June 21, 2005
SUBJECT: Low and Moderate Income Housing Fund and Deficit Reduction Plan for the Central Core Redevelopment Project Area
REPORT IN BRIEF
This report presents the annual Redevelopment Agency finding that all available tax increment funds are required to meet existing debt obligations and, therefore, less than 20% will be deposited in the Agency’s Low and Moderate Income Housing fund for Fiscal Year 2005/2006. In addition, this report presents the updated Low and Moderate Income Housing Fund Deficit Reduction Plan. Staff recommends that the Agency adopt, by Resolution, the annual findings and the accompanying Deficit Reduction Plan.
BACKGROUND
The Redevelopment Agency of the City of Sunnyvale, established November 19, 1957, adopted a Redevelopment Plan for the Central Core Redevelopment Project Area by Ordinance No. 1796-75 on November 26, 1975.
In 1976, legislation was passed which provided that, in redevelopment project areas established after 1976, 20% of the tax increment generated from the project area must be used by the Agency to increase and improve affordable housing for persons of low and moderate income. In 1986, the legislature retroactively applied this basic 20% requirement to project areas established prior to 1977. Starting with the 1985-86 Fiscal Year, agencies have been required to use 20% of the tax increments from project areas established before 1977 to improve and increase the supply of housing for persons of low and moderate income.
In recognition of the fact that retroactive application of this requirement would be difficult or impossible for those agencies which had already committed their future stream of tax increments to existing debt or previously adopted projects, the legislature enacted special provisions that enabled agencies to phase in this requirement. In Sunnyvale’s case, annual tax increment was less than annual debt payments and as a result, the Agency has an accruing liability to the General Fund that may be serviced in advance of housing set aside expenditures. In accord with these provisions, the Redevelopment Agency of the City of Sunnyvale adopted Resolution No. 195-86, finding that it would need to deposit less than 20% of the taxes allocated into the Low and Moderate Income Housing Fund because of pre-existing indebtedness.
EXISTING POLICY
State Law requires findings to be made to defer the 20% set aside. Goal 7.1B. of the Planning and Management 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.”
DISCUSSION
The Agency continues to be unable to make any deposits into the Low and Moderate Income Housing Fund because the pre-existing debt service exceeds the Agency’s anticipated tax increment revenue. Specifically, in Fiscal Year 2005/2006, the Agency will require all of its tax increment revenue (estimated at approximately $3.43 million) to service both pre-1986 bonds issued by the Agency and repayment of debt owed to the City by the Agency. The amount owing on that pre-existing debt is $71.6 million. As a result, the Agency will have no remaining funds available and does not propose to make any deposit into the Housing Fund for Fiscal Year 2005/2006.
The resolution attached to this Report as Exhibit 2 sets forth the required Agency finding that the difference between the amount proposed to be deposited in the Housing Fund and the amount otherwise required to be deposited in the Housing Fund by Health and Safety Code Section 33334.6 is necessary to make payments under pre-existing obligations of amounts due or required to be committed, set aside, or reserved by the Agency during Fiscal Year 2005/2006 and will be used by the Agency for that purpose. The amount that the Agency would otherwise be required to deposit in the Housing Fund will create a deficit in the Housing Fund, which will be repaid at a later date.
The Agency has adopted a plan to repay deficits in the Housing Fund in subsequent years. Exhibit 1 to this Report sets forth the Agency’s Housing Fund Deficit Reduction Plan. The Deficit Reduction Plan provides for the Agency to make equal installment payments to repay the deficit, beginning once tax increment revenue exceeds annual debt service on pre-existing obligations. When a deficit is created for the 2005/2006 Fiscal Year, the deficit will then be subject to repayment under the Housing Fund Deficit Reduction Plan.
With the impending redevelopment of the Town Center Mall, Staff anticipates that the Agency will be able to collect funds for affordable housing by FY 2016/2017. In the mean time, the City will continue to undertake an active affordable housing assistance program with Housing Mitigation, HOME grants, and Community Development Block Grants Funds. Additionally the City will continue to utilize its Below Market Rate Program. If the Agency is not able to eliminate the Housing Fund deficit before the expiration of the Redevelopment Plan limit, the Agency will extend the duration of the Plan and/or the amount of tax increment revenue that can be collected and direct the full amount of tax increment towards eliminating any remaining deficit.
FISCAL IMPACT
The proposed action will result in an additional Housing Fund deficit of approximately $740,581. This will have no immediate fiscal impact since the repayment of the deficit will occur only after the final maturity of all existing obligations.
PUBLIC CONTACT
This Report was published in the Redevelopment Agency Agenda and included in Agenda materials at the Sunnyvale Public Library.
ALTERNATIVES
1. Adopt by Resolution, the annual findings that all tax increment revenues are required to meet current obligations for repayment for the bonded indebtedness of the Agency and pre-existing debt repayment to the City of Sunnyvale and adopt the Housing Fund Deficit Reduction Plan as required by Redevelopment Law of the California Health and Safety Code.
2. Do not adopt the Resolution and the Housing Fund Deficit Reduction Plan.
RECOMMENDATION
Staff recommends that the Agency approve Alternative #1, to adopt by resolution, the annual findings that all tax increment revenues are required to meet current obligations for repayment for the bonded indebtedness of the Agency and pre-existing debt repayment to the City of Sunnyvale and adopt the Housing Fund Deficit Reduction Plan as required by redevelopment law of the California Health and Safety Code. If this action is not taken it would reduce repayment of the outstanding General Fund loan by $740,581 and would be considered a violation of the repayment agreement.
Reviewed by:
Robert Paternoster, Secretary, Redevelopment Agency
Prepared by: Brice McQueen, Manager, Redevelopment Agency
Reviewed by:
Mary Bradley
Treasurer, Redevelopment Agency
Approved by:
Amy Chan
Executive Director, Redevelopment Agency
Attachments
1. Exhibit 1 Housing Fund Deficit Reduction Plan
2. Resolution adopting an Agency finding that less than 20% of tax increment is available for housing set aside and adopting a Deficit Reduction Plan