Compton OKs Bond Sale for Redevelopment

The City Council approved this week a $40-million redevelopment bond sale that could funnel $11 million back to the city’s general fund.

The other $29 million, city officials say, would be used to help finance various redevelopment projects, including a hotel, an entertainment complex and a shopping mall. The city would also expand its existing auto mall.

City Manager James C. Goins said the general fund will receive a little more than $3.6 million a year for the next three years. He said the money will pay the city for loans it has made to the Redevelopment Agency since it was created in 1973.

But critics say no loan agreement existed between the city and its Redevelopment Agency, which they say makes the plan illegal.

Acting in its triple roles as City Council, Redevelopment Agency Board and Public Finance Authority Commission, the council voted 4 to 1 Tuesday to approve the bond sale. Mayor Walter R. Tucker and council members Floyd A. James, Robert L. Adams and Jane D. Robbins voted for the plan. Councilman Maxcy D. Filer opposed it.

The city says $11 million in redevelopment projects already begun or completed--such as the improvements in the central business district, the covering of Compton Creek and the refurbishing of the city’s Heritage House--were paid for with loans from the general fund, which will now be repaid.

Under the bonding plan, the city will repay bondholders with the additional property tax revenue the redevelopment improvements are expected to create. The city would pay off the bonds over 36 years at an interest rate not to exceed 9.6%.

James Chilton, chairman of Chilton & O’Connor Inc. of Los Angeles, the investment banking firm that proposed the plan and that will sell the bonds, told the council that he expects the sales to be brisk.

Compton’s general fund--which pays for basic public services such as police protection and street maintenance--has been ailing for months, a condition that was worsened by the elimination of a federal revenue sharing program this year. The city has looked at several ways of raising revenue, including a utility users tax increase, but backed away in the face of public opposition to higher taxes.

Create Tax Base

Goins said the infusion of bond money will let the city “recreate a reserve fund, which we don’t have at this time.” He said the $29 million to be spent on the building projects “will create for ourselves a permanent tax base.”

Filer questioned the legality of pumping redevelopment money into the general fund. He also said he believes the city cannot handle a $40-million debt.

Officials of several redevelopment agencies in other cities said in interviews that the key for making this type of transaction legal is whether there is an agreement in advance between Compton and its redevelopment agency stating that the city was providing loans for the agency to begin various projects.

David Lund, the head of the Los Angeles County Redevelopment Agency, said he is unfamiliar with the details of the Compton plan. But if the city’s explanation is correct, he said “it sounds like a typical situation where the city was providing seed capital.”

But Filer said he is not aware of such an agreement between the city and the Redevelopment Agency. He said he believes the bond sale is an illegal ploy by the city’s administration to avoid making budget cuts.

“There was no loan, as best as I know, and there was no agreement, as best as I know,” Filer said.

Jerome Duncan, a partner in the Los Angeles law firm of Grant & Duncan, Compton’s legal counsel in this bonding venture, said about 82 loan agreements have been entered into by the city and the Redevelopment Agency over the last 14 years. He said the wording in the resolutions authorizing the redevelopment projects makes it clear that the money from the general fund was an advance.

Duncan said that his firm is looking at the agreements to make sure they conform to state law and if the “magic words” are present, he will recommend that the general fund receive the money. He said he resents accusations by Filer and others that the bonding plan is illegal.

“We are not pulling off any phony-baloney transaction,” Duncan said.

He said, however, that the $11-million figure released by the city is “speculation.” He said the actual figure may be lower, depending on the documentation.

Grant and Duncan, along with two other law firms--the Compton Lawyers Assn. and Wilson, Becks & Pyform--will receive up to a total of $425,000 for legal counsel on the bond sale. Westpac Banking Corp. of Los Angeles will get up to $195,000 as financial consultants, and Chilton & O’Connor will net as much as $634,015 for selling the bonds.

Redevelopment is a state-authorized program whereby cities can rebuild blighted areas. When the city begins redevelopment, lines are drawn around targeted geographical areas. The amount of property taxes collected from those areas by the state, county and other governmental agencies such as school districts is then frozen. Bonds are sold and improvements made with new capital. As the tax value of the improved property rises, the redevelopment agency collects the additional property tax revenue created and uses that to repay the bonds.

Compton officials say they hope that this new construction will bolster retail sales in the city, which would increase its sales tax revenue. Goins said Compton receives about $3 million a year as its share of sales taxes. He said other cities with Compton’s 90,000 population receive up to four times that amount.

Chilton has said the bond plan is possible because property values in the city’s Walnut Industrial Park redevelopment district now generate more taxes than are needed to cover previous bond debts.

Compton has few major sources of sales taxes. It has only one supermarket, which sells mostly non-taxable items; some smaller stores, and a few developing auto dealerships. Most of the businesses along the 91 Freeway corridor are manufacturing companies and warehouses, generating mostly license fees but little in the way of the more lucrative sales tax revenue.

But a hotel, mall and a thriving auto center would, officials hope, generate both increased license fees and sales tax revenue.