CRA Works on Plan to Avert Bond Default

The Los Angeles Community Redevelopment Agency approved a $340-million budget Friday, but financial woes in the Bunker Hill area will likely mean less money for other city renewal projects.

Agency officials are concerned that the agency may not be able to pay off Bunker Hill bonds when they mature in 2018, prompting a default that would force an insurance firm to pay bond investors. CRA board members ordered acting administrator Jerry Scharlin to develop a plan within 60 days to avoid that scenario.

“I think there are potential steps we can take to mitigate against any chance of default,” said board member Keith Richman. “There is a certain amount of money we need to add to the reserve fund over the next three years in order to cover ourselves to prevent a default in 20 years.”

Richman and other officials warned that the plan will probably require money to be taken away from redevelopment work downtown and in other areas, including Watts, that depend on the Central City for revenue.

Those warnings have sparked concerns that the CRA may need to scale back its projects. A report released this week said 20 of the agency’s 31 project areas require subsidies.

“Bunker Hill has provided financial resources for other project areas that are not financially self-sufficient, so this very well may affect money for other project areas,” Richman said.

The prospect of cuts in funding to redevelopment in Watts and other areas of South and South-Central Los Angeles have alarmed Councilman Rudy Svorinich Jr. and Mark Ridley-Thomas, who represent the areas.

“There will be a huge fight if they try to balance the CRA budget on the backs of the projects in South Los Angeles,” Ridley-Thomas said. “That is, in my view, unreasonable.”

An aide said Svorinich is also concerned for the Watts area of his district, which does not generate enough property tax revenue to pay for its work program. It receives half of its budget, more than $1 million annually, from Bunker Hill.

Scharlin said he is committed to making sure the agency continues to serve the areas most in need, and hopes that City Hall will be prepared to financially help maintain those work programs.

The 1999-2000 budget approved Friday diverts $7 million in property tax revenue from Bunker Hill to redevelopment work in seven project areas, including Watts, Little Tokyo, Broadway / Manchester, Normandie, Reseda / Canoga Park, Western / Slauson and Wilshire / Koreatown.

After diverting funds to other projects and making debt service payments, the Bunker Hill project area has $6.3 million for new projects.

The potential shortfall in funds to pay off Bunker Hill bonds was identified in a report to the board Friday by Scharlin, who added that the problem is manageable but requires immediate attention.

“If Bunker Hill property values do not recover from assessment appeals, there may not be sufficient funds to fully retire the $80 million of bonds maturing in [fiscal year] 2018,” Scharlin said.

Scharlin warned that if property values do not recover at more than 2% a year, an insurance company may have to pay off $61 million of the $80 million in bonds. Such a default could lower the agency’s credit rating and increase costs for future bond issues.

Although residential property values are rising in Los Angeles County, commercial real estate values downtown are in a slump. In Bunker Hill, real estate values dropped from $3 billion in 1992 to $1.6 billion this year, as land owners won property tax reductions.

This has translated to decreased tax revenues available for redevelopment projects. At its peak, Bunker Hill generated $34 million in tax revenue, but has slipped to $18.5 million.

Property values will have to increase at the rate of 3.5% to 4% annually by 2018 for the agency to cover its costs on the bonds.

To ensure that debts can be paid, Scharlin and his staff said the agency will probably have to divert more of Bunker Hill’s annual revenue to a reserve fund--taking away money that would otherwise be spent on redevelopment projects citywide.

Since its creation in 1959, the Bunker Hill project area has seen the construction of 14.2 million square feet of office towers, stores and housing, generating large amounts of property tax revenue for the CRA. The project had long been considered a cash cow for other areas that have not seen increases in property value sufficient to finance their redevelopment programs.