financial and tax base credit approval

Financial and Tax Base Credit Approval

Victor Valley Union High School DistrictSan Bernardino County, CA

Association of Chief Business Officials California Community CollegesCalifornia Community Colleges

Presented by:

Ann Feng-GagneDolinka Group, LLC

What Does the Future Hold for Redevelopment?2012 Fall Conference

Becky ElamMt. San Jacinto

Community College District

Heather HagopianDolinka Group, LLC

Theresa TenaCommunity College League

of California

Table of Contents

As Redevelopment Agencies are eliminated, what does this mean for Community CollegeDistricts (CCDs)?

This presentation will focus on the following items as it relates to the diminishing of Redevelopment funds to CCDs:

1. Assembly Bill (AB) 1484 – How does redevelopment residual and pass-through payments play into your budget?

2. Pass-Through Payment Timing

3. Education Revenue Augmentation Fund

4. RDA Revenue and the Apportionment 5. Advocacy

6. Where Do We Go From Here? – What can CCDs do to infuse dollars into their General Fund?

http://en.wikipedia.org/w/index.php?title=File:Msjc_logo.svg&page=1

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Assembly Bill 1484

Assembly Bill 1484 Overview

» Signed by Governor Brown on June 27, 2012

» Budget Trailer Bill

» Provided clarification on:

Oversight Board Responsibilities

Pass-Through Payment Priority

Pass-Through Payment Timing

Pass-Through Payment Termination

Assembly Bill 1484 – “Clean Up Bill”


Assembly Bill 1484Impacts on Oversight Boards

» All actions of the Oversight Board must be adopted by resolution (HSC 34179(e))

» Oversight Board is entitled to their own financial and legal advice (HSC 34179(n))

» Oversight Board decisions supersede Successor Agency decisions (HSC 34179(p))

» An Oversight Board is authorized to contract with public/private agencies for administrative

support (HSC 34179(o))

Establish a Recognized Obligation Payment Schedule (ROPS) (HSC 34177(m))

• $10,000 per day penalty for late ROPS

» Successor Agency must hire an auditor to determine amounts of unencumbered balances

available for transfer to taxing entities. (HSC 34179.5)

New changes to the law that affect Oversight Board Members:


Important Note: Touch base with all Oversight Board members to understand Successor Agency status and ensure

representation

Oversight Board Representation:

» Community College District (CCD) representatives need to be aware of the status of their Redevelopment Agency regardless if they are an Oversight Board member

With a majority of project areas under the Hemet Redevelopment Agency, Mt. San Jacinto CCD sits

on the Hemet Oversight Board

Assembly Bill 1484Impacts on Oversight Boards


» On July 16, 2016, in each county, only one Oversight Board shall exist (HSC 34179(j)) Due to this consolidation, attendees who sit on Oversight Boards now, won’t be there long

term

What does the future hold for Oversight Board Members?

Assembly Bill 1484Impact to Oversight Boards

34179(j) Commencing on and after July 1, 2016, in each county where morethan one oversight board was created by operation of the act adding thispart, there shall be only one oversight board appointed

(l) Commencing on and after July 1, 2016, in each county where onlyone oversight board was created by operation of the act adding this part,then there will be no change to the composition of that oversight board asa result of the operation of subdivision (b).

(m) Any oversight board for a given successor agency shall cease to existwhen all of the indebtedness of the dissolved redevelopment agency hasbeen repaid.


What does the future hold for Oversight Board Members?

» Knowing that in four (4) years Oversight Boards and Successor Agencies will be consolidated, it is important to get past owed payments added to the ROPS

» The elimination of RDAs and the creation of Oversight Boards for the Successor Agencies have provided new opportunities for CCD’s to present payment calculation issues to a new forum.

Assembly Bill 1484Impact on Oversight Boards

Back pass-though payments due to calculation errors added to ROPS


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All Pass-Through Payments

Pass-through Payment TimingSecuring Future Pass-Through Payments

Residual Revenue (if any) distributed to all

taxing agencies based on what they would have received without RDV

(revenue neutral)

Successor Agency Admin Costs

Recognized Obligations & Debt Service Payments

All Pass-Through Payments

Former RDA Tax Increment

1

2

3

4

Residual Revenue (if any) distributed to all

taxing agencies based on what they would have received without RDV

(revenue neutral)

Successor Agency Admin Costs

Recognized Obligations & Debt Service Payments

Former RDA Tax Increment

Select Auditor-Controllers;Legislative Analyst’s Office

Incorrect Confirmed by AB 1484Department of Finance;

Dolinka GroupDistribution

Priority


» FY 2011/2012 Pass-Through payments should not have been capped. The Pass-Through payment priority was addressed by AB 1484:

"SEC. 36. The Legislature finds and declares as follows:

(a) Certain provisions of Assembly Bill 26 of the 2011–12 First Extraordinary Session of 2011 (Ch. 5, 2011–12 First Ex. Sess.) are internally inconsistent, or uncertain in their meaning, with regard to the calculation of the amount to be paid by a county auditor-controller from the Redevelopment Property Tax Trust Fund to meet passthrough payment obligations to local agencies and school entities.

(b) Consistent with the statement in Section 34183 of the Health and Safety Code, as added by the measure identified in subdivision (a), that the provisions of that section are to apply “[n]ot with standing any other law,” it was the intent of the Legislature in enacting that measure that the amount of the passthrough payments that are addressed by that section be determined in the manner specified by paragraph (1) of subdivision (a) of Section 34183 of the Health and Safety Code, and that the amount so calculated not be reduced or adjusted pursuant to the operation of any other provision of that measure."

Confirmed Pass-Through Payments are the first priority to be paid from the Redevelopment Property Tax Trust Fund

Pass-Through Payment TimingSecuring Future Pass-Through Payments



Jan ‘131st half 12/13 Payment

ROPS III Paid


ROPS V Paid

FY 2009/2010

Pre-Elimination:

Post-Elimination:

FY 2013/2014FY 2012/2013

» May create cash-flow issues for Successor Agency


ROPS I Paid

FY 2011/2012

09/10 Payment

FY 2010/2011

10/11Payment

FY 2011/2012

Jun ‘122nd half 11/12 Payment

ROPS II PaidJun ‘13

2nd half 12/13 PaymentROPS IV Paid

Jun ‘142nd half 13/14 Payment

ROPS VI Paid



» LEAs should have received the following payments in FY 2011/2012: FY 2010/2011 payment from RDA 1st half of FY 2011/2012 payment from RDA/SA 2nd half of FY 2011/2012 payment from Auditor-Controller

» Many LEAs did not receive their 1st half of FY 2011/2012 payment from their RDA » According to AB 1484:

"34183.5. (a) The Legislature hereby finds and declares that due to the delayed implementation of this part due to the California Supreme Court’s ruling in the case California Redevelopment Association v. Matosantos et al. (2011) 53 Cal.4th 231, some disruption to the intended application of this part and other law with respect to passthrough payments may have occurred. (1) If a redevelopment agency or successor agency did not pay any portion of an amount owed for the 2011–12 fiscal year to an affected taxing entity pursuant to Section 33401, 33492.140, 33607, 33607.5, 33607.7, or 33676, or pursuant to any passthrough agreement entered into before January 1, 1994, between a redevelopment agency and an affected taxing entity, and to the extent the county auditor-controller did not remit the amounts owed for passthrough payments during the 2011–12 fiscal year, the county auditor-controller shall make the required payments to the taxing entities owed passthrough payments and shall reduce the amounts to which the successor agency would otherwise be entitled pursuant to paragraph (2) of subdivision (a) of Section 34183 at the next allocation of property tax under this part, subject to the provisions of subdivision (b) of Section 34183."


Pass-Through Payment Timing Recommendation

Redevelopment Elimination

2010/2011Payment

2011/2012Payment 2nd Half

FY 2011/2012

2011/2012Payment 1st Half

1

2

Confirm receipt of 1st half of FY 2011/2012 Pass-though Payment from RDA/SA

The next Redevelopment payment will be January 2013


Pass-Through Payment TimingPass-Through Payment Subordination

Case Study:

» The Redevelopment Agency (RDA) issued $45 million in bonds, and is projecting that the debt service will exceed the tax increment collected

» The only way a LEA’s pass-through payment could be reduced is if:1. The LEA signed a subordination agreement with the RDA

2. The RDA does not have enough money to pay their debt service, so they indicated plans to not pay the LEA’s payment pursuant to the subordination agreement

Recommendation for CCD’s: 1. Know the financial landscape of the RDA (skyrocketing debt service in the future?)

2. Know if the LEA has signed any subordination agreements

know the terms of the subordination agreements

pass-through payments should never be reduced

YES

NO

Dolinka Group reviewed the subordination agreement and found the RDA can only subordinate the LEA’s payment up to $33M of debt –

resulting in a maximum subordination amount


Pass-Through Payment TimingTermination of Payments

» AB 1484 added HSC 34187(b):Important Note:

* CCD's Pass-Through Payments will be terminated if the RDA pays off its debt before the project area's time limit to repay debt

"When all of the debt of a redevelopment agency has been retired or paid off, the successor agency shall dispose of all remaining assets and terminate its existence within one year of the final debt payment. When the successor agency is terminated, all passthrough payment obligations shall cease and no property tax shall be allocated to the Redevelopment Property Tax Trust Fund for that agency."

Why is the termination of payments bad for CCDs?:

* The termination of redevelopment payments results in CCDs losing facilities dollars (and in some cases General Fund dollars) from RDA pass-through payments



» RDV statutory payments are structure in tiers. 1. 1st 10 years the LEA receives tier 1 payments 2. Beginning in the 11th year, the LEA receives both tier 1 and tier 2 payments 3. Beginning in the 30th year, the Lea receives tier 1, tier 2, and tier 3 payments

» Initially the RDA needed more money to issue debt Once the debt starting being paid off, the RDA was to pay the LEAs more pass-through payments

.

Tier 1

Tier 2

Tier 3

0 1Base Year First Year of Tier 1

PaymentFirst Year of Tier 2 Payment

10 11First Year of Tier 3 Payment

30 31

First Adjusted Base Year

Second Adjusted Base Year

Early termination would mean the loss of tier 2 and tier 3 payments


Determine LEA's Exposure» Analyze how LEA is using redevelopment dollars

General Fund infusion Facilities COPs debt service

» Analyze RDA debt service

Review ROPS for debt outstanding Request information via Successor Agency RDA Official Statements RDA debt vs. Project Area debt

» Compare to determine exposure

Document Internal Repayment Plan Determine dollar amount exposure (conservative vs. aggressive approach) Pledge Agreement established? Contact local legislators, lobbyists

1

2

LEA Debt RDA Debt

20202022

Proj

ect A

rea

#1

Proj

ect A

rea

#2

Proj

ect A

rea

#3

Cer

tific

ates

of P

artic

ipat

ion

2035

Proj

ect A

rea

#2

2030

2023

Exposure 7 Years

Backed by Project # 3



Pass-Through Payment TimingEarly Termination of Payments

» The City of Fremont has a very small amount of outstanding debt and remaining financial obligations

» As a result, they have estimated that they could “terminate” by the end of this fiscal year

» All affected taxing entities may receive their last pass through payment in FY 2012/2013

Ohlone Community College District:

City of Fremont Early Termination Date

Previous Termination of

PaymentNumber of "Lost" Years (Payments)

FY 2010/2011

Pass-ThroughPayment

Projected "Loss" Through 2044[1]

Centerville 2012/2013 2042/2043 30 $19,551 $586,530

Industrial 2012/2013 2035/2036 23 $387,127 $8,903,921

Irvington 2012/2013 2029/2030 17 $16,646 $282,986

Irvington 99 Anx 2012/2013 2043/2044 31 $20,920 $648,522

Niles 2012/2013 2029/2030 17 $1,902 $32,337

Niles 99 Anx 2012/2013 2043/2044 31 $1,385 $42,942

Total NA NA 149 $447,532 $10,497,238

Projected Loss of Revenue Through 2044

[1] Represents future dollars; not present value amounts


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Educational Revenue Augmentation Fund(ERAF)

ERAF Fund RevisitERAF Boost

State AidState Aid

WithERAF

Local Taxes Local Taxes

ERAF

State AidState Aid

Without ERAF

Tax Rates

Community College DistrictFunding

Local Taxes Local Taxes

ERAF

Redevelopment Revenue

Tax Rate 30%ERAF Rate 5%

Tax Increment$1 million

Redevelopment Payments

LAUSD Lawsuit

$1 million x 30% =$300,000

$1 million x 35% =$350,000

Tax Increment x Tax Rate = RDV Payment

» On August 13, 2012, California State Controller's Office issued a letter requiring all Auditor-Controllers to start calculating redevelopment pass-through payments in accordance with the Los Angeles Unified School District vs. County of Los Angeles lawsuit Superior Court Case BS108180


ERAFLatest Court Developments

» The judge in the LAUSD Lawsuit is in the process of determining the methodology to calculate the ERAF revenue Dolinka Group has communicated with many Auditor-Controllers to understand which

methodology is being used for their ERAF boost Most County Auditor-Controllers are waiting for the outcome in the LAUSD Lawsuit before

incorporating a certain methodology Some have already implemented the ERAF boost (e.g. Orange, San Bernardino) since FY

2010/2011

» Once Auditor-Controllers incorporate concepts from the LAUSD Lawsuit, LEAs should see an ERAF boost to their in statutory pass-through redevelopment payments Depending on how your particular County calculates ERAF payments, some methodologies may

yield higher ERAF boosts over others Next steps: follow up on demand letters sent, request back-owed payments



» The Courts recently determined that the ERAF boost must incorporate the Triple Flip (enacted in 2004 through Proposition 57 – The California Recovery Act) and Vehicle License Fee (VLF) Swap (enacted in 2004)

How the Triple Flip works:

VLF Swap:

Flip 1

Flip 2

Flip 3

¼ percentage point increase in State sales tax, which is used to guarantee the deficit bonds the State issued through Proposition 57

¼ percentage point decrease in local sales and use tax rate (consumers saw no overall increase in sales tax rate)

Local governments replenished the sales tax revenue that they lost by reimbursing themselves from the ERAF

Swap 1

Swap 2

Swap 3

Increased the State’s share of VLF Revenue

Decreased the local government’s share of VLF revenue by the same amount (consumers saw no overall increase in the VLF)

Local governments could replenish the VLF revenue that they lost by reimbursing themselves from the ERAF



» Potential negative effect if CCD has negative ERAF

Required shifts in property taxes may exceed the amounts allocated to the ERAF account, resulting in “negative” ERAF

Uncertain impact to Redevelopment ERAF boost


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RDA Revenue and the Apportionment

Apportionment Impacts

» 2011-12 the State withheld disbursement of $116 million of general fund dollars with the rationale the CCDs would receive a windfall of a “like” amount from the dissolution of redevelopment agencies

» SB 1016 (Chapter 38, Statutes of 2012) provided authority for Director of Finance (DOF) to return to the CCDs the amount uncollected from RDAs by June 30, 2012

» While the state ultimately withheld $10.1 million of the original $116 million, the figure was merely a “placeholder” of what was estimated to be received. Chancellor’s Office recalculation will determine whether ANY RDA residual revenue was received by districts in 2011-12

State General Fund Manipulations 11/12

“(66) Existing law requires the Board of Governors of the California Community Colleges, in calculating each community college district’s revenue level for each fiscal year, to subtract, among other things, the local property tax revenue specified by law for general operating support, exclusive of bond interest and redemption, from the total revenues owed. This bill would appropriate an unspecified amount, on or before June 30, 2012, to be determined by the Director of Finance, up to $116,133,000, from the General Fund to the Board of Governors of the California Community Colleges…”



» The 2012-13 Budget Act is premised upon the receipt of $341 million $140.3 million RDA tax increment (Residual #1) $200.9 million RDA liquid / cash assets (Residual #2)

» PLUS: RDA Hold Harmless language!

» SB 1016 reads:

RDA Revenue Shortfalls: RDA 12/13

SEC. 97. (a) On or before June 30, 2013, an amount to be determined by the Director of Finance shall be appropriated from the General Fund to the Board of Governors of the California Community Colleges in augmentation of Schedule (1) of Item 6870-101-0001 of Section 2.00 of the Budget Act of 2012.



» While authority exists to act sooner than the end of the fiscal year hard to imagine that will happen

» Only backfill up to $341 million of RDA residual revenue shortfalls; timeline for repayment is unclear

» RDA Hold Harmless language does NOT apply to regular property tax increment revenues.

RDA Revenue Shortfalls: RDA 12/13 (e) The Director of Finance shall notify the Chairperson of the

Joint Legislative Budget Committee, or his or her designee, of his or her intent to notify the Controller of the necessity to release funds appropriated in subdivision (a) or to make the reduction pursuant to subdivision (c), and the amount needed to address the property tax shortfall determined pursuant to subdivision (b) or the amount of the reduction made pursuant to subdivision (c). The Controller shall make the funds available not sooner than five days after this notification and the Office of the Chancellor of the California Community Colleges shall work with the Controller to allocate these funds to community college districts as soon as practicable.



» Apportionment Milestones overlaid against Redevelopment Reporting Milestones » While great care was given to “align” apportionment milestones with redevelopment – there is

NO expectation the “windfall” of RDA residual revenue projected will materialize in the short term

» Not shocking declaration especially for those of you on Oversight Boards gearing up for the “meet and confer” round of your payment schedule fight with the State/DOF

» Expectation that once items are outright “disallowed” from the ROPS they will NOT show up again on the payment schedule; in the meantime we need to trudge our way through the process

» Going forward the expectation is that 90 days before payment is made (RDA Residual revenue and RDA Pass-Through revenue) the back-up calculations will be completed PRIOR to apportionment milestone reporting:

Payment in January/ Report in October – in time for November 15 A-C property tax reporting

Payment in June / Reporting in March – in time for April 15 A-C property tax reporting

How will this play out in the short term and long term?



» As we move through 2012-13, districts will be “waiting” on the outcome of many calculations Unclear whether DOF will have any updated information related to RDA revenues to adjust

their 2012-13 projections let alone weave in more refined numbers for the 2013-14 Governor’s Proposed Budget

Expect a shortfall of RDA revenues on the P1 apportionment (one of possibly MANY!)

Expect a shortfall of RDA revenue on the P2 apportionment (one of possibly MANY!). DOF should have better April RDA revenue information but whether they proactively “make the CCDs whole” at the May Revise is a different story

Expect to be made “whole” shortly after the conclusion of the 2012-13 FY – for ONLY the RDA revenue….any other shortfall the CCDs lack statutory recourse

In the short term: RDA shortfalls


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Advocacy

Advocacy

» RDA pass-through payments impact K-12» Feb 2011 K-12 P1 Apportionment» Shared concerns related to RDA Residual Revenue estimate and RDA pass-through impacts

– particularly “early termination” – primary leads are the big, K-12 school districts» K-12 & CCD Collective Focus - Hold the State to it’s word – “the elimination of RDA’s will

NOT negatively impact local education agencies”

New Allies – K-12


AdvocacyFuture Use of Redevelopment Revenue

XYZ Redevelopment Agency

Project Area A

PTA SB 211 AB 1290 2%

Project Area B

Project Area C

Project Area D

$100,000 $100,000$100,000 $100,000

52.5% 47.5% 47.5% 52.5%

Land acquisition, facility construction, reconstruction,

remodels, maintenance or deferred maintenance

(B) Except as specified in subparagraph (E), of the total amount paid each year pursuant to this section to community college districts, 47.5 percent shall be considered to be property taxes for the purposes of Section 84751 of the Education Code, and 52.5 percent shall not be considered to be property taxes for the purposes of that section and shall be available to be used for educational facilities, including, in the case of amounts paid during the 2011-12 fiscal year through the 2015-16 fiscal year, inclusive, land acquisition, facility construction, reconstruction, remodeling, maintenance, or deferred maintenance.

» New language added to Health and Safety code section 33607.5 states that CCDs can spend 52.5% on certain educational facilities for amounts paid during fiscal years 2011-12 through 2015-16.


Advocacy

» Coordinated Advocacy Increase the CCD percentage that is dedicated to facilities: CCD 52.5% vs. K-12

56.7% Extend the date for increased flexibility related to “facilities” portion from 2015-16

(current law) to LATER! Continue to push for more relief from RDA shortfalls. K-12 Continuous appropriation

means K-12 does NOT wait until the end of the fiscal year to be “trued up”. The hold harmless language for the CCD was a big win, but we MUST advocate that a “true up” NOT wait until the conclusion of the fiscal year!

Partner with K-12 related to “Early Termination” statutory protections for local education agencies

Can we agree on a few things?


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Where Do We Go From Here?

Where Do We Go From Here?

» This is one of many “irons in the fire” Ballot Measure Local revenue shortfalls Funding Formulas threatened re-do

» Survey sought to gauge real-time experience with process and “gaps”» Really do not have a good sense of the magnitude at a statewide level – very interested to collect

April 15 A-C information to get a better sense of Residual #1 and Residual #2» Keep the communication lines OPEN – keep your advocates in Sacramento informed

Overall Perspective


Where Do We Go From Here?General Fund Infusion Alternatives

Voter Approved Non Voter Approved

Parcel Tax» Provides a mechanism that offers secure,

enhanced funding for operational, educational, and capital facilities costs typically paid out of a school district's general fund» Regularly scheduled general election or mailed

ballot election» 66% voter approval Recreation Assessment District» Allows local government agencies to finance the costs and expenses for public recreational facilities» Mailed ballot anytime» 50% + 1 voter approval

Sales and Use Tax

Asset Management» Focus on identifying operational effectiveness within

the district to generate general fund savings in addition to opportunities to close facilities and liquidate surplus

assetsFacilities Usage Fees» Fee charged by districts for use of outdoor and indoor facilities, many districts are not maximizing their fee collection for groups that utilize their facilities (e.g.

stadiums, performing arts centers, gymnasiums, recreational fields) during non- school hours

» Local sales tax levied on goods and services purchased within a City or County

» Long-term funding instrument used to provide supplemental general fund dollars

» Regularly scheduled general election » 50% + 1 voter approval

» As Redevelopment funds are shrinking, CCDs need to look into other options to infuse their General Fund


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Questions?

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AboutDolinka Group, LLC

Ann Feng-Gagne949.250.8307

[email protected]

Heather Hagopian949.250.8376

[email protected]

About Dolinka Group Presenter Bios

» Ann Feng-Gagne, Executive Director, is one of the key members of Dolinka Group and is responsible for the day-to-day management of the financing and demographic services provided by the firm. These services include Master Plans/Funding Programs, property negotiations, formation and administration of CFDs and Assessment Districts, Redevelopment, OPEB funding, and GO Bond campaigns and issuances. Ms. Feng-Gagne holds a B.S. in Policy Analysis/Management from Cornell University.

» Heather Hagopian, Senior Director, has assisted LEAs with redevelopment project area identification, revenue projections, redevelopment revenue reporting, negotiations with various redevelopment agencies to recover underpayments, and the leveraging redevelopment revenues via the issuance of bonds. Ms. Hagopian holds a B.S. in Business Administration (Finance) from San Diego State University.

financial and tax base credit approval

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