By Jim Christie
SAN FRANCISCO Oct 8 California cities face not
only familiar financial challenges but new ones posed by the
loss of redevelopment agencies at a time of growing concern
about strained budgets.
Three of the state's 482 cities have filed for Chapter 9
bankruptcy protection from creditors this year, raising eyebrows
in the $3.7 trillion U.S. municipal debt market. City officials
are determined to keep the number low but say a law dissolving
redevelopment agencies is complicating their work.
California cities for six decades used redevelopment
agencies to tackle blight and fund housing projects. But they
also hoarded property tax revenue raised within redevelopment
zones, prompting state leaders last year to close some 400 of
the agencies and funnel that revenue to other local agencies
California has been propping up.
Local officials have not forgiven the move. They see it as a
raid on their coffers as local "successor" agencies must pay
redevelopment agency debt with a fraction of tax-increment
revenue that redevelopment agencies once claimed for themselves.
"The state took money from us to deal with their mess and we
got the trickle down," said David White, finance director for
Fairfield's redevelopment agency used to gross $30 million
to $35 million a year in tax-increment money, White said. Now he
expects $4.5 million to $5 million a year of that revenue.
ANGER, PAIN, CONFUSION
Local officials complain they are having to wind down
redevelopment while having to tend to wobbly general funds.
"The pain has been different from city to city, but it's
been very unpalatable," said Chris McKenzie, executive director
of the League of California Cities, which is suing the state
over some provisions of redevelopment's dissolution.
Officials in Atwater, for example, say losing redevelopment
is one reason their city may face Chapter 9 bankruptcy. Last
week they approved a fiscal emergency declaration that could be
used put the Central Valley city of 28,000 on the fast track to
becoming California's fourth city to file for bankruptcy this
year, following Stockton, San Bernardino and Mammoth Lakes.
The law scrapping redevelopment has also raised concerns
about bond payments.
Grover Beach was short of tax increment revenue when the law
took effect, so it tapped bond reserves for a redevelopment debt
payment. The other option was to use general fund dollars, but
that would have risked losing them as the law ruled out such
loans, said Robert Perrault, city manager for Grover Beach.
"If redevelopment had not been eliminated, we would have
felt comfortable using the general fund because we know it would
have been paid back in a matter of months," Perrault said.
Standard & Poor's Ratings Services responded in February to
the draw on the reserves by lowering tax allocation bonds issued
by Grover Beach's development agency to 'BBB' from 'BBB-plus'.
S&P lifted its outlook on the debt to stable in July.
"It's taken a few months to sort all this out," Perrault
said, noting his seaside city of 13,100 made its August
redevelopment debt payment in June and has refilled its reserve.
Tehachapi, population 14,000, also tapped reserves for a
redevelopment debt payment due to a delay in its tax-increment
allocation. "There's been confusion at every level," said City
Manager Greg Garrett.
In Monrovia, the agency taking on the city's redevelopment
agency's work missed an $11.75 million note payment in June. The
debt had been routinely refinanced prior to the law dissolving
redevelopment. The law was, however, unclear as to whether that
could go on so Monrovia held off on the note payment.
"We had to put up a disclosure basically saying we were
going to go into default," said Mark Alvarado, finance director
for the city of 37,000 residents in the foothills of the San
Gabriel Mountains east of Los Angeles.
Legislation has since been approved to allow refinancings
and Monrovia aims to refinance its notes. But it faces another
redevelopment challenge - a lawsuit by a property developer
inherited from its redevelopment agency. Citing the suit, S&P
last month lowered Monrovia to 'BBB-plus' from 'A'.
Nearby Azusa also inherited trouble from its redevelopment
agency as it had loaned money to the agency to buy property. Now
the city of 46,000 residents must sell the properties, and
likely at a loss, said City Manager James Makshanoff.
In response to complaints by local officials, the state
Senate's leader aims to reintroduce a bill that would revive
local tax-increment authority. Governor Jerry Brown recently
vetoed a previous bill, saying he would reconsider it after
tallying savings to the state from redevelopment's dissolution.