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HomeMy WebLinkAbout05/18/1999, 4 - REDEVELOPMENT AGENCY FEASIBILITY STUDY COUnCIL s-ie- 7 j agenda RepoRt T.Nb CITY OF SAN LUIS OBISPO FROM: Bill Statler, Director of Finance Ken Hampian, Assistant City Administrative OfficerKe SUBJECT: REDEVELOPMENT AGENCY FEASIBILITY STUDY CAO RECOMMENDATION Do not proceed with forming a redevelopment agency. DISCUSSION Overview As set forth in the comprehensive study prepared by Urban Futures, Incorporated (UFI), it is feasible for the City to form a redevelopment agency: we have areas that qualify as blighted under the State's stringent requirements (although the downtown does not qualify); the County and San Luis Coastal Unified School District are open to this process, and there are clear State guidelines for sharing tax increment revenues with them; and in the very long run,there could be very favorable fiscal benefits. However, forming a redevelopment agency would be a very time-consuming process requiring senior staff involvement; and at least initially, there are minimal fiscal.benefits. In the first year, UFI projects net tax increment revenues (after accounting for housing program set asides and what the City's General Fund would have received anyway) of about $11,500. Within five years, this might grow to$54,800 annually. However, there are a number of significant ongoing administrative and accounting responsibilities that go with redevelopment agencies, and these are likely to be equal to (or greater than)projected revenues,at least in the early years. As such, given that this effort would significantly detract from achieving other high-priority City goals, we do not recommend taking further action in forming a redevelopment agency in the foreseeable future. On the other hand, deferral should not be taken lightly: for a number of reasons, this is an excellent time to form an agency; and any potential benefits will only decline in future years. In short,if we ever want to do this,now is probably the time to do so. Background As part of the 1997-99 Financial Plan objectives for economic development, the Council approved evaluating the feasibility of forming a redevelopment agency. On March 5, 1998,the Council held a study session led by UFI on the general characteristics of redevelopment agencies and their potential benefits, including: their purpose and the kinds of allowable activities that can be funded through them;the strict criteria that must be met in forming a redevelopment agency; the process for forming an agency; and their funding sources and fiscal benefits. 4-1 Council Agenda Report— ,.Development Agency Feasibility Study Page 2 Based on the results of this study session, the Council approved a contract with UFI on June 16, 1998 in the amount of $20,000 to prepare a more formal feasibility study addressing eligibility, revenue potential and likely agency boundaries. Findings As detailed in their report,UFI concludes that it is feasible for us to form a redevelopment agency: • We have areas that clearly qualify as blighted under the State's stringent requirements (although the downtown does not qualify). • The County and San Luis Coastal Unified School District are open to this process, and there are clear State guidelines for sharing tax increment with them. • In the very long run, there could be very favorable fiscal benefits: after 20 years at a 2% growth rate per year, UFI projects net annual revenues to the agency of about $190,000; and $318,600 annually after 30 years. Cumulatively at 2% growth per year, UFI projects "net" agency revenues over the next 45 years of about$12 million. (It is important to note that these are 1998 dollars; if discounted for present value,these would be significantly less.) However, redevelopment "tax increment" revenues are a "zero-sum" game: no "new revenues" are generated by forming an agency; only the apportionment of tax revenues—their "incremental" growth over time—is affected. The following is a summary of how tax increment revenues are derived, using the recommended Survey Area (Figure 2, page 10) and tax increment projections in Appendix B of the report as an example: • Base Year (1999-00). The assessed valuation of the survey area is estimated by UFI to be $128.3 million in the fiscal year immediately prior to forming the redevelopment agency (assumed to be 1999-00 in the study). Accordingly, this area generates about $1,283,000 in general purpose revenues (1% of assessed value) for all local agencies combined such as the County, cities, schools and other special districts. The current apportionment of these "base year"revenues to these agencies is unaffected by the formation of a redevelopment agency. • Tax Increment Revenues. If assessed value increases by 2%, "tax increment" revenues will be $25,700 in the fust year, and if assessed value increases by 2% in the next year, total tax increment revenue in the second year will be $51,900. While these "incremental" tax revenues from the "base year" form the basis for redevelopment agency revenues, the agency does not receive all of the increment. Under a complex apportionment formula set by the State, the agency receives a declining share over time, starting at a high of 75% in the first ten years, to 40% at the end of the survey area's life(45 years—the maximum term than an area may generate redevelopment tax increment). • Net Revenues. In projecting revenues available to fund agency projects, two adjustments need to be made in determining "net" revenues: the 20% portion of the increment that must be set aside for housing programs; and the 18% portion (before ERAF) of the increment that the City would have received anyway. For this reason, the "net" available to the City in the first year is only$11,500 summarized as follows: 4-2 Council Agenda Report— ...development Agency Feasibility Study Page 3 Net Tax Increment—First Year Total tax increment 25,700 Portion to the City @ 75%* 21,300 Less 20%housing set aside (5,100) Less increment attributable to the General Fund (4,700) Net tax increment revenue $11,500 • The effective rate is 83%due to adjustmentsfor the housing set aside. Other Benefits. In addition to tax increment revenues, there are other potential policy benefits to forming a redevelopment agency, such as the use of property condemnation for economic development purposes. (Of course, this is also a potential tool that makes many residents and property owners uncomfortable.) Impact on Other Agencies As reflected above, forming a redevelopment agency does not increase property revenues, but rather, re-allocates to the agency a portion of any incremental tax revenues due to increases in assessed value. The rationale for this is that "but for" the actions of the agency, this growth would not have occurred at all. In our case, over 70% of the tax increment revenue would be redirected from two agencies: San Luis Coastal Unified School District(about 38%) and the County (about 33%). For most school districts in California, this change in apportionment would not result in lower overall revenues, because the State would back-fill the difference. However, due largely to the Diablo Canyon and Monro Bay power plants, San Luis Coastal is a relatively high-wealth district and is classified as a "basic aid" district. This means that most of their revenue comes from property taxes, and under State funding formulas for basic aid districts, they would not receive any State back-fill for the tax increment revenues allocated to our agency. If we could make a compelling case that "but for" forming an agency, there would be no tax increment revenues,then this revenue transfer could easily be justified. However, there is nothing in the feasibility study that would support such a conclusion. Accordingly, we are concerned that we would simply be taking away revenues from two other agencies that provide important services to our community—something we have strongly criticized the State for doing to us. In short, the question other agencies will ask is: how much of this growth would have occurred anyway without a redevelopment agency? Potential Agency Boundaries One of the key issues the Council asked UFI to evaluate is the boundary of a potential agency. As shown in the Study Area (Figure 1,page 8 of the report),the Council asked UFI to study seven areas: Foothill/Santa Rosa, Downtown, Upper Monterey, Mid-Higuera, Madonna Road, Santa Barbara Street (railroad area) and South Broad Street. (Note: In forming a redevelopment agency, areas do not have to be contiguous.) After evaluating the characteristics.of these areas relative to the State's requirements for forming a redevelopment agency,UFI arrived at the Survey Area(Figure 2,page 10 of the report). This is much smaller than the Study Area,and does not include the downtown. 4-3 Council Agenda Report—►._aevelopment Agency Feasibility Study Page 4 If we were to proceed with forming a redevelopment agency, UFI recommends (and staff concurs) that the boundary should be as large as possible. Given the effort we would put forward in creating and administering the agency, then we should maximize our revenue potential. However, the larger the area, the more complex the undertaking—and the more opposition we can expect. On the other hand,a smaller area means smaller fiscal benefits; and at some point, unless the area is large enough, there will not be sufficient fiscal benefits even in the long run to justify forming an agency. FISCAL IMPACT There are no direct fiscal impacts with not proceeding with the formation of a redevelopment agency. In the long term,however, there could be substantial revenues that we are foregoing by this action. If the Council decides to go forward with the next steps outlined in the study in forming a redevelopment agency,we estimate consultant service costs of between $30,000 to $50,000 to do so. Additionally,this would mean a significant commitment of senior staff resources. ALTERNATIVES Proceed with Forming a Redevelopment Agency As set forth in the feasibility study, forming a redevelopment agency is a viable option that may have significant fiscal benefits in the very long term. However, based on experiences in other communities, this will be a very time-consuming effort requiring a significant commitment of senior management resources as well as consultant assistance due to the highly political and technical nature of this process, and the number of things that can go wrong. Many community members, property owners and affected government agencies will be very interested in this very public process, and we should not under-estimate how exhausting this process may be. Additionally, once the agency is formed,'there will be significant ongoing administrative and accounting efforts to meet State compliance and financial reporting requirements. Lastly, there are perceived (and at times, real) abuses by redevelopment agencies, and this results in greater scrutiny and ongoing changes by the State in the rules (and related revenues) governing redevelopment agencies. This means that the fiscal benefits in forming a redevelopment agency may decline over time. For example, redevelopment agencies were especially hard-hit by the State take- aways of the early and mid-90's. Consequences of Not Proceeding Now However, we should not take deferring action on this lightly. While proceeding now will require a significant commitment of resources to achieve benefits that may take a long to see, there are advantages to going forward at this time: We have involved the County and the school district in this study process,and they are generally open to the concept of the City forming a redevelopment agency. While their ultimate support would depend upon many details yet to be resolved (such as some form of at least partial mitigation, or assurances that they are not giving-up tax increment revenues that wouldJtayle Council Agenda Report—kouevelopment Agency Feasibility Study Page 5 happened anyway), their receptivity to this concept in the future can not be guaranteed. And although their "support" is not legally required, we would like to avoid the adversarial relationships that have developed in many other communities over this issue. However, in order to do this, it is likely that we would have to share (indirectly—the State does not allow changes in the tax increment allocation formula) at least some of the increment, further eroding the fiscal net benefit to the City in forming an agency. • The rules for forming redevelopment agencies are likely to become even more complex and difficult in the future. • .In a post-Proposition 218 environment, there are limited revenue enhancement opportunities available to the Council. While it may take a long time to see the fiscal benefits, this is one of the few revenue improvements that the Council can initiate. And for many cities in California (most of which have redevelopment agencies—there were 394 agencies in 1996), their agency is the primary funding mechanism for their capital improvement programs. • The longer we wait, the less fiscal benefit there will be. As properties develop in the interim, there will simply be less increment to capture. In short, while not an irrevocable decision, we should realize that we are not likely to take this issue up again for some time; and if this issue arises again in the future, the benefits identified in this report may be significantly lower or no longer exist. SUMMARY The feasibility study concludes that forming a redevelopment agency is a viable option that may have significant fiscal benefits in the very long term. However, achieving these long-term benefits will require a major work effort in the short term. The key policy and resource questions before the Council are: • Do the very long term benefits of forming a redevelopment agency offset the significant resources—and distraction from achieving other high-priority goals—that will be required in the near term? • Is there a compelling reason for transferring property tax revenues from schools and the County to the agency? The question will be posed: would this increment have occurred anyway without the formation of a redevelopment agency? Given limited staff resources, and how this effort would significantly detract from achieving other high-priority City goals, we do not recommend proceeding with forming a redevelopment agency in the foreseeable future. AVAILABLE FOR REVIEW IN THE CITY CLERK'S OFFICE Redevelopment Feasibility Study Prepared by Urban Futures(Previously Distributed to Council) H:Redevelopment Agency Concept/Agenda Report—June 1,1999 4-5 MEETINT AGENDA DATE -1 g'9l ITEM # From: James Lopes <jlopes®fix.net> To: jmarx <jmarx®ci.san-luis-obispo.ca.us>, 3ewan jewyla.0 E) O Date: 5/17/99 11:42pm Nino ❑ Subject: Redevelopment Agency Feasibility Study HIO 63H❑ Mi IWEJW 0 AH03011010 JIHorAung HIO Md❑ A3P:HOLL� Dear Mayor and City Council Members: i3lHO 3HId❑ 6I0 RE: Redevelopment Agency Feasibility Study HI0 0❑ 1. .:,.GOfd I have read the subject report for this item, and I support a further investigation into the costs of staffing an agency formation effort, to address staff's concerns. This report is positive about the potential benefits. Other communities have benefited from their agencies' efforts. A redevelopment agency could provide the tools needed to induce major new, sales tax-generating development (which wasn't addressed in the report) . The report identifies Madonna Plaza and Central Coast mall as blighted parts of the community that could benefit from several redevelopment incentives. Without these tax measures, the city's toolbox is a lot smaller. Recently, I have asked for the city to be more proactive about planning the kinds of shopping centers that are desirable to the community. The general plan calls for this, yet we still do not have a community effort at this. In addition to a vision for these centers, the city needs major incentives available to interest the property owners in making improvements. However, you may not wish to proceed with a redevelopment agency, and I understand staff's concerns about the investment in time and energy it would take. An alternative might be to ask staff to start a scoping process with the community to re-design these centers, and investigate other creative financial incentives than those available through redevelopment. Although these efforts would also have staffing implications, they would implement the general plan policy more robustly than previous efforts. Thank you for your consideration. I have obtained the full reports and plans for the Boulder valley Regional Center redevelopment effort that I wrote about earlier, for your use if interested. It is illustrative of a community planning effort for a blighted commercial area that includes a major mall. Sincerely, James Lopes 2230 Exposition Drive #30 San Luis Obispo, CA 93401 781-5975 (w) , 541-1681 (h) jlopes@fix.net im SL MEETING a�9 AGEA_.. O'CGUNCIL D'DIR DATE=ITEM # �p0 FlN DIR ' Meetin9 Dates Q -1 O FIRE CHIEF INEy o FW ow CC = , KO OR1POUCECHF AG MGMT TEAM O REC DIR PC = DIR 13� p M DIA SAMPLE ' SCHEDULE OF EVENTS SAN LUIS OBISPO REDEVELOPMENT PLAN Time ' frame Task 1. City Council adopts resolution designating Survey Area and directing staff to prepare ' Survey Area analysis. 2. Council considers resolution requesting the Planning Commission to select Project Area boundaries and to formulate a Preliminary Plan for the Project Area. I3. Council/Agency Board members file written statements of direct and indirect financial interests in property in the Project Area (for inclusion in the minutes of each body). ' 4. Planning Commission considers resolution selecting Project Area boundaries and approving and adopting a Preliminary Plan for the Project Area. 5. Agency considers resolution accepting the Preliminary Plan (H&S 33325), establishing the last equalized assessment roll to be used for the allocation of taxes, authorizing the preparation of an EIR and authorizing the transmittal of information to taxing agencies and officials. 6. Agency considers resolution approving the Preliminary Report and authorizing transmittal to the County and all affected taxing entities. ' 7. Consultant transmits Notice of Preparation of EIR to all affected entities and to all taxing agencies (30 days for responses). ' 8. Consultant transmits (certified mail, return receipt requested) information to all affected taxing agencies, the County Auditor, the County Tax Assessor, the County Tax Collector and the State Board of Equalization. Assumes receipt on I 9. Consultant begins preparation of Draft EIR, Relocation Guidelines, Owner Participation Rules, the Preliminary Report, and the Report of the Agency to the Council. I 10. Agency adopts resolution stating its policy of eminent domain. 11. City Council considers need to form Project Area Committee (PAC) and/or other forms of community participation/education. 12. Agency receives Report of County Fiscal Officer required by Health & Safety Code Section 33328. I13. Consultant completes preparation of the Preliminary Report. 14. Consultant completes preparation of the Redevelopment Plan and Draft EIR. RECEIVED 8/28/98-C:1C1iv04%SL001 NPROJSCHD.vom 1 MAY 1 g 1999 SLO CITY CLERK Time frame Task 15. Consultant and Agency staff begin consultation with each taxing agency which levies taxes on property in the Project Area with respect to the Plan and to the allocation of taxes pursuant to Section 33670. 16. Agency considers resolution receiving the Redevelopment Plan and authorizing transmittal of the Plan to the Planning Commission and affected taxing entities. 17. Consultant transmits (certified mail, return receipt requested) the Preliminary Report to all affected taxing entities. 18. Consultant transmits the proposed Redevelopment Plan to the Planning Commission and affected taxing entities, as required. 19. Consultant transmits draft EIR to reviewing agencies, individuals and the Planning Commission and files a Notice of Completion. 45-day public review period begins through 20. Newspaper publishes a Notice of Completion and provides the Agency with an affidavit of publication. Also pursuant to CEQA Guidelines post notice with County Clerks Office. 21. Planning Commission reviews the Redevelopment Plan and prepares a report to the Agency finding that the Plan conforms to the General Plan (within 30 days after Agency submittal of the Plan►. 22. Agency considers resolution approving Rules for Owner Participation and Business Reentry. 23. Agency considers resolution consenting to a joint public hearing with the Council on the Redevelopment Plan and the EIR and requesting Council to set the time, date and place of the hearing. 24. Council considers resolution consenting to a joint public hearing with the Agency on the Redevelopment Plan and the final and directs the City Clerk to set the hearing. 25. Mailing house mails (first class) the Notice of Joint Public Hearing to the last known assessee of each parcel of property, residents and business owners within the Project Area and the governing bodies of the taxing agencies (certified mail, return receipt requested) which levy taxes on property in the Project Area. 26. Newspaper publishes the Notice of Joint Public Hearing (Plan and EIR) once a week for four successive weeks and provides the Agency with an affidavit of publication. The Notice of public informational workshops with property owners and interested persons is also published. 27. Consultant completes preparation of the Report to Council on the Redevelopment Plan. 28. Consultant delivers document binders, including Agency's Report to Council, to Agency/Council Members. 812MS-C:\CiTv04\SL007\PROJSCHD.wPD 2 r Time Task. frame 29. Consultant and Agency Staff hold informational workshop to consult with and obtain the advice of property owners, residents, interested citizens and community organizations and to review the Redevelopment Plan and answer questions before the' public hearing. 30. Agency considers resolution approving the Report to Council and authorizing transmittal of the Report to Council and document binders to City Council. 31. Council and Agency hold a joint public hearing on the proposed Redevelopment Plan and the EIR. Actions to be taken: 1. Agency receives evidence and testimony for and against the Redevelopment Plan and certification of Final EIR. Council evaluates the Report of the Agency, �f the Report and Recommendation of the PAC and all evidence and testimony for and against the adoption of the Redevelopment Plan and certification of Final EIR. 2. Agency considers resolution finding that the provision of low and moderate income housing outside the Project Area will be of benefit to the Project Area. 3. Council considers resolution finding that the provision of low and moderate income housing outside the Project Area will be of benefit to the Project Area. Council can introduce ordinance approving and adopting the Redevelopment Plan for first reading if no written objections are received. If any written objections are received, the Council may adopt the Plan only after consideration of the objections and the adoption of written findings in response thereto at a subsequent date not less than one week after the time the hearing on objections has commenced. 32. Council considers resolution adopting written findings in response to written objections if written objections are received. 33. Agency considers resolution certifying the completion of the Final EIR and recommending adoption of the Redevelopment Plan. 34. Council considers resolution approving and adopting the Redevelopment Plan and certifying the completion of the Final EIR. 35. Council introduces Ordinance approving and adopting the Redevelopment Plan for first reading. 1. Ordinance No. _ 36. Council gives second reading to ordinance approving and adopting the Redevelopment Plan. 1. Ordinance No. 37. Ordinance is filed with the City Clerk. 8/28/98-C:WYMS10011PROJSCHD.waD 3 Time Task frame 38. Consultant files Notice of Determination regarding Final EIR with the County Clerk and, if necessary, Office of Planning and Research (to be hand-carried to the County Recorder's office) within 5 working days of adoption of ordinance adopting the Redevelopment Plan. [Note: Verify that County Clerk DOSts this Notice to start statute of limitations]. 39. City Clerk records a document (to be hand-carried to the County Recorder's Office) which includes`: 1. Legal description of the Project Area 2. Statement that redevelopment activities have been instituted. 40. City Clerk notifies Building Department to advise all applicants for building permits in the Project Area that the site is within a Redevelopment Area.' 41. City Clerk transmits to the Agency a copy of the Ordinance adopting the Redevelopment Plan.' 42. Consultant transmits (certified mail, return receipt requested) copies of the ordinance adopting the Redevelopment Plan and other information to the governing bodies of all taxing agencies which levy ad valorem taxes within the Project Area, the County Tax Assessor, the County Auditor, the County Tax Collector and the State Board of Equalization.• 1. Transmittal Letter 2. Legal description of the Project Area 3. Map or plot indicating the boundaries of the Project Area 4. Ordinance adopting the Redevelopment Plan f43. Newspaper publishes Ordinance within 15 days after adoption (Gov. Code 36933). 44. Ordinance adopting the Redevelopment Plan becomes effective 30 days after its adoption. *Within 30 days of second reading of ordinance Note: This sample schedule of events does not include tasks that would be necessary to create and operate a Project Area Committee (PAC). Inclusion of said tasks would increase project time frame by approximately three to five months. 8/28/98-CACiTYMSLO01 PROJSCHD.wpD 4