With the immediate future of redevelopment funds in limbo, the City of Santa Monica may take a bold step forward in attempting to bring a few prized projects to reality. A seven-year, $60 million bank term loan from Wells Fargo Bank was approved by a 5-1 vote to fund four capital improvement projects at a special joint meeting of the Santa Monica City Council and the Redevelopment Agency (RDA) on March 8.
With the approval, members of the RDA expressed hope that the $60 million be made available immediately in order for the City to move forward on four “priority” capital projects, including the Palisades Garden Walk, Pico Library, Parking Structure 6, and Civic Auditorium Renovation.
“The bank loan and related actions … provide an immediate source of funding for financing the Agency’s projects,” said Carol Swindell, the City’s finance director. “The funds from the Wells Fargo term loan will be used to fund development priority projects that have achieved the significant critical path milestones in design, development, community input, environmental analysis, and construction cost estimates.”
Swindell also indicated that the loan is solely the obligation of the RDA.
“It is important to note that the loan will be an obligation solely of the agency payable from tax increment and will not be an obligation of the City’s general or other funds,” she stated.
An issue not fully addressed by the agency, council members, or staff was whether the loan amount was taken under the assumption redevelopment funds would continue to be made available, or should such funding be eliminated, how the $60 million would be repaid.
Even more, as the loan amount does not cover the entire costs of the four proposed projects – which, according to the staff report, exceed an estimated $112 million – it was not addressed how each project would move forward, if at all, should funding run out.
“How all of this plays out in the context of the yet-to-be-articulated elimination of redevelopment is a little unclear,” Kurt Yaegar, an attorney with Stradling, Yocca, Carlson, and Rauth, stated to the RDA. “I’ve been doing this an awful long time (and) I’ve never seen anything quite like this.”
According to a staff report prepared by Andy Agle, the City’s director of Housing and Economic Development, proposals were solicited by Bank of America, JP Morgan Chase Bank, and Wells Fargo Bank, with the latter providing the best terms to the City.
“Staff obtained competitive quotes and Wells Fargo provided the most advantageous terms via a seven-year term loan,” Agle stated in his staff report. “Given the relatively restrictive credit market for redevelopment agencies at this time and the limitations on the agency’s ability to concurrently finance all the projects with pay-as-you-go funding, the bank loan provides an immediate source of funding for the projects. The terms of the loan allow the agency to prepay it at any time.”
Council member Bobby Shriver seemed to be worried about heading into such uncharted territory, especially considering how much money is at stake and the lack of certainty surrounding the future of redevelopment funds.
“It’s a very big number, $60 million,” said Shriver, who was the sole opposition vote. “I know we are under significant time pressure … but I am nervous about it.”
Providing an alternate perspective was Council member Kevin McKeown, who was excited that projects such as Pico Branch Library, Palisades Park, the Civic Auditorium, and Parking Structure 6 would be brought to life with the Wells Fargo term loan.
“I’m not sure, given the circumstances and the mercurial changes coming out of Sacramento, that anybody can really assess what the things to be nervous about are and the things to be thrilled to death are,” McKeown said. “The part I am thrilled to death about is what this money will be used for. These are projects that are ready to go, that are immediate, that are proven in terms of public process.”
Only one speaker commented on the loan issue, resident Denise Barton.
“I wonder how much this is going to cost taxpayers,” she pondered during public comment.
The true cost to the taxpayer may not be easily discernible, especially since only the RDA is on the hook for the $60 million, meaning Wells Fargo will not be able to cure a default on the term loan by proceeding against the City. However, Yaeger said the City’s general fund, which is subsidized by tax dollars, would be off limits to Wells Fargo in the event the Santa Monica RDA defaulted on the $60 million term loan.
“This obligation will state explicitly in the credit agreement that it’s payable only through tax revenues of the agency,” he explained. “Tax revenues are going to be defined as that tax increment which is going to be made available to pay the loan back. It will be very clear in the four corners of the agreement that this is not a liability of the City’s general fund.”
Yaeger added should the tax increment not actually be available in light of the very real possibility redevelopment funds are eliminated, “the bank would have no recourse to any other source of funds including resources of the agency itself.”
In a separate motion considered by the council, five of the six council members present approved the staff recommendation to “direct the Director of Finance to segregate the prepayment by the agency of funds due the City” and authorize the city manager to handle several contractual matters, including a legal services agreement and an options contract.