Glendale Redevelopment Agency drives nearly half of city’s FY12 USD 15m deficit – New Coverage

October 9, 2012

by Maryellen Tighe

Glendale reported a USD 15m shortfall for FY12, following a USD 18m shortfall in FY11, nearly half of which was from missed payments by the former Glendale Redevelopment Agency(RDA), said Philip Lanzafame, chief assistant director of community development in Glendale.

“Our city is hurting,” he said. “We’re not close to bankruptcy and the sky falling, but we had to readjust our staffing levels, our service levels to this community.”

The RDA owed the city USD 40m at the end of FY11, more than 80% of which was for the Central Project area, according to the FY11 audited financial report for the former RDA. There is about USD 64.4m of bond debt backed by the Central Project area and USD 30.5m backed by the Town Center project area. The remainder of the RDA’s USD 143.1m in bond debt is covered by both project areas.

The city has no general obligation debt outstanding, according to Glendale’s FY11 Comprehensive Annual Financial Report (CAFR). The city’s FY11 unassigned general fund balance was USD 63.4m, equal to 37.8% of general fund expenditures. The city’s debt burden is below average at 1.7%.

The city is obligated to pay the lease for a USD 64.2m tranche of Series 2000 variable rate demand certificates of participation which mature in 2030. The certificates were rated AA by Fitch in October 2011, AA+ by Standard and Poor’s in December 2011 and Aa2 by Moody’s in April 2010. The certificates reset on a weekly basis, most recently at 0.20% interest on 3 October 2012, down from 0.21% interest on 26 September.

The city will not be repaid soon, as the state will not approve payments to the city prior to receiving a finding of completion, a process which cannot start until fund audits are finished in April 2013, Lanzafame said.

The audits are required by AB 1484, a trailer bill designed to clarify the original AB 26. AB 26 required each RDA to be wound down through a successor agency, often the RDA’s host city, so the state can amass the tax increment revenue the RDAs collected and distribute it to public schools. AB 1484 required cities to submit information for audits of the Low and Moderate Income Housing Fund, which is funded by up to 20% of the tax increment, on 1 October. The general RDA fund audit will be complete 1 April, according to the California Department of Finance (DOF) website.

“(They) killed redevelopment in (AB) 26, and in (AB) 1484 they’re asking ‘How do I strip the body of its possessions?’” said Larry Kosmont, president and CEO of consulting firm Kosmont Companies, which has worked with Glendale.

Even after the audits, a maximum of half of any Recognized Obligation Payment Schedule (ROPS) payment can go to Glendale, which will not receive enough to make a dent until bonds have been paid off, Lanzafame said. The city never will be “back to the repayment schedule that (we) had anticipated.”

‘Picking of the carcass’

Many cities are running a deficit without their RDA funding, Kosmont said. AB 26 limits funding of administrative costs by tax increment in FY13 to 3% of property taxes or USD 250,000, whichever is higher.

“Most cities were using between 15% and 20% of their annual tax increment for administrative activities,” Kosmont said. “Cities that had prolific redevelopment programs, like Glendale, lost the administrative money.”

The city

could have faced additional fees from a property transfer between the RDA and the city which occurred prior to the RDAs dissolution, Lanzafame said. 2

“if we were to hang on to a piece of property that was transferred to us by the RDA… you take the value of that property and you deduct a like amount from the amount you would receive” from the ROPS, a itemized list of bills to be paid by the former RDA, Lanzafame said. “Therefore we would come up short and the city would have to backfill” pass-through, bond and other payments.

The former RDA transferred three properties to the city in order to protect them for local ownership, Lanzafame said. The city does not have the money to backfill costs that used to be covered by the RDA and paying for the property would result in constituents paying for each parcel twice.

Glendale will make a property management plan after the audit process is complete, Kosmont said, which will also have to be approved by the DOF. The city will be able to keep properties it can prove are for public use, such as city hall, park space, or properties that have an approved redevelopment plan.

“Any of the properties that you now own have to be described by values and put up for sale unless they fit in to one of two categories,” Kosmont said. “The final picking of the carcass is going to be the real estate assets.”

Even if the city’s property is approved for further redevelopment work, it may be hard to sign contracts with private companies, Lanzafame said.

“One of the real issues that we have is, on let’s say ROPS II (July to December 2012) we submitted and the DOF looked at it and they said agreement XYZ is an enforceable obligation… but we reserve the right to review that in ROPS III (January to June 2013),” where it may not be an enforceable obligation, Lanzafame said. “Aside from the potential litigation, or circumstances for litigation that that provides, you cannot have any certainty… (projects are) not done in six months, they go over years time. So it’s very difficult to say, ‘Guys, I don’t know because in the next six months they could say no to this.’”

The three properties transferred by the city include two leases, one to a hotel owner and a ground lease with a nonprofit museum, Lanzafame said. The third is a project the city is looking to work with private partners in order to develop and share revenues going forward.