City Council and Redevelopment Agency Meeting: April 8, 2008
Agenda Item: 8-B
To: Mayor and City Council
Chairperson and Redevelopment Agency
Subject: Redevelopment Priorities
Staff recommends that the City Council and Redevelopment Agency confirm its funding priorities and direct staff to prepare the necessary budget actions to move the priorities forward in an expeditious manner.
On April 24, 2007, the Agency held a mid-term review of its Five-Year Implementation Plan and conceptually approved long-term priorities for Agency funding. This report provides an update on the capital programs identified in the long-term priorities and recommends that the necessary organizational infrastructure to move the capital programs forward, including staff, be funded by the Agency. In addition, this report discusses the potential opportunities to implement and finance the unfunded capital improvement programs and projects both in terms of the Agency’s programs as outlined in the Agency’s current Implementation Plan, through 2008-09 and the future leveraging of Agency tax increment as the Agency develops its Implementation Plan covering the next five years from 2009-10 through 2013-14.
Within the Earthquake Recovery Redevelopment Project Area, the Agency’s largest project area, tax increment funds can be collected through 2042. While the Agency is able to collect tax increment through 2042, it must issue or commit all debt obligations by 2014. As a result, it is imperative that within the next six years the Agency identify capital programs and their associated costs in order to create obligations for those projects. The Agency’s debt capacity must be analyzed and the capital programs including conceptual designs, cost estimates and implementation schedules must be defined. In addition, staff has determined that Agency funds on a “Pay-As-You-Go” basis are adequate through 2008-09 to move capital projects forward to the next phase. The initial cost associated with the organizational capacity as discussed below is anticipated to be approximately $1 million which represents approximately 4.4 percent of the total tax increment available to the Agency for eligible capital projects through 2008-09. At this time these costs are expected to include a project planner in Community and Cultural Services for park development, four positions in Engineering for project development and management for various Redevelopment funded projects, and four positions in Planning and Community Development to provide the services needed to develop and go forward with the various projects (includes traffic engineer position funded in FY2007-08). While these costs will increase over time due to inflationary factors, these increases are not expected to exceed the long-term growth rate for Agency tax increment.
Long-Term Considerations and Priorities for Agency Resources
At its April 24, 2007 meeting, the Agency conceptually approved a list of long-term capital priorities for Agency funds. This is included as Attachment A. The list was developed to support Council’s long-term priorities by reviewing the City’s list of unfunded capital improvement projects and identifying projects that could be eligible for redevelopment funding. The full costs to develop these projects have not been fully identified although rough estimates have been calculated for initial planning for the projects. The FY 2007-08 Capital Budget includes some funds to move some of these high-priority capital programs to the next level of planning, design or implementation. Given the existing capital programs that the City is implementing, it has become apparent that the additional capital programs proposed to be funded by the Agency cannot be implemented without supplemental staffing to carry out these capital projects. As the supplemental staff would be directly associated with the Agency-funded programs, the staff costs can be funded by the Agency. Staff is seeking Agency direction and Council approval to create these positions in several departments to move the high-priority capital planning and design programs forward. These programs include:
Ø Downtown Parking Plan: With the completion of the Civic Center Parking Structure and the certification of the Downtown Parking Program EIR, the Downtown Parking Plan is ready for consideration of design and financing models. The Downtown Parking Plan anticipates that the Agency will contribute an amount equivalent to what would have been spent on seismic retrofit of the three parking structures that are to be demolished and rebuilt. To date, the City has hired Walker Parking Consultants to prepare an update of the financing plan for the Downtown Parking Program and to study the pricing and operations of the parking structures. In order to keep the program moving forward and to commence the design of the first new parking structure in the downtown, staff recommends Agency invest in project management, design and financial evaluation by funding positions in the Environmental and Public Works Management Department. Initiating the design of the first new parking structure will assist the City in understanding the total expected costs for the Program.
Commercial Corridor Improvements: A key priority identified during outreach
associated with the Land Use and Circulation Elements is improvement of
Ø Traffic Signal Master Plan Implementation: In adopting the FY 2006-07 Budget, Council asked staff to analyze opportunities to accelerate the coordination and synchronization of traffic signals. Staff recommends that the Agency continue to provide funding for the necessary staffing and unfunded capital costs to accelerate this program.
Ø Infrastructure Assessment and Design: Some of the City’s core infrastructure facilities, such as certain streets and sidewalks, storm water facilities, and street lights, are in need of seismic upgrades or complete reconstruction. Staff recommends that the Agency provide funding to fund full assessment of these needs. After the needs are fully assessed, a capital and financing program to address those infrastructure needs will be developed.
Park Master Planning and Design: In
2004, the City acquired the 2.9 acre Fisher Lumber site at
Ø Affordable Housing: The preservation and production of affordable housing has been a top priority for Agency funds. State law mandates that 20 percent of gross redevelopment tax increment revenues be invested in the production and preservation of low- and moderate-income housing. Historically, the City has spent over 25 percent of gross tax increment and over 40 percent of net available redevelopment revenues on affordable housing. In order to expedite the production and preservation of affordable housing, in late 2007, the City issued a request for proposals for a line of credit to leverage future Agency affordable housing funds. In the near future, Council will consider a housing line of credit with Bank of America, which will allow the City to expedite its investments in affordable housing.
The City and Public Resources Advisory Group (PRAG), the Agency’s financial advisor, have preliminarily analyzed the debt capacity of the Agency. Based on estimated FY 2008-09 net available tax increment of $22.6 million, PRAG estimates that the Earthquake Redevelopment Project Area has debt capacity of at least $300 million over the next 1-3 years using various debt structures. This capacity is based on relatively conservative projections of growth in assessed valuation. Attachment B shows the projected tax increment through 2014. The Project Area has a limit on tax allocation bonds of $95 million, and in order to borrow more than that amount, the debt would need to be structured in another way, most likely as lease revenue bonds through the General Fund. It may not be possible to borrow the full projected capacity without negatively affecting the City’s AAA bond rating, and therefore RDA borrowing under a lease revenue structure may need to be balanced against other City borrowing needs. As the long-term priority projects are further defined to the point of becoming project ready, a recommended debt structure can be determined. PRAG is completing a more detailed debt capacity analysis for the City and Agency, which will be used to prepare the Agency’s recommended financing program for the 2009-10 through 2013-14 Implementation Plan. In the future, the City and the Agency will have to take into account that any debt capacity estimates will be impacted by several factors, including the state of the real estate and credit markets, the City and Agency’s assessed valuation of real property, and expected impacts of debt financing on the City’s credit rating.
Given the 2014 deadline for the Agency to incur debt and the need to move several high-priority capital programs to the next level of design and implementation, the City and the Agency will need to explore various financing mechanisms, including lease revenue bonds, bank financing, cooperation agreements and reimbursement agreements.
If Council concurs with the proposed approach to addressing long-term priorities for redevelopment resources, the recommended strategies will be reflected in the upcoming FY 2008-09 budgets.
Financial Impacts & Budget Actions
All budget actions resulting from these funding commitments will be included in the FY 2008-09 Proposed Budget and any approved funding commitments beyond this fiscal year will be appropriated each fiscal year thereafter.
Attachment A: Redevelopment Long Term Considerations and Priorities
Attachment B: Tax Increment Projections