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RESOLUTION APPROVING SERAF LOAN REPAYMENT SCHEDULES, AND FINDING THAT LOAN AGREEMENTS BETWEEN THE FORMER REDEVELOPMENT AGENCY AND THE CITY OF STOCKTON WERE ENTERED INTO FOR LEGITIMATE REDEVELOPMENT PURPOSES AND ARE ENFORCEABLE OBLIGATIONS
recommended action
RECOMMENDATION
It is recommended that the Stockton Successor Agency Oversight Board (“Oversight Board”) adopt resolutions:
1. Approving repayment schedules for the Low and Moderate Income Housing Fund loans to the former Redevelopment Agency of the City of Stockton (“former Agency”) for the purposes of the Supplemental Educational Revenue Augmentation Fund (“SERAF”); and
2. Approving finding that loan agreements between the former Agency and the City were entered into for legitimate redevelopment purposes and are enforceable obligations (Exhibit 1 to the Resolution - City Loans); and
3. Authorizing the Executive Director or his designee to take actions that are necessary and appropriate to carry out the purpose and intent of these resolutions.
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Summary
Legislation that dissolved redevelopment agencies, Assembly Bills AB x1 26 and 1484 (collectively, the “Dissolution Law”), prescribes the procedures to be followed for winding down the former redevelopment agency’s affairs. The Dissolution Law provides that after a successor agency receives a Finding of Completion from the California Department of Finance, loans from the City to former Agency are enforceable obligations if the Oversight Board makes a finding that the loans were for legitimate redevelopment purposes.
If the Oversight Board finds that the loans were for legitimate redevelopment purposes, they may be placed on the Recognized Obligation Payment Schedule (“ROPS”) as an enforceable obligation. Dissolution Law requires that interest be recalculated, limits the maximum payment amounts, and deducts twenty percent (20%) of the loan payment and transfers it to the Low and Moderate Income Housing Fund. Outstanding loans from the Low and Moderate Income Housing Fund for purposes of the Supplemental Educational Revenue Augmentation Fund (“SERAF”) must be repaid prior to any City loan repayments.
In 2009, Assembly Bill 26 4x shifted $2.05 billion in tax increment from redevelopment agencies to meet the State’s Proposition 98 funding obligation to schools. The former Agency’s portion was $11 million. In 2010, the former Agency paid $9.2 million with taxable bond proceeds, and in 2011, borrowed $1.9 million from its Low and Moderate Income Housing Fund to make the final payment. The SERAF loan payments were listed on the ROPS 15-16B which covers January 1, 2016 through June 30, 2016. The ROPS was approved by the Oversight Board and submitted to the State Department of Finance (“DOF”) on September 23, 2015. The DOF has requested a resolution by the Oversight Board approving repayment terms for the SERAF loans. If ROPS 15-16B is approved by the DOF and payments are made on the SERAF loans as scheduled, the balance of the loans will decrease from $1.9 million to $710,665.
The Successor Agency to the former Agency (“Successor Agency”) received a finding of completion on October 30, 2014, has requested funding to make payments on its SERAF loans, and now requests the Oversight Board to make a finding that the City loans to the former Agency were for legitimate redevelopment purposes. Funding for the balance of the SERAF loans and funding for repayment of the City loans will be requested on the next and subsequent ROPS until the debt is retired. The next ROPS will be presented to the Successor Agency and the Oversight Board for approval in February 2016.
DISCUSSION
Background
As allowed by the Dissolution Law, the City elected to become the Successor Agency (Attachment A - Resolution 11-0251) which took effect on February 1, 2012. The Successor Agency is responsible for winding down the affairs and paying obligations of the former Redevelopment Agency. The Oversight Board was established and is responsible for approving or directing the actions of the Successor Agency. Oversight Board actions are subject to a review by the Department of Finance.
Changes to the Dissolution Law, effective September 22, 2015, extended the term of this Board through June 30, 2018. On July 1, 2018, only one Oversight Board will be appointed to oversee all successor agencies within the County.
The Successor Agency is required to list all payment obligations on a semi-annual ROPS which must be approved by the Oversight Board, then submitted to County and State Offices. The Department of Finance must approve the ROPS before Redevelopment Property Tax Trust Funds (“RPTTF” - formerly tax increment) is distributed to the Successor Agency for payment of those obligations. Dissolution Law prohibited loans to the former Agency from its sponsoring City from being listed on a ROPS for payment until a Finding of Completion was issued by the Department of Finance. To obtain a Finding of Completion, the Successor Agency submitted Due Diligence Reviews of the Redevelopment Agency funds and the Low-Moderate Income Housing fund financials to the Department of Finance, and a Finding of Completion was received on October 30, 2014.
Before payments may be made on the City loans, the Oversight Board must find that the loans were for legitimate redevelopment purposes, and the Successor Agency must repay any outstanding loans owed to the Low and Moderate Income Housing Fund for the purposes of SERAF before making payments on the City loans. The Successor Agency requested funds for the SERAF loans on ROPS 15-16B and submitted it to the DOF on September 23, 2015.
Present Situation
The DOF has requested a resolution from the Oversight Board approving the terms of the SERAF loans. Since the repayment is restricted to the formula outlined in the Dissolution Law, the DOF has stated it would not oppose a repayment schedule that indicated the repayment amount for each fiscal year will be equal to the maximum amount allowed pursuant to HSC section 34176 (e)(6)(B). This HSC Section requires that the SERAF loans are repaid prior to the City loans, and the amount of loan repayments cannot exceed fifty percent (50%) of the increase in the amount of residual RPTTF that was distributed to the taxing entities from the base year of 2012-13. The Successor Agency’ residual RPTTF in Fiscal Year 2015-16 was $2.4 million. This amount was withheld by the County Auditor-Controller’s Office and distributed to taxing entities. Since there was no residual RPTTF in the 2012-13 base year fifty percent (50%) of the increase is $1.2 million.
Staff requests that the Oversight Board approve the payment terms for the SERAF loans, approves terms for the City loans, and find that the City loans attached as Exhibit 1 to the Resolution were issued for legitimate redevelopment purposes. Redevelopment purposes is not defined in the Dissolution Law, but is defined in other sections of the California Health and Safety Code (“HSC”). Redevelopment was a process created by State law to assist local governments in revitalizing neighborhoods and improving deteriorated areas, and it facilitated public improvements and development. HSC sections 33020 and 33021 provides a brief definition of redevelopment:
33020. “Redevelopment” means the planning, development, re-planning, redesign, clearance, reconstruction, or rehabilitation, or any combination of these, of all or part of a survey area, and the provision of those residential, commercial, industrial, public, or other structures or spaces as may be appropriate or necessary in the interest of the general welfare, including recreational and other facilities incidental or appurtenant to them…
33021. Redevelopment includes:
(a) The alteration, improvement, modernization, reconstruction, or rehabilitation, or any combination of these, of existing structures in a project area.
(b) Provision for open-space types of use, such as streets and other public grounds and space around buildings, and public or private buildings, structures and improvements, and improvements of public or private recreation areas and other public grounds.
(c) The re-planning or redesign or original development of undeveloped areas…
California Redevelopment Law required agencies to incur debt in order to receive tax increment. This tax increment financing provided funds for the agency to administer and carry out its redevelopment activities. This State Law allowed the agency to receive tax increment until its debt obligations were paid.
If the Oversight Board finds that the City loans were for legitimate redevelopment purposes, the Successor Agency will request the maximum amount of funding allowed under Dissolution Law for the SERAF loans and the City loans. The repayment amount for each fiscal year will be equal to the maximum amount allowed under the Dissolution Law. The City loans were provided for various redevelopment projects, ranging from the planning and establishment of project areas to the development of the waterfront in downtown Stockton. Exhibit 1 to the City Loans resolution provides a brief description of the purpose of the loans. Examples include the establishment of the Eastland and North Stockton Project Areas, the McKinley Neighborhood Redevelopment Project in the 1980’s, land acquisition for the Waterfront Warehouse and Cineplex projects, and renovation of the Fox (Bob Hope) Theatre and Hotel Stockton.
The Successor Agency requested initial payments of $1.2 million for the SERAF loans on ROPS 15-16B. DOF began its review and is requesting resolution by the Oversight Board to approve the SERAF repayment terms. The terms cannot be set in years or dollar amounts due to the formulas prescribed in the Dissolution Law. Therefore, the SERAF repayment terms will be for the maximum amount allowed each year for an initial term of five years. The current SERAF loans principal balance is $1.9 million and will be approximately $711,000 after the payment requested on ROPS 15-16B.
After the SERAF loans are repaid, repayment terms of the City loans will also be for the maximum amount allowed each year, in accordance with HSC Section 34191 (b)(3)(a), for an initial term of thirty five (35) years. The interest on the remaining principal loan amounts must be recalculated from the date the loan was approved by the former Agency on a quarterly basis, at a simple interest rate of three percent (3%). As of June 30, 2015, accumulated interest on the City loans totaled $112 million. Under the new calculation, the City will lose over $107 million in accumulated interest. The recalculated interest as of September 30, 2015 is now $4.7 million. The City loans principal balance is $32.8 million. In addition to the interest reduction, twenty percent (20%) of the City loan repayments must be deducted and transferred to the Low and Moderate Income Housing fund to be used for affordable housing purposes.
FINANCIAL SUMMARY
The Oversight Board must approve repayment terms for the SERAF loans and find that the City loans were for legitimate redevelopment purposes in order for the Successor Agency to include the payments on the ROPS. Funding requests will be for the maximum amount allowed under Dissolution Law. The SERAF loans will be for an initial term of five (5) years and the City loans will be for an initial term of thirty-five (35) years. Payments will be repaid to the funds as indicated on Exhibit 1 to the Resolution until the loans are repaid in full.
Attachment A - Resolution 11-0251