LOS ANGELES — The Reno Redevelopment Agency in Nevada recently went into technical default on a bond issue, and its larger fight for solvency has triggered a funding squabble with Washoe County.
The agency’s fate could be determined by the outcome of dueling opinions between the Nevada attorney general’s office and the Washoe County district attorney as to whether the county has failed to contribute taxes owed the Redevelopment Agency.
A shortfall in revenues resulting from a severe drop-off in assessed property values has put the agency in danger of defaulting on $35.7 million of bonds. The state’s budget and finance board is considering whether the RDA meets the criteria for severe financial distress, a finding that would result in the state taking control.
The dispute with Washoe County began when Reno officials unearthed a 1987 state statute while they were trying to find funds to make $2.9 million in bond payments due by the Redevelopment Agency in four installments through next September. A drop in assessed value since 2009 resulted in only $837,000 in incremental tax revenue available to the agency to pay its bills, down from $4.4 million in fiscal 2009 and $2.5 million in fiscal 2010, according to this year’s budget documents.
The statute states that the county must pay a portion of the indebtedness of any redevelopment agency formed before July 1, 1987. The dispute revolves around what formula should be used to determine the amount the RDA should receive from Washoe County in its disbursement of property tax assessments.
The agency made a Sept. 1 bond payment by drawing on a surety bond from National Public Finance Guarantee Corp., Reno’s finance director, Robert Chisel, said in an interview.
According to a presentation that Reno officials made to the state’s budget and finance board Oct. 13, use of the surety bond means the bonds are in covenant default as of Oct. 1.
The RDA used $334,987 held in a bond fund and $1.23 million of the $1.8 million from the surety bond to make a debt service payment of $1.5 million on the 1998F bonds on Sept. 1, according to a disclosure filing on the Municipal Securities Rulemaking Board’s EMMA site.
Reno officials hope that additional funding from Washoe County will help the agency solve its budget woes, but county officials dispute the attorney general’s interpretation of the 1987 law.
Washoe County uses the assessed value of the downtown redevelopment area in 1987 to calculate the amount paid to the Redevelopment Agency, Chisel said. This methodology may not necessarily equal the “amount which was being paid before July 1, 1987” as required by the statute, he said.
Gina Session, Nevada’s chief deputy attorney general for the division of business and taxation, said the amount owed should be a set rate that doesn’t fluctuate. Session said the county owes the redevelopment agency $2.7 million for this year, which is the amount of money it was spending to meet debt obligations prior to July 1, 1987.
The attorney general’s opinion also states that under the 1987 law, the county owes the Redevelopment Agency that amount for every year following the law’s passage.
David Creekman, Washoe County’s chief deputy district attorney, said the county has to help the agency this year because it is having trouble paying its debt, but doesn’t owe the agency additional money for the previous 24 years. County officials have not said what they owe the RDA, but contend it is less than $2.7 million.
Creekman also said Session only considered half of an important passage in the statute, and the second half of the statue modifies or conditions the first half, meaning the first half is not an absolute command.
The passage Creekman referred to states: “The taxing agencies shall continue to pay to a redevelopment agency any amount which was being paid before July 1, 1987, and in anticipation of which the agency became obligated before July 1, 1987, to repay any bond, loan, money advanced or any other indebtedness, whether funded, refunded, assumed or otherwise incurred.”
The second half of the passage includes the potential for refinancing the debt, Creekman said, so following the attorney general’s opinion to its natural conclusion means the obligation for the county to pay off redevelopment agency debt could go on forever. That flies in the face of the way most redevelopment agencies are funded, through tax increments that end when the debt for the project has been paid off, he said.
But Session said the second half of the passage could also bolster her own opinion. Though the pre-1987 debt has been refinanced, the statute states the obligation continues. She added, however, “It is not entirely clear whether as long as there is debt to be paid if Washoe County has to continue to make payments or if it is tied to the July 1, 1987, debt.”
It is now up to Washoe County and RDA officials, who are currently negotiating, to settle the matter, Chisel said.