May 17, 2005

SUBJECT:     Authorization to Initiate an Amendment to the Sunnyvale Redevelopment Plan for the Central Core Redevelopment Project Area to Increase Tax Increment Collection for the Plan.

REPORT IN BRIEF

The adoption of this resolution is part of the statutorily-required process of plan amendments. The resolution authorizes the distribution of the Draft Amendment. The proposed amendment will increase the tax increment limit and thereby increase the Redevelopment Agency’s ability to repay existing bonded indebtedness and to undertake necessary public improvement projects. The negotiations with developers for the redevelopment of the Town Center Mall, as documented in the adopted Disposition, Development and Owner Participation Agreement, anticipated that the Agency would increase the total amount of tax increment that can be collected over the life of the Plan.

Staff recommends that the Redevelopment Agency adopt the attached resolution authorizing staff to distribute the Draft Plan Amendment and Preliminary Report, upon completion, to all affected taxing entities, the Planning Commission, and various other interested persons and entities as required by law.

BACKGROUND

The City of Sunnyvale’s Redevelopment Project area was first established in 1975 to alleviate the conditions of blight affecting the central business district and adjacent residential and commercial areas.  At the time of establishment of the Plan, there was no limit on the amount of tax increment that could be collected. It was anticipated that the Agency would receive tax increment throughout the life of the project. However, in 1986 the Plan was amended to conform to SB 690, which set a limit on the amount of tax increment the Redevelopment Agency could receive unless the plan is subsequently amended. On December 23, 1986 (RTC 86-671) Council adopted an ordinance setting $118 million as the limit. In establishing the $118 million cap figure, staff tried to anticipate the total amount of funds needed from tax increment to complete the downtown redevelopment project.

The 1986 projection of $118 million is no longer realistic and did not anticipate the redevelopment of the Town Center Mall nor the Town and Country Village. It is anticipated that the Agency will reach the tax increment cap in FY 2014/2015 considering only the Mall development. This is 11 years before the end of the project. If the cap is not increased, the Agency would be in a position to lose $98 million in tax increment revenues and considerably more if the Town and Country and other projects are developed.

Tax increment financing is the backbone of financing redevelopment activities.  Under the tax increment financing system, the assessed value of property in a redevelopment project area is frozen as of the date of adoption of the redevelopment plan.  Taxing agencies which derive property taxes from the project area such as counties and schools continue to receive property taxes based on that “frozen” assessed value base.  Any property taxes derived from increases in assessed value after adoption of the plan are paid to the redevelopment agency to pay for the costs of the redevelopment project.

The Redevelopment Agency in 2003 awarded a contract to Seifel Associates (RDA 03-007), to prepare an amended redevelopment plan including economic and financial analyses, tax increment projections, and the preparation of base maps for the recordation of blight and an analysis of urbanization.

The Disposition, Development and Owner Participation Agreement (DDOPA) with Fourth Quarter Properties, XLVIII, LLC, approved by the Redevelopment Agency on August 17, 2004 and executed on February 24, 2005, requires the Agency and the City to “diligently proceed” with the Plan Amendment necessary to increase the tax increment cap. Section 8.10 of the DDOPA reads as follows:

The Agency and City shall diligently proceed to amend the Redevelopment Plan to extend the deadline on redevelopment activities and tax increment receipt and to increase the limit on the amount of Tax Increment the Agency anticipates receiving over the life of the Redevelopment Plan. The Developer, however, recognizes and acknowledges the obligation of the Agency and City to comply with all requirements of law applicable to adoption of such amendments to the Redevelopment Plan.

EXISTING POLICY

The Redevelopment Implementation Plan states:

Goal 1 - Meet the Agency’s Existing Financial and Administrative Obligations.

Goal 2 – Establish the downtown as the cultural, retail, financial and entertainment center of the community, complemented by employment, housing and transit opportunities.

The Fiscal Management Sub-Element 7.1C.1C.4 states: Tax Increment – For improvements required to increase future tax base and where rehabilitation or redevelopment is required.

DISCUSSION

The Sunnyvale Redevelopment Agency is preparing a Plan Amendment to the Sunnyvale Central Core Redevelopment Plan for consideration by the City Council. The Agency is preparing the Preliminary Report for the Plan Amendment, as required by Health and Safety Code, Section 33344.5 of Community Redevelopment Law.

The Preliminary Report is the first major background document in the process leading to the consideration of the proposed Plan Amendment. The report is designed to provide background information to the Agency and taxing entities affected by the proposed Plan Amendment. A subsequent and more extensive Report on the Sixth Plan Amendment will be made available for public review and consideration by the City Council and Agency as part of the final approval process.

The proposed Plan Amendment will increase the Agency’s fiscal capacity to collect tax increment and is considered a “major” amendment. The amendment involves a complex, statutorily-mandated process designed to provide the legislative body with the necessary analysis and input to make informed decisions about the purpose, scope and content of the redevelopment plan amendment and, ultimately, about whether to adopt the amended plan. The procedures and documentation required in a major redevelopment plan amendment are similar to the adoption of an initial redevelopment plan. The amendment process will include a mandatory 90 day process. The process will start upon the completion and distribution of the Preliminary Report in June and be completed by October, 2005. The following briefly describes the report and steps in the redevelopment plan amendment adoption process:

• Preliminary Report. The Preliminary Report describes the purpose and impact of the proposed Plan Amendment. It is the first major background document in the process for the approval of the Amended Plan. The Preliminary Report is being prepared for distribution to affected taxing entities providing useful information for the fiscal consultation process. 
• CEQA. Adoption of the Plan Amendment is a “program” that requires compliance with the California Environmental Quality Act (CEQA). An Environmental Impact Report (EIR) was prepared for the Downtown Improvement Program Update in Spring 2003. A supplemental report was prepared in June 2003, specific to the Town Center Mall project. The proposed amendment described in this report is within the scope of the Program EIR. No further environmental review is required.
• Plan Amendment. Toward the conclusion of the consultation with taxing entities, and the community participation process, the Agency must submit the proposed Plan Amendment to the Planning Commission and the City Council in preparation for the public hearing that completes the Plan Amendment Proceedings.
• Report on the Plan Amendment. The Report on the Plan Amendment will consist of updated information from the Preliminary Report, the Five Year Implementation Plan, and additional chapters addressing other subjects required by the redevelopment law.

FISCAL IMPACT

The only direct cost to the Agency from amending the Redevelopment Plan to increase tax increment collection for the Plan is the previously authorized (RDA 03-007) amount of $135,000 in consulting, legal fees, noticing costs, and related items; sufficient funds to pay for these costs were included in the Agency’s Project Budget 824430, of which approximately $59,000 has been spent to date. The amendment will enable the Redevelopment Agency to implement the goals of the Redevelopment Plan and will have a positive financial impact on the Redevelopment Project Area and those properties located within the Project Area.  It is estimated that the Agency will realize $98 million in additional tax increment revenue over the life of the project considering only the Mall development and considerably more if the Town and Country and other projects are developed. Additionally, if the tax increment cap is not raised the Agency will not be legally able to make scheduled repayments to the General Fund after FY 2014/2015. This will result in a loss to the General Fund of approximately $47 million.

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 the City Clerk's Office.

ALTERNATIVES