11/21/2000 RA RPT 06 - Laserfiche WebLink

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. CITY OF RIVERSIDE COUNCIL/AGENCY MEMORANDUM Honorable Mayor & Agency Members and Redevelopment Agency Date: Item No.: November 21,2000 6 Subject: Request Authority to Approve the Second Amendment to the Riverside Marketplace Development Cooperation Agreement to Extend Sales Tax Transfer Agreement Between the City and Redevelopment Agency for the Merged University Corridor -Sycamore Canyon Project Area Through FY 2027-28 Background Several years ago, the City and Redevelopment Agency entered into a Marketplace Sales Tax Agreement which provided for project sales taxes in combination with tax increment be used to retire the Agency's Section 108 Loan and its City note. These obligations were incurred by the Agency to finance the Marketplace project. The agreement has been amended once in order to increase repayment resources by adding adjoining parcels located immediately adjacent to Marketplace project. The amendment was an interim step to help address the Marketplace project's cash flow deficiencies stemming from a skewed repayment schedule, which required especially large payments toward the end of the amortization schedule. The amendment also anticipated that the Agency would seek to secure a note modification from HUD to lengthen the term of the Section 108 Note repayment schedule and eliminate the FY 2000 balloon payment. It was hoped that HUD would allow the modification which would have lowered annual cash flow requirements by extending the term of the note. After several letter requests and phone calls to both local and federal HUD officials, staff was unsuccessful in obtaining a note modification. Officials at the HUD office indicated that due to a manpower shortage in their financing division, they were not equipped to deal with this type of request. Committee members may recall it took over 2 years to obtain the Mission Village Section 108 funds after the City received notice of the grant award. HUD's financial division is still experiencing personnel shortages. The Agency has repaid the Section 108 obligation using available project sales tax, tax increment and the merged project area fund balance. In traditional redevelopment projects and activities, an Agency's investment is usually recaptured by increased tax increment due to rising property values resulting from the enhanced investment. This allows additional bonding capacity to the Agency to further its redevelopment activities. In the case of this project, extraordinary environmental issues and clean up costs, litigation costs pertaining to condemnation cases and the general real estate recession, all contributed to a cash flow deficiency of the Marketplace project making it unable to perform as initially envisioned when undertaken by the Agency. If HUD had extended the amortization schedule for the Marketplace 108, the Sales Tax Agreement would have automatically been extended to correspond to the Section 108 term. Analysis The cash flow strictly generated from the Marketplace project was insufficient to meet the Section 108 debt service requirements. It was necessary to use merged Sycamore Canyon/Central Industrial Project Area fund balance to assist and these amounts were included each year in the annual budget. Unfortunately, this placed an extreme cash flow hardship on the merged project area's fund balance and its finances for future projects. 6-1