Tonight the city council will vote on a staff recommendation that the Council/Davis Redevelopment Agency issue $4 million taxable bonds and up to $12 million in tax-exempt bonds for identified priority projects.
They also have the alternative, which would be to maximize the issuance of bonds, authorizing $16.6 million in bonds.
This action is occurring largely in response to the state threatening to close down Redevelopment Agencies (RDA’s) across the state. Cities like Davis are taking out bonds to protect the assets that they have from raids from the state.
There are both advantages and disadvantages to both approaches. The downside to only issuing bonds for existing projects is that the city would largely be stuck with those existing projects. So those who are opposed to some if not all of the council/ RDA’s spending priorities are put into a tough position.
For instance, there is no project on Olive Drive that would enable to city to actually deal with real blight. Most of the projects take money from South Davis and plug it into the Davis Downtown.
On the other hand, it might be possible to include a project for Olive Drive if the city maximizes its bond debt, but then there are problems and concerns about the city’s ability to service the bond through interest payments.
The upside of not maximizing the bond capacity is that, while it would allow for some continued annual revenue and ongoing flexibility, it would only do so as long as the tax increment revenue is available.
All of this is in response to the Governor’s proposal to eliminate redevelopment agencies. In its response on February 1, the Davis City Council and Redevelopment Agency Board (comprised of the Davis City Councilmembers) “approved an amended Cooperation Agreement confirming the existing obligations and debt of the Redevelopment Agency. The City Council also approved a resolution in opposition to the Governor’s proposal.”
On February 15, the Board gave direction to proceed with the issuance of approximately $9 million in housing and $14 million in nonhousing bonds, for the following priority projects:
Staff adds a few notes to their staff report. First, “the proposed sale of bonds for capital and economic development activities is consistent with the Agency’s financing plans, absent the Governor’s threat to eliminate redevelopment agencies. The borrowing does bear costs of issuance and interest obligations from future tax increment. The Agency’s cap on total tax increment means that borrowing at this time allows better financing terms and less complex financing structure than if the borrowing were deferred.”
Second, however, “staff would not likely be recommending housing bonds without that legislative discussion. As will be further discussed, staff recommends that the housing bonds not be authorized at this time, without draft legislation that would place constraints on future housing set aside obligations.”
They also note, “The recommended documents authorize up to $20 million in non-housing bonds and up to $12 million in housing bonds. Staff does not anticipate that the Agency would be able to borrow this much in the current market. Depending on the final interest rate at the time of sale, proceeds are likely closer to the $9 million in housing and $14-16 million in nonhousing bonds considered on February 15. Tax-exempt bonds would generate more proceeds, but bear much greater restrictions on use of funds.”
Moreover they note that borrowing is expensive. A bond issuance that generates for instance $14 million will require $1.5 million to fund the debt service reserve, and $440 thousand in costs of issuance. In addition, they note, “over half of the $1.5 million dollars per year in debt service would go to interest in the early years.”
“While borrowing is expensive, timely use of the bond proceeds on projects does not positively or negatively impact the expense of bonding. Bond investors do want to see active use of the bond proceeds, expecting activity on identified priority projects within the first five years of bond issuance,” they add.
The Agency has the option of issuing bonds with payments extending through 2037, the last year that tax increment can be collected (under current law).
Staff also recommends that the housing bonds not be authorized at this time, due in part to the fact that we have no idea how affordable housing programs will be treated under the Governor’s proposal, and it remains possible that housing programs would be protected even as the governor limits redevelopment for other functions.
Writes staff, “The high cost of financing, lesser risk of adverse legislative action, and time required to secure land-use entitlements and project matching funds lead staff to conclude that it is premature to issue housing bonds. Should circumstances change, staff would propose to return to the Agency board with the option to approve private placement bonds for the housing set-aside.”
We have also been led to believe there is a provision here that would transfer some of the redevelopment money to schools, though that plan has a good deal of opposition and we have not seen the specifics yet.
Taking the issue in isolation of broader statewide issues, it makes sense for the city to protect its money. It also makes sense not to maximize the bond issuance, given concerns about interest rates.
However, we remain concerned that the current programs appear to have no plan to address truly blighted areas in Davis, and we speak mainly of Olive Drive, but there are other areas of concern as well. Unfortunately, the timing of this proposal and the threat to the RDA means the city can really only respond by protecting current proposals.
—David M. Greenwald reporting
The last time I checked $14 million was real money. It works out to around $600-$700 per Davis household by my back of the envelope calculation. That is on top of tens of millions in unfunded pension liabilities (thousands of dollars per Davis household).
And the CC is just going to whip out a vote before it gets to the main event–adding a new member who we hope is fiscally responsible?
I hope the CC will take its time. Some of these expenses may be worth it, but I seriously doubt that all of them are given that it adds to the cities already very high debt burden.
If the motion has to be tabled, so be it. And can’t each of these be voted on individually or is staff once again running the show? And am I correct that this does not have to be approved by the voters?
Correction: Looks like its $16.6 million (I was in too much of a rush–hope the same will not be said of our CC) –which works out to between $700-$800 per Davis household.
Please City Council members be careful with our money.
” And am I correct that this does not have to be approved by the voters?”
There is no vote requirement on the use of RDA money unless the project falls into the auspices of Measure J/ R.
The fallout from doing away w RDAs altogether is going to be incalculable. My hope is Gov. Brown rethinks this one, and perhaps makes the wiser decision to reform RDAs rather than doing away w them altogether…
So just to clarify: there isn’t a single project in this list that would be in East Davis? So the city council is being asked to lock in bond funding for projects in the downtown, and there will likely be no further funding available for other parts of town.
Unless I’ve misunderstood this (I can’t really parse the agenda attachments), it continues an outrageous inequity, using South Davis taxpayer money to fund projects in the downtown, with no direct benefit to other parts of town.
The council should table this motion. It is, to use a phrase often applied to the water project discussions, being rammed through.
The proposed action clearly demonstrates why RDA money should be removed from the current method of control – not enough adequate planning, review and accountability. I uderstand why the action is happening but when every town in the state does the same thing we (the body of people in California) see our tax dollars wasted on many marginal projects. The major motivation to spend the money is simply to spend the money (ahead of the State) rather than spending it on the best projects – a giant misallocation of resources.
[quote]Most of the projects take money from South Davis and plug it into the Davis Downtown.[/quote]David: My naive understanding of the RDA/Pass Through Agreement scheme was that the RDA intercepted taxes from within its boundaries that would have otherwise gone to the county and diverted them into the RDA. In turn, the city agreed to “make the county whole” with an annual cash payment (to offset their lost tax revenue) in exchange for a contractual commitment that they would not develop within our sphere of influence.
I’m not understanding the mechanics of how South Davis tax revenue is being diverted to Downtown projects — though I’ve heard this analysis from time-to-time in the past.
This is an issue because of my post about the Putah Creek Parkway on your previous thread. It seems to me that if the city is contemplating tying up South Davis money in bonds for projects north of the freeway, then the residents of this part of the city might have a problem with that. For example on the project list posted above, I see no mention of the PCP. In addition, I see Mace Park closeout but no mention of the Walnut Park community pool (which is now almost 10 years behind schedule).
Don Shor: “Unless I’ve misunderstood this (I can’t really parse the agenda attachments), it continues an outrageous inequity, using South Davis taxpayer money to fund projects in the downtown, with no direct benefit to other parts of town.
The council should table this motion. It is, to use a phrase often applied to the water project discussions, being rammed through.”
All the more reason to reform RDAs rather than do away w them altogether… Brown’s plan to abolish RDAs and its ramifications has not been thought through at all…
I notice Pacifico Rehabilitation and New Harmony on the list. Both of these are South Davis affordable housing projects.
New Harmony has not yet been built, and Pacifico is an eyesore on the PCP. In the case of Pacifico, it’s fair to ask why the project has been mismanaged to the point that we need to consider spending tax payer money to rehabilitate it. Pacifico is not very old (certainly less than 15 years), and I don’t think it even falls within the RDA district.
I wonder who was responsible for managing the property?
I notice Pacifico Rehabilitation and New Harmony on the list. Both of these are South Davis affordable housing projects.
What I could not determine was whether those projects would be funded, or whether the “Staff also recommends that the housing bonds not be authorized at this time, due in part to the fact that we have no idea how affordable housing programs will be treated under the Governor’s proposal” means that they would not be funded. Perhaps someone else can clarify this.
[quote]The council should table this motion. It is, to use a phrase often applied to the water project discussions, being rammed through.
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I agree 100%. Especially given that our council will be busy on other matters.
From the staff report:[quote]The Agency reports that it has received $$96.8 million (sic) in cumulative gross tax increment for the Redevelopment Project from fiscal year 1986-87 through fiscal year 2009-10.[/quote]
I am curious, David. You say this bond issue would not have to be voted on. Is this correct? Are you sure they are not Certificates of Participation (COP) ? In order to float a COP, properties would have to be collateralized. If they are COP’s, what properties would the city put up for hock?
I believe the general public is not adequately aware of the process and subsequent responsibilities involved in the issuance of Certificates of Participation (COP) and the extent to which the City of Davis has and/or will use them. COP’s are a very easy and crafty way for the city to circumvent voter approval. In other words, the City of Davis would be allowed to create debt without you or I, the voters having any input in the matter. In turn, this creates long term debt that the current City Counsel promises to pay, but in reality it merely creates another enormous bill that future generations will have to pay off.
craised: ” In turn, this creates long term debt that the current City Counsel promises to pay, but in reality it merely creates another enormous bill that future generations will have to pay off.”
I wondered the same thing. I feel as if, bc of Gov. Brown’s threat to end RDAs, cities are being pushed into making decisions that they do not fully understand the long term ramifications of…
[quote]I wondered the same thing. I feel as if, bc of Gov. Brown’s threat to end RDAs, cities are being pushed into making decisions that they do not fully understand the long term ramifications of…
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I think you are correct.
cities are being pushed into making decisions
Nobody is pushing them.
There are several misstatements of fact presented here, which is causing some panicky blogger comments. For instance,there are at least 2 Olive Drive projects under consideration.
Here are the three pages from the agenda listing the projects:
[url]http://peoplesvanguard.com/RedevelopmentAgencyBondIssue1.jpg[/url]
[url]http://peoplesvanguard.com/RedevelopmentAgencyBondIssue2.jpg[/url]
[url]http://peoplesvanguard.com/RedevelopmentAgencyBondIssue3.jpg[/url]
DS: “Nobody is pushing them.”
Cities are feeling like its “use it or lose it”…