WEST COVINA — Councilman William Tarozzi used to say that the city was not minding the store on redevelopment projects. Now, he says the city is practically giving the store away.
Tarozzi opposed terms of an agreement approved by the City Council Monday which calls for the city's Redevelopment Agency to contribute $2.4 million to help construct a parking garage as part of a $150-million office, retail and hotel project. Although the agreement no longer contains a guarantee, the agency hopes to get its money back if the project succeeds.
Tarozzi said Monday's action, which revised an earlier agreement, benefits Santa Monica developer Watt Investment Properties Inc., while it puts the city's financial security at risk.
"If we keep giving away the store, the developers will keep coming back for more," said Tarozzi, a self-described fiscal conservative who made redevelopment policies the focus of his successful council bid in April.
But Mayor Nancy Manners and Councilman Robert Bacon said the agreement, under which the agency will help Watt finance a $7.75-million parking structure, was needed if the long-delayed project is to be built.
Watt officials said the agency's participation in the garage portion of the project is crucial for the developer to get financing.
The agreement calls for the city to sell 20-year bonds to finance the garage. Watt will be responsible for paying off the bonds, but the city will contribute $240,000 of the $660,000 annual payment for up to 10 years. After the 10th year, Watt would be solely responsible.
The agency will assume ownership of the garage after the bonds are paid off, and sell or lease it back to the developer.
Under the agreement, Watt would repay the $2.4 million to the city when two office buildings, which are part of the project's first phase, are sold or refinanced. Construction of the four-story buildings began in April.
Completed by 1990
Leonard Eliot, assistant city manager in charge of the Redevelopment Agency, said he expects the property to be refinanced within eight years of completion, expected sometime late next year or in 1990.
Tarozzi, unsuccessfully seeking to delay a vote on the revised agreement, said the agency is not adequately protected. He said that if the project is unsuccessful the agency would lose all or part of the $2.4 million. He believes the requirement to repay the debt should be ironclad, with Watt liable to repay the agency's contribution to the garage as well as the $1.1-million purchase price for the land on which the office buildings are being constructed. The land will be sold by the agency to Watt as part of this agreement.
The agency has already agreed to defer Watt's payment on the two acres until the office buildings are refinanced or sold by Watt to another developer. City officials say that such an arrangement is not uncommon and that the agency eventually will get its money back, plus 9% interest.
The council, voting as the Redevelopment Agency, modified an earlier pact which Tarozzi said provided that ironclad guarantee. The first agreement would have required Watt to repay the city in full regardless of whether the project succeeded.
The garage is a vital part of the Lakes at West Covina development, which would cover 21 acres at the intersection of State Street, Garvey Avenue and the San Bernardino Freeway. Without the garage, the site falls far short of the needed parking spaces.
Envisioned as the largest redevelopment project in the San Gabriel Valley, the Lakes project would include four office buildings, retail shops, a six-screen cinema and a 300-room Marriott hotel amid 1.5 acres of ponds.
The agency has agreed to contribute $1.1 million for on-site improvements, landscaping and utility connections.
Manners and Bacon acknowledged the financial risk but said the agency's participation is vital if Watt is to secure financing and continue work on the project.
They denied Tarozzi's claims that the city was caving in to Watt's demands.
"We seem to be giving in very often, but we have to look at the total picture," said Manners, who called the proposal "an unusually good deal" for the city.
Bacon, like Manners, said he expects the project to succeed despite the untested market for large office and hotel developments in the San Gabriel Valley. That uncertainty has been blamed for driving off two previous development firms and keeping the project on the drawing boards for almost a decade.
Tarozzi agreed that the project will probably succeed, but said that he wanted the agency protected.
The agreement also contains advantages for the agency, Eliot said. He pointed out that the agency would begin receiving 10% of the income from the office buildings when they are fully leased. Such payments could begin within three years after the offices are opened, Eliot said.
Roger O. Williams, senior vice president in charge of financing for Watt, said the company's permanent financial backer, Kentucky-based Capital Holding Life Insurance Co., would not fund the project without the safeguards in the revised agreement.
"If the market does not prove as fruitful as we think it will be, then there is a possibility that a portion of the contribution would not be repaid," Williams said.
Tarozzi argued that the agreement should be reworded so that Watt or the lender would have to reimburse the agency for all its contributions if the project fails. He said he did not believe Williams' statement that Watt would pull out of the project if the agreement was not revised.
Bacon said the city drove the hardest bargain possible.
"We have negotiated as hard as we can," he said. "You have to make (the deal) competitive to allow it to be successful."