10:00 PM PST on Tuesday, March 1, 2011
By DUANE W. GANG and ALICIA ROBINSON
In what could be a first in the state, Riverside County and the city of Riverside are considering loaning each other money — rather than going to the municipal bond market — to pay for redevelopment projects.
The Board of Supervisors provided the authorization Tuesday morning, and the Riverside City Council followed with an evening vote.
The move is just the latest step local officials have taken to get tens of millions of dollars worth of redevelopment projects on the books before the state can impose Gov. Jerry Brown’s proposal to phase out the redevelopment agencies.
The decisions Tuesday would allow the county and city to obtain redevelopment funds more quickly and achieve more favorable interest rates, officials said.
“It’s a little innovative and I think that’s good,” Riverside Councilman Mike Gardner said. “I think it will potentially save both the city and the county money, and it will make it more difficult for Sacramento to take that money.”
Local officials across the state have been scrambling to find ways to tie up redevelopment money and push projects forward ever since January when Brown targeted redevelopment agencies in his budget proposal. The governor contends the agencies have outlived their usefulness and the money could be better spent on core public services.
Brown’s fiscal 2011-2012 budget plan would use $1.7 billion in redevelopment money to help close an estimated $26.6 billion budget gap.
The governor’s proposal would not affect redevelopment funding already tied to projects or being used to pay off existing debt.
Brown’s office criticized the county and city action.
“It’s a shame that local elected officials are rushing to shift billions of local taxpayer dollars into redevelopment projects while simultaneously proposing major cuts to education, public safety and other core services,” Brown spokesman Evan Westrup said Tuesday.
Riverside City Manager Brad Hudson suggested having local agencies buy each other’s redevelopment debt, said Paul Sundeen, the city’s chief financial officer. County officials said the idea was mutual.
Supervisor Marion Ashley said he and Supervisor John Tavaglione, along with other county officials, met with the city to discuss the plan.
The concept came together within a week, county officials said.
John Shirey, California Redevelopment Association executive director, said Tuesday he was not aware of other cities and counties considering similar proposals, although he added the association doesn’t track the actions of every local agency.
“This is something new,” Shirey said. “I could see where some agencies might want to consider it. Bond rates are not too good right now. In fact, they are pretty bad.”
Redevelopment agencies receive funding from what is known as tax-increment revenue. The money comes from property tax increases that result from improvements and new development within a redevelopment zone. Generally, the revenue pays off bonds issued to raise money for projects such as street improvements, community centers and parks.
Tuesday’s move by Riverside County and the city of Riverside is akin to securing the funding from a private bank or another financial institution.
Ashley said the bond market could produce interest rates as high as 9 percent, adding millions to the cost of projects over the 30-year life of the debt.
Meanwhile, local agencies looking to invest their pools of assets are seeing rates of return of less than 2 percent, Ashley said.
By buying each other’s debt, the two agencies could negotiate a rate that is more favorable, such as 4 percent to 5 percent, he said.
Rob Field, an assistant county executive officer who oversees the redevelopment agency, said the bond market is volatile. Plus, the governor’s “Draconian proposal” on redevelopment requires local agencies to move fast, he said.
“Things are moving really quickly in Sacramento with budget proposals,” Field told supervisors. “I fear that a two-week delay will be a de facto death knell for this potential opportunity.
“This does not obligate anybody to do anything,” Field said. “It simply opens the door to an opportunity.”
The supervisors’ action Tuesday authorizes the county’s Flood Control and Water Conservation District and Waste Resources Management District, along with the county treasurer, to negotiate and purchase local redevelopment debt.
Field said involving two separate government agencies — with separate elected officials — creates an “arms-length transaction” and lessens the likelihood of a legal challenge.
In January, supervisors authorized up to $155 million in additional redevelopment debt to fund a host of potential projects.
For Riverside officials, too, speed is the advantage of privately selling the debt to the county rather than on the open market.
Riverside plans to issue $90.4 million in redevelopment debt and expects the county to purchase $50 million.
The city would use cash from its own investment pool to buy the remainder, in addition to buying $50 million of the county’s redevelopment debt.
The council voted Tuesday to authorize finance officials to issue the debt and continue negotiating with the county on a potential deal.
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