December 18, 2003
SUBJECT: Adoption of 2003 Loan and Repayment Agreement Between the City of Sunnyvale and the Sunnyvale Redevelopment Agency
REPORT IN BRIEF
The purpose of this report is to request approval of an agreement between the City of Sunnyvale and the Sunnyvale Redevelopment Agency (the "Agency") that provides for the Agency to compensate the City for all administrative costs incurred on behalf of the Agency after 1985. The City and the Agency entered into the First Amended Repayment Contract in 1977 (the "1977 Repayment Contract") to repay the City for certain costs associated with development of the Town Center Mall. This new agreement will allow the City to recover additional costs associated with administration of the redevelopment program and further capital expenditures that have been incurred since 1986.
BACKGROUND
During the late 1970's, the City of Sunnyvale and its Redevelopment Agency undertook the development of the Town Center Mall in the downtown area of the City. To facilitate that development, the City and the Agency issued a lease revenue bond to provide funds for constructing the public parking structure located on Mathilda Avenue adjacent to the Mall. The financing involved the Agency leasing the structures to the City and the City agreeing to make lease payments to the Agency as security for the bonds. In 1977, the City and the Agency entered into the First Amended Repayment Contract (the "1977 Repayment Contract"), which required the Agency to reimburse the City with interest for the amounts that the City paid in rent under the parking structure leases.
About the time that the 1977 Repayment Contract was executed, Proposition 13 was adopted by a vote of the people severely limiting the amount of property tax collected by the City and the Agency. Because of Proposition 13, the Agency initially did not have sufficient tax increment revenues to repay the City for its obligations under the 1977 Repayment Contract and the debt grew each year. With the revitalization of the downtown area in recent years, the Agency has begun to receive enough tax increment to make annual payments that cover debt service, but the debt continues to grow because of the original large principal balance and the interest expense. The amount outstanding under the 1977 Repayment Agreement as of June 30, 2003 was $32.3 million.
Since 1986, the City has also advanced funds to the Agency to cover the administrative costs of the redevelopment program and certain other capital expenses. These expenses have also been recorded by the Department of Finance in the accounting records of the City and the Agency. In the accounting records, these City expenditures have been treated as an advance or loan by the City to the Agency. The total outstanding after 1986 is $11.9 million. Although the 1977 Repayment Agreement could possibly be interpreted as also covering these administrative advance loans, our special development counsel, Lee Rosenthal of Goldfarb & Lipman, believes that it would be clearer if these advances were set out in a separate agreement. Further, certain legislation adopted in 1985 changed the rules regarding the Agency's set aside for affordable housing beginning in 1986. For these reasons, it is prudent for the Agency and the City to segregate the Agency's pre-and post-1986 debts and enter into a separate agreement documenting the debt incurred in 1986 and later. In addition to covering administrative expenses, the Agreement also includes the City’s $1.5 million loan to the Agency for street improvement purposes and other future projects.
Lee Rosenthal has prepared the 2003 Repayment Agreement that is attached to this report as Exhibit A. It should be noted that the Agency's Redevelopment Plan contains a deadline of January 1, 2004 on incurring debts payable from tax increment. For that reason, it is important that the Council consider and adopt the 2003 Repayment Agreement before the end of calendar year 2003.
EXISTING POLICY
Goal 7.1B. of the Fiscal Sub-Element states: “Financial Practices: Maintain sound financial practices which meet all applicable standards and direct the City’s financial resources toward meeting the City’s long term goals.”
FISCAL IMPACT
Adoption of the 2003 Repayment Agreement ensures that the City will be repaid for administrative and capital expenses made on behalf of the Agency from 1986 to the present to the extent that funds are available from tax increment received by the Agency.
PUBLIC CONTACT
Public contact was made through posting of the Agenda on the City's official notice bulletin board, posting of the agenda and report on the City's web page, and the availability of the report in the Library and City Clerk's office.
ALTERNATIVES
1. Adopt the 2003 Repayment Agreement.
2. Modify the 2003 Repayment Agreement.
3. Do not adopt the 2003 Repayment Agreement.
RECOMMENDATION
Staff recommends alternative 1 to adopt the 2003 Repayment Agreement.
Prepared by:
Mary J. Bradley
Agency Treasurer
Approved by:
Robert S. LaSala
Executive Director
Attachments
A. Loan and Repayment Agreement