Now Comes the Hard Part in Laguna’s Land Purchase : Financing: The city has agreed to a price, but it still must raise the money to meet that price. To pay off the final installment, it is counting on state or federal money and private contributions.

Now that the dust has cleared in the fight over a scenic stretch of Laguna Canyon, how likely is the city of Laguna Beach to raise the nearly $80 million it needs to buy the property?

The short answer: Financial experts say the city’s plan to come up with the first $40 million seems pretty solid.

It’s the second half of the $80 million that’s still up in the air. And one thing is clear--it will be a lot harder to get, experts say.

Last week, the Irvine Co. agreed to sell more than 2,000 acres in Laguna Canyon to the city rather than build more than 3,000 homes. The price tag: About $78 million, a considerable amount of money for a city of 25,000 to raise but $27 million less than the value one independent appraiser put on the land.

In order to pay the first installment of the $78 million, the city must persuade voters by a two-thirds margin to tax the city’s property owners another $60 or so a year in order to raise $20 million plus interest. A two-thirds vote is tough to get, especially when people are being asked to tax themselves. City officials believe that $20 million was the maximum amount voters would support.

Even though Laguna Beach is a liberal Democratic enclave in conservative Orange County, the vote is expected to be close. That is despite the city’s environmental leanings and a poll purportedly showing 80% of the residents supporting the bond issue. The group that helped negotiate the compromise with the Irvine Co.--the Laguna Laurel Advisory Group--is backing the political campaign. But time is short: The election is Nov. 6.

One thing in the bond issue’s favor is that observers say much of the Laguna Beach business community is solidly behind the bond issue, in part out of self-interest.

“They didn’t stand to gain much from the development of Laguna Laurel, which was going to have its own stores,” said Salvatore Maddi, a Laguna Beach resident and professor of social ecology at UC Irvine. “It wasn’t likely to have enhanced their businesses, plus it would have added to the terrible traffic problems around here.”

Assuming the bond passes, the city will use it to meet part of a $33-million down payment due next year. In return the city gets part of the 2,150 acres.

The city has another $4 million in a fund to buy open space and says it will borrow another $5 million on the $850,000 it takes out of its parking meters each year. County government will kick in $2 million in the first year--the first of five annual contributions that will total $10 million. But that still leaves the city $2 million short in the first year. And that’s not all.

There are three smaller payments due in 1992, 1993 and 1994, all under $5 million. After each payment, the city gets another chunk of land. But on each payment the city faces a shortfall of at least $1 million.

Then there’s a big final payment in 1995 of $33 million, and right now the city only knows that $2 million will come from the county. Selling the $20-million bond to investors shouldn’t be much of a problem. Nor should it be much of a burden on the city’s finances, experts say. The money will come directly from the city’s property owners in the form of higher property taxes. It won’t come from the $25 million a year it costs the city to operate, so it shouldn’t put a strain there.

And the city has no other bonds it is paying off. In fact, it hasn’t issued a bond in so long that neither of the big bond-rating services rates the city anymore. (Small cities that are already built out don’t need to issue many bonds.)

It isn’t even unusual for a city to start a project with financing from a bond when it knows it is going to come up short and have to get more money from somewhere else, said Mark Campa, an assistant vice president at Moody’s Investors Service Inc., one of two big companies that rate municipal bonds. The other source the cities often turn to, he said, is a government grant.

What is unusual is for a city to use a bond to buy vacant land in order to keep it empty, although a few other California cities have done so, according to Standard & Poor’s Corp., the other big bond-rating company.

Whatever happens, the city won’t issue another bond, city officials say. It wouldn’t be politically palatable even in Laguna Beach.

How will the shortfall be made up each year? Laguna Beach says it is betting that the money will come from state or federal funds and from private contributions.

However, it is hard to say whether that is a good bet, although the state is probably good for at least some of the shortfall.

Laguna Beach got $10 million in 1988 from a statewide open space land-acquisition bond issue passed by voters, about $4 million of which is left and will be applied toward the Laguna Laurel purchase. But that money was earmarked specifically for the city.

The city is planning to enter the competition for up to $15 million available from a state wildlife habitat measure approved by voters in June. Another bond issue on the November ballot--Prop. 149--doesn’t set aside a large chunk of money specifically for Laguna Beach, although officials think $3 million to $4 million will be available to the county.

Laguna Beach probably can make a good case for the money, even though the picturesque little seaside city of 25,000 is already girded by a substantial greenbelt.

But “there’s usually a good deal of competition for this money,” said Shirley Willd-Wagner, a parks specialist at the state Department of Parks and Recreation, which oversees the money.

“I think it’s going to require a lot of work” to find the extra money, said Paul Freeman, a consultant hired by both sides. “But everybody thinks it’s achievable.”

Last week’s settlement raises another interesting question: How much profit is the company foregoing by selling to the city?

The privately held company won’t say. But it’s clear, say experts and even the city of Laguna Beach, that the company could have made more money selling the land to home builders if public pressure hadn’t forced it to reconsider the huge project.

The land--acquired by Irvine Co. Chairman Donald L. Bren in 1983 when he bought control of the giant landowner--cost a lot less then when compared to its value nowadays. So while the company is most likely foregoing a substantial profit, it’s by no means taking a loss.

But home builders say it’s almost certain the company could have made perhaps tens of millions of dollars more--by one informal estimate, closer to $100 million--by selling the land to home builders. Even Laguna Beach concurs. “There’s no question they could have made more money selling it to builders,” said Laguna Beach City Manager Kenneth C. Frank.

A recent appraisal just released in detail at the end of the week and paid for by the company and its opponents estimated the value of the land at $105 million. Neither side disputes that estimate.

But then there’s also the matter of $30 million worth of road work the Irvine Co. promised the county it would do to lessen the impact of the extra traffic that Laguna Laurel would have generated. (The land is outside the city limits in county jurisdiction.)

Had the project been built, the company probably would have passed on most of that $30-million cost to the people who bought the homes in the form of higher home prices. In other words, it wouldn’t have cost the company very much.

Now, however, the $30 million will come out of the company’s pocket. So most of it has to be subtracted from the $78 million the company is getting for the land since there will now be no homeowners to pass the costs to.

Also off the top of the $78 million comes whatever the company has spent in more than 10 years of appearing before government hearings and preparing environmental impact reports. The company says it hasn’t calculated what that figure is. But assume, experts say, that it’s safe to subtract at least several million dollars more from the $78 million.

That leaves the company with something in the mid-$40 million range to show for the sale.

By contrast, if a developer paid $105 million for the property tomorrow, he could reasonably expect to resell all the land to home builders for $311 million, according to the appraisal by Gary L. Vogt and Associates in Irvine.

Even after deducting the $85 million the appraisers estimated it would cost to grade the land, put in utilities, pay property taxes and interest on loans, the new owner could reasonably expect a profit of 15%, or nearly $47 million, according to the appraisal.

Then there’s the interest on the $78-million purchase price, which the Irvine Co. will also forgo over the next five years. That would have added about $23 million, the company says.

Finally, there’s the fact the Irvine Co. demands that builders who buy land must pay the company a certain percentage from the sale of the homes they build. The company gave up building its own houses several years ago; now it merely sells improved land to home builders.

“It’s clear to me the company’s side of the deal was not wholly driven by financial considerations,” said one big home builder who has bought land from the company. “I don’t think there’s any doubt the Irvine Co. is giving up a small fortune on this.” On the other hand, going ahead with the project meant fighting a clutch of lawsuits and protesters marching through the canyon, some of them promising to stand in front of the bulldozers. Those are costs that can’t be quantified but are very real nevertheless: Another massive demonstration against the project, like the one that drew about 8,000 protesters to Laguna Canyon last fall, might have damaged the benevolent public image the company is trying to cultivate.

Developing the project, in other words, might have been financially feasible but had become politically unfeasible.