By Rick Silva
The town of Paradise’s Redevelopment Agency successor agency may default on its bond payment if it doesn’t reach the required amount of revenue needed to make the payment, Paradise Town manager Kevin Phillips said Thursday.
He called it a technical default on the bond and the agency is not walking away from the debt.
The agency is what remains of the town’s redevelopment agency that was formed in 2003 but was dissolved after Gov. Jerry Brown and the California legislature passed two bills in 2011 that dissolved the agencies across the state.
The Paradise RDA was comprised of three areas, according to town documents those included an area A encompassing 620 acres along the Skyway and Pearson Road and includes the commercial center of the town. The second, area B included 45 acres along the Skyway northeast of Area A and Area C had been made-up of 29 acres along the Skyway in the northeast corner of the town.
Phillips said the RDA was roughly the same as the proposed sewer project area. It was also zoned for mixed land uses with commercial, residential and public facility/open space uses.
The two bills were upheld by the California Supreme Court in late 2011 leaving the successor agency responsible for repayment of the bonds.
Under the law, the state would take the property taxes generated within the RDA area, except for the tax increment made above what the property tax generated within the RDA.
That extra money would be used to pay off the RDA debt, which included a 2006 loan of $4.07 million and the 2016 loan of $1.4 million.
That 2016 loan was a refinancing of the 2006 loan that the town council approved with a 4-1 vote, because at the time the RDA successor agency did not have the money to pay the note that year.
At the time, Finance Director Gina Will made clear that these are not the town’s obligations, that the RDA and its successor agency are separate from the town of Paradise.
It’s a point that Phillips stressed Thursday was true and doesn’t impact the ability of the town pays bills now and into the future. He also added that as the town moves forward with the Paradise sewer project, its partners in Chico and at the state level were aware of the bond issues related to the successor agency.
Phillips noted that the reason that the successor agency may not have the money to pay the bond is that the area by which the RDA increment it’s generated has been decimated by the Camp Fire.
In its notice of potential default, the successor agency noted that when the state provided backfill revenue for the lost property taxes because of the fire and it enabled the successor agency to pay its debt service on both the 2009 and 2016 bonds. However, such backfill money is not expected this year.
Phillips also said that the council voted not to apply any of the Camp Fire settlement funds from Pacific Gas and Electric to the successor agency bond payments.
Instead, it intends to use that money for the operational needs of the town and to rebuild the infrastructure including the area of which the RDA once sat.
Phillips noted that the town could have loaned the money to the successor agency, but the council decided that it would be a better use of the money to invest operational and infrastructure needs of the town.
“The idea is to really revitalize that area, so the tax increment goes up, so there are funds available to repay that debt,” Phillips said.
He added that bondholders were aware that there was a risk that if the tax increment fell below the baseline that there was a chance that the bonds could default. He also noted that the interest rate at the time that those bonds were issued reflected that risk to bondholders.
He also noted that the successor agency is not permanently defaulting on the bonds, the successor agency can’t issue payments on the bond until it can generate the revenue needed to pay for the bonds.
Source: Paradise Post