PICO RIVERA — Los Angeles County will step in to help this city make its payments to municipal bondholders on time, officials said.
The city's Redevelopment Agency would have been unable to pay an estimated $81,000 due this year and $730,000 next year to the holders of $63.2 million in bonds, City Manager Dennis Courtemarche said.
In an arrangement approved late last month by the Board of Supervisors, the county agreed to allow Pico Rivera to make the bond payments by using property tax revenues that normally would have gone to the county. The county's decision will allow the city to avoid possible default on the bonds and such alternatives as tapping the city's general fund and cutting city services.
If necessary, the county would defer up to $19.7 million in property tax money in the next 30 years, said Diane Shamhart, an assistant division chief with the county's administrative office.
The basic problem is that Pico Rivera's redevelopment zones are not earning as much money for the city as had been predicted.
It was just 19 months ago that the county authorized Pico Rivera to sell the bonds. The bond repayment plan unraveled, in part because "there were some calculations based on certain assumptions that didn't come true," Courtemarche said.
"Somebody either overestimated or underestimated," the city manager said.
Los Angeles bond underwriters Chilton and O'Connor Inc. served as bond advisers to the city. The consultant who worked with Pico Rivera could not be reached for comment.
Two unforeseen circumstances made the problem more acute, Courtemarche said:
* Revenues from Northrop Corp.'s plant, which is in a redevelopment zone, turned out to be much less than anticipated. The defense industry giant is the city's largest employer and greatest generator of both sales and property tax money. The tax value of the plant's equipment decreased by $38 million, Courtemarche said. As a result, the city lost about $400,000 in tax revenue.
* The agency is also getting less property tax money than it's entitled to on several redeveloped parcels because county tax rolls have not been updated to reflect increased property values. An undervaluation of one shopping center alone is costing the city about $260,000 a year in taxes, he said.
"Other cities are experiencing the same problem," he said.
But there is an inevitable lag time between the completion of a project and its addition to the tax roll, said Roy Sharman, the county's assistant assessor.
"Often these redevelopment agencies in cities think an assessor can put something on the roll for the same year it's completed," he said, adding that he would try to resolve the issue if officials from Pico Rivera contacted him.
Despite the pinch, Courtemarche said, the city expects to meet its new financial obligation to the county without difficulty. That debt would be repaid through expected revenue increases the city has not yet budgeted. Some revenue increase is assured, because a 1988 state law will provide the city a greater share of county property taxes than before.
Another city in the region has also faced a bond payment squeeze. Huntington Park had to avoid defaulting on redevelopment bonds when its projects generated less tax revenue than expected. Ultimately, that city's Redevelopment Agency borrowed $15 million from the city's general fund to help make bond payments.
The drain on the city's general fund contributed to a city financial crisis that led to 25 employee layoffs a year ago. The county has also loaned future property tax money to Huntington Park's Redevelopment Agency.
The mission of a city's redevelopment agency is to pay for or help pay for improvements in so-called blighted areas. An agency can operate in blighted areas that the city clearly defines as redevelopment zones. Projects in such a zone can run the gamut from street repairs to new homes, shopping areas and business parks. The agency pays for such improvements by selling bonds.
If the redevelopment succeeds, local property values will rise. The redevelopment agency pays its debts with these increased property tax revenues. In addition, if redevelopment prompts business growth, the city will earn more sales tax.