Item 1 Staff Report Consider Redevelopment Financing StrategiesDATE:
TO:
FROM:
L3 f S AN 0 — G1NfIctr
COUNCIL/AGENCY STUDY SESSION REPORT
September 8, 2000
MAYOR AND TOWN COUNC
CHAIR AND MEMBERS OF REDEV 1OPMENT AGENCY
TOWN MANAGER/
EXECUTIVE DI ECTOR
MEETING DATE: 9/11/00
ITEM NO. 1
SUBJECT: CONSIDER REDEVELOPMENT FINANCING STRATEGIES
RECOMMENDATION:
Consider redevelopment financing strategies.
BACKGROUND:
On June 5,2000, the Redevelopment Agency approved a list of capital projects that the Agency intends to complete over
the remaining 32 year life of the Central Los Gatos Redevelopment Project (Attachment 1). The total funding for all the
projects ($18 million present value) was based on the estimated revenue that would flow to the Agency during the
remaining life of the Redevelopment Project. After the June 5, 2000, Council/Agency meeting the staff received the
Agency's final assessed valuation numbers for the most recent year from the Santa Clara County Assessor's Office. The
staff has recalculated the present value for the remaining life of the Agency (Attachment 2) showing an updated present
value amount of $25.2 million. Although work is currently underway to further refine both the revenue and project cost
estimates, the current estimates are useful to determine the general scope of work planned by the Agency. It is expected
that the Agency may identify other projects that will compete with or be added to the previously approved list of projects.
During the Agency's earlier discussion of potential redevelopment projects, the Agency indicated that the next step would
be to consider the financing options that could be used to provide funding for the approved projects. As a result, the
Council/Agency requested a study session to discuss and identify the various financing options available. Ultimately,
the Council/Agency needs to select an appropriate financing strategy and identify which projects should constructed first.
DISCUSSION:
General Overview
To assist the Agency with its discussion of financing strategies it is important for the Agency to understand that
California redevelopment laws require agencies to use deficit financing rather than save tax increment revenues over
multiple years to pay for a future capital improvement. In order to receive annual tax increment revenues, an agency
must have incurred indebtedness in the form of issuing bonds (or incurring loans) and incurred expenditures that are
current obligations. Agencies are annually required to submit a Statement of Indebtedness to the county auditor in order
to be eligible to receive tax increment revenues. This concept may be somewhat confusing since it is contradictory to
the way we generally run oura
onal finances and, to some extent, the Towns finances.
PREPARED
es
Assist
. Pip
rG L(e ik4,144
Michele BrauchT
t Town Manager Finance Director
Paul Curtis 71/4.Y.r Bu o
Deputy Director Redevelopment Manager
Reviewed by: General Counsel
Revised: 9/8/00 5:03 pm
Returmaued: 10/23/95
PAGE 3
MAYOR & TOWN COUNCIL/CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY
SUBJECT: CONSIDER REDEVELOPMENT FINANCING STRATEGIES
September 8, 2000
Staff Response to Council/Agency Member's Questions
Several Council/Agency members have asked questions about redevelopment matters, and the staff response to each of
those questions is provided below.
1. What types of projects are authorized for the Agency to undertake with redevelopment funds?
The primary purpose of redevelopment in Los Gatos is reconstruction of inadequate or deteriorated public
improvements, facilities and utilities such as streets and street fumiture, storm drains and parking. Attachment 3
provides the Redevelopment Goals as set forth in the Redevelopment Plan. Redevelopment law is intentionally
nonspecific with regard to precisely what types projects may be funded with tax increment revenues that Clow to a
redevelopment agency, and subsequently, so is the Redevelopment Plan. This gives the agency a fairly wide latitude
in selecting the projects to fund using redevelopment resources. As previously mentioned, redevelopment projects
must eliminate blight and redevelopment projects may only include new construction or reconstruction (repair work
is not allowed). Redevelopment agencies are specifically prohibited from using redevelopment funds to pay for the
construction or reconstruction of a building that is, or will be used, as a city hall. In addition to financing public
improvements that eliminate blight, redevelopment agencies are given an array of powers to assist the private sector.
These powers include paying for front-end costs of development (e.g. feasibility and market studies, soils reports.
title reports. surveys, etc.), using eminent domain to assemble sites for redevelopment, selling land at less than cost
("land write down"), paying for site preparation costs, and paying for public improvements.
2. What is the net per year of redevelopment funds available for "pay-as-you-go" improvements during the
remaining life of our redevelopment program? Can redevelopment funds that are currently being used for
other purposes, such as Agency administration and overhead, be reduced to increase the net amount available
for improvements?
Attachment 4 responds to these two questions. First, the line labeled "Net Increment" shows the estimated amount
available for improvements for each of the remaining fiscal years from 2000-01 through 2031-32. The amount
shown for 99-00 is for the fiscal year most recently closed. It should be noted these "net increment" amounts have
not been presented in a "present value" format. The "net increment" amounts shown represent the actual cash
anticipated during each remaining year of the Agency. Additionally, a "pay-as-you-go" financing approach cannot
be used to accumulate tax increment funds over a series of years to build a future improvement.
Secondly, Attachment 4 shows three lines under a heading of "Adjusted Net Increment". The first line, labeled
"Transfer of COP's to General Fund" shows the impact on the net increment beginning in FY 2000-01 if the General
Fund were to assume the annual $250,000 payment of the Certificates of Participation (COP's) that were issued for
the construction of Parking Lot #4. While this would increase the annual net increment by $250,000 per year through
Fiscal Year 2012-13 (after which the COP's would have been repaid), it would eliminate part of the Agency's debt
which would be inconsistent with maintaining the Agency's eligibility to receive tax increment revenues. Given that,
the staff does not recommend that the General Fund assume responsibility for the payment of the COP's.
The second line, labeled "Reduce Business Services" shows the impact on the net increment if these charges were
reduced from 15% to 10% beginning in FY 2000-01. This reduction in charges to the Agency would result in a first
year increase in the net increment of $109,000. Using the financial rule of thumb for borrowing which suggests that
approximately ten times the annual amount available for debt service can be financed, this change would increase
the Agency's borrowing capacity by approximately $1,000,000. The third line, labeled "Combine Above" shows
the effect on the annual net increment if both of the above described changes were implemented.
3. What is the status of the improvements listed in the original 1991 Agency Implementation Plan?
Attachment 5 shows the status of the projects listed in the 1991 Agency Implementation Plan. This attachment
indicates that by the end of the current fiscal year, it is projected that approximately $2.500,000 in projects will have
been completed in the redevelopment area.
PAGE 5
MAYOR & TOWN COUNCIL/CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY
SUBJECT: CONSIDER REDEVELOPMENT FINANCING STRATEGIES
September 8, 2000
8. NA, 'hat other potential funds exist for capital improvements?
Attachment 7 lists various Council designated reserves that could be re -designated by the Council. These funds
were previously designated by Council for such things as Economic Uncertainty, Open Space. Parking, Debt
Service, and Equipment Replacement. Staff believes that approximately $5-7M of these reserves could be re-
designated for capital improvements. It should be noted, however, that these funds are invested and produce interest
annually that supports existing General Fund operations. If, for example. $7M of these funds were expended for
capital improvements it would mean a loss of approximately $450,000 annually for existing General Fund
operations. Another key consideration is that the presence of these reserves enhances the Town's ability to obtain
favorable bond ratings and debt financing rates should the Town desire to pursue future debt financing for capital
improvements.
FISCAL IMPACT:
None. The fiscal impact of the Council/Agency's selected financing strategy will be evaluated and presented to the
Council/Agency in subsequent reports.
Attachments:
l , Redevelopment Capital Projects
2. Updated Present Value Calculation
3. Redevelopment Agency Goals
4. Map of the Redevelopment Project Area
5. Estimated Net Increment During the Remaining Life of the Agency
6. Status of the 1991 Agency linplementation Plan
7. Annual Funding Available for Capital Improvements
8. Council Designated Reserves that Could be Considered for Possible Re -designation
Distribution:
Redevelopment Advisory Committee
Emily Wagner, E. Wagner and Assoc., 5990 Stoneridge Dr., Ste 103, Pleasanton, CA 94588
PLC:BL:mdc
N:IMGRU W PITMO\RDA9700. WPD
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REDEVELOPMENT CAPITAL PROJECTS
(APPROVED 6/5/2000)
Downtown Beautification Improvements
- Santa Cruz/Bachman Intersection
- Main/University Intersection
- Grays Lane Improvements
- Plaza Park Improvements
- Santa Cruz/Wood Road Traffic Circle
Streets/Sidewalks
- All asphalt streets in project area
- Santa Cruz Avenue (from Main to Highway 9)
Storm Drains
- Hernandez, Massol/Tait
- Santa Cruz Avenue (from Main to Bachman)
- Tait Avenue Trunk
- Santa Cruz/Roberts Trunk
- Pennsylvania Trunk
- Lyndon Avenue Box Culvert Replacement
Alleys
- Almond Grove Neighborhood Alleys
- Alleys located between Loma Alta and Johnson
S2,250,000
$3,765,000
$2,150,000
$ 200,000
Downtown Parking $6,500,000
Senior Center Capital Improvements $ 250,000
Library S2,885,000
TOTAL $18,000,000
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ATTACHhir,NT
REDEVELOPMENT AGENCY GOALS
A. The elimination of blighting influences and the correction of environmental deficiencies in the Project Area,
including, among others, obsolete and aged building types, substandard alleys and inadequate or
deteriorated public improvements, facilities and utilities.
B. The assembly of land into parcels suitable for modern, integrated development with improved pedestrian
and vehicular circulation in the Project Area.
C. The replanning, redesign and development of undeveloped areas which are stagnant or improperly utilized.
D. The providing of opportunities for participation by owners and tenants in the revitalization of their
properties.
E. The strengthening of retail and other commercial functions in the downtown area.
F. The strengthening of the economic base of the Project Area and the community by the installation of needed
site improvements to stimulate new commercial/light industrial expansion, employment and economic
growth.
G. The provision of adequate land for parking and open spaces.
H. The establishment and implementation of performance criteria to assure high site design standards and
environmental quality and other design elements which provide unity and integrity to the entire Project.
I. The expansion and improvement of the community's supply of low- and moderate -income housing.
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