City officials have completed a bond sale to enable the financially strapped Redevelopment Agency to repay about $7 million in loans that developers made to the city over several years.
The loans, some of which carried interest rates of more than 10%, were due months ago, officials said.
In most cases, the city had borrowed the money to buy land, which was then sold to developers at discounted prices to encourage development.
Officials said the city had turned to developers for loans after the Redevelopment Agency ran short of money on various projects.
The Redevelopment Agency received just $9.3 million of the proceeds from the $15 million in bonds sold last week, City Administrative Officer Donald L. Jeffers said.
The bond underwriter, Chilton & O’Connor, is requiring the city to hold nearly $5 million in reserve accounts to make the unrated bonds more attractive to investors. The hefty reserves help ensure that the beleaguered Redevelopment Agency will repay the bond debt, Jeffers said.
City officials had hoped that $13 million of the bond sale would be available to help pay Redevelopment Agency debts.
In addition to the developer loans, the agency had borrowed $15 million from the city’s general fund to help make payments on previous bonds. The drain on the general fund contributed to a city financial crisis that led to 25 employee layoffs last October.
Jeffers described the lower proceeds from the bond sale as “a significant setback.”
The City Council, before approving the bond sale, persuaded the developers to waive about $360,000 in interest that had accumulated on the loans.
The 15 developers and aides who attended a recent meeting appeared to be grateful to get what they could from the financially troubled city.
“We’re discounting it a little,” said developer James Watson, who has built several shopping centers in the city’s redevelopment zones. “It was one of those negotiations. The city asked us if we’d help them out.”
The redevelopment agency first sought loans from developers about 1986 to obtain money to finish redevelopment projects. “The agency had no financial ability to continue with projects that were in various stages,” Jeffers said.
The developer loans grew out of the financial problems the Redevelopment Agency faced after the recession of the early 1980s. High interest rates created a hardship for several developers, who failed to complete Huntington Park redevelopment projects on schedule.
As a result of project delays, the Redevelopment Agency has not generated as much revenue as expected. The agency was forced for several years to borrow general city funds to make payments on $44 million in previous bonds.
Even though the Redevelopment Agency will not net as much money as thought, Jeffers and the council members said, last week’s bond sale was crucial because it allowed the Redevelopment Agency to pay off overdue loans that carried higher interest rates, generally more than 10%. The interest rate on the money from the bond issue ranges from 8% to 8 1/2%, Jeffers said.
“From a financial point of view, it was the only thing that could be done,” Councilman Raul Perez said.