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Study Session Background for Redevelopment AgencyL»-efA--P 6) 3 47 4oJ. TOWN OF LOS GATOS REDEVELOPMENT AGENCY (SPECIAL MEETING)/ REDEVELOPMENT ADVISORY COMMITTEE (ADJOURNED SPECIAL MEETING) STUDY SESSION AGENDA 110 EAST MAIN STREET - COUNCIL CHAMBERS (DOWNSTAIRS) NOVEMBER 28, 1994 -- 7:30 - 9:00 PM PRESENTATIONS 1. Opening Remarks 2. Overview of Redevelopment a. Community Redevelopment Law b. Purpose ► Eliminate Blight ► Produce Low -Moderate Income Housing c. Separate Agency from Town Council d. Finances • Five year forecast ► Bonding 3. Overview of the Central Los Gatos Redevelopment Plan 4. Housing Production Plan a. Legal Requirements b. Potential Projects (Handout) 5. Implementation Plan a. Legal Requirements b. Potential Projects (Handout) ADJOURNMENT 9:00 P.M. MGRO76\TCAGENDA\11-28SS AGENCY AGENDA DATE: 11/28/94 STUDY SESSION TOWN OF LOS GATOS AGENCY AGENDA REPORT DATE: November 23, 1994 TO: CHAIR AND MEMBERS THE REDEVELOPMENT AGENCY FROM: EXECUTIVE DIRECTOR SUBJECT: BACKGROUND FOR REDEVELOPMENT AGENCY. RECOMMENDATION: Information only. BACKGROUND: After the Loma Prieta Earthquake in 1989, the Town worked with the Federal, State, and County governments to obtain funds and start programs that would aid in earthquake recovery and improve the physical and economic conditions in Los Gatos. While these efforts have had some success, it is apparent that dependence on outside assistance will not provide Tong -term coordinated improvement of the Town. The outside programs are limited as to what they can do and they are short of funds. For example, many homeowners who are on fixed incomes do not qualify for FEMA loans and are unable to repair their homes. In addition, the infrastructure in the Downtown Area (e.g. curbs, gutters, sidewalks, streets, sewers and storm drains) was badly damaged in the earthquake and existing funding sources are simply not sufficient to repair the damage. Since redevelopment is a process that is available to assist city and county governments in the rehabilitation and reconstruction of public and private property, the Town Council felt that it would be in the Town's best interest to pursue this important financing tool. Consequently, the Town Council created the Los Gatos Redevelopment Agency as provided by the California Community Redevelopment Law to specifically address the issue of redevelopment. The Council also created a Redevelopment Advisory Committee made up of Town residents to advise the Redevelopment Agency on issues related to redevelopment. The Redevelopment Agency, Redevelopment Advisory Committee and Town staff have been working for the last year and a half to establish a redevelopment program. PREPARED BY: LEB:cs C41 \AGENCY\BACKGRD (Continued on Page 2) LEE E. BOWMAN L 6 - Redevelopment Deputy Director ATTACHMENT: Questions and Answers about the Redevelopment Project Reviewed by: General Counsel Finance Director AGENCY ACTION/ACTION DIRECTED TO: 11/23/94 4:45 pm PAGE 2 CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY SUBJECT: BACKGROUND FOR REDEVELOPMENT AGENCY. November 23, 1994 The basic intent of the Redevelopment Project is to plan and use locally generated funds to pay for a comprehensive, coordinated, Tong -range program of public and private property improvements that will gradually improve economic and physical conditions in the Project Area and in the Town of Los Gatos. QUESTIONS AND ANSWERS ABOUT THE REDEVELOPMENT PROJECT Why should the Town create another Agency? After the Loma Prieta Earthquake in 1989 the Town worked with the Federal, State and County governments to obtain funds and implement programs to aid in earthquake recovery and to improve physical and economic conditions in the Town. These efforts have been relatively successful, but due to the limited scope and financial instability of these programs, it has become apparent that dependence on outside assistance will not provide Tong -term, coordinated improvement of the Town. In response to these concerns, the Town Council formed the Redevelopment Agency of the Town of Los Gatos, pursuant to the State Redevelopment Law. The Town Council members serve as the governing Board of the Redevelopment Agency. The Town then designated a proposed Central Los Gatos Redevelopment Project Area (see Project Area Map), in which the Agency would focus its revitalization, rehabilitation and development efforts. The basic intent of establishing the Central Los Gatos Redevelopment Project is to provide a way to plan for and pay for a comprehensive, coordinated, long-range program of public and private property improvements that will gradually improve economic and physical conditions in the Project Area and the Town. The creation of the Central Los Gatos Redevelopment Project would provide the Town with basic financing and administrative tools that are not otherwise available. What tools would the Agency have if the Central Los Gatos Redevelopment Project is adopted? The Agency would be authorized to receive a portion of the future growth of the property taxes collected within the Project Area. This does not mean that the Central Los Gatos Redevelopment Project would increase any property tax rates. The Agency has no authority to increase any taxes or tax rates. Rather, the Agency would be authorized to receive future increases in property tax revenues resulting from property improvements or property sales within the Project Area. This share of the growth in future property taxes, resulting solely from privately initiated property improvements and property sales, is the Agency's principal financial resource, and would be used by the Agency to finance the project in accordance with the Redevelopment Plan. The Agency would also have limited eminent domain authority. The Agency would expect to exercise this authority in very limited circumstances, if at all. The owners of several community buildings damaged in the earthquake have been unable to repair their buildings for various reasons. Downtown businesses will suffer if these buildings are allowed to remain in their current state of disrepair. Eminent domain would provide an important mechanism to assist the Town in the restoration of these buildings. The Agency, by the same State law that pertains to all governmental agencies, would have to pay full fair market value, based on independent appraisals, and also pay appropriate relocation expenses if the property is occupied. The Agency would not be authorized to acquire by eminent domain any single-family residential dwellings which are located upon R-1 (Single -Family Residential) and R-1D (Single -Family Residential Downtown) zoned properties as defined by the Los Gatos Zoning Ordinance. While the Town has always had authority to acquire by eminent domain any private property anywhere in the Town for public projects, the Agency would be empowered to use eminent domain to acquire such non -restricted private property in the Project Area for either public improvements or for subsequent private development. 1 TOWN OF LOS GATOS Irnmfmpmue Srmp sad Pima sa,1111 m—.mlr m..., AA r _ mama meals . Ammo • N EXHIBIT A What does the Agency do? The Agency's principal activity would be to build public improvements that the community needs and that are essential to private reinvestment, but which the Town and Agency cannot now afford to undertake, partly because the Town receives only a small portion of assessed property tax. These public improvements would include projects such as street reconstruction, traffic control improvements, general transportation improvements, flood control and storm drainage improvements, development of parks and recreation facilities and other public facilities which the Town has needed for some time, and which create a strong community environment for private development and redevelopment of property. Finding in the form of loans and grants will also be made available to residential and commercial property owners for seismic strengthening. The Agency would also be able to use a portion of its resources directly to help private development and rehabilitation projects proceed which otherwise could not go forward. Specifically, homeowners, other property owners and businesses would be assisted,where feasible, in their voluntary efforts to improve their property by providing improvement funds. Agency resources would be used to assist the private sector only to the extent necessary to make an otherwise desirable project financially feasible. Who carries out the Redevelopment Plan? The Town Council members, your elected representatives, serve as the governing Board of the Redevelopment Agency and are responsible for its activities. The intent in preparing the proposed Redevelopment Plan in Los Gatos has been to create a general document of land use and planning regulations that conforms to the Town's General Plan. Thus, no more requirements or procedures for development are created than already exist in the community. In other words, the procedures for reviewing and approving development are the same as they now exist in Los Gatos. The present Town staff, Planning Commission and Council will perform the same roles as they do now in deciding whether a particular development is to be approved by the Town. However, the financial and administrative tools created by adoption of the Plan would give the Town, through the Redevelopment Agency, the ability to help the private sector rehabilitate and upgrade existing development, promote additional low and moderate income housing and undertake needed public improvements. Why should the Agency help private property owners? New development and the improvement of existing buildings in the Project Area would make the entire Town a better place in which to live and work. At present, many property owners cannot afford to fix up their properties. Lower interest tax exempt financing provided by the Agency could make it possible for some people to fix up their property by providing a more affordable improvement loan. The exact uses for Agency funds and qualifications for borrowers would be established by the Agency for each financing project undertaken by the Agency in the years to come. If I own property in the project area, will my property taxes go up due to Redevelopment? No! Property owners in the Project Area would continue to pay the same amount of property taxes on their property each year (calculated per the provisions of State Proposition 13), whether or not the Central Los Gatos Redevelopment Project is adopted. However, if the redevelopment project is adopted a portion of the growth in the total amount of property taxes collected in the project area would be allocated to the Agency to finance its projects in accordance with the Central Los Gatos Redevelopment Project. At present, the Town of Los Gatos receives only a portion of the property taxes you pay each year. The majority goes to the schools and other public agencies that operate throughout the county and region. The 3 Redevelopment Project is adopted, more of your property taxes would be spent within Los Gatos for projects, including school improvements, that directly benefit our citizens. 4 If I live or own property in the project area, what does it mean to me? The rehabilitation and development of the Project Area and the entire community. Helping to bring about commercial growth, more affordable housing and public improvements would increase employment, provide a more stable economy and improve the community's appearance. Sales taxes and other non -property tax revenues associated with development would increase, enabling the Town to do even more for Town residents and property owners. The Redevelopment Project is not a "quick fix" and visible improvements in the physical and economic conditions of the community would not occur overnight. However, by using the redevelopment project, Los Gatos should be able to improve its competitive position for attracting new businesses, provide better public facilities for our residents and help homeowners and business persons improve and expand their homes and businesses. Redevelopment is a popular program because it is totally controlled, administered and financed at the local level, using locally generated moneys for locally beneficial projects, and is not dependent on any State or Federal approvals or funding. Over 350 cities in California currently benefit from active community redevelopment programs. If you have further questions about the Redevelopment Project, please call the Planning Department, at 354- 6872, or Bud Lortz, Senior Planner at 354-6867. c13\agency\redev.prj 5 TOWN OF LOS GATOS AGENCY AGENDA REPORT DATE: November 28, 1994 TO: CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY SUBJECT: REVENUE PROJECTIONS AND FINANCING ALTERNATIVES FROM: EXECUTIVE DIRECTOR C^L. J�- AGENCY AGENDA DATE: 11/28/94 DESK ITEM Revenue Projections Sutro & Company, Incorporated Public Finance Department has provided the Agency's revenue projections since the Agency began in 1991. The most recent Sutro revenue projections for the life of the project are: Total net tax increment to RDA over life of project = $18,122,140 (net present value) Total housing set aside funds over life of project = $6,501,733 (net present value) 0. Total to Agency for non -housing projects = $12,165,424 (net present value) The Sutro net revenue estimates for the next five years (1994-95 through 1997-98) are: Total net tax increment to RDA over next five years = $1,207,000 Total net housing set aside funds over next five years = $558,000 Total net non -housing project funds over next five years = $649,000 These revenue estimates are based on: Current pass -through agreements with other agencies including schools, county, etc. A 4.5% annual growth in assessed value. This is based on an average actual growth of 4.59% over the four-year period of 1991-92 through 1994-95. Assessed value growth data is provided to Sutro by Santa Clara County. These revenue projections are conservative. Economic recovery continues to be slow. Major renovation of Old Town or the Los Gatos Lodge could increase the funds available. Assessed valuations also have a two-year delay so that improvements such as the Rankin Building are still not reflected. PREPARED BY: MARK LINDEN Assistant Town Manager ML:pm MGR078 A:\CNCLRPTS\11-28-1 Attachment: Financing Alternatives Reviewed by: eneral Counse Finance Director AGENCY ACTION/ACTION DIRECTED TO: 11/28/94 5:59 pm PAGE 2 CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY SUBJECT: REVENUE PROJECTIONS AND FINANCING ALTERNATIVES November 28, 1994 The Redevelopment Agency has already agreed to repay the Certificates of Participation for Parking Lot #4 beginning in Fiscal Year 1995-96. The five year revenue projections suggest that the Agency would have no money for additional projects if the bond repayment began as initially planned. If the Town lent the Agency the $250,000 annual payment until the Agency began receiving more funds, other projects could continue and the Town would be repaid with interest over the life of the project. Financing Agency projects can be achieved through tax increment bond financing. The financing is repaid by future tax increments over the life of the project. The Town's project has a 40-year life and will continue until 2032. Typically a five-year tax increment receipts track record is needed to issue tax increment bonds. The Town began receiving tax increment funds in Fiscal Year 1992-93. Fiscal Year 1996-97 would be earliest tax increment bond financing could be used to complete projects. Staff does not recommend any bonding at this point in the program. Once the County Assessor fine tunes area property values and revenue begins to build up, Council may wish to pursue bond financing. The Agency could use tax allocation notes to finance projects now. These interest only notes finance project construction immediately and are then repaid when the tax increment bonds are issued. A brief explanation of this instrument is attached. This explanation was provided by Emily Wagner of Miller & Schroeder, Incorporated, the Town's financial advisor. There are many financing alternatives for the housing set aside program. These will be explored as part of the Housing Production Plan and presented to the Agency in the future. Financing Alternatives For any capital improvement project (i.e., sewer, water, streets, library, city hall, etc.) there are two financing alternatives available to the redevelopment agency. The two alternatives are "Pay -as -You -Go" - which is to pay cash for the project or "Pay -as -You -Use" - which is to borrow the money (i.e., debt finance) for the project. Pay -as -You -Go - The disadvantage to paying cash for a capital project is the length of time it would take to save the necessary cash to pay for the project. Also, typically as you are saving cash to pay for the project, costs of the project are escalating at a faster rate than you are able to save. Therefore, resulting in the city being unable to undertake the project in a timely manner. The advantage to paying cash for a capital improvement project is the substantial savings to be realized from not incurring interest costs. Pay -as -You -Use - Borrowing or debt financing is the pie felable way of financing capital improvement projects. This is mainly due to the fact that "pay -as -you -use" financing matches the benefit and cost of a project with the actual users of the project. As the number of beneficiaries increase, the cost per capita decreases. All capital improvement projects have a useful life of one year or longer (i.e., 30 years) and, therefore, benefit from the project is realized by both present residents as well as future residents of the community over the useful life of the project. Of course, the disadvantage of debt financing is the additional interest costs incurred from borrowing the money. However, debt repayment schedules (i.e., both principal and interest) can be developed to accommodate the commnity's ability to pay. Tax Increment Financing is used by redevelopment agencies to revitalize blighted and economically depressed areas of the city and to promote economic growth. Tax Allocation Notes and/or Tax Allocation Bonds (the "Notes/Bonds") are two debt financing alternatives available to redevelopment agencies. Notes/Bonds are sold to finance the cost of a redevelopment project and the debt is repaid from tax increment revenues and/or sales tax revenues within the redevelopment agency project area. Qualified redevelopment Notes/Bonds may be sold only to acquired real property that was acquired by the agency or relocate persons occupying property acquired by the agency and to acquire/improve public infrastructure. If real property is transferred to a private person, the property must be transferred at fair market value (as opposed to selling the land at below fair market value to attract private business which is considered a taxable transaction and the issuer must issue taxable tax allocation Notes/Bonds). Whether tax allocation Notes/Bonds are sold as tax-exempt, or taxable Notes/Bonds, state law requires that for all project areas formed after January 1, 1977, 20 percent (20%) of all the tax increment revenue received must be reserved for low and moderate income housing. Current tax increment revenues may be required by credit analysts to be between 110 percent to 130 percent of maximum annual debt service when tax increment is the only source of revenue pledged for repayment. The amount of required coverage will vary depending on other circumstances within the project area. Credit analysts generally do not count special state subvention revenue paid by the State to redevelopment agencies to reimburse the agencies for lost business inventory taxes. Additional sources of revenue which may be pledged as security for tax allocation Notes/Bonds include income and revenue from specified redevelopment projects whether they were financed with tax allocation Notes/Bonds, state and federal aid, general revenues of the redevelopment agency, or any combination of these sources. To provide additional security, the redevelopment agency generally covenants to act in conformance with the adopted redevelopment plan and permit removal of no more than 10 percent of the land from the tax roll. Certain characteristics of the redevelopment project area also contribute to the security of the issue including diverse private ownership over a wide geographic area and a thriving local C94252.doc za0d LZ6'ON SOld9 SO1 F 63230dHOS eall I W Z2 : 90 176/8E/T T economy. As on all types of Notes/Bonds, the higher the coverage ratio of pledged revenues to debt service, the more secure the issue. A reserve fund is usually funded from the proceeds to provide investors with additional security. The following checklist identifies characteristics associated with tax allocation bonds and tax allocation notes: • Do not need voter approval. • No legal limit on amount of Notes/Bonds issued. • Need resolutions of governing bodies of redeveloped agency and city or county. • No term specified in the law. • Require a competitive sale if "tax-exempt"; can be a negotiated sale if "taxable" securities. • Maximum interest rates are specified (12 percent as of January 1, 1982). • No contingent liability to the general fund of a city or county. Finally, the difference between tax allocation Notes and tax allocation Bonds are as follows: Tax Allocation Bonds • Bonds may be offered for sale before the redevelopment project is producing tax increment revenue sufficient to pay debt service; however, assurance should be strong that such revenue will be received when needed (see next point). • Bonds must include an amount to pay interest (i.e., capitalized interest) which will become due prior to the time sufficient incremental taxes will be received, • Bond proceeds are escrowed and are disbursed for project expenditures only when the Agency can demonstrate that the redevelopment project area's tax increment revenue is sufficient to pay the debt service on the bonds. Tax Allocation Notes • Notes would be issued if tax increment was not adequate (in the early years of the agency) and proceeds could be spent immediately for the cost of the land, improvements and to fund public infrastructure. • Notes are typically for a term of 5 to 7 years and require that interest only be paid by the issuer during the term of the Notes. • When Notes mature, issuer issues tax allocation Bonds to pay-off the principal amount of the Notes and at that time the issuer begins to fully amortize (i.e., repay both principal and interest of) the Bonds. C94252.doc Eaed Lz6'ON SOld9 SO7 E- eiSQSaIHOS STI I W Z2 : 9a P6/0E/ T T