SAN FRANCISCO — The Southern California Logistics Airport Authority is facing a bond default because it cannot make a $10 million debt service payment due Thursday because of the legal uncertainty surrounding California redevelopment agencies.
The SCLAA, which is governed by the members of the Victorville City Council, said in a disclosure filing the default would happen because it will be unable to get a loan from the Victorville Redevelopment Agency, its normal method of covering short-term gaps in cash flow.
Since the fate of California’s RDAs is tied up in a lawsuit before the state Supreme Court, SCLAA officials said they cannot make the short-term loan.
While the exact amount of outstanding bonds tied to a potential default is unclear, the authority issued seven series of tax allocation bonds from 2005 to 2008 totaling about $300 million.
“We have been advised by legal counsel that due to uncertainties that arose out of discussions at the California Supreme Court, any non-SCLAA tax increment funds used to temporarily cover this debt would be at risk of not being reimbursable due to the potential for the elimination of RDAs in California,” Douglas Robertson, executive director of the SCLAA and Victorville city manager, said in an email.
The high court is weighing a challenge by the agencies and their advocates to two laws passed this year. One eliminates the state’s 400 RDAs, while the second gives them the option of coming back to life if they pay $1.7 billion this year to fill a gap in the current budget. A decision by the court is expected by Jan. 15.
The authority said it gave $3 million to the trustee to pay what it can of the $6 million due on the senior tax-allocation revenue bonds at the start of next month. That leaves the SCLAA $7.4 million short of the $10.5 million of debt service payments, which will be paid out of a reserve account held by the bond trustee, according to a disclosure filing to the MSRB. City documents say the airport authority had $21 million in trustee reserve accounts for the bonds in question as of Dec. 31, 2010.
Robertson said if the court decides in favor of redevelopment agencies without forcing them to make a state payment, the authority would borrow funds from the city’s RDAs to refill the reserve. If the court rules against RDAs, Robertson said debt service payments would have to come from whomever takes over for the agency as laid out in the legislation.
Tax increment revenues from the airport, the city and surrounding areas, which have been hard hit by the housing downturn, secure the subordinate bonds.
In April, Moody’s Investors Service downgraded $51 million of the SCLAA’s subordinate non-housing tax allocation bonds to B1 from Ba3 and kept a negative outlook on the non-investment grade debt due to a rapid deterioration of property values and weak debt service coverage.
The airport authority showed a negative fund balance of $101 million, according to Victorville’s fiscal 2010 comprehensive annual financial report. The report said the authority has more than $320 million of outstanding debt. Its debt service for fiscal 2011 was $21.6 million. Most of the debt was issued to fund redevelopment of the decommissioned George Air Force Base into a transportation hub.
The authority’s potential default is part of a string of financial problems the city has faced in recent years, some of which have grabbed attention from government authorities. Victorville’s bond sales have recently been scrutinized by the Securities and Exchange Commission and a local grand jury is still conducting a multi-year investigation into the city’s finances. No reports have been released.
The SCLAA is a joint powers authority between Victorville and the city RDAs. Council members serve as the authority’s commission and the city manager is also the agencys’ executive director.q
However, the airport is also part of and gets revenues from the Victor Valley Economic Development Authority, whose members include surrounding cities and San Bernardino County.