ALAMEDA, Calif. — A planned $138 million tax-allocation issue for Fremont’s redevelopment agency is the largest so far this year from RDAs around California rushing to market ahead of their potential demise.
In January, Gov. Jerry Brown announced a proposal to eliminate redevelopment agencies, as part of a plan to realign the way state and local governments split revenues and responsibilities.
It’s not clear if the plan will clear the Legislature. As of Friday, the Brown administration had yet to introduce the legislation to implement the proposal.
The administration expects to introduce that language sometime this week, said Department of Finance spokesman H.D. Palmer.
RDAs function by capturing the incremental growth in property taxes after a redevelopment area is created. They use much of that tax increment to repay bonds that finance improvements in those areas.
If Brown’s proposal is enacted, the tax increment not already pledged to bonds or other contracts would be used to help balance the state budget in fiscal 2012, then distributed to local agencies in subsequent years.
The governor made it clear that the elimination of redevelopment would not impair any bonds and contracts RDAs had entered into — he wants to eliminate the redevelopment agencies, but create successor entities to manage their existing obligations.
Redevelopment agencies around the state have been signing contracts and issuing bonds for the sole purpose of creating such obligations.
Case in point — the $138 million Fremont issue on this week’s calendar.
The agency is issuing the bonds at this time specifically because of the governor’s threat, according to city staff reports prepared in connection with the bond authorizations.
The majority of the proceeds will be used to finance construction of a train station on a new segment of the Bay Area Rapid Transit line already under construction in Fremont.
Fremont was planning to issue debt to finance the Irvington BART station later in 2011, according to the staff report prepared for the City Council’s Jan. 17 meeting.
“With the potential for the governor’s budget proposal to bring a halt to redevelopment projects for which debt has not been issued, staff believes it is prudent to request council and board approval for the issuance of tax-allocation bonds now,” the report said.
The Fremont deal, led by Goldman, Sachs & Co., comes to market with ratings of A-plus from Standard & Poor’s and A2 from Moody’s Investors Service.
Two smaller California agencies have tax allocation deals on the calendar this week, a slow week for the primary market.
Last week, redevelopment agencies in Blythe and Stanton both issued tax allocation bonds. Kinsell Newcomb DeDios priced $4.7 million of tax-exempt bonds for the Blythe agency, located on the Arizona border, at a yield of 9.75% for the 2038 maturity. The bonds were unrated.
On Friday, De La Rosa & Co. priced taxable tax-allocation bonds for Stanton, rated A-minus by Standard & Poor’s, with a top yield of 9.496% for the 2040 maturity.
The Orange County city went to market with the specific intent of “protecting the agency’s tax-increment revenue from any proposed elimination of redevelopment as described in the governor’s budget proposal for 2011-12,” according to staff reports prepared for the City Council, which meets as its redevelopment agency board.
Other cities and RDAs that have not issued bonds this year have taken actions to protect their tax-increment revenue.
In Los Angeles and Long Beach, for example, the redevelopment agencies set up contracts with the respective city governments to each pledge about $1 billion in future tax-increment revenues to the cities.