAIF) earnings rate plus three percent. Had dissolution
not occurred, the balance of the City's Consolidated Loan at June 30, 2013 would have
been $19,927,238, including $6,742,776 of principal and $13, 184,462 of accrued interest.
Since its inception in 1990, the Consolidated Loan has appeared on the General Fund
financial statements as an asset, offset by a liability for the accrued interest and a
reservation of fund balance for the principal, with a net value of $0 in the General Fund
Reserve. Repayment of the City's Consolidated Loan has never been included in the
annual budget or the Five-Year Financial Model.
If the City's Consolidated Loan becomes an enforceable obligation (via state approval, as
discussed above), dissolution law requires the City's Consolidated Loan to be restructured
with terms outlined in California Health and Safety Code Section 34191.4(b )(2).
"If the oversight board finds that the loan is an enforceable obligation, the accumulated
interest on the remaining principal amount of the loan shall be recalculated from origination
at the interest rate earned by funds deposited into the Local Agency Investment Fund. The
loan shall be repaid to the city, county, or city and county in accordance with a defined
schedule over a reasonable term of years at an interest rate not to exceed the interest rate
earned by funds deposited into the Local Agency Investment Fund."
There appears to be a discrepancy between the state and many local government finance
officers regarding the interpretation of this statute.
SA C-2
REDEVELOPMENT DISSOLUTION STATUS AND UPDATE
December 3, 2013
Page 3 of 3
Based on information from Successor Agency counsel, the City's former independent
auditors, and its own professional opinion and interpretation of the statute, Staff has taken
the position that the City's Consolidated Loan should be restructured to a balance of
$12,058,578 at June 30, 2013; including $6,742,776 of principal and. $5,315,802 of
accrued interest, retroactively recalculated using historical LAIF earnings rates since
inception of the loan.
The California Department of Finance (DOF) has taken the position on its website that the
loan should be restructured using the LAIF earnings rate for the quarter during which the
Oversight Board makes its finding, applied to the entire life of the loan. Using the DOF
interpretation, if the Oversight Board makes its finding on December 11th, the LAIF rate for
the quarter ended December 31, 2013 (perhaps about 0.26%) would be used to
retroactively recalculate accrued interest over the entire life of the loan; resulting in an
estimated restructured balance of approximately $7,050,000, including $6,742,776 of
principal and only about $307,000 of accrued interest. The DOF position has not yet been
tested.
Prior to issuance of the June 30, 2013 financial statements, the City's current independent
auditor and Staff will work together to determine the appropriate financial statement
disclosure for the City's Consolidated Loan. Staff expects the June 30, 2013 financial
statements will be issued by January 31, 2014.
At this time, it is unclear how much property tax (former tax increment) may become
available for repayment of the City's Consolidated Loan, and on what schedule. As a result
of a lawsuit, the former RDA entered into a Settlement Agreement with the county in 1987,
and subsequently entered into a Memorandum of Understanding (MOU) with the county in
1997. The Settlement Agreement and the MOU have terms that create conflicts with
dissolution law, and it is unclear how those terms will be applied to distribution of property
tax in the future.
Debt to the County
The former RDA's debt to the county included 1997 Tax Allocation Bonds of $5,455,000
and Deferred Interest Debt of $3, 111,400. The June 30, 2013 balances outstanding on the
debt to the county is $4,945,000 for the 1997 Tax Allocation Bonds and $62,294 for the
Deferred Interest Debt. Staff expects that the Deferred Interest Debt will be paid off on
December 3, 2013 (coincidentally the same date as this staff report). Once the Deferred
Interest Debt is retired, the county's proposed application of the terms of the Settlement
Agreement and MOU will likely become clear; and Staff and the Successor Agency's legal
counsel will have a better idea of how much property tax the county anticipates may
become available to repay the City's Consolidated Loan, as well as the Successor
Agency's next steps.
SA C-3