June 20, 2006
SUBJECT: A Resolution Electing Statutory Pass-Through Payments Pursuant to Health and Safety Code Sections 33607.5(b) and 33607.7(b) for the Amended and Restated Redevelopment Plan for the Central Core Redevelopment Project Area
REPORT IN BRIEF
On November 1, 2005 the City Council of the City of Sunnyvale approved the adoption of the Amended and Restated Redevelopment Plan to restate the Redevelopment Plan and to increase the limit on the total amount of Tax Increment that the Agency may receive over the term of the Plan. Adoption of this plan amendment triggers the requirement of the Redevelopment Agency to make statutory pass-through payments pursuant to Health and Safety Code Section 33607.7 to each affected taxing entity starting in the year in which the Tax Increment cap would have been reached without the amendment. However, under current Redevelopment Law the City, as a taxing entity, does not automatically receive its share of the statutory pass-through tax increment payment. Rather, the City must elect to receive its share as authorized by Health and Safety Code Section 33607.5 (b) by Council adopting a resolution electing to receive its share of the pass-through payment from the Agency.
Staff recommends that the City Council adopt the attached resolution electing to receive its share of the statutory pass-through payment.
BACKGROUND
On November 1, 2005 the Agency Board and the City Council conducted a joint public hearing and approved an Amended and Restated Plan (RTC #05-330 and RDA #05-015) for the Central Core Redevelopment Project Area. The main purpose of the Amendment was to increase the total amount of Tax Increment that can be collected over the term of the Plan from $118 million to $600 million so as to provide the Agency with additional financial resources needed to alleviate remaining blight conditions in the Project Area and to complete eligible projects such as the Town Center Mall redevelopment without the plan ending prematurely.
Amending the Redevelopment Plan requires the Agency to share a portion of future Tax Increment collected from the Redevelopment Area with other taxing entities based on statutory pass-through formulas that were initiated in 1994 with the passage of AB1290. Once the Amendment to the Plan was adopted, the Redevelopment Agency is required to comply with Health and Safety Code Section 33607.7 that requires agencies to initiate tax sharing pass-through payments to other taxing entities. The tax sharing pass-through payments are to be paid annually to each taxing entity levying property taxes in the Redevelopment Area (the “Taxing Entities”) starting in the year in which the tax increment cap would have been reached without the amendment.
EXISTING POLICY
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
Section 33705.5 of the Health and Safety Code specifies a formula for the sharing of tax increment revenue generated within the project area. This tax sharing takes place in three tiers. From the first year in which the Tax Increment cap would have been reached without the amendment (estimated to be around FY2015/2016) through the last year the project area receives Tax Increment, the redevelopment agency is required to pass through to the Taxing Entities 25 percent of the net Tax Increment revenues after the provision for the Housing Set-Aside. The City may opt to receive its share of this first tier of pass-through revenue by adopting a resolution electing to receive its share of the pass-through payment from the Agency or allow it to accrue to the redevelopment agency. The Council is only required to adopt the resolution once rather than annually. The second tier of tax sharing begins in the 11th year after the date in which the Agency would have reached its original cap. In the 11th year the agency is required to pass through to the Taxing Entities an additional 21 percent of the net Tax Increment revenues (after provision for Housing Set-Aside) derived from the growth in assessed value above the assessed value of the tenth year. In the 31st year, the agency is required to pass through to the Taxing Entities 14 percent of the net Tax Increment revenues from the growth in assessed value above the assessed value of the 30th year. In Sunnyvale’s case, this last tier would not apply since the Agency will have ceased operation by that time. For both the second and third tiers, the City is not eligible to receive a share of the pass-through revenue.
The Tax Increment subject to these percentages only applies to the growth in tax increment after the tier dates start. The Agency will still receive 100 percent of Tax Increment based on the existing assessed value in the project area up through the first Fiscal Year the statutory pass-through payments start.
FISCAL IMPACT
Current levels of Tax Increment revenue to the Redevelopment Agency will continue unaffected. However, future increases in Tax Increment revenues will be partially shared with other taxing entities. The City Council’s election to receive statutory pass-through of Tax Increment will provide the General Fund additional Property Tax revenue of approximately $454,000 over the Tax Increment Collection Period ending in FY 2027/2028.
Conclusion
Each tier’s percentage pass-through remains constant over the life of the Plan and relates only to that portion of the tax increment generated during that tier. The percentage of pass-through payments seems relatively high, but they only are applied against a small portion of the Redevelopment Agency’s total Tax Increment. Therefore, the share of total tax increment passed-through to other taxing entities remains relatively minor. The City’s share of the pass-through, which would be 13 percent of the pass-through payments from the first tier, will stay with the Redevelopment Agency unless the City elects to receive those tax increment revenues. The City would not lose any current property taxes it currently receives.
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
1. Adopt the attached resolution electing to receive the statutory pass-through payment.
2. Do not adopt the attached resolution electing to receive the statutory pass-through payment.
RECOMMENDATION
Staff recommends that the City Council approve Alternative #1.
The Health and Safety Code authorizes the City to receive its share of the statutory pass-through of Tax Increment funds. The General Fund would receive approximately $454,000 over the life of the Plan ending in FY 2027/2028.
Reviewed by:
Robert Paternoster
Director, Community Development/Secretary, Redevelopment Agency
Prepared by: Brice McQueen, Manager, Redevelopment Agency
Reviewed by:
Mary Bradley
Director, Finance/Treasurer, Redevelopment Agency
Approved by:
Amy Chan
City Manager/Executive Director, Redevelopment Agency
Attachments
A. Resolution of City Council of City of Sunnyvale electing statutory pass-through…