LOS ANGELES — A beleaguered Victorville, Calif. airport authority facing U.S. Securities and Exchange Commission fraud charges defaulted for the fifth time on bonds it issued to redevelop the airport from military to civilian use.
The Southern California Logistics Airport Authority announced in a Nov. 27 filing posted on the Municipal Securities Rulemaking Board’s EMMA website that it expected to miss $4.2 million of payments due Dec. 1.
The missed payments include principal and interest payments of $2.5 million on 2006 taxable subordinate revenue bonds and $1.6 million on 2007 subordinate tax allocation revenue bonds. It also failed to pay the $70,000 principal payment on 2008A subordinate tax allocation revenue bonds, but paid the $166,638 interest payment on that bond using the bond reserve funds.
“We are getting further and further behind,” Adele Mosher, the authority’s chief financial officer, said in a phone interview.
“Even when we get the revenues we are supposed to receive, because of the loss of value, we are not receiving as much revenues as we have debt,” she said. “And we have to make the reserves whole before we can make subordinate debt payments.”
The authority only received $8.3 million in the June disbursement of property tax increment to cover $12.09 million owed, according to the filing.
This is the fifth time since December 2011 that the authority has defaulted on its bonds.
The authority hopes to catch up on payments by 2016, however, said Mosher, who is also assistant director of Victorville’s city finance department.
A report from a fiscal consultant hired by the authority indicates that property values will grow enough to provide needed tax increment money to catch up on the bond payments by then, said Sophie Escobar, assistant director of economic development for Victor Valley Economic Development Authority.
Although the projections in the consultant’s report were conservative, the authority is dependent rising home values that could fail to materialize, Escobar acknowledged.
The authority issued $173.2 million in bonds in 2007 and 2008 to convert George Air Force Base, shuttered in 1992 by the U.S. Department of Defense, to civilian use. The Victor Valley Economic Development Authority, an entity that also includes the cities of Apple Valley and Hesperia and San Bernardino County, was created to spearhead the redevelopment efforts.
The bonds are secured by tax increment revenues from the airport, the city of Victorville, and surrounding areas, which have been hard hit by the housing downturn. The authority has issued a total of $347 million in debt, of which roughly half was used to build housing, according to the filing.
The redevelopment area encompasses a 4,000-acre area that includes the airport and housing and industrial development surrounding the airport. Bonds were issued to rehab the airport and to build housing and develop industrial properties. The authority was able to lease a 1 million square foot building last year and a proposal for a 1.3 million square foot building is currently before the planning commission.
For now, they will have enough to catch up on the interest and principal payments on the 2006 bonds, but the 2007 and 2008 bonds will remain in default until they replenish the reserve funds on the senior bonds, Mosher said.
Reasons cited by the authority for the default included the state’s requirement in 2009 and 2010 that redevelopment agencies contribute money to pay for shortfalls in school funding. The authority was required to provide $9.3 million to the county Supplemental Educational Revenue Augmentation Fund in fiscal 2009-10 and $1.9 million in fiscal 2010-11, according to the filing.
A decrease in property values also resulted in the assessed value of the airport redevelopment area falling from $9.49 billion in fiscal 2008-09 to $6.62 billion in fiscal 2012-13, according to the filing, causing tax receipts to tumble.
The state-mandated dissolution of redevelopment agencies in California that began in December 2011 also has contributed to the airport authority’s financial difficulties, according to the filing.
The county distributes money collected in two disbursements on January and June. The problem is that the January tax distribution is typically larger, which doesn’t match up with bond debt service schedules. Typically, the first bond payment of the year is interest only, and the second is interest, plus principal.
“It’s impacting our cash flow,” Escobar said. “We used to receive disbursements from the county a dozen times a year.”
Even as the authority is struggling to make the bond payments, it along with several others are facing SEC charges alleging that officials defrauded investors by inflating valuations on property in connection with a 2008 bond offering.
Victorville, city official Keith Metzler, the airport authority, underwriter Kinsell, Newcomb & De Dios, and KND Investment banker Janees Williams were all named in the lawsuit filed by the SEC in April.
U.S. District Court Judge John Kronstadt on Nov. 14 ruled against motions to dismiss three claims in the lawsuit lodged by the defendants and trial dates are being considered, according to court documents.