SAN FRANCISCO — The Southern California Logistics Airport Authority said another round of defaults on its debt is on the horizon.
The SCLAA said in a disclosure filing to the Municipal Securities Rulemaking Board that it would default Dec. 1 on a combined $560,000 in principal payments due on its subordinate tax allocation bonds issued in 2007 and 2008. Last year, the authority defaulted on the same bonds on Dec. 1.
The authority, a government agency formed by Victorville, Calif. and its water district, blamed cash flow problems as a result of the dissolution of the state’s redevelopment agencies as partly responsible for the defaults.
“The default has been anticipated by SCLAA largely due to legislative maneuvers by the state of California to shift redevelopment funds and eliminate redevelopment agencies to satisfy the state’s budgetary shortfalls,” said Victorville Mayor Ryan McEachron in a statement.
The default would be the SCLAA’s third in a year after another default last December on bonds also issued in 2007 and 2008 because indenture agreements restricted it from using reserves to make principal payments.
The authority issued $173.8 million of bonds in 2007 and 2008 to refurbish a former Air Force base in Victorville and refinance debt sold earlier to fund development. Securing the bonds are tax increment revenues from the airport, the city and surrounding areas, which have been hard hit by the housing downturn.
The SCLAA has only $9.9 million of tax increment revenue on hand to pay $12.8 million in debt service payments due Dec. 1 for SCLAA bonds, according to the filing. The authority plans to use reserves to make much of the December payments.
Victorville assistant city manager Keith Metzler said the delay in the distribution of tax increment due to the process created by the dissolution of RDAs has created cash flow issues.
“There is a very relevant issue with respect, not withstanding the cash flow issue — is there adequate tax increment to satisfy the obligation? And the answer to that is no,” said Metzler.
Metzler said the debt service coverage ratio for the last three years on the authority’s tax allocation bonds has been below one. He expects the city to cure the defaults next year and likely avoid default on payments due June 1.
The SCLAA was created to build the Southern California Logistics Airport and develop the surrounding area in the high desert area 80 miles northeast of Los Angeles. It gets it tax increment revenues from the Victor Valley Economic Development Authority, another joint powers authority set up for redevelopment, whose members include surrounding cities and San Bernardino County.
VVEDA is suing the state of California over its dissolution because it contends it is not a redevelopment agency.
The authority’s defaults are part of a string of financial problems the city has faced in recent years.
A county grand jury in July tried to detail the convoluted finances of Victorville and its related agencies, and revived questions about the way the high-desert city used bond proceeds. That report said the SCLAA “repeatedly mishandled bond expenditures,” including spending bond proceeds on development projects outside its scope and dedicated area.
The Securities and Exchange Commission has also scrutinized the city’s bond sales.