This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold, nor may offers to buy them be accepted, prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold, nor may offers to buy them be accepted, prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.PRELIMINARY OFFICIAL STATEMENT DATED _____, 2022 This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold, nor may offers to buy them be accepted, prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.
This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold, nor may offers to buy them be accepted, prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.
NEW ISSUE—BOOK-ENTRY ONLY Ratings:
S&P “_____” (Insured)
S&P: “_____” (Underlying)
See the caption “CONCLUDING INFORMATION—Ratings”
In the opinion of Stradling Yocca Carlson & Rauth, A Professional Corporation, Newport Beach, California (“Bond Counsel”), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the 2022A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. Interest on the 2022B Bonds is not excluded from gross income for federal income tax purposes. In the further opinion of Bond Counsel, interest (and original issue discount) on the 2022 Bonds is exempt from State of California personal income tax. See “TAX MATTERS” herein.
SUCCESSOR AGENCY TO THE
HERCULES REDEVELOPMENT AGENCY
TAX ALLOCATION REFUNDING BONDS
$__________
SERIES 2022A
$___________*
SERIES 2022B (FEDERALLY TAXABLE)
Dated: Delivery Date Due: August 1, as shown on the inside front cover page The Successor Agency to the Hercules Redevelopment Agency Tax Allocation Refunding Bonds, Series 2022A and Series 2022B (Federally Taxable) will be delivered as fully registered bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York, and will be available to Beneficial Owners in integral multiples of $5,000 under the book-entry system maintained by DTC. Beneficial Owners will not be entitled to receive delivery of bonds representing their ownership interest in the 2022 Bonds. The principal of and interest (which interest is due February 1 and August 1 of each year, commencing _____ 1, 20__) on the 2022 Bonds will be payable by The Bank of New York Mellon Trust Company, N.A., as Trustee, to DTC for subsequent disbursement to DTC Participants, so long as DTC or its nominee remains the registered owner of the 2022 Bonds. See the caption “THE 2022 BONDS—Book-Entry System.” The 2022A Bonds are being issued pursuant to the Indenture of Trust, dated as of _____ 1, 2022 by and between the Trustee and the Successor Agency to the Hercules Redevelopment Agency: (i) to currently refund certain bonds issued by the former Hercules Redevelopment Agency currently outstanding in the aggregate principal amount of $82,195,000, as described under the caption “REFUNDING PLAN”; (ii) to pay a portion of the premium for a municipal bond insurance policy for the 2022A Bonds; (iii) to pay a portion of the premium for a municipal debt service reserve insurance policy for the 2022A Bonds, and (iv) to pay certain costs of issuance of the 2022A Bonds. The 2022B Bonds are being issued pursuant to the Indenture: (i) to currently refund certain bonds issued by the Former Agency currently outstanding in the aggregate principal amount of $8,455,000, as described under the caption “REFUNDING PLAN”; (ii) to pay a portion of the premium for a municipal bond insurance policy for the 2022B Bonds; (iii) to pay a portion of the premium for a municipal debt service reserve insurance policy for the 2022B Bonds, and (iv) to pay certain costs of issuance of the 2022B Bonds.
The 2022 Bonds are subject to optional and mandatory sinking fund redemption prior to maturity. See the caption “THE 2022 BONDS—Redemption.” The 2022 Bonds are secured by the Pledged Tax Revenues deposited in the Redevelopment Property Tax Trust Fund and payable from amounts on deposit therein after payments of certain County of Contra Costa administrative costs, payments to certain taxing agencies, and certain other obligations, as more fully described herein. Taxes levied on the property within the Hercules Merged Project Area on that portion of the taxable valuation over and above the taxable valuation of the base year property tax roll, to the extent that such taxes constitute Pledged Tax Revenues, will be deposited in the Redevelopment Obligation Retirement Fund and administered by the Successor Agency and the Trustee in accordance with the Indenture. [The scheduled payment of principal of and interest on the 2022 Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the 2022 Bonds by ____________. See the captions “INTRODUCTORY STATEMENT—Bond Insurance” and “BOND INSURANCE” and Appendix I—”SPECIMEN MUNICIPAL BOND INSURANCE POLICY.”] [INSURER LOGO]
This cover page of the Official Statement contains information for quick reference only. It is not a complete summary of the 2022 Bonds. Investors should read the entire Official Statement to obtain information essential to the making of an informed investment decision. Attention is hereby directed to certain risk factors more fully described herein.
The 2022 Bonds are not a debt of the City of Hercules, the State of California, or any of its political subdivisions (except the Successor Agency), and neither said City or State, nor any of its political subdivisions (except the Successor Agency), is liable hereon, nor in any event shall the 2022 Bonds be payable out of any funds or properties other than those of the Successor Agency. The 2022 Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. The principal of and interest on the 2022 Bonds are payable solely from the Pledged Tax Revenues (as defined herein and in the Indenture) allocated to the Successor Agency from the Project Area after the payment of certain costs and other obligations payable on a senior basis as described herein and other funds as set forth in the Indenture.
The 2022 Bonds are offered, when, as and if issued, subject to the approval of Stradling Yocca Carlson & Rauth, A Professional Corporation, Newport Beach, California, Bond Counsel. Certain legal matters will be passed on for the Successor Agency by the City Attorney of the City of Hercules, as counsel to the Successor Agency, and Stradling Yocca Carlson & Rauth, A Professional Corporation, Newport Beach, California, as disclosure counsel to the Successor Agency, for the Underwriter by its counsel, Jones Hall, A Professional Law Corporation, San Francisco, California, and for the Trustee by its counsel. It is anticipated that the 2022 Bonds will be available for delivery through the facilities of DTC on or about _____, 2022. [STIFEL LOGO]
Dated: ________, 2022
Maturity Schedule
Base CUSIP† _____
$____________
SUCCESSOR AGENCY TO THE HERCULES REDEVELOPMENT AGENCY
TAX ALLOCATION REFUNDING BONDS,
SERIES 2022A
Maturity Date (August 1)
Principal
Amount
Interest
Rate
Yield
Price
CUSIP†
Suffix
$__________ _____% Term Bond due August 1, 20__ Yield: _____% - Price: _____ CUSIP†: _____ $__________ _____% Term Bond due August 1, 20__ Yield: _____% - Price: _____ CUSIP†: _____ Maturity Schedule
Base CUSIP† _____
$____________
SUCCESSOR AGENCY TO THE HERCULES REDEVELOPMENT AGENCY
TAX ALLOCATION REFUNDING BONDS,
SERIES 2022B (FEDERALLY TAXABLE)
Maturity Date (August 1)
Principal
Amount
Interest
Rate
Yield
Price
CUSIP†
Suffix
$__________ _____% Term Bond due August 1, 20__ Yield: _____% - Price: _____ CUSIP†: _____ $__________ _____% Term Bond due August 1, 20__ Yield: _____% - Price: _____ CUSIP†: _____
SUCCESSOR AGENCY TO THE
HERCULES REDEVELOPMENT AGENCY
Hercules, California
CITY COUNCIL,
ACTING AS THE GOVERNING BODY OF THE SUCCESSOR AGENCY
Dion Bailey, Mayor
Alexander Walker-Griffin, Vice Mayor
Tiffany Grimsley
Chris Kelley
Dan Romero
SUCCESSOR AGENCY/CITY STAFF
Dante Hall, City Manager
Lori Martin, Administrative Services Director/City Clerk Edwin Gato, Finance Director
Patrick Tang, City Attorney
SPECIAL SERVICES
Bond Counsel and Disclosure Counsel
Stradling Yocca Carlson & Rauth, A Professional Corporation Newport Beach, California
Municipal Advisor and Dissemination Agent
Urban Futures, Inc.
Tustin, California
Fiscal Consultant
RSG, Inc.
Irvine, California
Trustee
The Bank of New York Mellon Trust Company, N.A.
Los Angeles California
Verification Agent
Causey Demgen & Moore, P.C.
Denver, Colorado
GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT
No Offering May Be Made Except by this Official Statement. No dealer, broker, salesperson or other person has been authorized by the Successor Agency or the Underwriter to give any information or to make any representations with respect to the 2022 Bonds other than as contained in this Official Statement, and, if given or made, such other information or representation must not be relied upon as having been given or authorized by the Successor Agency or the Underwriter.
Use of Official Statement. This Official Statement is submitted in connection with the sale of the 2022 Bonds described in this Official Statement and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement does not constitute a contract between any Bond owner and the Successor Agency or the Underwriter.
Preparation of this Official Statement. The information contained in this Official Statement has been obtained from sources that are believed to be reliable, but this information is not guaranteed as to accuracy or completeness. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.
Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure made by the Successor Agency, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “forecast,” “expect,” “intend” and similar expressions identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material.
This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the 2022 Bonds will, under any circumstances, create any implication that there has been no change in the affairs of the Successor Agency or the other parties described in this Official Statement, since the date of this Official Statement.
Document Summaries. All summaries of the Indenture or other documents contained in this Official Statement are made subject to the provisions of such documents and do not purport to be complete statements of any or all such provisions. All references in this Official Statement to the Indenture and such other documents are qualified in their entirety by reference to such documents, which are on file with the Successor Agency.
No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation.
No Registration with the SEC. The issuance and sale of the 2022 Bonds have not been registered under the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, in reliance upon exemptions provided thereunder by Sections 3(a)(2) and 3(a)(12), respectively, for the issuance and sale of municipal securities.
Public Offering Prices. The Underwriter may offer and sell the 2022 Bonds to certain dealers and dealer banks and banks acting as agent at prices lower than the public offering prices stated on the inside cover page of this Official Statement, and the Underwriter may change such public offering prices from time to time. [Bond Insurer. ____________ (the “2022 Insurer”) makes no representation regarding the 2022 Bonds or the advisability of investing in the 2022 Bonds. In addition, the 2022 Insurer has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the 2022 Insurer, supplied by the 2022 Insurer and presented under the heading “BOND INSURANCE” and “Appendix I—SPECIMEN MUNICIPAL BOND INSURANCE POLICY”.] Website. The City of Hercules maintains an Internet website which includes information about the Successor Agency. However, the information maintained on such website is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the 2022 Bonds. [INSERT LOCATION MAP]
INTRODUCTORY STATEMENT 1
Authority and Purpose 1
The City and the Successor Agency 1
The Project Area 2
Tax Allocation Financing 2
Security for the 2022 Bonds 3
Senior Obligations 4
Prior Insufficiency of Tax Increment Revenues 5
Past-Due Pass-Through Amounts 5
Issuance of Parity Debt 5
Bond Insurance 5
Reserve Account 5
Further Information 6
REFUNDING PLAN 6
General 6
Verification of Mathematical Computations 7
Estimated Sources and Uses of Funds 7
THE 2022 BONDS 7
Authority for Issuance 7
Description of the 2022 Bonds 8
Book-Entry System 8
Redemption 8
Annual Debt Service 11
SECURITY FOR THE 2022 BONDS 11
General 11
Pledged Tax Revenues 13
Redevelopment Obligation Retirement Fund; Deposit of Pledged Tax Revenues 14 Transfer of Amounts by Trustee 14
Tax Increment Financing 16
Recognized Obligation Payment Schedule 18
Last and Final Recognized Obligation Payment Schedule 20 County Pass-Through Agreement 21
Statutory Pass-Through Amounts 22
Past-Due Pass-Through Amounts 23
Prior Agreements 24
Issuance of Additional Indebtedness 24
BOND INSURANCE 26
PROPERTY TAXATION IN CALIFORNIA 26
Property Tax Collection Procedures 26
Unitary Property 28
Article XIIIA of the State Constitution 28
Appropriations Limitation – Article XIIIB 30
Articles XIIIC and XIIID of the State Constitution 30
Proposition 87 30
Redevelopment Plan Limits 31
Appeals of Assessed Values 31
Proposition 8 31
Propositions 218 and 26 32
Future Initiatives 32
SUCCESSOR AGENCY TO THE HERCULES REDEVELOPMENT AGENCY 32 THE PROJECT AREA 33
General 33
The Redevelopment Plan 33
Project Area Characteristics 34
Top Taxpayers 36
Assessment Appeals 38
Transfers of Ownership 39
New Development 40
Prior Insufficiency of Tax Increment Revenue 40
PLEDGED TAX REVENUES 41
Projected Pledged Tax Revenues 41
Debt Service Coverage 44
RISK FACTORS 44
COVID-19 44
Reduction in Taxable Value 45
Concentration of Ownership 45
Risks to Real Estate Market 46
Reduction in Inflation Rate 46
Levy and Collection of Taxes 46
State Budget Issues 47
Recognized Obligation Payment Schedule 48
Prior Insufficiency of Tax Increment Revenues 49
Last and Final Recognized Obligation Payment Schedule 50 Parity Debt Issued Without Reserve 51
Parity and Subordinate Debt 51
Challenges to Dissolution Act 51
Bankruptcy and Foreclosure 52
Estimated Revenues 52
Hazardous Substances 53
Natural Disasters 53
Climate Change 54
Changes in the Law 54
Investment Risk 54
Secondary Market 55
No Validation Proceeding Undertaken 55
IRS Audit of Tax-Exempt Bond Issues 55
Loss of Tax Exemption 56
Bonds Are Limited Obligations 56
Bond Insurance 56
Limitations on Remedies 57
TAX MATTERS 57
2022A Bonds 57
2022B Bonds 59
CONCLUDING INFORMATION 60
Underwriting 60
Municipal Advisor 60
Legal Opinion 60
Litigation 61
Ratings 61
Continuing Disclosure 61
Miscellaneous 62
APPENDIX A FISCAL CONSULTANT REPORT A-1
APPENDIX B SUMMARY OF THE INDENTURE B-1
APPENDIX C FORM OF BOND COUNSEL OPINION C-1
APPENDIX D BOOK-ENTRY ONLY SYSTEM D-1
APPENDIX E ANNUAL COMPREHENSIVE FINANCE REPORT FOR FISCAL YEAR ENDED JUNE 30, 2021 E-1 APPENDIX F STATE DEPARTMENT OF FINANCE LETTER F-1
APPENDIX G FORM OF CONTINUING DISCLOSURE CERTIFICATE G-1 APPENDIX H SUPPLEMENTAL INFORMATION—THE CITY OF HERCULES H-1 APPENDIX I SPECIMEN MUNICIPAL BOND INSURANCE POLICY I-1
SUCCESSOR AGENCY TO THE
HERCULES REDEVELOPMENT AGENCY
TAX ALLOCATION REFUNDING BONDS
$__________
SERIES 2022A
$___________*
SERIES 2022B (FEDERALLY TAXABLE)
INTRODUCTORY STATEMENT
This Official Statement, including the cover page, is provided to furnish information in connection with the sale by the Successor Agency to the Hercules Redevelopment Agency (the “Successor Agency”) of its $___________* Tax Allocation Refunding Bonds, Series 2022A (the “2022A Bonds”) and Series 2022B (Federally Taxable) (the “2022B Bonds,” and together with the 2022A Bonds, the “2022 Bonds”).
Authority and Purpose
The 2022 Bonds are being issued pursuant to the Constitution and laws of the State of California (the “State”), including Article 11 (commencing with Section 53580) of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code (the “Bond Law”), the Community Redevelopment Law of the State of California, constituting Part 1 of Division 24 of the Health and Safety Code (the “Redevelopment Law”), the Dissolution Act (as defined below) and an Indenture of Trust, dated as of _____ 1, 2022 (the “Indenture”), by and between the Successor Agency and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). See the caption “THE 2022 BONDS—Authority for Issuance.” The 2022 Bonds and any additional debt (“Parity Debt”) issued as bonds pursuant to the Indenture are collectively referred to as the “Bonds.” The 2022 Bonds are being issued to: (i) currently refund certain bonds issued by the Hercules Redevelopment Agency (the “Former Agency”) currently outstanding in the aggregate principal amount of $90,650,000, as described under the caption “REFUNDING PLAN,” (ii) pay a portion of the premium for a municipal bond insurance policy (the “Policy”) for the 2022 Bonds; (iii) pay a portion of the premium for a municipal debt service reserve insurance policy for the 2022 Bonds (the “Reserve Policy”), and (iv) pay certain costs of issuance of the 2022 Bonds. See the caption “REFUNDING PLAN—Estimated Sources and Uses of Funds.” The 2022 Bonds are secured by the Pledged Tax Revenues deposited in the Redevelopment Property Tax Trust Fund established by the County Auditor-Controller for the Successor Agency (referred to at times herein as the “RPTTF”) and payable from amounts on deposit therein after payments of certain County of Contra Costa (the “County”) administrative costs, payments to certain taxing agencies, and payments under the Prior Agreements (defined below), as more fully described under the captions “PROPERTY TAXATION IN CALIFORNIA—Property Tax Collection Procedures—Property Tax Administrative Costs,” “SECURITY FOR THE 2022 BONDS—County Pass-Through Agreement,” “—Statutory Pass-Through Amounts,” and “—Prior Agreements.” Upon issuance of the 2022 Bonds, there will be no other bonds or other indebtedness outstanding with a pledge and lien on the Pledged Tax Revenues senior to or on a parity with the pledge and lien in favor of the 2022 Bonds. The Successor Agency may issue Parity Debt, subject to compliance with certain conditions set forth in the Indenture, only to refund the 2022 Bonds, Parity Debt or the Prior Agreements for savings. See “SECURITY FOR THE 2022 BONDS—Issuance of Additional Indebtedness—Parity Debt.” The City and the Successor Agency
The City of Hercules (the “City”) was incorporated on December 15, 1900 as a general law city. The City encompasses approximately 18.2 square miles on the northeastern shore of San Pablo Bay and has a population of approximately 25,864 as of January 1, 2021. The City is located in western Contra Costa County, approximately 12 miles north of Berkeley, 18 miles north of the Oakland, and 22 miles northeast of San Francisco. See Appendix H—”SUPPLEMENTAL INFORMATION—THE CITY OF HERCULES” for more general information about the City.
The Former Agency was activated by Ordinance of the City Council adopted on September 22, 1982 pursuant to the Redevelopment Law. The five members of the City Council served as the governing body of the Former Agency and exercised all the rights, powers, duties and privileges of the Former Agency.
On June 29, 2011, Assembly Bill No. 26 (“AB X1 26”) was enacted as Chapter 5, Statutes of 2011, together with a companion bill, Assembly Bill No. 27 (“AB X1 27”). A lawsuit entitled California Redevelopment Association, et al. v. Matosantos, et al., was brought in the State Supreme Court challenging the constitutionality of AB X1 26 and AB X1 27. In a published decision (53 Cal. 4th 231 (Dec. 29, 2011)), the State Supreme Court largely upheld AB X1 26, invalidated AB X1 27, and held that AB X1 26 may be severed from AB X1 27 and enforced independently. As a result of AB X1 26 and the decision of the State Supreme Court, as of February 1, 2012, all redevelopment agencies in the State, including the Former Agency, were dissolved, and successor agencies were designated as successor entities to the former redevelopment agencies to expeditiously wind down the affairs of the former redevelopment agencies.
The primary provisions of AB X1 26 relating to the dissolution and winding down of former redevelopment agency affairs are Parts 1.8 (commencing with Section 34161) and 1.85 (commencing with Section 34170) of Division 24 of the Health & Safety Code of the State, as amended on June 27, 2012 by Assembly Bill No. 1484 (“AB 1484”), enacted as Chapter 26, Statutes of 2012, and as further amended on September 22, 2015 by Senate Bill 107 (“SB 107”), enacted as Chapter 325, Statutes of 2015 (collectively, as amended from time to time, the “Dissolution Act”).
Pursuant to Section 34173 of the Dissolution Act, the City Council of the City serves as the successor agency to the Former Agency. Subdivision (g) of Section 34173 of the Dissolution Act, which was added by AB 1484, expressly affirms that the Successor Agency is a separate public entity from the City, that the two entities shall not merge and that the liabilities of the Former Agency will not be transferred to the City, nor will the assets of the Former Agency become assets of the City.
The Project Area
The 2022 Bonds are principally payable from Pledged Tax Revenues generated within the boundaries of the Hercules Merged Project Area (the “Project Area”). The Redevelopment Agency was established by Ordinance No. 168 on October 13, 1982. The Project Area contains three subareas: the Dynamite Project Area, Project Area No. 2 and the 2009 Added Area. The Project Area encompasses approximately 885 acres and consists primarily of commercial, industrial, and residential lands. See the caption “THE PROJECT AREA” and the Fiscal Consultant Report attached hereto as Appendix A for more information with respect to the Project Area and the subareas therein.
Tax Allocation Financing
Prior to the enactment of AB X1 26, the Redevelopment Law authorized the financing of redevelopment projects through the use of tax increment revenues. This method provided that the taxable valuation of the property within a redevelopment project area on the property tax roll last equalized prior to the effective date of the ordinance which adopts the redevelopment plan becomes the base year valuation. Assuming that the taxable valuation never drops below the base year level, the taxing agencies thereafter received that portion of the taxes produced by applying then current tax rates to the base year valuation, and the redevelopment agency was allocated the remaining portion produced by applying then current tax rates to the increase in valuation over the base year. Such incremental tax revenues allocated to a redevelopment agency were authorized to be pledged to the payment of agency obligations.
The Dissolution Act authorizes refunding bonds, including the 2022 Bonds, to be secured by a pledge of moneys deposited from time to time in a Redevelopment Property Tax Trust Fund held by a county auditorcontroller with respect to a successor agency, which are equivalent to the tax increment revenues that were formerly allocated under the Redevelopment Law to the redevelopment agency and formerly authorized under the Redevelopment Law to be used for the financing of redevelopment projects.
Under the Indenture, Pledged Tax Revenues consist of all taxes (i) that were eligible for allocation to the Former Agency with respect to the Project Area and are allocated to the Successor Agency pursuant to Article 6 of Chapter 6 (commencing with Section 33670) of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State, or pursuant to other applicable State laws and (ii) that are deposited or available for deposit by the Auditor-Controller of the County of Contra Costa (the “County Auditor-Controller”) in the Redevelopment Property Tax Trust Fund, all as provided in Section 34172(d) of the Dissolution Act. The use of Pledged Tax Revenues from the Project Area to pay debt service on the 2022 Bonds is subject to the prior payment of permitted administrative costs of the County Auditor-Controller and payments under the Prior Agreements; however, based on the County Auditor-Controller’s interpretation of the Dissolution Act, the Successor Agency does not expect to make payments under the Prior Agreements prior to payments of debt service on the 2022 Bonds. See the captions “PROPERTY TAXATION IN CALIFORNIA—Property Tax Collection Procedures—Property Tax Administrative Costs” for a description of the County’s administrative costs, and “SECURITY FOR THE 2022 BONDS—Prior Agreements” for a description of the Successor Agency’s obligations under the Prior Agreements. [The Successor Agency’s obligations under the County Pass-Through Agreement and the Statutory Pass-Through Amounts have been subordinated to the 2022 Bonds, subject to compliance with certain procedures set forth in the Dissolution Act. See the caption “SECURITY FOR THE 2022 BONDS—Tax Increment Financing—Tax Sharing.”] Pursuant to the Indenture, the Successor Agency will deposit moneys derived from the Project Area constituting Pledged Tax Revenues promptly upon receipt thereof into the Special Fund maintained within the Redevelopment Obligation Retirement Fund established pursuant to Section 34170.5(a) of the Dissolution Act. Moneys held in the Special Fund will be transferred to the Trustee at the times specified in the Indenture to make payments of principal of and interest on the 2022 Bonds, all as described under the caption “SECURITY FOR THE 2022 BONDS.” Successor agencies have no power to levy property taxes and must look specifically to the allocation of taxes as described above. See the caption “RISK FACTORS.” Security for the 2022 Bonds
The Dissolution Act requires the County AuditorController to determine the amount of property taxes that would have been allocated to the Former Agency had the Former Agency not been dissolved pursuant to the operation of AB X1 26, using current assessed values on the last equalized roll on August 20, and to deposit such amount in the Redevelopment Property Tax Trust Fund. Section 34177.5(g) of the Dissolution Act provides that any bonds authorized to be issued by the Successor Agency will be considered indebtedness incurred by the dissolved Former Agency, with the same legal effect as if such bonds had been issued prior to the effective date of AB X1 26, in full conformity with the applicable provisions of the Redevelopment Law that existed prior to that date, will be included in the Successor Agency’s Recognized Obligation Payment Schedule, and will be secured by a pledge of, and lien on, and will be repaid from moneys deposited from time to time in the Redevelopment Property Tax Trust Fund established pursuant to, and in accordance with, the Dissolution Act. See the caption “SECURITY FOR THE 2022 BONDS—Recognized Obligation Payment Schedule.” The 2022 Bonds are payable from and secured by the Pledged Tax Revenues, whether held in the Redevelopment Property Tax Trust Fund or by the Successor Agency or the Trustee. The Indenture grants to Owners of the 2022 Bonds a pledge of, lien on, and security interest in the Pledged Tax Revenues and the Redevelopment Obligation Retirement Fund, including the Special Fund therein, and all amounts in the Redevelopment Property Tax Trust Fund, and will attach, be perfected and be valid and binding against all parties having claims of any kind in tort, contract or otherwise against the Successor Agency, irrespective of whether such parties have notice of the Indenture. Such pledge permits the payment by the County Auditor-Controller of the County’s administrative costs to the County as allowed under Section 34182 and Section 95.3 of the Revenue and Taxation Code, payments to the County under the County Pass-Through Agreement (as such term is defined under the caption “SECURITY FOR THE 2022 BONDS—Tax Increment Financing—Tax Sharing”), payments to various taxing agencies of Statutory Pass-Through Amounts (as such term is defined under the caption “SECURITY FOR THE 2022 BONDS—Tax Increment Financing—Tax Sharing”), as well as payment by the Successor Agency of its obligations under the Prior Agreements as described under the caption “SECURITY FOR THE 2022 BONDS—Prior Agreements,” prior to payment of the principal and interest on the 2022 Bonds (unless payments to taxing agencies are subordinated to payments on the 2022 Bonds). However, based on the County Auditor-Controller’s interpretation of the Dissolution Act, the Successor Agency does not expect to make payments under the Prior Agreements prior to payments of debt service on the 2022 Bonds. Taxes levied on the property within the Project Area on that portion of the taxable valuation over and above the taxable valuation of the applicable base year property tax roll with respect to the Project Area, to the extent that such taxes constitute Pledged Tax Revenues as described in this Official Statement, will be deposited in the Redevelopment Property Tax Trust Fund for transfer by the County Auditor-Controller to the Successor Agency’s Redevelopment Obligation Retirement Fund on January 2 and June 1 of each year to the extent required for payments listed in the Successor Agency’s Recognized Obligation Payment Schedule in accordance with the requirements of the Dissolution Act. See the captions “SECURITY FOR THE 2022 BONDS—Tax Increment Financing—Tax Sharing,” “—County Pass-Through Agreement,” “—Statutory Pass-Through Amounts,” “—Prior Agreements,” and “—Recognized Obligation Payment Schedule.” Moneys deposited by the County Auditor-Controller into the Successor Agency’s Redevelopment Obligation Retirement Fund, and the Special Fund held therein to pay debt service on the 2022 Bonds will be transferred by the Successor Agency to the Trustee for deposit in the Debt Service Fund (defined in Appendix B) established under the Indenture and administered by the Trustee in accordance with the Indenture.
Pursuant to the Dissolution Act, former tax increment revenues generated in the Project Area are no longer required to be deposited into the Low and Moderate Income Housing Fund. Accordingly, except for payments under the Bridge Housing Agreement (as defined under the caption “SECURITY FOR THE 2022 BONDS—Prior Agreements”), such revenues are now available and pledged to the repayment of the 2022 Bonds and any Parity Debt. See “SECURITY FOR THE 2022 BONDS—Tax Increment Financing—Elimination of Housing Set-Aside.
The Successor Agency has no power to levy property taxes and must look specifically to the allocation of taxes as described above. See the captions “SECURITY FOR THE 2022 BONDS” and “RISK FACTORS.” Senior Obligations
The use of Pledged Tax Revenues from the Project Area to pay debt service on the 2022 Bonds is subject to the prior payment of permitted administrative costs of the County Auditor-Controller. See the captions “PROPERTY TAXATION IN CALIFORNIA—Property Tax Collection Procedures—Property Tax Administrative Costs” for a description of the County’s administrative costs. [The Successor Agency’s obligations under the County Pass-Through Agreement and the Statutory Pass-Through Amounts have been subordinated to the 2022 Bonds, subject to compliance with certain procedures set forth in the Dissolution Act. See the caption “SECURITY FOR THE 2022 BONDS—Tax Increment Financing—Tax Sharing.”] The Indenture also allows for the use of Pledged Tax Revenues from the Project Area to pay make payments under the Prior Agreements prior to debt service on the 2022 Bonds; however, based on the County Auditor-Controller’s interpretation of the Dissolution Act, the Successor Agency does not expect to make payments under the Prior Agreements prior to payments of debt service on the 2022 Bonds. See the caption “SECURITY FOR THE 2022 BONDS—Prior Agreements” for a description of the Successor Agency’s obligations under the Prior Agreements.
Upon the issuance of the 2022 Bonds and the completion of the defeasance described under the caption “REFUNDING PLAN” there will be no bonds or agreements outstanding with a pledge or lien on the Pledged Tax Revenues senior to or on a parity with the 2022 Bonds.
Prior Insufficiency of Tax Increment Revenues
As described further under the caption “THE PROJECT AREA—Prior Insufficiency of Tax Increment Revenue,” beginning in Fiscal Year 2008-09, the Former Agency's available tax increment revenues fell below the amount required to pay debt service on certain of the Successor Agency’s obligations. Such insufficiency led to draws on the reserve fund for the Refunded Obligations and the nonpayment of certain of the Successor Agency’s obligations. See also “RISK FACTORS—Prior Insufficiency of Tax Increment Revenues.” Past-Due Pass-Through Amounts
Due to certain prior underpayments by the County Auditor-Controller of Statutory Pass-Through Amounts and payments under the County Pass-Through Agreement, there are certain past-due amounts payable to the County and other taxing entities (defined under the caption “SECURITY FOR THE BONDS—Past-Due Pass-Through Amounts” as the “Past-Due Pass-Through Amounts”). Because of the Past-Due Pass-Through Amounts, the Successor Agency will be required to file a Notice of Insufficiency (defined under the caption “SECURITY FOR THE 2022 BONDS—Past-Due Pass-Through Amounts) prior to each RPTTF distribution date until all Past-Due Pass-Through Amounts have been paid in full, and if the Successor Agency fails to file such notice on a timely basis in accordance with the Dissolution Act the Successor Agency may not receive sufficient money from the RPTTF to pay debt service on the Bonds. The Successor Agency will covenant in the Indenture to file a Notice of Insufficiency prior to each RPTTF distribution date as needed to ensure allocation to the Successor Agency of sufficient amounts from the RPTTF to enable the Successor Agency to pay debt service on the 2022 Bonds. See the caption “SECURITY FOR THE 2022 BONDS—Past-Due Pass-Through Amounts.” Issuance of Parity Debt
The Indenture permits the Successor Agency to issue Parity Debt to refund outstanding 2022 Bonds, Parity Debt or the Prior Agreements, subject to compliance with certain requirements set forth in the Indenture. See “SECURITY FOR THE 2022 BONDS—Issuance of Additional Indebtedness.” Bond Insurance
[The scheduled payment of principal of and interest on the 2022 Bonds when due will be guaranteed under the Policy to be issued concurrently with the delivery of the 2022 Bonds by the 2022 Insurer. See the captions “—Authority and Purpose” and “BOND INSURANCE.”] Reserve Account
A Reserve Account for the 2022 Bonds is established pursuant to the Indenture in an amount equal to the initial Reserve Requirement of $_______, [which will be satisfied by delivery of the Reserve Policy by the 2022 Insurer]. The Reserve Requirement for the 2022 Bonds shall not increase, but may decrease, following the Closing Date. See “SECURITY FOR THE 2022 BONDS—Transfer of Amounts by Trustee—Reserve Account.” The Successor Agency is not required to fund a reserve in connection with the issuance of Parity Debt.
Further Information
Brief descriptions of the 2022 Bonds, the Indenture, the Successor Agency, the Former Agency and the City are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to the Indenture, the Bond Law, the Redevelopment Law, the Dissolution Act, the Constitution and the laws of the State as well as the proceedings of the Former Agency, the Successor Agency and the City are qualified in their entirety by reference to such documents. References herein to the 2022 Bonds are qualified in their entirety by the form thereof included in the Indenture and the information with respect thereto included herein, copies of which are all available for inspection at the offices of the Successor Agency Secretary, at 111 Civic Drive, Hercules, California 94547.
Capitalized terms used herein and not defined have the meanings set forth in Appendix B.
REFUNDING PLAN
General
The Successor Agency expects to apply a portion of the proceeds of the 2022 Bonds, together with other funds on hand, to refund on a current basis all amounts payable pursuant to the following outstanding obligations of the Successor Agency (collectively, the “Refunded Obligations”):
1. $56,260,000 Hercules Redevelopment Agency, Hercules Merged Project Area, Tax Allocation Bonds, Series 2005 (the “2005 Bonds”) currently outstanding in the aggregate principal amount of $25,130,000.
2. $60,555,000 Hercules Redevelopment Agency, Hercules Merged Project Area, Tax Allocation Bonds, 2007 Series A (the “2007 Bonds”) currently outstanding in the aggregate principal amount of $40,185,000.
3. $13,130,000 Hercules Redevelopment Agency, Hercules Merged Project Area, Housing Tax Allocation Bonds, 2007 Series A (Taxable) (the “2007A Housing Bonds”) currently outstanding in the aggregate principal amount of $8,290,000.
4. $12,760,000 Hercules Redevelopment Agency, Hercules Merged Project Area, Housing Tax Allocation Bonds, 2007 Series B (Taxable) (the “2007B Housing Bonds”) currently outstanding in the aggregate principal amount of $5,305,000.
The Successor Agency is issuing the 2022A Bonds to provide moneys (together with other available funds of the Agency) necessary to refund the outstanding 2005 Bonds, 2007 Bonds and 2007B Housing Bonds in whole. The Successor Agency is issuing the 2022B Bonds to provide moneys (together with other available funds of the Agency) necessary to refund the outstanding 2007A Housing Bonds in whole. On the date of issuance of the 2022 Bonds, a portion of the proceeds of the 2022 Bonds and other available funds of the Successor Agency will be transferred, pursuant to separate escrow agreements for each of the Refunded Obligations (each an “Escrow Agreement”), to The Bank of New York Mellon Trust Company, N.A. (the “Escrow Bank”). Such moneys shall be applied by the Escrow Bank to the redemption and defeasance of the Refunded Obligations.
The amounts held by the Escrow Bank under each Escrow Agreement are pledged solely to the redemption of the applicable series of outstanding Refunded Obligations. The moneys deposited with the Escrow Bank under the Escrow Agreements will not be available for the payments of principal of and interest on the 2022 Bonds.
Sufficiency of the deposits to the Escrow Funds for the redemption of the Refunded Obligations will be verified by Causey Demgen & Moore, P.C. (the “Verification Agent”). Assuming the accuracy of such computations, as a result of the deposit and application of funds as provided in the Escrow Agreements, the applicable series of Refunded Obligations will be defeased pursuant to the provisions of the indenture under which such series of Refunded Obligations was issued as of the date of issuance of the 2022 Bonds.
Verification of Mathematical Computations
Upon issuance of the 2022 Bonds, the Verification Agent will deliver a report on the mathematical accuracy of certain computations based upon certain information and assertions provided to it by the Underwriter relating to the adequacy of the cash to be deposited in the respective escrow funds to pay the Redemption Price of the Refunded Obligations.
Estimated Sources and Uses of Funds
The estimated sources and uses of the 2022 Bonds and other available moneys are summarized as follows:
Sources:
2022A Bonds
2022B Bonds
Total
Principal Amount of 2022 Bonds
[Plus/Less] Original Issue [Premium/Discount]
Plus Other Available Moneys(1)
Total Sources:
Uses:
2005 Bonds Escrow Fund
2007 Bonds Escrow Fund
2007A Housing Bonds Escrow Fund
2007B Housing Bonds Escrow Fund
Costs of Issuance(2)
Total Uses:
(1) Includes moneys on deposit in funds and accounts of the Refunded Obligations and moneys received from the RPTTF with respect to the June 1, 2021 distribution. (2) Includes fees and expenses of Bond and Disclosure Counsel, Municipal Advisor, Fiscal Consultant, Trustee, Escrow Agent, and City Attorney, printing expenses, rating agency fees, Underwriter’s discount, premiums for the Policy and Reserve Policy, and other miscellaneous costs.
THE 2022 BONDS
Authority for Issuance
The 2022 Bonds are authorized for issuance pursuant to the Indenture, the Bond Law, the Redevelopment Law and the Dissolution Act. Direction to undertake the issuance of the 2022 Bonds and the execution of the related documents was authorized by the Successor Agency pursuant to Resolution No. 22-003-SA, adopted on January 11, 2022 (the “Resolution”), and by the Contra Costa Countywide Oversight Board pursuant to Resolution No. 2022/35, adopted on January 24, 2022 (the “Oversight Board Action”).
Written notice of the Oversight Board Action was provided to the State Department of Finance (the “DOF”) pursuant to the Dissolution Act, and the DOF requested a review within five business days of such written notice. On __________, 2022, the DOF provided a letter to the Successor Agency stating that based on the DOF’s review and application of the law, the Oversight Board Action approving the 2022 Bonds to refund the Refunded Obligations is approved by the DOF. A copy of DOF’s letter approving the issuance of the 2022 Bonds to refund the Refunded Obligations is set forth in Appendix F.
Description of the 2022 Bonds
The 2022 Bonds will be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof, so long as no 2022 Bond will have more than one maturity date. The 2022 Bonds will be dated as of their Closing Date.
Interest on the 2022 Bonds will be payable semiannually on February 1 and August 1 in each year, commencing on _____ 1, 20__ (each, an “Interest Payment Date”). Each 2022 Bond will bear interest (calculated on the basis of a 360-day year comprised of twelve 30day months) from the Interest Payment Date next preceding the date of authentication thereof, unless (a) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event it will bear interest from such Interest Payment Date; or (b) it is authenticated on or before _____ 15, 20__, in which event it will bear interest from its Closing Date; provided, however, that if, as of the date of authentication of any 2022 Bond, interest thereon is in default, such 2022 Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon.
Interest on the 2022 Bonds (including the final interest payment upon maturity or redemption) is payable when due by check or draft of the Trustee mailed on the Interest Payment Date to the Owner thereof at such Owner’s address as it appears on the Registration Books at the close of business on the preceding Record Date; provided that at the written request of the Owner of at least $1,000,000 aggregate principal amount of the 2022 Bonds, which written request is on file with the Trustee as of any Record Date, interest on such 2022 Bonds will be paid on the succeeding Interest Payment Date by wire to such account in the United States as will be specified in such written request. The principal of the 2022 Bonds and premium, if any, upon redemption, are payable in lawful money of the United States of America upon presentation and surrender thereof at the Principal Corporate Trust Office of the Trustee.
Book-Entry System
DTC will act as securities depository for the 2022 Bonds. The 2022 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the 2022 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. See Appendix D for further information with respect to DTC and its book-entry system.
Redemption
Optional Redemption of 2022A Bonds. The 2022A Bonds maturing on or prior to August 1, 20__ are not subject to optional redemption. The 2022A Bonds maturing on or after August 1, 20__, are subject to optional redemption prior to their respective maturity dates as a whole, or in part by lot, on any date on or after August 1, 20__, by such maturity or maturities as shall be directed by the Successor Agency (or in absence of such direction, pro rata by maturity and by lot within a maturity), from any source of available funds. Such optional redemption shall be at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued but unpaid interest to the date fixed for redemption, without premium.
Optional Redemption of 2022B Bonds. The 2022B Bonds maturing on or prior to August 1, 20__ are not subject to optional redemption. The 2022B Bonds maturing on or after August 1, 20__, are subject to optional redemption prior to their respective maturity dates as a whole, or in part by lot, on any date on or after August 1, 20__, by such maturity or maturities as shall be directed by the Successor Agency (or in absence of such direction, pro rata by maturity and by lot within a maturity), from any source of available funds. Such optional redemption shall be at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued but unpaid interest to the date fixed for redemption, without premium.
Mandatory Sinking Fund Redemption of 2022A Bonds. The 2022A Bonds maturing August 1, 20__ and August 1, __ (the “2022A Term Bonds”) shall also be subject to mandatory redemption in whole, or in part by lot, on August 1 in each year, commencing August 1, 20__ and August 1, 20__, respectively, as set forth below, from sinking fund payments made by the Successor Agency to the Principal Account pursuant to the Indenture, at a redemption price equal to the principal amount thereof to be redeemed, without premium, in the aggregate respective principal amounts and on August 1 in the respective years as set forth in the following tables; provided however, that (y) in lieu of redemption thereof such 2022A Term Bonds may be purchased by the Successor Agency pursuant to the Indenture if some but not all of such 2022A Term Bonds have been redeemed pursuant to the Optional Redemption of 2022A Bonds, the total amount of all future sinking fund payments shall be reduced by the aggregate principal amount of such 2022A Term Bonds so redeemed, to be allocated among such sinking fund payments in integral multiples of $5,000 as determined by the Successor Agency (written notice of which determination shall be given by the Successor Agency to the Trustee and shall include a revised sinking fund schedule). 2022A Term Bonds of 20__
August 1
Principal Amount
2022A Term Bonds of 20__
August 1
Principal Amount
Mandatory Sinking Fund Redemption of 2022B Bonds. The 2022B Bonds maturing August 1, 20__ and August 1, __ (the “2022B Term Bonds”) shall also be subject to mandatory redemption in whole, or in part by lot, on August 1 in each year, commencing August 1, 20__ and August 1, 20__, respectively, as set forth below, from sinking fund payments made by the Successor Agency to the Principal Account pursuant to the Indenture, at a redemption price equal to the principal amount thereof to be redeemed, without premium, in the aggregate respective principal amounts and on August 1 in the respective years as set forth in the following tables; provided however, that (y) in lieu of redemption thereof such 2022B Term Bonds may be purchased by the Successor Agency pursuant to the Indenture if some but not all of such 2022B Term Bonds have been redeemed pursuant to the Optional Redemption of 2022B Bonds, the total amount of all future sinking fund payments shall be reduced by the aggregate principal amount of such 2022B Term Bonds so redeemed, to be allocated among such sinking fund payments in integral multiples of $5,000 as determined by the Successor Agency (written notice of which determination shall be given by the Successor Agency to the Trustee and shall include a revised sinking fund schedule). 2022B Term Bonds of 20__
August 1
Principal Amount
2022B Term Bonds of 20__
August 1
Principal Amount
Notice of Redemption; Rescission. The Trustee on behalf and at the expense of the Successor Agency shall mail (by first class mail, postage prepaid) notice of any redemption at least 20 but not more than 60 days prior to the redemption date, (i) to any Bond Insurer and to the Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, and (ii) to the Securities Depositories and one or more Information Services designated in a written request of the Successor Agency filed with the Trustee; but such mailing shall not be a condition precedent to such redemption and neither failure to receive any such notice nor any defect therein shall affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice shall state the redemption date and the redemption price, shall state, in the case of an optional redemption described above, that such redemption is conditioned upon the timely delivery of the redemption price by the Successor Agency to the Trustee for deposit in the Redemption Account, shall designate the CUSIP number of the Bonds to be redeemed, shall state the individual number of each Bond to be redeemed or shall state that all Bonds between two stated numbers (both inclusive) or all of the Bonds Outstanding are to be redeemed, and shall require that such Bonds be then surrendered at the Principal Corporate Trust Office of the Trustee for redemption at the redemption price, giving notice also that (subject to timely delivery of the redemption price by the Successor Agency to the Trustee for reposit in the Redemption Account) further interest on such Bonds will not accrue from and after the redemption date, and that notice of optional redemption shall be canceled and annulled if for any reason funds will not be or are not available on the date fixed for redemption, as provided in the Indenture.
The Successor Agency shall have the right to rescind any notice of optional redemption by written notice to the Trustee on or prior to the date fixed for redemption and such recission does not constitute an Event of Default under the Indenture. Any such notice of optional redemption shall be canceled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute an Event of Default under the Indenture. The Successor Agency and the Trustee shall have no liability to the Owners or any other party related to or arising from any such rescission or cancellation of redemption. The Trustee shall mail notice of such rescission of redemption in the same manner and to the same recipients as the original notice of redemption was sent.
Upon the payment of the redemption price of Bonds being redeemed, each check or other transfer of funds issued for such purpose shall, to the extent practicable, bear the CUSIP number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer.
Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the redemption price of and interest on the Bonds so called for redemption shall have been duly deposited with the Trustee, such Bonds so called shall cease to be entitled to any benefit under the Indenture other than the right to receive payment of the redemption price and accrued interest to the redemption date, and no interest shall accrue thereon from and after the redemption date specified in such notice.
Annual Debt Service
The table below sets forth the annualized debt service on the 2022 Bonds, assuming no optional redemption prior to maturity.
Bond Year Ending August 1
2022A Bonds Principal
2022A Bonds Interest
2022B Bonds Principal
2022B Bonds Interest
2022 Bonds Total
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
Total
Source: Underwriter.
SECURITY FOR THE 2022 BONDS
General
The Dissolution Act requires the County Auditor-Controller to determine the amount of property taxes that would have been allocated to the Former Agency (pursuant to subdivision (b) of Section 16 of Article XVI of the State Constitution) had the Former Agency not been dissolved pursuant to the operation of AB X1 26, using current assessed values on the last equalized roll on August 20, and to deposit such amount in the Redevelopment Property Tax Trust Fund for the Successor Agency established and held by the County AuditorController pursuant to the Dissolution Act. Section 34177.5(g) of the Dissolution Act provides that any bonds authorized to be issued by the Successor Agency will be considered indebtedness incurred by the dissolved Former Agency, with the same legal effect as if the bonds had been issued prior to the effective date of AB X1 26, in full conformity with the applicable provision of the Redevelopment Law that existed prior to that date; will be included in the Successor Agency’s Recognized Obligation Payment Schedule and will be secured by a pledge of, and lien on, and will be repaid from moneys deposited from time to time in the Redevelopment Property Tax Trust Fund established pursuant to the Dissolution Act. Property tax revenues pledged to any bonds authorized to be issued by the Successor Agency under the Dissolution Act, including the 2022 Bonds, are taxes allocated to the Successor Agency pursuant to subdivision (b) of Section 33670 of the Redevelopment Law and Section 16 of Article XVI of the State Constitution. See Appendix B and the caption “—Recognized Obligation Payment Schedule.” Pursuant to Section 33670(b) of the Redevelopment Law and Section 16 of Article XVI of the State Constitution, and as provided in the Redevelopment Plan for the Project Area, taxes levied upon taxable property in the Project Area each year by or for the benefit of the State, any city, county, district, or other public corporation (herein sometimes collectively called “taxing agencies”) after the effective date of the ordinance approving the redevelopment plan, or the respective effective dates of ordinances approving amendments to the redevelopment plan that added territory to the Project Area, as applicable, are to be divided as follows:
(a) To Taxing Agencies: That portion of the taxes which would be produced by the rate upon which the tax is levied each year by or for each of the taxing agencies upon the total sum of the assessed value of the taxable property in the applicable Project Area as shown upon the assessment roll used in connection with the taxation of such property by such taxing agency last equalized prior to the effective date of the ordinance adopting the redevelopment plan, or the respective effective dates of ordinances approving amendments thereto that added territory to the Project Area, as applicable (each, a “base year valuation”), will be allocated to, and when collected will be paid into, the funds of the respective taxing agencies as taxes by or for the taxing agencies on all other property are paid; and (b) To the Former Agency/Successor Agency: Except for that portion of the taxes in excess of the amount identified in (a) above which are attributable to a tax rate levied by a taxing agency for the purpose of producing revenues in an amount sufficient to make annual repayments of the principal of, and the interest on, any bonded indebtedness approved by the voters of the taxing agency on or after January 1, 1989 for the acquisition or improvement of real property, which portion shall be allocated to, and when collected shall be paid into, the fund of that taxing agency (as discussed under the caption “PROPERTY TAXATION IN CALIFORNIA—Article XIIIA of the State Constitution”), that portion of the levied taxes each year in excess of such amount, annually allocated within the redevelopment plan limit, when collected will be paid into a special fund of the Former Agency. Section 34172(a) of the Dissolution Act provides that, for purposes of Section 16 of Article XVI of the State Constitution, the Redevelopment Property Tax Trust Fund will be deemed to be a special fund of the Successor Agency to pay the debt service on indebtedness incurred by the Former Agency or the Successor Agency to finance or refinance the redevelopment projects of the Former Agency.
That portion of the levied taxes described in paragraph (b) above constitutes the amount required under the Dissolution Act to be deposited by the County Auditor-Controller into the Redevelopment Property Tax Trust Fund. In addition, Section 34183 of the Dissolution Act effectively eliminates the January 1, 1989 date referred to in paragraph (b) above. SB 107 provides that debt service override revenues approved by the voters for the purpose of supporting pension programs or capital projects or programs related to the State Water Project that are not pledged to or not needed for debt service on Agency debt will be allocated and paid to the entity that levies the override. No such overrides are pledged as security for the 2022 Bonds.
The 2022 Bonds are payable from and secured by “Pledged Tax Revenues,” which is defined in the Indenture to mean all taxes (i) that were eligible for allocation to the Former Agency with respect to the Project Area and are allocated to the Successor Agency pursuant to Article 6 of Chapter 6 (commencing with Section 33670) of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State, or pursuant to other applicable State laws and (ii) that are deposited or available for deposit by the County Auditor-Controller in the Redevelopment Property Tax Trust Fund, all as provided in Section 34172(d) of the Dissolution Act. The Indenture provides for payment of the Bonds using Pledged Tax Revenues after the prior payment of County administration costs (such revenues are referred to at times herein as “Net Pledged Tax Revenues”). [Payments under the County Pass-Through Agreement and the Statutory Pass-Through Amounts have been subordinated to the 2022 Bonds, subject to compliance with certain procedures described below.] See “PROPERTY TAXATION IN CALIFORNIA—Property Tax Collection Procedures—Property Tax Administrative Costs,” “—Tax Increment Financing—Tax Sharing,” “—Elimination of Housing SetAside,” “—County Pass-Through Agreement,” “—Statutory PassThrough Amounts,” and “—Prior Agreements.” The Successor Agency has no power to levy and collect taxes, and various factors beyond its control could affect the amount of Pledged Tax Revenues available in any fiscal year (defined as July 1 through June 30) to pay the principal of and interest on the 2022 Bonds. See the captions “—Tax Increment Financing,” “—Recognized Obligation Payment Schedule,” “PROPERTY TAXATION IN CALIFORNIA” and “RISK FACTORS.” The 2022 Bonds are not a debt of the City, the State, or any of its political subdivisions (other than the Successor Agency), and neither said City, said State, nor any of its political subdivisions (other than the Successor Agency) is liable thereon, nor in any event will the 2022 Bonds be payable out of any funds or properties other than those of the Successor Agency. The 2022 Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction.
Pledged Tax Revenues
The Indenture provides that, subject to certain senior payments described therein, all Pledged Tax Revenues and the Redevelopment Obligation Retirement Fund, including the Special Fund therein, and all amounts in the Redevelopment Property Tax Trust Fund, are irrevocably pledged to secure the payment of the principal of and interest on the 2022 Bonds and all Parity Debt without preference or priority for series, issue, number, dated date, sale date, date of execution or date of delivery. Such pledge will constitute a lien on and security interest in the Pledged Tax Revenues and the Redevelopment Obligation Retirement Fund, including the Special Fund therein, and all amounts in the Redevelopment Property Tax Trust Fund, and will attach, be perfected and be valid and binding against all parties having claims of any kind in tort, contract or otherwise against the Successor Agency, irrespective of whether such parties have notice of the Indenture; provided however, that the County Auditor-Controller is authorized by Section 34183(a) of the Dissolution Act to use Pledged Tax Revenues to pay the County’s administrative costs allowed under Section 34182 and Section 95.3 of the Revenue and Taxation Code and is required by Section 34183 of the Dissolution Act to pay Pledged Tax Revenues to the County pursuant to the County Pass-Through Agreement and to pay the Statutory Pass-Through Amounts to taxing entities (unless such payments are subordinated to payments on the 2022 Bonds and Parity Debt pursuant to Section 33607.5(e) of the Redevelopment Law or Section 34177.5(c) of the Dissolution Act) and provided further that the Successor Agency may make payments from Pledged Tax Revenues under the Prior Agreements on a basis senior to the 2022 Bonds. Except for the Pledged Tax Revenues, such amounts and such funds and accounts, no other moneys, funds, accounts or properties of the Successor Agency are pledged to, or otherwise liable for, the payment of principal of or interest or redemption premium (if any) on the 2022 Bonds or Parity Debt except as provided in the following paragraph with respect to the 2022 Bonds.
The Indenture further provides that the Debt Service Fund and any fund or account created under the Indenture (other than the Costs of Issuance Fund and the Rebate Fund), including amounts on deposit therein, are irrevocably pledged under the Indenture to secure the payment of the principal of and interest on the 2022 Bonds and other Bonds without preference or priority for series issue, number, dated date, sale date, date of execution or date of delivery. Such pledge will constitute a first and exclusive lien on and security interest in the Debt Service Fund and any other fund or account created under the Indenture, and including amounts on deposit therein (including proceeds of the 2022 Bonds), and will attach, be perfected and be valid and binding against all parties having claims of any kind in tort, contract or otherwise against the Successor Agency, irrespective of whether such parties have notice of the Indenture.
Pursuant to Section 34177.5(g) of the Dissolution Act, except as provided in the Indenture, the 2022 Bonds and Parity Debt will be secured by a pledge of and lien on moneys deposited in the Redevelopment Property Tax Trust Fund held by the County Auditor-Controller related to the Successor Agency, which moneys, subject to the payment by the County Auditor-Controller of certain amounts to pay County administrative expenses as allowed under Section 34182 and Section 95.3 of the Revenue and Taxation Code, payments to the County under the County Pass-Through Agreement and the payment of Statutory Pass-Through Amounts to taxing entities (unless subordinated to the 2022 Bonds), and payments by the Successor Agency under the Prior Agreements, constitute Pledged Tax Revenues under the Indenture. See the captions “PROPERTY TAXATION IN CALIFORNIA—Property Tax Collection Procedures—Property Tax Administrative Costs,” “SECURITY FOR THE 2022 BONDS—Tax Increment Financing—Tax Sharing,” “—County Pass-Through Agreement,” “—Statutory Pass-Through Amounts,” and “—Prior Agreements” below.
Taxes levied on the property within the Project Area on that portion of the taxable valuation over and above the taxable valuation of the applicable base year property tax roll with respect to the various territories within the Project Area, to the extent that they constitute Pledged Tax Revenues as described below, will be deposited in the Redevelopment Property Tax Trust Fund for transfer by the County Auditor-Controller to the Successor Agency’s Redevelopment Obligation Retirement Fund on January 2 and June 1 of each year to the extent required for payments listed in the Successor Agency’s approved Recognized Obligation Payment Schedule in accordance with the requirements of the Dissolution Act. See the caption “—Recognized Obligation Payment Schedule.” Moneys deposited by the County Auditor-Controller into the Successor Agency’s Redevelopment Obligation Retirement Fund for payment of debt service on the 2022 Bonds will be transferred by the Successor Agency to the Trustee for deposit in the Debt Service Fund established under the Indenture and administered by the Trustee in accordance with the Indenture.
In consideration of the acceptance of the 2022 Bonds and other Bonds by those who will hold the same from time to time, the Indenture constitutes a contract between the Successor Agency and the Owners from time to time of the 2022 Bonds, and the covenants and agreements set forth in the Indenture to be performed on behalf of the Successor Agency will be for the equal and proportionate benefit, security and protection of all Owners of the 2022 Bonds and other Bonds without preference, priority or distinction as to security or otherwise of any of the 2022 Bonds and other Bonds over any of the others by reason of the number or date thereof or the time of sale, execution and delivery thereof, or otherwise for any cause whatsoever, except as expressly provided in the Indenture.
Redevelopment Obligation Retirement Fund; Deposit of Pledged Tax Revenues The Successor Agency has established the Redevelopment Obligation Retirement Fund and the Special Fund therein pursuant to Section 34170.5(a) of the Dissolution Act, which the Successor Agency will continue to hold so long as any of the 2022 Bonds are Outstanding. The Indenture also establishes a separate fund known as the Debt Service Fund and the accounts therein which will be held by the Trustee. Subject to the prior payments permitted by the Indenture, the Successor Agency will deposit all of the Pledged Tax Revenues received in any Bond Year in the Special Fund promptly upon receipt by the Successor Agency, and thereafter will transfer amounts received to the Debt Service Fund until such time as the amounts so transferred to the Debt Service Fund equal the aggregate amounts required to be deposited by the Trustee into the Interest Account, the Principal Account, and the Reserve Account of the Debt Service Fund pursuant to the Indenture on the next succeeding Interest Payment Date following such receipt of Pledged Tax Revenues by the Successor Agency and for deposit in the funds and accounts established with respect to Parity Debt on the next succeeding Interest Payment Date following such receipt of Pledged Tax Revenues by the Successor Agency, as provided in any Supplemental Indenture.
Transfer of Amounts by Trustee
The Indenture creates accounts within the Debt Service Fund as set forth below, to be known respectively as the Interest Account, the Principal Account, and the Reserve Account. Moneys in the Debt Service Fund will be transferred by the Trustee in the following amounts at the following times, for deposit in the following respective accounts within the Debt Service Fund, which are established with the Trustee by the Indenture, in the following order of priority (provided further that, if on the fifth (5th) Business Day prior to the date the Successor Agency is required to transfer amounts on deposit in the Special Fund to the Trustee there are not amounts on deposit therein sufficient to make the following deposits, taking into account amounts required to be transferred with respect to Bonds other than the 2022 Bonds, the Successor Agency will immediately notify the Trustee of the amount of any such insufficiency and the Trustee will deposit amounts received from the Successor Agency into sub-accounts of the Interest Account and/or Principal Account, as applicable, on a pro-rata basis):
Interest Account. On or before the fifth (5th) Business Day preceding each Interest Payment Date, commencing with the Interest Payment Date of _____ 1, 20__, the Successor Agency will withdraw from the Special Fund and transfer to the Trustee, for deposit in the Interest Account an amount which when added to the amount contained in the Interest Account on that date, will be equal to the aggregate amount of the interest becoming due and payable on the Outstanding Bonds on such Interest Payment Date. No such transfer and deposit need be made to the Interest Account if the amount contained therein is at least equal to the interest to become due on the next succeeding Interest Payment Date upon all of the Outstanding Bonds. All moneys in the Interest Account will be used and withdrawn by the Trustee solely for the purpose of paying the interest on the 2022 Bonds as it becomes due and payable.
Principal Account. On or before the fifth (5th) Business Day preceding August 1 in each year beginning August 1, 20___ (with respect to the 2022 Bonds), the Successor Agency will withdraw from the Special Fund and transfer to the Trustee for deposit in the Principal Account an amount which, when added to the amount then contained in the Principal Account, will be equal to the principal becoming due and payable on the Outstanding Serial Bonds and Outstanding Term Bonds, including pursuant to mandatory sinking account redemption, on the next August 1. No such transfer and deposit need be made to the Principal Account if the amount contained therein is at least equal to the principal to become due on the next August 1 on all of the Outstanding Serial Bonds and Term Bonds. All moneys in the Principal Account will be used and withdrawn by the Trustee solely for the purpose of paying the principal of the Serial Bonds and the Term Bonds, including by mandatory sinking account redemption, as the same becomes due and payable.
Reserve Account. There has been established in the Debt Service Fund by the Indenture a separate fund and account known as the “Reserve Account” solely as security for payments on the 2022 Bonds payable by the Successor Agency pursuant to the Indenture, which will be held by the Trustee in trust for the benefit of the Owners of the 2022 Bonds.
The Successor Agency is not required to fund a reserve in connection with the issuance of Parity Debt. If the Successor Agency issues Parity Debt under a Supplemental Indenture secured by a reserve, the Successor Agency will establish one or more subaccounts in the Reserve Account for the purpose of securing such Parity Debt. Such subaccounts within the Reserve Account will not be available to pay debt service on the 2022 Bonds. The Reserve Requirement for the 2022 Bonds or any series (or multiple series) of Parity Debt for which a reserve is to be funded will be calculated, as of any date of computation, as the lesser of: (i) 125% of the average Annual Debt Service with respect to such series (or multiple series) of Bonds, (ii) Maximum Annual Debt Service with respect to such series (or multiple series) of Bonds, or (iii) with respect to such series (or multiple series) of Bonds, 10% of the original principal amount of such series (or multiple series) of Bonds (or, if such series (or multiple series) of Bonds has more than a de minimis amount of original issue discount or premium, 10% of the issue price of such series (or multiple series) of Bonds; provided, that in no event shall the Successor Agency, in connection with the issuance or incurrence of Parity Debt be obligated to deposit an amount in the Reserve Account which is in excess of the amount permitted by the applicable provisions of the Code to be so deposited from the proceeds of tax-exempt bonds without having to restrict the yield of any investment purchased with any portion of such deposit and, in the event the amount of any such deposit into the Reserve Account is so limited, the Reserve Requirement shall, in connection with the issuance of such Parity Debt, be increased only by the amount of such deposit as permitted by the Code; and, provided further that the Successor Agency may meet all or a portion of the Reserve Requirement by depositing a Qualified Reserve Account Credit Instrument meeting the requirements of the Indenture. See the caption “INTRODUCTORY STATEMENT—Reserve Account.” The Reserve Requirement for the 2022 Bonds will be satisfied by the delivery of the Reserve Policy by the 2022 Insurer on the Closing Date with respect to the 2022 Bonds with a stated policy amount of $__________. The Successor Agency will have no obligation to replace the Reserve Policy or to fund the Reserve Account with cash if, at any time that the 2022 Bonds are Outstanding, any rating assigned to the 2022 Insurer is downgraded, suspended or withdrawn or amounts are not available under the Reserve Policy, other than in connection with a draw on the Reserve Policy. See the caption “BOND INSURANCE.” No Reserve Account Required for Parity Debt. The Indenture permits the issuance of Parity Debt without funding any reserve requirement with respect to such Parity Debt. In the event the Successor Agency has insufficient revenues to pay debt service on the 2022 Bonds and Parity Debt, Pledged Tax Revenues would be applied pro-rata to the payment of such Parity Debt and the 2022 Bonds. See the captions “SECURITY FOR THE 2022 BONDS—Issuance of Additional Indebtedness” and “RISK FACTORS—Parity Debt Issued Without Reserve.” See Appendix B under the caption “SECURITY OF BONDS; FLOW OF FUNDS—Deposit of Amounts by Trustee—Reserve Account” for further information with respect to the procedure for drawing upon the Reserve Account.
Tax Increment Financing
General. Prior to the enactment of AB X1 26, the Redevelopment Law authorized the financing of redevelopment projects through the use of tax increment revenues. This method provided that the taxable valuation of the property within a redevelopment project area on the property tax roll last equalized prior to the effective date of the ordinance which adopts the redevelopment plan becomes the base year valuation. Assuming that the taxable valuation exceeds the base year level, the taxing agencies thereafter received that portion of the taxes produced by applying then current tax rates to the base year valuation, and the redevelopment agency was allocated the remaining portion produced by applying then current tax rates to the increase in valuation over the base year. Such incremental tax revenues allocated to a redevelopment agency were authorized to be pledged to the payment of agency obligations.
The Dissolution Act authorizes refunding bonds, including the 2022 Bonds, that are issued by a successor agency to be secured by a pledge of moneys deposited from time to time in a Redevelopment Property Tax Trust Fund held by a county auditorcontroller with respect to that successor agency, which are equivalent to the tax increment revenues that were formerly allocated under the Redevelopment Law to the redevelopment agency and formerly authorized under the Redevelopment Law to be used for the financing of redevelopment projects, less amounts deducted pursuant to Section 34183(a) of the Dissolution Act for permitted administrative costs of the county auditorcontroller. Under the Indenture, Pledged Tax Revenues consist of the amounts deposited from time to time in the Redevelopment Property Tax Trust Fund established pursuant to and as provided in the Dissolution Act. Successor agencies have no power to levy property taxes and must look specifically to the allocation of taxes as described above. See the caption “RISK FACTORS.” Tax Sharing. The Redevelopment Law authorized redevelopment agencies to make contractual payments to school districts and other taxing agencies to alleviate any financial burden or detriments to such taxing agencies caused by a redevelopment project. The Former Agency entered into an agreement with the County for this purpose (See the caption “—County Pass-Through Agreement” below). Additionally, Sections 33607.5 and 33607.7 of the Redevelopment Law required mandatory tax sharing applicable to redevelopment projects adopted after January 1, 1994, or amended thereafter in certain manners specified in such statutes (the “Statutory Pass-Through Amounts”). Statutory Pass-Through Amounts are payable from both the Dynamite Project Area and Project Area No. 2 (See the caption “—Statutory PassThrough Amounts” below.) Further, redevelopment project areas adopted between January 1, 1985 and January 1, 1994 were subject to payments to schools and to other affected taxing agencies that elected to receive tax revenue payments set forth under Section 33676 of the Law (“33676 Amounts”). The Redevelopment Plan for the Dynamite Project Area was adopted prior to January 1, 1985 and the Redevelopment Plans for Project Area No. 2 and the 2009 Added Area were adopted after December 31, 1993; therefore, the Successor Agency is not required to remit 33676 Amounts (see the caption “PROPERTY TAXATION IN CALIFORNIA—Section 33676 Election” below).
The Dissolution Act requires the County Auditor-Controller to distribute from the Redevelopment Property Tax Trust Fund amounts required to be distributed as Statutory Pass-Through Amounts or 33676 Amounts to the taxing entities on each January 2 and June 1 before amounts are distributed by the County Auditor-Controller from the Redevelopment Property Tax Trust Fund to the Successor Agency’s Redevelopment Obligation Retirement Fund, unless: (i) pass-through payment obligations have been made subordinate to debt service payments for the bonded indebtedness of the Successor Agency; (ii) the Successor Agency has reported, no later than the December 1 or May 1 preceding the applicable January 2 or June 1 distribution date, as applicable, that the total amount available to the Successor Agency from the Redevelopment Property Tax Trust Fund allocation to the Successor Agency’s Redevelopment Obligation Retirement Fund, from other funds transferred from the Former Agency and from funds that have or will become available through asset sales and all redevelopment operations, is insufficient to fund the Successor Agency’s enforceable obligations, pass-through payments and the Successor Agency’s administrative cost allowance for the applicable sixmonth period; and (iii) the County Auditor-Controller and the State Controller have concurred with the Successor Agency that there are insufficient funds for such purposes for the applicable six-month period. [The Dissolution Act provides for a procedure by which the Successor Agency may make Statutory Pass-Through Amounts subordinate to the 2022 Bonds. The Successor Agency has undertaken the requisite procedures to obtain subordination of the County Pass-Through Agreement and the Statutory Pass-Through Amounts and, therefore, amounts due under the County Pass-Through Agreement and as Statutory Pass-Through Amounts are junior in payment priority to the 2022 Bonds, subject to compliance with the procedures set forth in the Dissolution Act, as described above. See the caption “PLEDGED TAX REVENUES” for projections of Pledged Tax Revenues and the subordinated County Pass-Through Agreement and Statutory Pass-Through Amounts. See “THE PROJECT AREA” for additional information regarding assessed values and tax revenues generated in the Project Area.] Elimination of Housing Set-Aside. Before the dissolution of the Former Agency, the Redevelopment Law required the Former Agency to set aside not less than 20% of the gross tax increment allocated to the Former Agency from the Project Area, i.e., the “Housing Set-Aside,” in the Former Agency’s Low and Moderate Income Housing Fund, to be expended for low and moderate income housing purposes. Generally, the Former Agency was authorized to use the Housing Set-Aside to pay debt service on bonds solely to the extent that the proceeds of such bonds were used to finance or refinance low and moderate income housing projects. In contrast, under the Redevelopment Law, the Former Agency was authorized to use the portion of tax increment that was not part of the Housing SetAside (the “Non-Housing Portion”) to pay debt service on all bonds and other indebtedness of the Former Agency incurred to finance or refinance redevelopment projects for the Project Area, subject to limitations set forth in the indentures or other governing documents.
The Dissolution Act has eliminated the Low and Moderate Income Housing Fund and the requirement to deposit the Housing Set-Aside into such fund. The Redevelopment Property Tax Trust Fund flow of funds under the Dissolution Act makes no distinction between obligations that were, in whole or in part, secured by and payable from the Housing Set-Aside and obligations that were solely secured by and payable from the Non-Housing Portion. In effect, after the Former Agency’s dissolution, all of the Successor Agency’s outstanding obligations are paid from Redevelopment Property Tax Trust Fund disbursements without distinction between obligations related to housing and non-housing projects. According to its terms, the Bridge Housing Agreement is secured by Housing Set-Aside. See the caption “—Prior Agreements.” Recognized Obligation Payment Schedule
On or before each February 1, with respect to each fiscal year, the Dissolution Act requires successor agencies to prepare and approve, and submit to the successor agency’s oversight board and the DOF for approval, a Recognized Obligation Payment Schedule pursuant to which enforceable obligations (as such term is defined in the Dissolution Act) of the successor agency are listed, together with the source of funds to be used to pay for each enforceable obligation. As defined in the Dissolution Act, “enforceable obligation” includes bonds, including the required debt service, reserve set-asides and any other payments required under an indenture or similar documents governing the issuance of the outstanding bonds of the former redevelopment agency, as well as other obligations such as loans, judgments or settlements against the former redevelopment agency, any legally binding and enforceable agreement that is not otherwise void as violating the debt limit or public policy, contracts necessary for the administration or operation of the successor agency, and amounts borrowed from the Low and Moderate Income Housing Fund. A reserve may be included on the Recognized Obligation Payment Schedule and held by the successor agency when required by the bond indenture or when the next property tax allocation will be insufficient to pay all obligations due under the provisions of the bond for the next payment due in the following half of the calendar year.
Under the Dissolution Act, the categories of sources of payments for enforceable obligations listed on a Recognized Obligation Payment Schedule are the following: (i) the Low and Moderate Income Housing Fund; (ii) bond proceeds; (iii) reserve balances; (iv) administrative cost allowance; (v) the Redevelopment Property Tax Trust Fund (but only to the extent that no other funding source is available or when payment from property tax revenues is required by an enforceable obligation or otherwise required under the Dissolution Act); or (vi) other revenue sources (including rents, concessions, asset sale proceeds, interest earnings, and any other revenues derived from the former redevelopment agency, as approved by the oversight board).
The Dissolution Act provides that, commencing on the date that the first Recognized Obligation Payment Schedule is valid, only those payments listed in the Recognized Obligation Payment Schedule may be made by the Successor Agency from the funds specified in the Recognized Obligation Payment Schedule. Each annual Recognized Obligation Payment Schedule may be amended once, provided that (i) the Successor Agency submits the amendment to DOF no later than October 1, (ii) the Oversight Board makes a finding that the amendment is necessary for the payment of approved enforceable obligations during the second half of the Recognized Obligation Payment Schedule period (from January 1 to June 30, inclusive), and (iii) the Successor Agency may only amend the amount requested for payment of approved enforceable obligations. DOF shall notify the Successor Agency and the County Auditor-Controller as to whether the Successor Agency’s requested amendment is approved at least 15 days before the January 2 property tax distribution.
The Recognized Obligation Payment Schedule must be submitted by the Successor Agency, after approval by the Oversight Board, to the County Administrative Officer, the County Auditor-Controller, the DOF and the State Controller by February 1 in each year with respect to the Successor Agency’s payment obligations during the next fiscal year. If the Successor Agency does not submit an Oversight Board-approved Recognized Obligation Payment Schedule by such deadline, the City will be subject to a civil penalty equal to $10,000 per day for every day that the schedule is not submitted. Additionally, the Successor Agency’s administrative cost allowance will be reduced by 25% for any fiscal year for which the Successor Agency does not submit an Oversight Board-approved Recognized Obligation Payment Schedule within 10 days of the February 1 deadline. If the Successor Agency fails to submit a Recognized Obligation Payment Schedule by the February 1 deadline, any creditor of the Successor Agency or the DOF or any affected taxing entity shall have standing to, and may request a writ of mandate to, require the Successor Agency to immediately perform this duty. For additional information regarding procedures under the Dissolution Act relating to late Recognized Obligation Payment Schedules and implications thereof on the 2022 Bonds, see the caption “RISK FACTORS—Recognized Obligation Payment Schedule.” With respect to each Recognized Obligation Payment Schedule submitted by the Successor Agency, the Dissolution Act requires the DOF to make a determination of the enforceable obligations and the amounts and funding sources available to pay approved enforceable obligations no later than April 15. Within five business days of the determination by the DOF, the Successor Agency may request additional review by the DOF and an opportunity to meet and confer on disputed items, if any. The DOF will notify the Successor Agency and the County Auditor-Controller as to the outcome of its review at least 15 days before the June 1 property tax distribution date preceding the applicable Recognized Obligation Payment Schedule period. Additionally, the County Auditor-Controller may review a submitted Recognized Obligation Payment Schedule and object to the inclusion of any items that are not demonstrated to be enforceable obligations and may object to the funding source proposed for any items, provided that the County Auditor-Controller must provide notice of any such objections to the Successor Agency, the Oversight Board and the DOF at least 60 days prior to the next property tax distribution date.
See the caption “—Last and Final Recognized Obligation Payment Schedule” below for a description of the Last and Final Recognized Obligation Payment Schedule authorized by the Dissolution Act to be filed pursuant to SB 107. No such schedule has been filed by the Successor Agency.
The Dissolution Act provides that any bonds authorized to be issued by the Successor Agency will be considered indebtedness incurred by the dissolved Former Agency, with the same legal effect as if such bonds had been issued prior to the effective date of AB X1 26, in full conformity with the applicable provision of the Redevelopment Law that existed prior to such date, will be included in the Successor Agency’s Recognized Obligation Payment Schedule and will be secured by a pledge of, and lien on, and will be repaid from moneys deposited from time to time in the Redevelopment Property Tax Trust Fund established pursuant to the Dissolution Act. Further, the Dissolution Act provides that the scheduled payments on bonds issued by a successor agency with the approval of the oversight board and DOF shall be listed in the Recognized Obligation Payment Schedule and shall not be subject to further review and approval by DOF or the State Controller.
In order to ensure the timely payment of debt service on the 2022 Bonds, the Successor Agency covenants in the Indenture to request one-half of each Bond Year’s debt service from the moneys to be distributed from the RPTTF on January 2 during such Bond Year and the remainder of such Bond Year’s debt service from the moneys to be distributed from the RPTTF during the following June 1. Accordingly, the Indenture provides that, on or before each February 1 (or at such earlier time as may be required by the Dissolution Act), for so long as any Bonds are outstanding, the Successor Agency will submit an Oversight Board-approved Recognized Obligation Payment Schedule to DOF and to the County Auditor-Controller that will include, from the first Pledged Tax Revenues distributed to the Successor Agency on each January 2 and June 1 Redevelopment Property Tax Trust Fund distribution date (subject to payments for County administrative expenses and to certain taxing entities and subject to payments under the Prior Agreements, as provided in the Indenture): (i) all debt service due on all Outstanding 2022 Bonds and Parity Debt coming due during such Bond Year (with at least one-half of such Bond Year’s debt service to be distributed from the Redevelopment Property Tax Trust Fund on January 2 and the remainder of such Bond Year’s debt service to be distributed from the Redevelopment Property Tax Trust Fund on June 1), as well as all amounts due and owing to the 2022 Insurer or to any other Insurer, and (ii) any amount required to cure any deficiency in the Reserve Account pursuant to the Indenture or a reserve account established under any Parity Debt Instrument (including any amounts required due to a draw on the Qualified Reserve Account Credit Instrument as well as all amounts due and owing to the 2022 Insurer or to any other Insurer). The Successor Agency shall have the right, in its sole and absolute discretion, to request up to 100% of the principal and interest coming due during the applicable Bond Year from the RPTTF moneys to be distributed to the Successor Agency on the January 2 RPTTF distribution date during such Bond Year, and to request the remainder of such Bond Year’s debt service to be distributed from the RPTTF on June 1 during such Bond Year.
The Successor Agency covenants in the Indenture that it will comply with the requirements of the Dissolution Act, including without limitation to file all required statements and hold all public hearings required under the Dissolution Act to assure compliance by the Successor Agency with its covenants under the Indenture. See Appendix B.
Last and Final Recognized Obligation Payment Schedule
SB 107 amended the Dissolution Act to permit a successor agency to submit a Last and Final Recognized Obligation Payment Schedule (a “Last and Final ROPS”) for approval by the oversight board and DOF if: (i) the successor agency’s only remaining debt is administrative costs and payments pursuant to enforceable obligations with defined payment schedules, (ii) all remaining obligations have been previously listed on a Recognized Obligation Payment Schedule and approved by DOF, and (iii) the successor agency is not a party to outstanding or unresolved litigation. The Last and Final ROPS must list the remaining enforceable obligations of the successor agency in the following order: (A) enforceable obligations to be funded from the Redevelopment Property Tax Trust Fund, (B) enforceable obligations to be funded from bond proceeds or other legally or contractually dedicated or restricted funding sources, and (C) loans or deferrals authorized for repayment to the city that created the redevelopment agency or the successor to the former redevelopment agency’s housing functions and assets. The Last and Final ROPS must also include the total outstanding obligation and a schedule of remaining payments for each enforceable obligation described in (A) and (B) above, and the total outstanding obligation and an interest rate of 4%, for any loans or deferrals listed pursuant to (C) above. The Last and Final ROPS shall also establish the maximum amount of Redevelopment Property Tax Trust Funds to be distributed to the successor agency for each remaining fiscal year until all obligations have been fully paid. DOF approval is required for any Last and Final ROPS to become effective. The county auditor-controller shall also review the Last and Final ROPS and provide any objection to the inclusion of any items or amounts to DOF.
Successor agencies may only amend an approved Last and Final ROPS twice. Approval by the oversight board and DOF is required for any amendment to a Last and Final ROPS to become effective. The Dissolution Act provides DOF with 100 days to approve or deny an amendment to a Last and Final ROPS. Each amended Last and Final ROPS approved by DOF shall become effective in the subsequent Redevelopment Property Tax Trust Fund distribution period. If an amended Last and Final ROPS is approved less than 15 days before the date of the property tax distribution, the Last and Final ROPS shall not be effective until the subsequent Redevelopment Property Tax Trust Fund distribution period.
Any revenues, interest, and earnings of the successor agency, including proceeds from the disposition of real property, that are not authorized for use pursuant to the approved Last and Final ROPS shall be remitted to the county auditor-controller for distribution to the affected taxing entities. A successor agency shall not expend more than the amount approved for each enforceable obligation listed on the approved Last and Final ROPS. The county auditor-controller shall no longer distribute property tax to the successor agency’s Redevelopment Property Tax Trust Fund once the aggregate amount of property tax allocated to the successor agency equals the total outstanding obligation approved in the Last and Final ROPS. Commencing on the effective date of the approved Last and Final ROPS, the successor agency shall not prepare or transmit annual Recognized Obligation Payment Schedules.
After the Last and Final ROPS is approved by DOF, the county auditor-controller shall continue to allocate moneys in the successor agency’s Redevelopment Property Tax Trust Fund pursuant to Section 34183 of the Dissolution Act; however, the county auditor-controller shall allocate such moneys in each fiscal period, after deducting the county auditor-controller’s administrative costs, in the following order of priority: (A) pass through payments pursuant to Section 34183(a)(1) of the Dissolution Act, (B) scheduled debt service payments on tax allocation bonds listed and approved in the Last and Final ROPS, (C) scheduled payments on revenue bonds listed and approved in the Last and Final ROPS, but only to the extent the revenues pledged for them are insufficient to make the payments and only if the successor agency’s tax increment revenues were also pledged for the repayment of bonds, (D) scheduled payments for debts and obligations listed and approved in the Last and Final ROPS to be paid from the Redevelopment Property Tax Trust Fund, (E) payments listed and approved on the Last and Final ROPS that were authorized but unfunded in prior periods, (F) repayment of loans and deferrals to the city that created the redevelopment agency or the successor to the former redevelopment agency’s housing functions and assets that are listed and approved on the Last and Final ROPS, and (G) any moneys remaining in the Redevelopment Property Tax Trust Fund after the payments and transfers described in (A) to (F), above, shall be distributed to taxing entities in accordance with Section 34183(a)(4) of the Dissolution Act.
If the successor agency reports to the county auditor-controller that the total available amounts in the Redevelopment Property Tax Trust Fund will be insufficient to fund the successor agency’s current or future fiscal year obligations, and if the county auditor-controller concurs that there are insufficient funds to pay the required obligations, the county auditor-controller may divert subordinated pass-through payments to the successor agency pursuant to Section 34183(b) of the Dissolution Act. See the caption “—Tax Increment Financing.” [The Successor Agency does not currently intend to file a Last and Final ROPS. Further, the Successor Agency has covenanted in the Indenture not to submit to the Oversight Board or DOF a request for the final amendment permitted for its Last and Final ROPS without the prior written consent of the 2022 Insurer unless all amounts that could become due to the 2022 Insurer are included as a line item on the Last and Final ROPS, as amended.] County Pass-Through Agreement
Prior to 1994, under the Law, a redevelopment agency could enter into an agreement to pay former tax increment revenues to any affected taxing agency that has territory located within a redevelopment project in an amount which in the redevelopment agency’s determination is appropriate to alleviate any financial burden or detriment caused by the redevelopment project. These agreements normally provided for payment or pass-through of tax increment revenue directed to the affected taxing agency, and, therefore, are commonly referred to as pass-through agreements or tax sharing agreements. As described below, the Former Agency entered into one pass-through agreement with the County.
On November 23, 1983, the Former Agency entered into an agreement with the County pertaining to tax increment limitations for the Dynamite Project Area (the “County Pass-Through Agreement”). The County Pass-Through Agreement provides that if the Dynamite Redevelopment Plan is amended to increase the total amount of tax increment, the Successor Agency shall pay to the County an amount equal to the County’s portion of the increase in property taxes authorized to be received by the amendment, unless the Successor Agency and County otherwise agree. The County Pass-Through Agreement, as amended, provides that, unless the Dynamite Redevelopment Plan is amended to increase the total amount of tax increment dollars authorized to be received by the Agency from the Dynamite Redevelopment Project Area, the Successor Agency shall not incur indebtedness, including Successor Agency administration and low and moderate income housing requirements, the principal cost of which exceeds $94 million, and the total cumulative amount of tax increment received by the Successor Agency from the Dynamite Project Area shall not exceed $94 million, unless the Dynamite Redevelopment Plan is amended. Additionally, on or before October 1, 2001, the Former Agency was required to make two, one-time transfers to the County in the amounts of (1) $109,211, and (2) $57,335.78.
On March 8, 2005, the Council adopted Ordinance No. 403 amending the Merged Project Area to increase the tax increment limit for the Dynamite Project Area portion of the Project Area. Pursuant to the County Pass-Through Agreement, once the Successor Agency had collected $94 million from the Dynamite portion of the Project Area, the County was entitled to receive its share (17.8%) of the tax increment generated from the Dynamite Project Area portion of the Project Area. For Project Area No. 2 and the 2009 Added Area, the County receives its share of the Statutory Pass-Through Amounts.
For more information with respect to the County Pass-Through Agreement, see the Fiscal Consultant Report attached to this Official Statement as Appendix A. See the caption “—Past-Due Pass-Through Amounts” for more information regarding amounts due under the County Pass-Through Agreement and the County Auditor-Controller’s plan to allocate future moneys deposited in the RPTTF to pay such amounts to the County.
Statutory Pass-Through Amounts
Assembly Bill 1290 (Chapter 942, Statutes of 1993) (“AB 1290”), effective January 1, 1994, eliminated the statutory authority for negotiated pass-through agreements and provided a formula for mandatory tax sharing, applicable to projects adopted after January 1, 1994 or amended after that date to add territory or make certain other amendments. These payments, which are to begin the fiscal year following the year a redevelopment plan was adopted (if after January 1, 1994) or the fiscal year following the year that a redevelopment plan’s original plan limitations would have taken effect (in the case of pre-1994 redevelopment plans), are calculated using the increase in revenue above the amount of revenue generated by the project area in the year that the redevelopment plan was adopted or the former limit would have been reached, as applicable. Under the Dissolution Act, in particular Section 34183, the County Auditor-Controller is obligated to remit these Statutory Pass-Through Amounts to the affected taxing entities from the Successor Agency’s RPTTF for each ROPS Period.
As further described herein under the caption “THE PROJECT AREA,” the City amended the Dynamite Project Area several times after January 1, 1994 and Project Area No. 2 and the 2009 Added Area were adopted after January 1, 1994 and, accordingly, the Successor Agency is required to pay the Statutory Pass-Through Amounts to affected taxing agencies in the Project Area. These tax sharing payments continue so long as tax increment is available to repay indebtedness in the Project Area. The Statutory Pass-Through Amounts are determined by specific formulas under the Law; and post-dissolution, these payment obligations of the Successor Agency to affected taxing entities are administered by the County Auditor-Controller under the Dissolution Act. See “PLEDGED TAX REVENUES—Projected Pledged Tax Revenues” for a projection of such payments.
Generally speaking, under the Law as amended by AB 1290 and as the obligation continues under the Dissolution Act, the Successor Agency is required to pay to the affecting taxing entities percentages of tax increment generated in the Project Area as the Statutory Pass-Through Amounts, as follows:
“Tier 1.” following the adoption of the project area or the expiration of the amended time limit, as applicable, and thereafter, 25% of tax increment revenues (after deducting the Housing SetAside amount); plus, “Tier 2.” for the eleventh year following the triggering event and thereafter, 21% of revenues in excess of tenth year revenue (after deducting the Housing Set-Aside amount); plus, “Tier 3.” for the thirty-first year following the triggering event and thereafter, 14% of revenues in excess of thirtieth year revenues (after deducting the Housing Set-Aside amount).
The payments of the Statutory Pass-Through Amounts to the affected taxing entities are allocated among each affected taxing entity in proportion to the share of property taxes each affected taxing entity received in the year funds are allocated. As indicated, amounts specified as payable to affected taxing entities are computed after deducting the Housing Set-Aside amounts even though the Successor Agency no longer deposits such amounts into the Housing Fund under the Dissolution Act.
For more information about the Statutory Pass-Through Amounts, see Table 7 under the caption “PLEDGED TAX REVENUES—Projected Pledged Tax Revenues” and the Fiscal Consultant Report attached to this Official Statement as Appendix A. See the caption “—Past-Due Pass-Through Amounts” for more information about prior underpayments of the Statutory Pass-Through Amounts and the County Auditor-Controller’s plan to allocate future moneys deposited in the RPTTF to pay such amounts to the taxing agencies.
Past-Due Pass-Through Amounts
According to the County Auditor-Controller, past-due pass-through payments are owed to the County under the County Pass-Through Agreement and to affected taxing entities as Statutory Pass Through Amounts (the “Past-Due Pass-Through Amounts”). The County Auditor-Controller has confirmed that the Dynamite Project Area reached the $94 million tax increment threshold described under the caption “—County Pass-Through Agreement” in Fiscal Year 2015-16. However, the County Auditor-Controller has not made payments to the County under the County Pass-through Agreement since such time. The County Auditor-Controller calculates that as of February 18, 2022, $7,480,889 is past due for Fiscal Years 2015-16 through 2020-21 and $1,967,748 is owed for Fiscal Year 2021-22. In addition, the County Auditor-Controller informed the Successor Agency that Statutory Pass Through Amounts for the Dynamite Project Area are owed to taxing entities for Fiscal Years 2015-16 to 2019-20. The precise amount due is currently being evaluated. The Statutory Pass-Through Amounts included in the Past-Due Pass-Through Amounts are “Tier 2” Statutory Pass-Through Amounts.
The County Auditor-Controller has informed the Successor Agency that it will allocate future property tax revenues deposited into the RPTTF to the County to make up these prior payments due under the County Pass-Through Agreement and to taxing agencies as Statutory Pass-Through Amounts. Amounts payable to the County under the County Pass-Through Agreement and amounts payable to the taxing agencies as Statutory Pass-Through Amounts, including such prior unpaid amounts describe above, have been subordinated to the payment of debt service on the 2022 Bonds However, the County Auditor-Controller has also informed the Successor Agency that it will not subordinate the payments to the County under the County Pass-Through Agreement and the Statutory Pass-Through Amounts to payments under the Prior Agreements, even though the Former Agency and the Successor Agency historically treated the Prior Agreements as senior to the payment of debt service on the Refunded Obligations, and the Indenture permits the payment of amounts under the Prior Agreements on a senior basis to debt service on the 2022 Bonds. The County Auditor-Controller has indicated that it interprets the Dissolution Act (and in particular Section 34183 of the California Health and Safety Code) as prohibiting the subordination of pass-through payments due to affected taxing agencies to the payment of enforceable obligations other than “bond debt” (such as the Prior Agreements).
During the post-dissolution period of insufficient tax increment revenues described under the caption “THE PROJECT AREA—Prior Insufficiency of Tax Increment Revenue,” the Successor Agency filed a Notice of Insufficiency with the County Auditor-Controller prior to each RPTTF distribution date and the County Auditor-Controller distributed available tax increment revenues to the Successor Agency for the payment of debt service on the Refunded Obligations, but not for payments under the Prior Agreements, retaining all amounts of tax increment over the amount needed to pay debt service and for payment of the Statutory Pass-Through Amounts and the County Pass-Through Agreement. If insufficient Pledged Tax Revenues are available in the future to pay all of the Successor Agency’s enforceable obligations, a dispute could arise amount the payees under the Prior Agreements, County Auditor-Controller, and the Successor Agency regarding the priority allocation of amounts in the RPTTF to payment of debt service on the 2022 Bonds, the Prior Agreements, the County Pass-Through Agreement and the Statutory Pass-Through Amounts. Because of the Past-Due Pass Through Amounts, the Successor Agency will be required to file a Notice of Insufficiency prior to each RPTTF distribution date as needed to ensure allocation to the Successor Agency of sufficient amounts from the RPTTF to enable the Successor Agency to pay debt service on the 2022 Bonds, and if the Successor Agency fails to file such notice on a timely basis in accordance with the Dissolution Act, the Successor Agency may not receive sufficient money from the RPTTF to pay debt service on the Bonds. The Successor Agency will covenant in the Indenture to file a Notice of Insufficiency prior to each RPTTF distribution date as needed to ensure allocation to the Successor Agency of sufficient amounts from the RPTTF to enable the Successor Agency to pay debt service on the 2022 Bonds. See the caption “RISK FACTORS—Prior Insufficiency of Tax Increment Revenues.” Prior Agreements
The Former Agency entered into various development and owner participation agreements (collectively, the “Prior Agreements”). Two such agreements are described below. The County Auditor-Controller has not treated these obligations as senior to bond debt service based on the County Auditor-Controller’s interpretation of the Dissolution Act, and therefore the Prior Agreements are treated as junior to debt service on the 2022 Bonds in the projections of Pledged Tax Revenues set forth in Table 7 under the caption “PLEDGED TAX REVENUES—Projected Pledged Tax Revenues.” However, the Indenture permits the Successor Agency to make payments under the Prior Agreements from Pledged Tax Revenues prior to the payment of debt service on the 2022 Bonds.
Hercules LLC – New Pacific Properties. The Successor Agency is required to make semi-annual payments by each February 15 and August 15 to Hercules LLC (administered by Prologis) pursuant to a Settlement Agreement, Mutual General Release and Amendment to Development and Owner Participation Agreement dated April 23, 2010, which amended a Development and Owner Participation Agreement originally dated January 11, 2001. The original Development and Owner Participation Agreement was entered into by the Former Agency to assist with the development of a 206 acre-mixed use project consisting of 880 residential units, six mixed-use projects, and open space and park uses.
The Successor Agency is obligated to pay the developer a percentage of “Project Tax Increment.” “Project Tax Increment” is defined as tax increment revenue generated by the increase in base value due to the development of the project, less statutory payments to affected taxing entities, net of low and moderate income housing set aside. The current percentage of Project Tax Increment paid is 75% through February 2024. Commencing in August 2024 and continuing until February 2044, the Successor Agency is obligated to pay the developer 50% of Project Tax Increment.
A portion of bond proceeds from the 2007A Housing Bonds were set aside to make payments owed to Hercules LLC. Those bond proceeds have been exhausted and Hercules LLC is now paid through the ROPS. Although the Hercules LLC project is located in Project Area No. 2, the obligation is payable from tax increment revenue generated by the entire Project Area.
Hercules Senior Housing (Bridge Housing Corporation). The Successor Agency is required to make semi-annual payments by each January 1 and June 30 to Hercules Senior Housing Associates (administered by Bridge Housing Corporation) pursuant to a Disposition, Development and Loan Agreement dated November 15, 1996 and a Housing Assistance Pledge Agreement dated February 24, 2000 (together, the “Bridge Housing Agreement”). The Bridge Housing Agreement requires a $65,000 payment to be made each January 1 and June 30, for a total annual payment of $130,000, so long as a Regulatory Agreement between the Former Agency and borrower dated September 8, 1998 is in effect on the subject property. These payments are made through the Recognized Obligation Payment Schedule from tax increment revenue generated by the entire Project Area.
Issuance of Additional Indebtedness
No Additional Senior Obligations. Under the Indenture, the Successor Agency has covenanted that it will not issue additional bonds or incur additional obligations that are payable from Pledged Tax Revenues on a senior basis to the 2022 Bonds.
Upon the issuance of the 2022 Bonds and the completion of the refundings described under the caption “REFUNDING PLAN” there will be no bonds or other indebtedness outstanding with a pledge or lien on the Pledged Tax Revenues senior to the 2022 Bonds.
Parity Debt. Section 34177.5(a) of the Dissolution Act presently permits successor agencies to issue bonds or incur other indebtedness secured by property tax revenues comprised of former tax increment revenues required by the Dissolution Act to be deposited into the respective Redevelopment Property Tax Trust Fund for the applicable successor agency under limited circumstances, including to provide savings to the successor agency, provided that (A) the total interest cost to maturity on the refunding bonds plus the principal amount of the refunding bonds shall not exceed the total remaining interest cost to maturity on the bonds or other indebtedness to be refunded plus the remaining principal of the bonds or other indebtedness to be refunded, and (B) the principal amount of the refunding bonds or the indebtedness will not exceed the amount required to defease the refunded bonds or other indebtedness, to establish customary debt service reserves, and to pay related costs of issuance. If the foregoing conditions are satisfied, the initial principal amount of the refunding bonds or indebtedness may be greater than the outstanding principal amount of the bonds or other indebtedness to be refunded. The successor agency may pledge to the refunding bonds or other indebtedness the revenues pledged to the bonds or other indebtedness being refunded, having the same lien priority as the pledge of the bonds or other obligations to be refunded.
In addition to the 2022 Bonds, the Successor Agency may issue Parity Debt to refund any outstanding 2022 Bonds, Parity Debt or the Prior Agreements for savings, in such principal amount as will be determined by the Successor Agency. The Successor Agency may issue and deliver any such Parity Debt subject to the following conditions precedent:
(a) No Event of Default under the Indenture or an event of default under any Parity Debt Instrument will have occurred and be continuing unless cured by the issuance of such Parity Debt; (b) The Parity Debt must be issued to provide savings to the Successor Agency in compliance with Health and Safety Code Section 34177.5(a); (c) A Supplemental Indenture or Parity Debt Instrument must be adopted which must (i) state the applicable reserve requirement and the amount, if any, to be deposited from the proceeds of sale of such Parity Debt in a separate account of the Reserve Account or other debt service reserve account or fund as provided in such Supplemental Indenture or Parity Debt Instrument, to be held as separate security for such series of Parity Debt; (ii) designate accounts and subaccounts within the Debt Service Fund, including within the Reserve Account if applicable, to be used in connection with such Parity Debt; and (iii) set forth such other provisions that are appropriate or necessary and are not inconsistent with the provisions of the Indenture; and (d) With respect to Parity Debt issued to refund all or a portion of the Prior Agreements, the Pledged Tax Revenues for the then current Fiscal Year plus, at the option of the Successor Agency, the Additional Allowance as set forth in a Written Certificate of the Successor Agency filed with the Trustee, shall be equal to [125%] of Maximum Annual Debt Service on all Bonds and Parity Debt (including any Policy Costs owed to the 2022 Insurer) which will be Outstanding following the issuance of such Parity Debt; and (e) The Successor Agency must deliver to the Trustee a Written Certificate of the Successor Agency certifying that the conditions precedent to the issuance of such Parity Debt set forth in the Indenture have been satisfied.
Subordinate Obligations. The Successor Agency has various enforceable obligations that are, or will be, listed on the Successor Agency’s Recognized Obligation Payment Schedules and paid from moneys deposited in the Successor Agency’s Redevelopment Property Tax Trust Fund from time to time. The Successor Agency has determined that these obligations are either subordinate to the 2022 Bonds or not secured by a pledge of Pledged Tax Revenues. Nothing in the Indenture prevents the Successor Agency from issuing additional bonds or incurring other loans, advances or indebtedness payable from Pledged Tax Revenues on a subordinate basis to the 2022 Bonds.
BOND INSURANCE
[TO COME]
PROPERTY TAXATION IN CALIFORNIA
Property Tax Collection Procedures
Classification. In the State, property which is subject to ad valorem taxes is classified as “secured” or “unsecured.” Secured and unsecured property is entered on separate parts of the assessment roll maintained by county assessors. The secured classification includes property on which any property tax levied by a county becomes a lien on that property. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens on the secured property arising pursuant to State law, regardless of the time of the creation of other liens. See the caption “RISK FACTORS—Bankruptcy and Foreclosure” for certain limitations on the priority of secured tax liens under federal law, however.
Generally, ad valorem taxes are collected by a county for the benefit of the various taxing agencies (cities, schools and special districts) that share in the ad valorem tax (each, a taxing entity) and successor agencies eligible to receive distributions from the respective Redevelopment Property Tax Trust Fund.
Collections. The method of collecting delinquent taxes is substantially different for secured and unsecured property. The exclusive means of enforcing the payment of delinquent taxes with respect to property on the secured roll is the sale of the property securing the taxes to the State for the amount of taxes which are delinquent. Counties have four ways of collecting unsecured personal property taxes: (i) initiating a civil action against the taxpayer; (ii) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (iii) filing a certificate of delinquency for record in the county recorder’s office to obtain a lien on certain property of the taxpayer; and (iv) seizing and selling personal property, improvements or possessory interests belonging or assessed to the assessee.
Penalty. A 10% penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, property on the secured roll on which taxes are delinquent is declared in default by operation of law and declaration of the tax collector on or about June 30 of each fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1.5% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the county tax collector. A 10% penalty also applies to delinquent taxes with respect to property on the unsecured roll, and further, an additional penalty of 1.5% per month accrues with respect to such taxes beginning on varying dates related to the tax bill mailing date.
Delinquencies. The valuation of property is determined as of the January 1 lien date as equalized in August of each year and equal installments of taxes levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due January 1 and become delinquent August 31. The County has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (known as the Teeter Plan), as provided for in Section 4701 et seq. of the Revenue and Taxation Code of the State. Accordingly, the County Auditor-Controller distributes 100% of tax increment revenues allocated to each redevelopment successor agency in the County without regard to delinquencies in the payment of property taxes. As a result of this allocation method, the Successor Agency receives no adjustments for redemption payments on delinquent collections. But see the caption “—Penalty,” above. The Successor Agency does receive supplemental taxes and refunds, if any, are deducted from amounts available for deposit to the Redevelopment Property Tax Trust Fund. There can be no assurance that the County Auditor-Controller will not change its policies with respect to delinquencies in property tax payments in the future. In such an event, Pledged Tax Revenues would be affected by delinquencies.
Supplemental Assessments. California Revenue and Taxation Code Section 75.70 provides for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Prior to the enactment of this law, the assessment of such changes was permitted only as of the next tax lien date following the change, which delayed the realization of increased property taxes from the new assessments for up to 14 months. Revenue and Taxation Code Section 75.70 provides increased revenue to the Redevelopment Property Tax Trust Fund to the extent that supplemental assessments of new construction or changes of ownership occur within the boundaries of the Project Area subsequent to the January 1 lien date. To the extent that such supplemental assessments occur within the Project Area, Pledged Tax Revenues may increase. However, because supplemental assessments cannot be accurately projected, no provision has been made by the Fiscal Consultant to reflect the impact of supplemental assessments on Pledged Tax Revenues. See Appendix A.
Property Tax Administrative Costs. In 1990, the State Legislature enacted Senate Bill (“SB”) 2557 (Chapter 466, Statutes of 1990) which allows counties to charge for the cost of assessing, collecting and allocating property tax revenues to local government jurisdictions in proportion to the tax-derived revenues allocated to each. SB 1559 (Chapter 697, Statutes of 1992) explicitly includes redevelopment agencies among the jurisdictions which are subject to such charges. In addition, Sections 34182(e) and 34183(a) of the Dissolution Act allow administrative costs of the County Auditor-Controller for the cost of administering the provisions of the Dissolution Act, as well as the foregoing SB 1559 amounts, to be deducted from Pledged Tax Revenues. Over the past five years, the County’s total administrative charge for the Project Area, deducted from the Redevelopment Property Tax Trust Fund allocations to the Successor Agency, amounted to approximately 0.83% of the total gross tax revenue allocation to the Redevelopment Property Tax Trust Fund for such period. The Fiscal Consultant assumes that the County property tax administration will continue to be annually charged at this percentage factor to the gross tax revenue generated by the Project Area in subsequent fiscal years. See the projections set forth in the Fiscal Consultant Report attached as Appendix A and under the caption “PLEDGED TAX REVENUES—Projected Pledged Tax Revenues” herein.
Pass-Through Agreements. Prior to 1994, under the Redevelopment Law, a redevelopment agency could enter into an agreement to pay tax increment revenues to any taxing agency that has territory located within a redevelopment project in an amount which in the redevelopment agency’s determination was appropriate to alleviate any financial burden or detriment caused by the redevelopment project. Such agreements normally provide for payment or pass-through of tax increment revenue directed to the affected taxing agency, and, therefore, are commonly referred to as pass-through agreements or tax sharing agreements. The County Pass-Through Agreement is the only such tax-sharing agreement with respect to the Successor Agency. See the caption “SECURITY FOR THE 2022 BONDS—County Pass-Through Agreement” and the Fiscal Consultant Report attached as Appendix A for more information with respect to the County Pass-Through Agreement.
Statutory Pass-Through Amounts. The payment of Statutory Pass-Through Amounts results from: (i) redevelopment plan amendments which add territory in existing project areas on or after January 1, 1994; and (ii) redevelopment plan amendments which eliminate, extend or increase one or more limitations within a redevelopment plan (such as the removal of the time limit on the establishment of loans, advances and indebtedness). The calculation of the amount due to affected taxing entities is described in Sections 33607.5 and 33607.7 of the Redevelopment Law. See the caption “SECURITY FOR THE 2022 BONDS—Statutory Pass-Through Amounts” for a discussion of the Successor Agency’s obligation to pay Statutory Pass-Through Amounts to affected taxing agencies. Also see the caption “SECURITY FOR THE 2022 BONDS—Tax Increment Financing—Tax Sharing.” Section 33676 Election. Prior to the enactment of AB 1290, redevelopment project areas adopted between January 1, 1985 and January 1, 1994 were subject to payments to schools and to other affected taxing agencies that elected to receive tax revenue payments set forth under Section 33676 of the Law (defined above as “33676 Amounts”). The annual payments represent that portion of property taxes that are, or otherwise would be, calculated annually pursuant to subdivision (f) of Section 110.1 of the Revenue and Taxation Code (and referred to as the 2% inflation allocation). Because no portion of the Project Area was adopted between January 1, 1985 and January 1, 1994, no taxing entities within the Project Area are entitled to receive or are receiving payments under Section 33676.
Recognized Obligation Payment Schedule. The Dissolution Act provides that, commencing on the date that the first Recognized Obligation Payment Schedule is valid, only those payments listed in the Recognized Obligation Payment Schedule may be made by the Successor Agency from the funds specified in the Recognized Obligation Payment Schedule. Before each February 1, with respect to the following fiscal year, the Dissolution Act requires successor agencies to prepare and submit to the successor agency’s oversight board and the DOF for approval, a Recognized Obligation Payment Schedule pursuant to which enforceable obligations (as defined in the Dissolution Act) of the successor agency are listed, together with the source of funds to be used to pay for each enforceable obligation. Pledged Tax Revenues will not be distributed from the Redevelopment Property Tax Trust Fund by the County Auditor-Controller to the Successor Agency’s Redevelopment Obligation Retirement Fund without a duly approved and effective Recognized Obligation Payment Schedule obtained in sufficient time prior to each June 1 property tax distribution date. See the caption “SECURITY FOR THE 2022 BONDS—Recognized Obligation Payment Schedule” and “RISK FACTORS—Recognized Obligation Payment Schedule.” See also “SECURITY FOR THE 2022 BONDS—Last and Final Recognized Obligation Payment Schedule” for a description of the Last and Final ROPS authorized by the Dissolution Act pursuant to SB 107.
Unitary Property
Assembly Bill (“AB”) 2890 (Statutes of 1986, Chapter 1457) provides that, commencing with fiscal year 1988-89, assessed value derived from State-assessed unitary property (consisting mostly of operational property owned by utility companies) is to be allocated county-wide as follows: (i) each tax rate area will receive the same amount from each assessed utility received in the previous fiscal year unless the applicable county-wide values are insufficient to do so, in which case values will be allocated to each tax rate area on a pro rata basis; and (ii) if values to be allocated are greater than in the previous fiscal year, each tax rate area will receive a pro rata share of the increase from each assessed utility according to a specified formula. Additionally, the lien date on State-assessed property was changed from March 1 to January 1.
AB 454 (Statutes of 1987, Chapter 921) further modified Chapter 1457 regarding the distribution of tax revenues derived from property assessed by the State Board of Equalization. AB 454 provides for the consolidation of all State-assessed property, except for regulated railroad property, into a single tax rate area in each county. AB 454 further provides for a new method of establishing tax rates on State-assessed property and distribution of property tax revenue derived from State-assessed property to taxing jurisdictions within each county in accordance with a new formula. Railroads will continue to be assessed and revenues allocated to all tax rate areas where railroad property is located. The intent of AB 2890 and AB 454 is to provide redevelopment agencies with their appropriate share of revenue generated from property assessed by the State Board of Equalization.
Unitary tax revenues are pledged to payment of the 2022 Bonds; however, the projections of Pledged Tax Revenues set forth in Table 7 under the caption “PLEDGED TAX REVENUES—Projected Pledged Tax Revenues” and in the Fiscal Consultant Report attached hereto as Appendix A do not include unitary revenues because the Project Area has not had unitary tax revenues since fiscal year 2006-07.
Article XIIIA of the State Constitution
On June 6, 1978, State voters approved an amendment (commonly known as Proposition 13 or the Jarvis-Gann Initiative) which added Article XIIIA to the State Constitution. Article XIIIA limits the amount of ad valorem taxes on real property to 1% of “full cash value” of such property, as determined by the county assessor. Article XIIIA defines “full cash value” to mean “the county assessor’s valuation of real property as shown on the State fiscal year 1975-76 tax bill under ‘full cash value,’ or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” Furthermore, the “full cash value” of all real property may be increased to reflect the rate of inflation, as shown by the consumer price index, not to exceed 2% per year, or may be reduced. Each year the State Board of Equalization announces the applicable adjustment factor. Since the adoption of Proposition 13, inflation has, in most years, exceeded 2% and the announced factor has reflected the 2% cap. The changes in the California Consumer Price Index from October of one year and October of the next year are used to determine the adjustment factor for the January assessment date. During the ten previous Fiscal Years, the inflation factor has been less than 2% on five occasions. The table below reflects the inflation adjustment factors for Fiscal Year 2021-22, the current Fiscal Year, and the 10 prior Fiscal Years.
Historical Inflation Adjustment Factors
Fiscal Year
Inflation Adj. Factor
2010-11
-0.237%
2011-12
0.753
2012-13
2.000
2013-14
2.000
2014-15
0.454
2015-16
1.998
2016-17
1.525
2017-18
2.000
2018-19
2.000
2019-20
2.000
2020-21
2.000
2021-22
1.036
Article XIIIA has subsequently been amended to permit reduction of the “full cash value” base in the event of declining property values caused by substantial damage, destruction or other factors, and to provide that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster and in other special circumstances.
Article XIIIA: (i) exempts from the 1% tax limitation taxes to pay debt service on: (a) indebtedness approved by the voters prior to July 1, 1978; or (b) bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition; (ii) requires a vote of two-thirds of the qualified electorate to impose special taxes, or certain additional ad valorem taxes; and (iii) requires the approval of two-thirds of all members of the State Legislature to change any State tax laws resulting in increased tax revenues.
The validity of Article XIIIA has been upheld by both the State Supreme Court and the United States Supreme Court.
In the general election held on November 4, 1986, voters of the State approved two measures, Propositions 58 and 60, which further amended Article XIIIA. Proposition 58 amended Article XIIIA to provide that the terms “purchase” and “change of ownership,” for the purposes of determining full cash value of property under Article XIIIA, do not include the purchase or transfer of: (1) real property between spouses; and (2) the principal residence and the first $1,000,000 of other property between parents and children. This amendment to Article XIIIA may reduce the rate of growth of local property tax revenues.
Proposition 60 amended Article XIIIA to permit the State Legislature to allow persons over the age of 55 who sell their residence and buy or build another of equal or lesser value within two years in the same county to transfer the old residence assessed value to the new residence. As a result of the State Legislature’s action, the growth of property tax revenues may decline.
Legislation enacted by the State Legislature to implement Article XIIIA provides that all taxable property is shown at full assessed value as described above. In conformity with this procedure, all taxable property value included in this Official Statement is shown at 100% of assessed value and all general tax rates reflect the $1 per $100 of taxable value (except as noted). Tax rates for voter-approved bonded indebtedness and pension liabilities are also applied to 100% of assessed value. No such tax rate overrides for bonded indebtedness are pledged to the 2022 Bonds.
Appropriations Limitation – Article XIIIB
On November 6, 1979, State voters approved Proposition 4 (also known as the Gann Initiative), which added Article XIIIB to the State Constitution. Article XIIIB limits the annual appropriations of the State and its political subdivisions to the level of appropriations for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the government entity. The “base year” for establishing such appropriations limit is State fiscal year 1978-79, and the limit is to be adjusted annually to reflect changes in population, consumer prices and certain increases in the cost of services provided by these public agencies.
Section 33678 of the Redevelopment Law provides that the allocation of taxes to a redevelopment agency for the purpose of paying principal of, or interest on, loans, advances, or indebtedness is not deemed to be the receipt by an agency of proceeds of taxes levied by or on behalf of an agency within the meaning of Article XIIIB, nor will such portion of taxes be deemed receipt of proceeds of taxes by, or an appropriation subject to the limitation of, any other public body within the meaning or for the purpose of the Constitution and laws of the State, including Section 33678 of the Redevelopment Law. The constitutionality of Section 33678 has been upheld in two State appellate court decisions. On the basis of these decisions, the Successor Agency does not believe that it is subject to Article XIIIB and has not adopted an appropriations limit.
Articles XIIIC and XIIID of the State Constitution
At the election held on November 5, 1996, Proposition 218 was passed by the voters of California. The initiative added Articles XIIIC and XIIID to the State Constitution. Provisions in the two articles affect the ability of local government to raise revenues. The 2022 Bonds are secured by sources of revenues that are not subject to limitation by Proposition 218. See the caption “—Propositions 218 and 26.” Proposition 87
On November 8, 1988, the voters of the State approved Proposition 87, which amended Article XVI, Section 16 of the State Constitution to provide that property tax revenue attributable to the imposition of taxes on property within a redevelopment project area for the purpose of paying debt service on certain bonded indebtedness issued by a taxing entity (not the Former Agency or the Successor Agency) and approved by the voters of the taxing entity after January 1, 1989 will be allocated solely to the payment of such indebtedness, and not to redevelopment agencies. SB 107, which became effective on September 22, 2015, amended Section 34183(a)(1) of the Dissolution Act to provide that such debt service override revenues approved by the voters for the purpose of supporting pension programs or capital projects or programs related to the State Water Project that are not pledged to or not needed for debt service on Agency debt will be allocated and paid to the entity that levies the override. No such overrides are pledged to the 2022 Bonds. See “SECURITY FOR THE 2022 BONDS—General.” Redevelopment Plan Limits
In 1993, the State legislature passed AB 1290, Chapter 942, Statutes 1993, which, among other things, required redevelopment agencies to adopt time limits in each redevelopment plan specifying: (i) the last date to incur debt for a redevelopment project; (ii) the last date to undertake redevelopment activity within a project area; (iii) the last date to collect tax increment revenue from a project area to repay debt; and (iv) a limitation on the number of dollars of taxes that could be allocated to the Former Agency from the applicable Project Area. See the caption “THE PROJECT AREA.” SB 107, which became effective September 22, 2015, amended the Dissolution Act to provide that the time limits for receiving property tax revenues and the limitation on the amount of property tax revenues that may be received by the Former Agency and the Successor Agency set forth in the Redevelopment Plan are not effective for purposes of paying the Successor Agency’s enforceable obligations such as the 2022 Bonds. Accordingly, the projections set forth in this Official Statement and in the Fiscal Consultant Report attached to this Official Statement as Appendix A do not take into account the time and financial limitations set forth in the Redevelopment Plan for the Project Area. See the captions “THE PROJECT AREA—General” and “—Plan Limits.” Appeals of Assessed Values
Pursuant to State law, a property owner may apply for a reduction of the property tax assessment for such owner’s property by filing a written application, in a form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board.
In the County, a property owner desiring to reduce the assessed value of such owner’s property in any one year must submit an application to the County Assessment Appeals Board (the “Appeals Board”). Applications for any tax year must be submitted by November 30 of such tax year. Following a review of each application by the staff of the County Assessor’s Office, the staff makes a recommendation to the Appeals Board on each application which has not been rejected for incompleteness or untimeliness or withdrawn. The Appeals Board holds a hearing and either reduces or confirms the assessment. The Appeals Board generally is required to determine the outcome of appeals within two years of each appeal’s filing date. Any reduction in the assessment ultimately granted applies only to the year for which application is made and during which the written application is filed. The assessed value increases to its pre-reduction level for fiscal years following the year for which the reduction application is filed. However, if the taxpayer establishes through proof of comparable values that the property continues to be overvalued (known as “ongoing hardship”), the Assessor has the power to grant a reduction not only for the year for which application was originally made, but also for the then current year as well. Appeals for reduction in the “base year” value of an assessment, which generally must be made within three years of the date of change in ownership or completion of new construction that determined the base year, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. Moreover, in the case of any reduction in any one year of assessed value granted for “ongoing hardship” in the then current year, and also in any cases involving stipulated appeals for prior years relating to base year and personal property assessments, the property tax revenues from which Pledged Tax Revenues are derived attributable to such properties will be reduced in the then current year. In practice, such a reduced assessment may remain in effect beyond the year in which it is granted. See Appendix A for information regarding the appeals pending with respect to the assessed valuations of the top ten property owners within the Project Area.
Proposition 8
Proposition 8, approved in 1978 (California Revenue and Taxation Code Section 51(b)), provides for the assessment of real property at the lesser of its originally determined (base year) full cash value compounded annually by the inflation factor, or its full cash value as of the lien date, taking into account reductions in value due to damage, destruction, obsolescence or other factors causing a decline in market value. Reductions pursuant to Proposition 8 may be initiated by the County Assessor or requested by the property owner, and such reductions apply only to a single tax year.
After a roll reduction is granted pursuant to Proposition 8, the property is reviewed on an annual basis to determine its full cash value and the valuation is adjusted accordingly. This may result in further reductions or in value increases. Such increases must be in accordance with the full cash value of the property and may exceed the maximum annual inflationary growth rate allowed on other properties under Article XIIIA of the State Constitution. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA.
The County Assessor has the ability to use Proposition 8 criteria to apply blanket reductions in valuation to classes of property affected by particular negative economic conditions. The Successor Agency is aware that the County Assessor made such reductions to assessed values of residential property in the Project Area and the City generally during the recession that started in 2008 and 312 parcels within the Project Area remain under a Proposition 8 reduction. The Fiscal Consultant Report does not assume any future reductions in assessed valuations as a result of Proposition 8, but there can be no assurance that such reductions will not be made in the future. See the caption “THE PROJECT AREA.” Propositions 218 and 26
On November 5, 1996, State voters approved Proposition 218—Voter Approval for Local Government Taxes—Limitation on Fees, Assessments, and Charges—Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the State Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. On November 2, 2010, California voters approved Proposition 26, the “Supermajority Vote to Pass New Taxes and Fees Act.” Proposition 26 amended Article XIIIC of the State Constitution by adding an expansive definition for the term “tax,” which previously was not defined under the State Constitution. Pledged Tax Revenues securing the 2022 Bonds are derived from property taxes which are outside the scope of taxes, assessments and property-related fees and charges which are limited by Proposition 218 and outside of the scope of taxes which are limited by Proposition 26.
Future Initiatives
Articles XIIIA, XIIIB, XIIIC and XIIID to the State Constitution and certain other propositions affecting property tax levies were each adopted as measures which qualified for the ballot pursuant to the State’s initiative process. From time to time other initiative measures could be adopted, further affecting Agency revenues or the Successor Agency’s ability to expend revenues.
SUCCESSOR AGENCY TO THE HERCULES REDEVELOPMENT AGENCY
The Former Agency was established by the City Council of the City and was activated by Ordinance No. 168 adopted by the City Council on October 13, 1982, pursuant to the Redevelopment Law. On June 29, 2011, AB X1 26 was enacted as Chapter 5, Statutes of 2011, together with a companion bill, AB X1 27. A lawsuit entitled California Redevelopment Association, et al. v. Matosantos, et al., was brought in the State Supreme Court challenging the constitutionality of AB X1 26 and AB X1 27. In a published decision (53 Cal. 4th 231 (Dec. 29, 2011)), the State Supreme Court largely upheld AB X1 26, invalidated AB X1 27, and held that AB X1 26 may be severed from AB X1 27 and enforced independently. As a result of AB X1 26 and the decision of the State Supreme Court, as of February 1, 2012, all redevelopment agencies in the State, including the Former Agency, were dissolved, and successor agencies were designated as successor entities to the former redevelopment agencies to expeditiously wind down the affairs of the former redevelopment agencies.
Pursuant to Section 34173 of the Dissolution Act, the City Council of the City serves as the successor agency to the Former Agency. Subdivision (g) of Section 34173 of the Dissolution Act, added by AB 1484, expressly affirms that the Successor Agency is a separate public entity from the City, that the two entities shall not merge and that the liabilities of the Former Agency will not be transferred to the City nor will the assets of the Former Agency become assets of the City.
The Successor Agency is governed by the five-member legislative body (the “Board”) which consists of the City Council of the City. The Mayor acts as the Chair of the Board, the City Manager as its Executive Director, the City Clerk as its Secretary and the Finance Director of the City as its Finance Director.
All powers of the Successor Agency are vested in the Board. Pursuant to the Dissolution Act, the Successor Agency is a separate public body from the City and successor to the organizational status of the Former Agency, but without any legal authority to participate in redevelopment activities except to complete any work related to an approved enforceable obligation. The Successor Agency is tasked with expeditiously winding down the affairs of the Former Agency pursuant to the procedures and provisions of the Dissolution Act. Under the Dissolution Act, many Agency actions are subject to approval by the Oversight Board, as well as review by the DOF. The State has strict laws regarding public meetings (known as the Ralph M. Brown Act) which generally make all Board and Oversight Board meetings open to the public in a similar manner as City Council meetings.
THE PROJECT AREA
General
Under the Law, a city or county that activated a redevelopment agency was required to adopt, by ordinance, a redevelopment plan for each redevelopment project to be undertaken by the redevelopment agency. A redevelopment agency could only undertake those activities within a redevelopment project specifically authorized in the adopted redevelopment plan. A redevelopment plan is a legal document, the content of which is largely prescribed in the Redevelopment Law, rather than a “plan” in the customary sense of the word. In general, each redevelopment plan originally included specified time and financial limitations applicable to each project area. SB 107, which became effective September 22, 2015, amended the Dissolution Act to provide that the time limits for receiving property tax revenues and the limitation on the amount of property tax revenues that may be received by the Former Agency and the Successor Agency set forth in the applicable redevelopment plan are not effective for purposes of paying the Successor Agency’s enforceable obligations. Accordingly, the projections set forth in this Official Statement and in the Fiscal Consultant Report attached to this Official Statement as Appendix A were prepared without regard to the time and financial limitations set forth in the Redevelopment Plan for the Project Area. See below under this caption for additional information regarding the Project Area, including information on land use, property ownership, assessed valuation and Pledged Tax Revenues generated within the Project Area. See “SECURITY FOR THE 2022 BONDS—Pledged Tax Revenues.” The Redevelopment Plan
The Former Agency was established by Ordinance No. 168 on October 13, 1982. The Project Area contains three subareas: the Dynamite Project Area, Project Area No. 2, and the 2009 Added Area.
The Redevelopment Plan for the Dynamite Project Area (“Dynamite Project Area”) was adopted by Ordinance No. 181 on November 30, 1983. It was subsequently amended by Ordinance No. 325 on April 26, 1994 to amend the time limit to incur debt and collect tax increment, and Ordinance No. 333 on February 27, 1996 to amend land use designations for conformity with the City’s General Plan. The Redevelopment Plan for Project Area No. 2 (“Project Area No. 2”) was adopted by Ordinance No. 351 on April 13, 1999.
On February 13, 2001, Ordinance No. 363 merged and amended the two separate redevelopment plans for the Dynamite Project Area and Project Area No. 2, creating the Merged Project Area (previously defined as the “Project Area”). The Redevelopment Plan for the Merged Project Area (“Redevelopment Plan”) extended the effectiveness of the redevelopment plan and time limit to collect tax increment for the Dynamite Project Area pursuant to Health and Safety Code Section 33333.6.
On March 8, 2005, Ordinance No. 403 amended the Redevelopment Plan to increase the tax increment limit and eliminate the time limit to incur debt in the Dynamite Project Area, and to combine the bond indebtedness limit for the Dynamite Project Area and Project Area No. 2.
On June 9, 2009, Ordinance No. 450 amended the Redevelopment Plan to add territory (the “2009 Added Area”), and to extend the effectiveness of the redevelopment plan and time limit to collect tax increment for the Dynamite Project Area. The 2009 Added Area consists of three parcels of vacant land and has not generated incremental value since its adoption. The Fiscal Consultant estimates that the 2009 Added Area will not generate tax increment until the 2009 Added Area experiences an increase in assessed value of more than $800,000, which the Fiscal Consultant does not estimate will happen within the term of the 2022 Bonds.
Project Area Characteristics
The Project Area as a whole constitutes approximately 885 acres and consists of primarily residential uses. The Dynamite Project Area encompasses 577 acres and generally includes commercial, business park and residential uses. Project Area No. 2 encompasses 249 acres and includes residential developments, the North Shore Business Park, and the Creekside and Park Lake Plaza shopping centers.
The 2009 Added Area consists of three parcels of vacant land. When the Project Area was amended to add the 2009 Added Area, the Former Agency had planned on assisting new development through public/private partnerships and making significant infrastructure improvements. The assessed value of property in the 2009 Added Area decreased below the base year assessed value for that area and as a result the 2009 Added Area has not generated tax increment to date. Because the 2009 Added Area has not generated incremental value since its adoption, unless otherwise noted, the Fiscal Consultant’s Report and this Official Statement generally exclude information regarding the 2009 Added Area from tables and other data provided regarding the Project Area.
The follow table sets forth the base year and Fiscal Year 2021-22 assessed value in the Project Area. Additional information is set forth in Appendix A.
Table 1
SUCCESSOR AGENCY TO THE
HERCULES REDEVELOPMENT AGENCY
BASE YEAR AND CURRENT YEAR ASSESSED VALUE
Dynamite Project Area
Project Area
No. 2
Dynamite Project Area and Project Area No. 2 Subtotal
2009 Added Area
(Excluded from Totals)
Base Year
1983-84
1998-99
2008-09
Secured
$ 10,612,927
$ 34,254,406
$ 44,867,333
$ 13,993,380
Unsecured
-
1,285,116
1,285,116
220,739
Base Year Assessed Value
(10,612,927)
(35,539,522)
(46,152,449)
(14,214,119)
2021-22 Total Assessed Value(1)
1,115,468,865
656,553,606
1,772,022,471
13,444,289
2021-22 Incremental Value
$ 1,104,855,938
621,014,084
1,725,870,022
$ -
Volatility Ratio
0.95%
5.41%
2.60%
105.73%
Source: Contra Costa County Auditor-Controller, Redevelopment Successor Agency Property Tax Revenue Report 2021-22.
The following table sets forth the historic assessed values for the Project Area (excluding the 2009 Added Area). The Project Area experienced strong annual growth in assessed values from Fiscal Year 2005-06 through Fiscal Year 2007-08. As a primarily residential area, the Project Area was impacted by the foreclosure crisis that contributed to the Great Recession. Beginning in Fiscal Year 2007-08, assessed values decreased each year for five years, with a total decrease of 32.3 percent from Fiscal Year 2007-08 to Fiscal Year 2012-13. Assessed values have increased annually since Fiscal Year 2013-14, rebounding to exceed pre-recession values by Fiscal Year 2017-18. From Fiscal Year 2017-18 to 2021-22, the Project Area’s total assessed value increased by 30.3 percent. Additional information is set forth in Appendix A. See also the caption “—Prior Insufficiency of Tax Increment Revenue” for more information regarding prior shortfalls in tax increment revenues in the aftermath of the Great Recession.
Table 2
SUCCESSOR AGENCY TO THE
HERCULES REDEVELOPMENT AGENCY
ASSESSED VALUES
Year
Secured
Unsecured
Merged
Project Area(1)
% Change
Incremental Assessed Value(1)
% Change
2005-06
$ 979,311,386
$21,709,338
$1,001,020,724
$ 951,500,405
2006-07
1,172,025,629
35,940,268
1,207,965,897
20.7%
1,158,445,578
21.7%
2007-08
1,310,773,036
39,802,188
1,350,575,224
11.8 1,304,422,775
12.6 2008-09
1,264,061,003
41,463,591
1,305,524,594
-3.3
1,259,372,145
-3.5
2009-10
1,024,172,593
53,937,901
1,078,110,494
-17.4
1,031,958,045
-18.1
2010-11
959,992,603
46,603,274
1,006,595,877
-6.6
960,443,428
-6.9
2011-12
916,726,953
51,048,593
967,775,546
-3.9
921,623,097
-4.0
2012-13
863,685,954
50,164,063
913,850,017
-5.6
867,697,568
-5.9
2013-14
877,545,458
48,535,671
926,081,129
1.3 879,928,680
1.4 2014-15
1,026,123,452
51,511,021
1,077,634,473
16.4 1,031,482,024
17.2 2015-16
1,063,253,489
48,610,563
1,111,864,052
3.2 1,065,711,603
3.3 2016-17
1,203,242,302
50,387,216
1,253,629,518
12.8 1,207,477,069
13.3 2017-18
1,307,821,347
51,820,475
1,359,641,822
8.5 1,313,489,373
8.8 2018-19
1,361,305,598
50,713,301
1,412,018,899
3.9 1,365,866,450
4.0 2019-20
1,482,262,817
53,171,199
1,535,434,016
8.7 1,489,281,567
9.0 2020-21
1,615,739,209
52,072,402
1,667,811,611
8.6 1,621,659,162
8.9 2021-22
1,721,008,343
51,014,128
1,772,022,471
6.2 1,725,870,022
6.4 (1) Excludes 2009 Added Area.
Source: Contra Costa County Auditor-Controller, Redevelopment Successor Agency Property Tax Revenue Reports.
The table below sets forth the assessed valuation in the Project Area for Fiscal Year 2021-22 by land use category.
Table 3
SUCCESSOR AGENCY TO THE
HERCULES REDEVELOPMENT AGENCY
SECURED ASSESSED VALUE BY LAND USE (2021-22)
Land Use Category
# of Parcels
Secured Assessed Value(1)
% of Total
Single-Family Residential
1,709
$ 1,166,204,569
67.8%
Multi-Family Residential
77 223,925,095
13.0 Industrial
16 209,565,059
12.2 Commercial
13 89,876,467
5.2 Vacant Commercial
13 17,926,938
1.0 Vacant Single-Family Residential
6 1,227,785
0.1 Vacant Multi-Family Residential
1 8,285,840
0.5 Vacant Industrial
3 1,687,017
0.1 Institutional
46 1,411,898
0.1 Miscellaneous
84 897,656
0.1 Private Roads
2 19
0.0 1,970
$ 1,721,008,343
100.0%
(1) Excludes 2009 Added Area. Secured value net of all exemptions except Homeowners Exemptions.
Source: Contra Costa County Assessor 2021-22 Secured Roll.
Top Taxpayers
General. The following table sets forth the top ten taxpayers in the Project Area for Fiscal Year 2021-22, excluding the 2009 Added Area. For more information on the top taxpayers in the Project Area, see the Fiscal Consultant Report in Appendix A.
Table 4
SUCCESSOR AGENCY TO THE
HERCULES REDEVELOPMENT AGENCY
TOP TEN TAXPAYERS ASSESSED VALUE (2021-22)(1)
Property Owner
Parcels
Project Area
Primary Land Use
Secured Value
Total Assessed Value
% of Total
% of Incremental Value
1 Bio-Rad Laboratories Inc.(2)
9 Dynamite
Industrial
$147,240,752
$ 175,637,158
9.9%
10.2%
2 Hercules Land Partners(3)
17 Dynamite
Master Planned Development
147,625,925
147,625,925
8.3 8.6
3 WCV Aventine Hercules LLC
1 Dynamite
Multi-Family Residential
64,100,944
64,100,944
3.6 3.7
4 Trestle Hercules LLC
1 Dynamite
Commercial
22,852,870
22,852,870
1.3 1.3
5 HD Development of Maryland
1 Project Area No. 2
Commercial
19,376,969
19,376,969
1.1 1.1
6 Hercules SPE MW LLC
1 Project Area No. 2
Commercial
12,576,927
12,576,927
0.7 0.7
7 Tulloch Brian TRE
2 Dynamite
Industrial
11,976,824
11,976,824
0.7 0.7
8 CS Creekside Hercules
1 Project Area No. 2
Commercial
8,247,956
8,247,956
0.5 0.5
9 Dathe Robert P. & Carlotta R.
1 Dynamite
Industrial
7,809,671
7,809,671
0.4 0.5
10 LA Costalot LLC
1 Dynamite
Industrial
7,639,040
7,639,040
0.4 0.4
Total Top 10 Assessed Value
$ 477,844,284
27.0%
27.7%
Project Area Total Assessed Value
$ 1,772,022,471
Project Area Incremental Value
$ 1,725,870,022
(1) Excludes the 2009 Added Area.
(2) Includes $28,396,406 unsecured value.
(3) Does not reflect the sale of The Exchange at Bayfront to a public agency in Fiscal Year 2021-22. See the caption “—Hercules Land Partners,” and “—Transfers of Ownership.” Sources: Contra Costa County Assessor 2021-22 Secured Roll, Contra Costa County Auditor-Controller.
Bio-Rad Laboratories Inc. Bio-Rad Laboratories Inc. (“Bio-Rad”), the largest property taxpayer in the Project Area, is a multinational manufacturer and worldwide distributor of life science research and clinical diagnostics products. According to the Bio-Rad website, the multimillion-dollar company was founded in 1952 in Berkeley, California and now has locations worldwide with its headquarters located in Hercules. Bio-Rad owns two parcels within the Project Area and also leases two buildings in the Project Area as the sole tenant. The value of these leases is reflected under Bio-Rad’s unsecured value; the associated underlying land values are attributed to two other top ten taxpayers, specifically Tulloch Brian TR) and La Costalot LLC. The Hercules properties are the only domestic real estate that Bio-Rad owns.
Bio-Rad’s holdings comprise over 67 acres within the Dynamite Project Area and over 413,000 square feet building area that were constructed between 1986 and 2004. The City of Hercules’ Annual Comprehensive Financial Report states Bio-Rad is the City’s top employer with 2,271 employees.
Bio-Rad has submitted one assessment appeal application over the last five years. The appeal was filed for 2018 for one parcel with an assessed value of $2,697,080. The requested reduction was for the same amount. The appeal was withdrawn and no subsequent appeals have been filed by Bio-Rad.
Hercules Land Partners. Hercules Land Partners, the second largest property taxpayer in the Project Area, is a subsidiary of The Ledcor Group, a developer with headquarters in San Diego, California and Vancouver, British Columbia. The Ledcor Group owns 17 parcels totaling 25.5 acres in the Dynamite Project Area. The Ledcor Group has an Implementing Development Agreement with the City to develop these properties into a mixed-use, pedestrian-friendly, transit-oriented development along Hercules’ waterfront known as Hercules Bayfront. As currently planned, Hercules Bayfront would include nearly 1,500 new, mixed-income residential units, shops, cafés, office space, plazas, and parks. It also provides for a Regional Inter-Modal Transit Station adjacent to Refugio Creek.
To date, two phases of the development have completed construction. This includes a 172-unit apartment building named The Exchange at Bayfront (2525 Bayfront Boulevard) and a 231-unit apartment building named The Grand at Bayfront (2200 John Muir Parkway). Construction was complete in August 2020 and September 2021, respectively.
In September 2021, The Exchange at Bayfront was sold to the California Community Housing Agency (“CalCHA”), a public agency formed under the Joint Exercise of Powers Act. As a result, The Exchange at Bayfront’s $59.8 million assessed value will be removed from the assessment roll and will no longer generate tax increment revenue commencing in Fiscal Year 2022-23. The property may also be subject to supplemental tax adjustments for Fiscal Year 2021-22 to account for its September 2021 sale date. The Fiscal Year 2021-22 secured tax bill for The Exchange at Bayfront was unpaid and considered delinquent at the time the Fiscal Consultant Report was prepared; however, because the Merged Project Area RPTTF is subject to the County’s Teeter Plan, Fiscal Year 2021-22 property tax payments are stabilized at 100% of anticipated receipts unless a revised secured tax bill is issued. See the caption “—Transfers of Ownership” for more information with respect to the sale of The Exchange at Bayfront and its projected impacts on Pledged Tax Revenues.
CalCHA and its partner Catalyst Housing Group have also proposed purchasing The Grand at Bayfront. The City has yet to consider approving the sale. If The Grand at Bayfront is sold before December 31, 2022, the property’s $60.7 million assessed value would be removed from the tax rolls commencing in Fiscal Year 2023-24.
The total assessed value of properties owned by Hercules Land Partners in the Project Area shown in Table 4 above (approximately $147.6 million) includes The Exchange at Bayfront (approximately $59.8 million) and The Grand at Bayfront (approximately $60.7 million). Based on Fiscal Year 2021-22 assessed values, Hercules Land Partners remains the number two taxpayer after deducting The Exchange at Bayfront’s assessed value, with a remaining total assessed value of $87.9 million. If The Grand at Bayfront is sold to CalCHA, Hercules Land Partners would become taxpayer number 3 based on 2021-22 assessed values, with a remaining total assessed value of $27.1 million.
For more information on the other top ten taxpayers within the Project Area, see the Fiscal Consultant Report attached as Appendix A.
Assessment Appeals
Property taxable values determined by the County Assessor may be subject to an appeal by the property owner. There are two basic types of assessment appeals provided for under California law. The first type of appeal, commonly referred to as a base year assessment appeal, involves a dispute on the valuation assigned by the Assessor immediately subsequent to a change in ownership or completion of new construction. If the base year value assigned by the Assessor is reduced, the valuation of the property cannot increase in subsequent years more than 2% annually unless and until another change in ownership and/or additional new construction activity occurs. The second type of appeal, commonly referred to as a Proposition 8 appeal, can result if factors occur causing a decline in the market value of the property to a level below the property’s then current taxable value.
Assessment appeals are annually filed with the County Assessment Appeals Board for a hearing and resolution. The resolution of an appeal may result in a reduction to the Assessor’s original taxable value and a tax refund to the property owner. A property owner can file for a regular assessment appeal with the County between July 2 and November 30. Revenue and Taxation Code Section 1604 allows up to two years for an assessment appeal to be decided. Two of the top ten taxpayers within the Project Area currently have pending assessment appeals. Additional appeals to assessed values in the Project Areas may be filed from time to time in the future. The Successor Agency cannot predict the extent of these appeals or their likelihood of success. However, for purposes of the projections of Pledged Tax Revenues shown in this Official Statement and the Fiscal Consultant Report attached hereto as Appendix A, the Fiscal Consultant has assumed that all pending assessment appeals will be granted to match the applicant’s opinion of value. See the tables below and the Fiscal Consultant Report attached to this Official Statement as Appendix A for more information with respect to assessment appeals within the Project Area.
The following tables present information regarding the assessment appeal history within the Dynamite Project Area, Project Area No. 2 and the 2009 Added Area as of December 8, 2021.
Table 5
SUCCESSOR AGENCY TO THE
HERCULES REDEVELOPMENT AGENCY
ASSESSMENT APPEALS ANALYSIS
Subarea
Pending Appeals(1)
Total Parcel Value
Contested Value
Maximum Potential Reduction
Assessed Valuation Decrease Net of Inflationary Growth(2%)(2) Secured Assessed Valuation (2021-22)(3)
% Change to Secured Assessed Valuation
Dynamite Project Area
1 $ 31,543,729
$ 14,551,729
$ 9,852,870
$ (10,049,927)
$ 1,069,857,473
-0.939%
Project Area No. 2
4 190,777,560
90,418,427
4,283,867
(4,369,544)
651,150,870
-0.671
Total
5 $ 222,321,289
$ 104,970,156
$ 14,136,737
$ (14,419,472)
$ 1,721,008,343
-0.838%
(1) May not reflect all appeals filed for tax year 2021-22; assessment appeals applications due November 30, 2021 were still being processed at the time data was received for this Report. (2) To ensure that the assumed Proposition 13 inflationary adjustments are not double counted, RSG subtracted the corresponding inflationary increase from the pending reductions due to appeals. (3) Excludes the 2009 Added Area.
Source: Contra Costa County Assessor’s Office (12/8/21).
Transfers of Ownership
Changes in assessed valuations due to transfers of ownership occurring after the lien date for Fiscal Year 2021-22 (January 1, 2021) will affect taxable values for Fiscal Year 2022-23. The projections of Pledged Tax Revenues set forth in the Fiscal Consultant Report attached as Appendix A and Table 7 herein reflect the projected net decrease in value in the Project Area from sales, which are expected to decrease Fiscal Year 2022-23 values in the Project Area by a total amount of $39.0 million or 2.3%.
The projected net decrease in Fiscal Year 2022-23 assessed value is due to the sale of a 172-unit multifamily rental property, The Exchange at Bayfront, to a public agency, making the property tax-exempt. The Exchange at Bayfront has a 2021-22 assessed value of $59.7 million that will be removed from the 2022-23 assessment roll. The table below shows the projected net decrease in assessed value within the Project Area attributable to the sale of The Exchange at Bayfront and other residential and non-residential transfers of ownership.
Table 6
SUCCESSOR AGENCY TO THE
HERCULES REDEVELOPMENT AGENCY
SALES
Parcels Sold, 2021(1)
Subarea
Residential
Non-Residential
Aggregate Net Assessed Value
Aggregate Sales Price
Aggregate ▲ from 2021-22 Assessed Value
Assessed Value Change Net of Inflationary Growth (2%)(2) Secured Assessed Value (2021-22)
% Change to Secured Assessed Value
Dynamite Project Area
The Exchange at Bayfront(3)
1 0
$ 59,773,249
$ 113,500,000
$ (59,773,249)
$ (60,968,714)
Other Sales
39 2
31,416,032
44,646,500
13,230,468
12,965,859
40 2
$ 91,189,281
$ 158,146,500
$ (46,542,781)
$ (48,002,855)
$ 1,069,857,473
(4.487)%
Project Area No. 2
38 0
$ 28,392,196
$ 37,538,222
$ 9,146,026
$ 8,963,105
$ 651,150,870
1.377%
Project Area Total(4)
117
4 $ 119,581,477
$ 195,684,722
$ (37,396,755)
$ (39,039,750)
$ 1,721,008,343
(2.268)%
(1) Excludes all sales where the parcel data indicated a sale price of $0. (2) To ensure that the assumed Proposition 13 inflationary adjustments are not double counted, RSG subtracted the corresponding inflationary increase from the incremental sales value change. (3) The Exchange at Bayfront was sold to CalCHA, a tax-exempt public agency, in September 2021. The Fiscal Year 2022-23 roll will decrease by the property’s Fiscal Year 2021-22 assessed value. (4) Excludes the 2009 Added Area.
Source: CoreLogic, reflects full or verified sales through November 30, 2021.
See the Fiscal Consultant Report attached as Appendix A for more information regarding the projected changes in assessed valuation attributable to actual real property ownership changes occurring between January and November 2021 in the Project Area.
New Development
According to the Successor Agency, several new developments are in progress, or are anticipated to begin in the near future, within the Project Areas. Such new developments are expected to increase assessed valuations within the Project Area by less than 1%. However, the Successor Agency can provide no assurance regarding the completion of such new developments or the impact on assessed valuation within the Project Area. Further, the projections of Pledged Tax Revenues in the Fiscal Consultant Report and this Official Statement do not reflect any increases in assessed valuations relating to development within the Project Area in the near future. For more information regarding building permit activity from January 1, 2021 through November 15, 2021 in the Project Area, see the Fiscal Consultant Report attached to this Official Statement as Appendix A.
Prior Insufficiency of Tax Increment Revenue
General. Issues related to the Dissolution Act combined with a decrease in property tax assessments in the Project Area between Fiscal Year 2007-08 and 2013-14 caused the Former Agency (and later the Successor Agency) to receive insufficient tax increment revenues and the dates that debt service was due on the Refunded Obligations.
Beginning in Fiscal Year 2008-09, the Former Agency's available Pledged Tax Revenues fell below the amount required to pay debt service on the Refunded Obligations and the Former Agency’s other obligations. During Fiscal Years 2009-10 and 2010-11, payment for debt service on the Refunded Obligations was made in full, and certain other costs including administration expenses, legal costs related to litigation and other costs were also paid. These amounts were paid using moneys in the City’s Pooled Cash Investment Account (the “Pooled Cash Account”) and represented moneys in a variety of funds (many of which were legally restricted) that were temporarily advanced to the Former Agency to cover its obligations, resulting in the Former Agency's account position in the Pooled Cash Account becoming negative. As of July 1, 2011, the Pooled Cash Account position was negative, and on August 1, 2011, the Pooled Cash Account again advanced payment of approximately $5,380,000 to pay debt service due on the Refunded Obligations, against the future Pledged Tax Revenues to be received during Fiscal Year 2011-12. December tax receipts in the approximate amount of $4,049,228 were applied to the Former Agency's debt service accounts in the Pooled Cash Account, and those accounts continued to have a negative fund balance as of January 1 2012. Therefore, there were no funds available to pay the debt service payment due on the Refunded Obligations on February 1, 2012.
Ambac Stipulation. In response to the shortfall in funds to pay debt service on the Refunding Obligations, American Municipal Bond Assurance Corporation (“Ambac”), as insurer of the 2005 Bonds and the 2007 Bonds, advanced payments totaling $5,410,299 to satisfy Ambac’s surety obligations with respect to the 2005 Bonds and the 2007 Bonds on February 1, 2012, August 1, 2013 and August 1, 2013. On January 30, 2012, Ambac filed a lawsuit against the City, the Former Agency and the then-members of the City Council seeking to, among other things, compel the City to transfer $4,100,000 from the Pooled Cash Account, which Ambac alleged constituted the December 2011 tax increment receipts, to the trustee for the 2005 Bonds and the 2007 Bonds, and in the alternative to impose a constructive trust on such funds and prevent the City from using those funds for any other purpose. In August 2014, the Successor Agency entered into a stipulation with Ambac which resulted in the dismissal of the litigation and required the Successor Agency to sell certain parcels of real property and apply the land sale proceeds to satisfy the amounts owed to Ambac. The subject properties were sold in 2014 and all amounts owed to Ambac were paid.
County Auditor-Controller Treatment of Prior Agreements and Subordinated Pass-Through Obligations. The Former Agency and the Successor Agency historically treated the Prior Agreements as senior to the payment of debt service on the Refunded Obligations, and the Indenture permits the payment of amounts under the Prior Agreements on a senior basis to debt service on the 2022 Bonds. However, the County Auditor-Controller has indicated that it interprets the Dissolution Act (and in particular Section 34183 of the California Health and Safety Code) as prohibiting the subordination of pass-through payments due to affected taxing agencies to the payment of enforceable obligations other than “bond debt” (such as the Prior Agreements). During the post-dissolution period of insufficient tax increment revenues described above, the Successor Agency filed a Notice of Insufficiency with the County Auditor-Controller prior to each RPTTF distribution date and the County Auditor-Controller distributed available tax increment revenues to the Successor Agency for the payment of debt service on the Refunded Obligations, but not for payments under the Prior Agreements, retaining all amounts of tax increment over the amount needed to pay debt service and for payment of the Statutory Pass-Through Amounts and the County Pass-Through Agreement. If insufficient Pledged Tax Revenues are available in the future to pay all of the Successor Agency’s enforceable obligations, a dispute could arise among the payees under the Prior Agreements, County Auditor-Controller, and the Successor Agency regarding the priority allocation of amounts in the RPTTF to payment of debt service on the 2022 Bonds, the Prior Agreements, the County Pass-Through Agreement and the Statutory Pass-Through Amounts. Because of the Past-Due Pass Through Amounts (as described under the caption “SECURITY FOR THE 2022 BONDS—Past-Due Pass Through Amounts”), the Successor Agency will be required to file a Notice of Insufficiency prior to each RPTTF distribution date until all Past-Due Pass-Through Amounts have been paid in full, and if the Successor Agency fails to file such notice the Successor Agency may not receive sufficient money from the RPTTF to pay debt service on the Bonds. The Successor Agency will covenant in the Indenture to file a Notice of Insufficiency prior to each RPTTF distribution date. See the caption “RISK FACTORS—Prior Insufficiency of Tax Increment Revenues.”
PLEDGED TAX REVENUES
Projected Pledged Tax Revenues
The Successor Agency has retained RSG, Inc. (the “Fiscal Consultant”) to provide projections of taxable valuation and Pledged Tax Revenues from the Project Area. The projections of Pledged Tax Revenues within the Project Area set forth in Table 7 assumes annual growth of 2% of assessed values, adjusted for Fiscal Year 2022-23 for changes in value due to property transfers, new construction and appeals, with 2% annual growth is assessed value each year thereafter. See the Fiscal Consultant Report attached hereto as Appendix A for more information with respect to the Fiscal Consultant’s assumptions regarding the projections of Pledged Revenues contained in this Official Statement.
SB 107, which became effective September 22, 2015, amended the Dissolution Act to provide that the time limits for receiving property tax revenues and the limitation on the amount of property tax revenues that may be received by the Former Agency and the Successor Agency set forth in the Redevelopment Plan are not effective for purposes of paying the Successor Agency’s enforceable obligations. Accordingly, the projections set forth below in this Official Statement and in the Fiscal Consultant Report attached to this Official Statement as Appendix A do not take into account the time and financial limitations set forth in the Redevelopment Plan for the Project Area. See the Fiscal Consultant Reports included in this Official Statement as Appendix A for more information on such time and financial limitations. The Successor Agency believes that the assumptions (set forth in Appendix A) upon which the projections are based are reasonable; however, some assumptions may not materialize and unanticipated events and circumstances may occur. See the caption “RISK FACTORS.” Therefore, the actual Pledged Tax Revenues received during the forecast period may vary from the projections and the variations may be material.
Table 7
SUCCESSOR AGENCY TO THE
HERCULES REDEVELOPMENT AGENCY
PROJECTED ASSESSED VALUE AND PLEDGED TAX REVENUES
Projected Assessed Value(1)
Pass-Through Payments
Prior Agreements
Year
Secured
Unsecured
Total
Incremental Value(2)
Gross Tax Increment 1.0%
County Admin 0.8%
Net Pledged Tax Revenue(3)
Statutory(4)
County Negotiated
Net Tax Revenue After Pass-Throughs
Hercules LLC
Bridge
Net Tax Revenue After Prior Agreements
2021-22
$1,721,008,343
$51,014,128
$1,772,022,471
$1,725,870,022
$17,258,700
$(142,828)
$17,115,872
$(3,781,603)
$(1,967,748)
$11,366,521
$(2,159,319)
$(130,000)
$9,077,202
2022-23
1,702,804,814
51,014,128
1,753,818,942
1,707,666,493
17,076,665
(141,322)
16,935,343
(3,738,210)
(1,903,629)
11,293,505
(2,193,246)
(130,000)
8,970,259
2023-24
1,737,135,911
51,014,128
1,788,150,039
1,741,997,590
17,419,976
(144,163)
17,275,813
(3,850,816)
(1,940,944)
11,484,053
(2,227,851)
(130,000)
9,126,202
2024-25
1,771,878,629
51,014,128
1,822,892,757
1,776,740,308
17,767,403
(147,038)
17,620,365
(3,964,843)
(1,978,517)
11,677,006
(1,508,765)
(130,000)
10,038,241
2025-26
1,807,316,201
51,014,128
1,858,330,329
1,812,177,880
18,121,779
(149,971)
17,971,808
(4,081,150)
(2,016,840)
11,873,818
(1,532,767)
(130,000)
10,211,051
2026-27
1,843,462,525
51,014,128
1,894,476,653
1,848,324,204
18,483,242
(152,962)
18,330,280
(4,199,783)
(2,055,930)
12,074,566
(1,557,249)
(130,000)
10,387,317
2027-28
1,880,331,776
51,014,128
1,931,345,904
1,885,193,455
18,851,935
(156,013)
18,695,921
(4,320,789)
(2,095,802)
12,279,330
(1,582,221)
(130,000)
10,567,109
2028-29
1,917,938,411
51,014,128
1,968,952,539
1,922,800,090
19,228,001
(159,125)
19,068,876
(4,444,215)
(2,136,472)
12,488,188
(1,607,692)
(130,000)
10,750,496
2029-30
1,956,297,180
51,014,128
2,007,311,308
1,961,158,859
19,611,589
(162,300)
19,449,289
(4,570,110)
(2,177,955)
12,701,224
(1,633,673)
(130,000)
10,937,551
2030-31
1,995,423,123
51,014,128
2,046,437,251
2,000,284,802
20,002,848
(165,538)
19,837,310
(4,715,735)
(2,220,267)
12,901,308
(1,652,403)
(130,000)
11,118,905
2031-32
2,035,331,586
51,014,128
2,086,345,714
2,040,193,265
20,401,933
(168,840)
20,233,092
(4,864,272)
(2,263,426)
13,105,394
(1,671,508)
(130,000)
11,303,886
2032-33
2,076,038,217
51,014,128
2,127,052,345
2,080,899,896
20,808,999
(172,209)
20,636,790
(5,015,781)
(2,307,448)
13,313,562
(1,690,996)
(130,000)
11,492,566
2033-34
2,117,558,982
51,014,128
2,168,573,110
2,122,420,661
21,224,207
(175,645)
21,048,561
(5,170,319)
(2,352,350)
13,525,892
(1,710,872)
(130,000)
11,685,020
2034-35
2,159,910,161
51,014,128
2,210,924,289
2,164,771,840
21,647,718
(179,150)
21,468,568
(5,351,620)
(2,398,150)
13,718,798
(1,731,147)
(130,000)
11,857,651
2035-36
2,203,108,365
51,014,128
2,254,122,493
2,207,970,044
22,079,700
(182,725)
21,896,975
(5,536,548)
(2,444,867)
13,915,561
(1,751,827)
(130,000)
12,033,734
2036-37
2,247,170,532
51,014,128
2,298,184,660
2,252,032,211
22,520,322
(186,372)
22,333,950
(5,725,174)
(2,492,517)
14,116,259
(1,772,921)
(130,000)
12,213,339
2037-38
2,292,113,943
51,014,128
2,343,128,071
2,296,975,622
22,969,756
(190,091)
22,779,665
(5,917,573)
(2,541,121)
14,320,972
(1,794,436)
(130,000)
12,396,536
2038-39
2,337,956,221
51,014,128
2,388,970,349
2,342,817,900
23,428,179
(193,885)
23,234,294
(6,113,819)
(2,590,697)
14,529,778
(1,816,382)
(130,000)
12,583,396
2039-40
2,384,715,346
51,014,128
2,435,729,474
2,389,577,025
23,895,770
(197,754)
23,698,016
(6,313,991)
(2,641,264)
14,742,761
(1,838,766)
(130,000)
12,773,995
2040-41
2,432,409,653
51,014,128
2,483,423,781
2,437,271,332
24,372,713
(201,701)
24,171,012
(6,518,166)
(2,692,843)
14,960,004
(1,861,599)
(130,000)
12,968,405
2041-42
2,481,057,846
51,014,128
2,532,071,974
2,485,919,525
24,859,195
(205,727)
24,653,468
(6,726,424)
(2,745,453)
15,181,591
(1,884,888)
(130,000)
13,166,703
2042-43
2,530,679,003
51,014,128
2,581,693,131
2,535,540,682
25,355,407
(209,834)
25,145,573
(6,938,848)
(2,799,115)
15,407,610
(1,908,643)
(130,000)
13,368,967
(1) Excludes the 2009 Added Area. Fiscal Year 2021-22 reflects actual assessed values. (2) Equals the total assessed value less the base year value per subarea (Dynamite: $10,612,927, Project Area No. 2: $35,539,522). (3) Equals Gross Tax Increment less County Admin.
(4) See Appendix B footnotes on the base years applied to calculate Statutory Pass-Thru Payments.
Source: RSG, Inc.
Debt Service Coverage
The table below sets forth the estimated debt service coverage for the 2022 Bonds using projected Fiscal Year 2022-23 Pledged Tax Revenues assuming 2% annual value growth in tax increment revenues.
Table 8
SUCCESSOR AGENCY TO THE
HERCULES REDEVELOPMENT AGENCY
ESTIMATED DEBT SERVICE COVERAGE
Fiscal Year Ending June 30
Net Pledged Tax Revenues(1)
2022 Bonds(2)
Debt Service Coverage
2023
$14,634,862
2024
14,941,182
2025
16,005,283
2026
16,333,198
2027
16,667,671
2028
17,008,834
2029
17,356,819
2030
17,711,765
2031
18,081,579
2032
18,458,789
2033
18,843,544
2034
19,235,993
2035
19,636,292
2036
20,044,596
2037
20,461,067
2038
20,885,867
2039
21,319,163
2040
21,761,125
2041
22,211,926
2042
22,671,743
2043
23,140,757
(1) See Table 7.
(2) Revenues presented for Fiscal Year that ends on June 30 of each year. Debt service present for calendar year that begins in such Fiscal Year.
Source: RSG, Inc.; Underwriter.
RISK FACTORS
The following information should be considered by prospective investors in evaluating the 2022 Bonds. However, the following does not purport to be an exhaustive listing of risks and other considerations which may be relevant to investing in the 2022 Bonds. In addition, the order in which the following information is presented is not intended to reflect the relative importance of any such risks.
COVID-19
The COVID19 pandemic and the governmental actions to respond to and control the outbreak materially altered the behavior of people and disrupted business activity, resulting in a significant contraction of the national, state and local economies. Employment data released since the imposition of governmental restrictions on activities showed a dramatic increase in unemployment rates and, while some recovery of jobs has occurred, unemployment rates remain above pre-pandemic levels. In addition, domestic and international stock markets experienced declines in market value following the onset of the outbreak. Although rebounds in the global financial markets have since occurred, price volatility remains.
With widespread vaccination currently underway worldwide, the domestic governmental-imposed “stayathome” orders and restrictions on operations of schools and businesses implemented to respond to and control the outbreak have been eased. Restrictions, however, may be re-imposed in various jurisdictions from time to time as local conditions warrant. It is not known with any level of certainty when a full re-opening of the economy will be achieved and sustained. The negative effects of the COVID–19 pandemic and its aftermath on global, national and local economies is widely expected to continue at least for the foreseeable future.
The COVID19 outbreak is ongoing and developments will continue. The ultimate degree of impact of COVID-19 on the Project Area and the Pledged Tax Revenues is difficult to predict due to the evolving nature of the COVID-19 pandemic. However, to-date the Successor Agency has not experienced significant operational or financial impacts.
Reduction in Taxable Value
Pledged Tax Revenues allocated to the Redevelopment Property Tax Trust Fund are determined by the amount of incremental taxable value in the Project Area and the current rate or rates at which property in the Project Area is taxed. The reduction of taxable values of property in the Project Area caused by economic factors beyond the Successor Agency’s control, such as relocation out of the Project Area by one or more major property owners, sale of property to a non-profit corporation exempt from property taxation or the complete or partial destruction of such property caused by, among other eventualities, earthquake or other natural disaster, could cause a reduction in the Pledged Tax Revenues that provide for the repayment of and secure the 2022 Bonds. Such reduction in Pledged Tax Revenues could have an adverse effect on the Successor Agency’s ability to make timely payments of principal of and interest on the 2022 Bonds.
As described in greater detail under the caption “PROPERTY TAXATION IN CALIFORNIA—Article XIIIA of the State Constitution,” Article XIIIA provides that the full cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflation rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index, comparable local data or any reduction in the event of declining property value caused by damage, destruction or other factors (as described above). Such measure is computed on a calendar year basis. Any resulting reduction in the full cash value base over the term of the 2022 Bonds could reduce Pledged Tax Revenues securing the 2022 Bonds.
In addition to the other limitations on and required application under the Dissolution Act of Pledged Tax Revenues on deposit in the Redevelopment Property Tax Trust Fund, as described in this Official Statement, the State electorate or Legislature could adopt a constitutional or legislative property tax reduction with the effect of reducing Pledged Tax Revenues allocated to the Redevelopment Property Tax Trust Fund and available to the Successor Agency. Although the federal and State Constitutions include clauses generally prohibiting the Legislature’s impairment of contracts, there are also recognized exceptions to these prohibitions. There is no assurance that the State electorate or Legislature will not at some future time approve additional limitations that could reduce the Pledged Tax Revenues and adversely affect the source of repayment and security of the 2022 Bonds.
Concentration of Ownership
The ten largest property taxpayers in the Project Area, excluding the 2009 Added Area, based upon the Fiscal Year 2021-22 locally assessed tax roll reported by the County Assessor, owned approximately 27.0% of the secured value within the Project Area and approximately 27.7% of the total incremental assessed secured value within the Project Area. See the Fiscal Consultant Report attached to this Official Statement as Appendix A. Concentration of ownership presents a risk in that if one or more of the largest property owners were to default on their taxes, or were to successfully appeal the tax assessments on property within the Project Area, a substantial decline in Pledged Tax Revenues could result. See the caption “THE PROJECT AREA—Largest Taxpayers” for more information about these ten largest property taxpayers and see “THE PROJECT AREA—Assessment Appeals” for information as to pending appeals of tax assessments.
Risks to Real Estate Market
The Successor Agency’s ability to make payments on the 2022 Bonds is dependent upon the economic strength of the Project Area. The general economy of the Project Area is subject to all of the risks generally associated with urban real estate markets. Real estate prices and development may be adversely affected by changes in general economic conditions, fluctuations in the real estate market and interest rates, unexpected increases in development costs, the supply of or demand for competitive properties in such area, the market value of property in the event of sale or foreclosure and other similar factors. Furthermore, real estate development within the Project Area could be adversely affected by limitations of infrastructure or future governmental policies, including governmental policies to restrict or control development, changes in real estate tax rates and other operating expenses, zoning laws and laws relating to threatened and endangered species and hazardous materials and fiscal policies, as well as natural disasters (including, without limitation, earthquakes, wildfires and floods), which may result in uninsured losses. In addition, if there is a decline in the general economy of the Project Area, the owners of property within the Project Area may be less able or less willing to make timely payments of property taxes or may petition for reduced assessed valuation causing a delay or interruption in the receipt of Pledged Tax Revenues by the Successor Agency from the Project Area.
Because assessed values do not necessarily indicate fair market values, the declines in fair market values in recent years may have been even greater than the declines in assessed valuations, although it is also possible that market values could be greater than assessed valuations at any given time. No assurance can be given that the individual parcel owners will pay property taxes in the future or that they will be able to pay such taxes on a timely basis. See the caption “—Bankruptcy and Foreclosure” for a discussion of certain limitations on the City’s ability to pursue judicial proceedings with respect to delinquent parcels.
Reduction in Inflation Rate
As described in greater detail above, Article XIIIA of the State Constitution provides that the full cash value of real property used in determining taxable value may be adjusted from year to year to reflect the rate of inflation, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. Such measure is computed on a calendar year basis. Because Article XIIIA limits inflationary assessed value adjustments to the lesser of the actual inflationary rate or 2%, there have been years in which the assessed values were adjusted by actual inflationary rates, which were less than 2%. The Successor Agency is unable to predict if any adjustments to the full cash value of real property within the Project Area, whether an increase or a reduction, will be realized in the future. See “PROPERTY TAXATION IN CALIFORNIA—Article XIIIA of the State Constitution.” Levy and Collection of Taxes
The Successor Agency has no independent power to levy or collect property taxes. Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the Pledged Tax Revenues, and accordingly, could have an adverse impact on the security for and the ability of the Successor Agency to repay the 2022 Bonds.
Likewise, delinquencies in the payment of property taxes by the owners of land in the Project Area, and the impact of bankruptcy proceedings on the ability of taxing agencies to collect property taxes, could have an adverse effect on the Successor Agency’s ability to make timely payments on the 2022 Bonds. As discussed under the caption “PROPERTY TAXATION IN CALIFORNIA—Property Tax Collection Procedures—Delinquencies,” the County has adopted a Teeter Plan. Accordingly, the County Auditor-Controller distributes 100% of tax increment revenues allocated to each redevelopment successor agency in the County without regard to delinquencies in the payment of property taxes. As a result of this allocation method, the Successor Agency receives no adjustments for redemption payments on delinquent collections. The Successor Agency does receive supplemental taxes and refunds, if any, are deducted from amounts available for deposit to the Redevelopment Property Tax Trust Fund. There can be no assurance that the County AuditorController will not change its policies with respect to delinquencies in property tax payments in the future.
State Budget Issues
AB X1 26 and AB 1484 were enacted by the State Legislature and Governor as trailer bills necessary to implement provisions of the State’s budget acts for its fiscal years 2011-12 and 2012-13, respectively, and constituted efforts to address structural deficits in the State general fund budget. In general terms, these bills implemented a framework to transfer cash assets which were previously held by redevelopment agencies to cities, counties and special districts to fund core public services, with assets transferred to schools offsetting State general fund costs (then projected savings of $1.5 billion). There can be no assurance that additional legislation will not be enacted in the future to additionally implement provisions relating to the State budget or otherwise that may affect successor agencies or tax increment revenues, including Pledged Tax Revenues. See the caption “—Changes in the Law.” SB 107, which made extensive amendments to the Dissolution Act, was enacted following the adoption of the State fiscal year 2015-16 budget, after having initially been presented as AB 113, a trailer bill to the State fiscal year 2015-16 budget. SB 107 changed the process for submitting Recognized Obligation Payment Schedules from a six-month to an annual process, authorized successor agencies to submit and obtain DOF approval of a Last and Final ROPS to govern all remaining payment obligations of successor agencies, altered the provisions governing the distribution of Redevelopment Property Tax Trust Fund moneys attributable to pension and State Water Project tax rate overrides and eliminated the impact of financial and time limitations in redevelopment plans for purposes of paying enforceable obligations, among other changes to the Dissolution Act. These statutory amendments impact the manner in which successor agencies claim Redevelopment Property Tax Trust Fund moneys for enforceable obligations and, for some successor agencies, impact the amount of Redevelopment Property Tax Trust Fund moneys that will be available for payment of a successor agency’s enforceable obligations.
Information about the State budget is regularly available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the DOF, http://www.dof.ca.gov, under the heading “California Budget.” An impartial analysis of the budget is posted by the Legislative Analyst’s Office (the “LAO”) at http://www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on cities in the State, may be found at the website of the State Treasurer, http://www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the Successor Agency or the Underwriter, and the Successor Agency and the Underwriter take no responsibility for the continued accuracy of these Internet addresses or for the accuracy, completeness or timeliness of information posted thereon, and such information is not incorporated herein by these references.
For additional information regarding the 2021-22 State Budget and the proposed 2022-23 State Budget, see the DOF’s website at www.dof.ca.gov and the LAO’s website at www.lao.ca.gov.
None of the websites or webpages that are referenced above is in any way incorporated into this Official Statement. They are cited for informational purposes only. Neither the Successor Agency nor the Underwriter makes any representation whatsoever as to the accuracy or completeness of any of the information on such websites.
Recognized Obligation Payment Schedule
The Dissolution Act provides that, commencing on the date that the first Recognized Obligation Payment Schedule is valid thereunder, only those obligations listed in the Recognized Obligation Payment Schedule may be paid by the Successor Agency from the funds specified in the Recognized Obligation Payment Schedule. Before each February 1, with respect to the following fiscal year, the Dissolution Act requires successor agencies to prepare and submit to the successor agency’s oversight board and the DOF for approval, a Recognized Obligation Payment Schedule pursuant to which enforceable obligations (as described under the caption “SECURITY FOR THE 2022 BONDS—Recognized Obligation Payment Schedule”) of the successor agency are listed, together with the source of funds to be used to pay for each enforceable obligation. Pledged Tax Revenues will not be distributed from the Redevelopment Property Tax Trust Fund by the County Auditor-Controller to the Successor Agency’s Redevelopment Obligation Retirement Fund without a duly approved and effective Recognized Obligation Payment Schedule obtained in sufficient time prior to the June 1 property tax distribution date. See the caption “SECURITY FOR THE 2022 BONDS—Recognized Obligation Payment Schedule.” In the event that the Successor Agency fails to file a Recognized Obligation Payment Schedule with respect to a fiscal year, the availability of Pledged Tax Revenues to the Successor Agency could be adversely affected for such period.
In the event that a successor agency fails to submit to the DOF an oversight board-approved Recognized Obligation Payment Schedule complying with the provisions of the Dissolution Act within five business days of the date upon which the Recognized Obligation Payment Schedule is to be used to determine the amount of property tax allocations, the DOF may determine if any amount should be withheld by the applicable county auditor-controller for payments for enforceable obligations from distribution to taxing entities pursuant to clause (iv) below, pending approval of a Recognized Obligation Payment Schedule. Upon notice provided by the DOF to the county auditor-controller of an amount to be withheld from allocations to taxing entities, the county auditor-controller must distribute to taxing entities any moneys in the Redevelopment Property Tax Trust Fund in excess of the withholding amount set forth in the notice, and the county auditor-controller must distribute withheld funds to the successor agency only in accordance with a Recognized Obligation Payment Schedule when and as approved by the DOF.
Typically, under the Redevelopment Property Tax Trust Fund distribution provisions of the Dissolution Act, the county auditor-controller is to distribute funds for each six-month period in the following order specified in Section 34183 of the Dissolution Act:
(i) First, to each local agency and school entity, to the extent applicable, amounts required for pass-through payments that such entity would have received under provisions of the Redevelopment Law, as those provisions read on January 1, 2011, including pursuant to the Statutory Pass-Through Amounts. Pension or State Water Project override revenues that are not pledged to or not needed for debt service on Agency debt will be allocated and paid to the entity that levies the override; (ii) Second, to the Successor Agency for payments listed in its Recognized Obligation Payment Schedule; (iii) Third, to the Successor Agency for the administrative cost allowance, as defined in the Dissolution Act; and (iv) Fourth, the remainder is distributed to the taxing entities in an amount proportionate to such taxing entity’s share of property tax revenues in the tax rate area in such fiscal year (without adjustment for pass-through obligations).
If the Successor Agency does not submit an Oversight Board-approved Recognized Obligation Payment Schedule within five business days of the date upon which the Recognized Obligation Payment Schedule is to be used to determine the amount of property tax allocations and the DOF does not provide a notice to the County Auditor-Controller to withhold funds from distribution to taxing entities, amounts in the Redevelopment Property Tax Trust Fund for such fiscal year would be distributed to taxing entities pursuant to clause (iv) above.
Additionally, regardless of whether Redevelopment Property Tax Trust Fund moneys are sufficient to pay all pass-through amounts and enforceable obligations, the County Auditor-Controller will disburse moneys to taxing agencies for pass-through payments prior to disbursing any moneys to the Successor Agency for debt service on the 2022 Bonds or other enforceable obligations. [The Successor Agency has taken the required actions to subordinate the County Pass-Through Agreement and the Statutory Pass-Through Amounts to the 2022 Bonds and therefore the County Pass-Through Agreement and the Statutory Pass-Through Amounts will be available to pay to debt service on the 2022 Bonds, subject to compliance with the procedures set forth in the Dissolution Act for accessing such revenues.] See the caption “SECURITY FOR THE 2022 BONDS—Tax Increment Financing—Tax Sharing,” and “—Statutory Pass-Through Amounts.” The Successor Agency covenants in the Indenture that it will comply with all of the requirements of the Redevelopment Law and the Dissolution Act, including without limitation to file all required statements and hold all public hearings required under the Dissolution Act to assure compliance by the Successor Agency with its covenants under the Indenture. Further, the Successor Agency covenants in the Indenture to take all actions required under the Dissolution Act to include: (i) scheduled debt service on the 2022 Bonds and any Parity Debt and any amount required under the Indenture to replenish the Reserve Account established thereunder or the reserve account established under any Parity Debt Instrument, (ii) amounts due to any Insurer under the Indenture, under any Parity Debt Instrument or under an insurance or surety bond agreement and (iii) amounts due under the Prior Agreements in Recognized Obligation Payment Schedules for each ROPS Period so as to enable the County Auditor-Controller to distribute from the Redevelopment Property Tax Trust Fund to the Successor Agency’s Redevelopment Obligation Retirement Fund on each January 2 and June 1 amounts required for the Successor Agency to pay principal of, and interest on, the 2022 Bonds coming due in the respective ROPS Period to pay amounts owed to any Insurer, as well as the other amounts set forth above. See the caption “SECURITY FOR THE BONDS—Recognized Obligation Payment Schedule” and Appendix B.
The Dissolution Act also imposes certain penalties in the event that the Successor Agency does not timely submit a Recognized Obligation Payment Schedule for each fiscal year. Specifically, a Recognized Obligation Payment Schedule must be submitted by the Successor Agency, after approval by the Oversight Board, to the County Administrative Officer, the County Auditor-Controller, the DOF and the State Controller by February 1 in each year with respect to the following Fiscal Year. If the Successor Agency does not submit an Oversight Board-approved Recognized Obligation Payment Schedule by such deadline, the City will be subject to a civil penalty equal to $10,000 per day for every day that the schedule is not submitted. Additionally, the Successor Agency’s administrative cost allowance will be reduced by 25% for any fiscal year for which the Successor Agency does not submit an Oversight Board-approved Recognized Obligation Payment Schedule within 10 days of the February 1 deadline. If the Successor Agency fails to submit a Recognized Obligation Payment Schedule by the February 1 deadline, any creditor of the Successor Agency or DOF or any affected taxing entity shall have standing to, and may request a writ of mandate to, require the Successor Agency to immediately perform this duty. The Successor Agency has submitted each prior Recognized Obligation Payment Schedule on or before the statutory deadline.
Prior Insufficiency of Tax Increment Revenues
As described further under the caption “THE PROJECT AREA—Prior Insufficiency of Tax Increment Revenue,” beginning in Fiscal Year 2008-09, the available tax increment revenues from the Project Area fell below the amount required to make payments with respect to certain of the Successor Agency’s obligations, including the Refunded Obligations and the Prior Agreements. Such insufficiency led to draws on the reserve funds for the Refunded Obligations and the nonpayment of certain of the Successor Agency’s obligations, including the Prior Agreements. There can be no assurance that such insufficiencies will not occur in the future.
Furthermore, the County Auditor-Controller has indicated that it interprets the Dissolution Act (and in particular Section 34183 of the California Health and Safety Code) as prohibiting the subordination of pass-through payments due to affected taxing agencies to the payment of enforceable obligations other than “bond debt” (such as the Prior Agreements). During the period of insufficient tax increment revenues described under the caption “THE PROJECT AREA—Prior Insufficiency of Tax Increment Revenues,”, the County Auditor-Controller distributed available tax increment revenues to the Successor Agency for the payment of debt service on the Refunded Obligations, but not for payments under the Prior Agreements. If insufficient Pledged Tax Revenues are available in the future to pay all of the Successor Agency’s enforceable obligations, a dispute could arise amount the payees under the Prior Agreements, County Auditor-Controller, and the Successor Agency regarding the priority allocation of amounts in the RPTTF to payment of debt service on the 2022 Bonds, the Prior Agreements, the County Pass-Through Agreement and the Statutory Pass-Through Amounts. Because of the Past-Due Pass Through Amounts (as described under the caption “SECURITY FOR THE 2022 BONDS—Past-Due Pass Through Amounts”), the Successor Agency will be required to file a Notice of Insufficiency prior to each RPTTF distribution date as needed to ensure allocation to the Successor Agency of sufficient amounts from the RPTTF to enable the Successor Agency to pay debt service on the 2022 Bonds, and if the Successor Agency fails to file such notice on a timely basis in accordance with the Dissolution Act, the Successor Agency may not receive sufficient money from the RPTTF to pay debt service on the Bonds. The Successor Agency will covenant in the Indenture to file a Notice of Insufficiency prior to each RPTTF distribution date as needed to ensure allocation to the Successor Agency of sufficient amounts from the RPTTF to enable the Successor Agency to pay debt service on the 2022 Bonds.
Last and Final Recognized Obligation Payment Schedule
SB 107 amended the Dissolution Act to permit certain successor agencies with limited remaining obligations to submit a Last and Final ROPS for approval by the oversight board and DOF. The Last and Final ROPS must list the remaining enforceable obligations of the successor agency, including the total outstanding obligation amount and a schedule of remaining payments for each enforceable obligation. The Last and Final ROPS shall also establish the maximum amount of Redevelopment Property Tax Trust Funds to be distributed to the successor agency for each remaining fiscal year until all obligations have been fully paid.
Any revenues, interest, and earnings of the successor agency, including proceeds from the disposition of real property, that are not authorized for use pursuant to the approved Last and Final ROPS shall be remitted to the county auditor-controller for distribution to the affected taxing entities. A successor agency shall not expend more than the amount approved for each enforceable obligation listed on the approved Last and Final ROPS and once the successor agency has received Redevelopment Property Tax Trust Fund moneys equal to the amount of the total outstanding obligations approved in the Last and Final ROPS, the county auditor-controller will not allocate further Redevelopment Property Tax Trust Fund moneys to the successor agency.
Successor agencies may only amend an approved Last and Final ROPS twice. If the Successor Agency prepares and obtains DOF approval of a Last and Final ROPS and subsequently amends the Last and Final ROPS two times, the Successor Agency may be unable to make unexpected or unscheduled reserve deposits or payments due to the Insurers of 2022 Bonds or other Parity Debt.
See the caption “SECURITY FOR THE 2022 BONDS—Last and Final Recognized Obligation Payment Schedule” for a discussion of the requirements for a Last and Final ROPS and the mechanics for allocation of Redevelopment Property Tax Trust Fund moneys pursuant to an approved Last and Final ROPS. [The Successor Agency is not currently eligible to file a Last and Final ROPS and has no intention, currently, to do so. The Successor Agency has covenanted in the Indenture not to submit to the Oversight Board or the California Department of Finance a request for the final amendment permitted for its Last and Final ROPS without the prior written consent of the 2022 Insurer unless all amounts that could become due to the 2022 Insurer are included as a line item on the Last and Final ROPS, as amended.] Parity Debt Issued Without Reserve
The Indenture permits the issuance of Parity Debt, subject to compliance with certain requirements. See the caption “SECURITY FOR THE 2022 BONDS—Issuance of Additional Indebtedness.” The Successor Agency is not required to (but is permitted to) maintain a reserve account for such Parity Debt. In the event Pledged Tax Revenues are insufficient to pay debt service on all Bonds and Parity Debt, the likelihood of a default by the Successor Agency with respect to Parity Debt issued without a reserve account would be higher than the likelihood of default by the Successor Agency on the 2022 Bonds because moneys held in the Reserve Account would only be available to make payments on the 2022 Bonds, not to make payments on Parity Debt issued without a reserve.
The Successor Agency’s ability to issue Parity Debt is limited to refundings of Outstanding 2022 Bonds, other Parity Debt and the Prior Agreements, for savings. The Successor Agency projects that sufficient Pledged Tax Revenues will be available to make debt service payments on the 2022 Bonds. See Table 7 under the caption “PLEDGED TAX REVENUES—Projected Pledged Tax Revenues.” Parity and Subordinate Debt
The Indenture permits the issuance by the Successor Agency of certain refunding indebtedness which may have a lien upon the Pledged Tax Revenues on parity with the lien of the 2022 Bonds. The Successor Agency has covenanted not to issue any additional obligations with a lien on Pledged Tax Revenues senior to the lien of the 2022 Bonds. See “SECURITY FOR THE 2022 BONDS—Limitations on Additional Indebtedness” for a description of the conditions precedent to issuance of such additional obligations. The Indenture does not limit the issuance of tax allocation bonds or other indebtedness secured by a pledge of tax increment revenues subordinate to the pledge of Pledged Tax Revenues securing the 2022 Bonds.
Challenges to Dissolution Act
Several successor agencies, cities and other entities have filed judicial actions challenging the legality of various provisions of the Dissolution Act. One such challenge is an action filed on August 1, 2012, by Syncora Guarantee Inc. and Syncora Capital Assurance Inc. (collectively, “Syncora”) against the State, the State Controller, the State Director of Finance, and the County Auditor-Controller on his own behalf and as the representative of all other County Auditors in the State (Superior Court of the State of California, County of Sacramento, Case No. 34-2012-80001215). Syncora is a monoline financial guaranty insurer domiciled in the State of New York and has provided bond insurance and other related insurance policies for bonds issued by former California redevelopment agencies.
The complaint alleged that the Dissolution Act, and specifically the “Redistribution Provisions” thereof (i.e., California Health and Safety Code sections 34172(d), 34174, 34177(d), 34183(a)(4), and 34188) violate the “contract clauses” of the United States and California Constitutions (U.S. Const. art. 1, §10, cl.1; Cal. Const. art. 1, §9) because they unconstitutionally impair the contracts among the former redevelopment agencies, bondholders and Syncora. The complaint also alleged that the Redistribution Provisions violate the “Takings Clauses” of the United States and California Constitutions (U.S. Const. amend. V; Cal Const. art. 1 §19) because they unconstitutionally take and appropriate bondholders’ and Syncora’s contractual right to critical security mechanisms without just compensation.
After hearing by the Sacramento County Superior Court on May 3, 2013, the Superior Court ruled that Syncora’s constitutional claims based on contractual impairment were premature. The Superior Court also held that Syncora’s takings claims, to the extent based on the same arguments, were also premature. Pursuant to a Judgment stipulated to by the parties, the Superior Court on October 3, 2013, entered its order dismissing the action. The Judgment, however, provides that Syncora preserves its rights to reassert its challenges to the Dissolution Act in the future. The Successor Agency does not guarantee that any reassertion of challenges by Syncora or that the final results of any of the judicial actions brought by others challenging the Dissolution Act will not result in an outcome that may have a material adverse effect on the Successor Agency’s ability to timely pay debt service on the 2022 Bonds.
See also the caption “—Prior Insufficiency of Tax Increment Revenues” above.
Bankruptcy and Foreclosure
The payment of the property taxes from which Pledged Tax Revenues are derived and the ability of the County to foreclose the lien of a delinquent unpaid tax may be limited by bankruptcy, insolvency or other laws generally affecting creditors’ rights (such as the Soldiers’ and Sailors’ Relief Act of 1940 discussed below) or by the laws of the State relating to judicial foreclosure. In addition, the prosecution of a foreclosure action could be delayed due to crowded local court calendars or delays in the legal process. The various legal opinions to be delivered concurrently with the delivery of the 2022 Bonds (including Bond Counsel’s approving legal opinions) will be qualified as to the enforceability of the various legal instruments by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors’ rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases.
Although bankruptcy proceedings would not cause the liens to become extinguished, bankruptcy of a property owner could result in a delay in prosecuting superior court foreclosure proceedings because federal bankruptcy laws may provide for an automatic stay of foreclosure and sale of tax sale proceedings. Such delay would increase the possibility of delinquent tax installments not being paid in full and thereby increase the likelihood of a delay or default in payment of the principal of and interest on the 2022 Bonds. Moreover, if the value of the subject property is less than the lien of property taxes, such excess could be treated as an unsecured claim by the bankruptcy court. Further, should remedies be exercised under the federal bankruptcy laws, payment of property taxes may be subordinated to bankruptcy law priorities. Thus, certain claims may have priority over property taxes in a bankruptcy proceeding even though they would not outside of a bankruptcy proceeding.
In addition, the United States Bankruptcy Code might prevent moneys on deposit in the Redevelopment Obligation Retirement Fund from being applied to pay interest on the 2022 Bonds and/or to redeem Bonds if bankruptcy proceedings were brought by or against a landowner and if the court found that such landowner had an interest in such moneys within the meaning of Section 541(a)(1) of the United States Bankruptcy Code.
Other laws generally affecting creditors’ rights or relating to judicial foreclosure may affect the ability to enforce payment of property taxes or the timing of enforcement thereof. For example, the Soldiers and Sailors Civil Relief Act of 1940 affords protections such as a stay in enforcement of the foreclosure covenant, a six-month period after termination of military service to redeem property sold to enforce the collection of a tax or assessment and a limitation on the interest rate on the delinquent tax or assessment to persons in military service if a court concludes that the ability to pay such taxes or assessments is materially affected by reason of such service.
Estimated Revenues
In estimating that Pledged Tax Revenues will be sufficient to pay debt service on the 2022 Bonds, the Successor Agency has made certain assumptions with regard to present and future assessed valuation in the Project Area, future tax rates and percentage of taxes collected. The Successor Agency believes these assumptions to be reasonable, but there is no assurance that these assumptions will be realized. To the extent that the assessed valuation and the tax rates are less than expected, the Pledged Tax Revenues available to pay debt service on the 2022 Bonds will be less than those projected and such reduced Pledged Tax Revenues may be insufficient to provide for the payment of principal of, premium (if any) and interest on the 2022 Bonds.
Hazardous Substances
While governmental taxes, assessments, and charges are a common claim against the value of a taxable parcel, other less common claims may be relevant. One example is a claim with regard to a hazardous substance.
The presence of hazardous substances on a parcel may result in a reduction in the value of a parcel. In general, the owners and operators of a taxable parcel may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but State and local laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner (or operator) is obligated to remedy a hazardous substance condition of property whether or not the owner (or operator) has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the taxable parcels be affected by a hazardous substance is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of the property that is realizable upon a delinquency and foreclosure.
Further, it is possible that liabilities may arise in the future with respect to any of the taxable parcels resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not only from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of a taxable parcel that is realizable upon a delinquency.
Natural Disasters
Natural disasters, including floods and earthquakes, could damage improvements and/or property in the Project Area, or impair the ability of landowners within the Project Area to develop their properties or to pay property taxes.
Seismic Risks. Several active fault zones lie within Southern California. According to the Safety Element of the City’s General Plan, faults near or within the City include the San Andreas Fault, the Hayward Fault, the Concord-Green Valley Fault, the Calaveras Fault, and the Rodgers Creek Fault. In addition to the active faults noted, two inactive faults, the Pinole Fault and the Franklin Fault, are located in the vicinity of the City. An earthquake along one of the faults in the vicinity, either known or unknown, could cause a number of casualties and extensive property damage, including within the Project Area. The effects of such an earthquake could be aggravated by aftershocks and secondary effects such as fires, landslides, liquefaction and other threats to public health, safety and welfare. If an earthquake were to substantially damage or destroy taxable property within the Project Area, the assessed valuation of such property would be reduced. Such a reduction of assessed valuations could result in a reduction of the Pledged Tax Revenues that secure the 2022. Bonds.
Flood Risks. According to the Safety Element of the City’s General Plan, the City’s northwest land area, including a portion of the Project Area, is adjacent to San Pablo Bay. Potential flood hazards associated with high tides and storm waves are concentrated at the confluence of the San Pablo Bay and Refugio Creek, which runs through a portion of the Project Area. Additionally, creek overflows are a potential cause of flooding in the Project Area. When the surface runoff exceeds the capacity of the creek channel to carry the flow, creek overflows result. The drainage basin of Refugio Creek covers most of the City and extends well beyond the City boundary to the east.
Fire Risks. According to the Safety Element of the City’s General Plan, the major fire hazard areas within the City are the open space areas directly adjacent to homes, including brush and grass covered hills and forested areas. The City works with the local Hercules-Rodeo Fire District to assist with annual maintenance to reduce local fire hazard. While no portion of the City is located within a High or Very High Fire Hazard Zone, portions of the areas surrounding the City are. Property damage within the Project Area due to wildfires could result in a reduction of the Pledged Tax Revenues that secure the 2022 Bonds.
The property within the Project Area may also be at risk from other events of force majeure, such as damaging storms, fires and explosions, strikes, sabotage, pandemics, riots and spills of hazardous substances, among other events. The Successor Agency cannot predict what force majeure events may occur in the future.
Climate Change
Climate change, including change caused by human activities, may have adverse effects on the Project Area. Climate change can also result in more variable weather patterns throughout the State, which can lead to longer and more severe droughts as well as increased risk of fire, flooding and a rise in sea levels. The City considers the potential effects of climate change in its planning.
Projections of the impacts of global climate change on the City and the Project Area are complex and depend on many factors that are outside the Successor Agency’s control. The various scientific studies that forecast the amount and timing of adverse impacts of climate change are based on assumptions contained in such studies, but actual events may vary materially. Also, the scientific understanding of climate change and its effects continues to evolve. Accordingly, while the City has considered climate change in its planning, the Successor Agency is unable to forecast with certainty when adverse impacts of climate change will occur or the extent of such impacts. While the impacts of climate change may be mitigated by the City’s past and future investment in adaptation strategies, the Successor Agency can give no assurance about the net effects of those strategies and whether the City will be required to take additional adaptive mitigation measures.
The Successor Agency is unable to predict whether sea-level rise or other impacts of climate change will occur while the 2022 Bonds are outstanding, and if any such events occur, whether there will be an adverse impact, material or otherwise, on Pledged Tax Revenues.
Changes in the Law
There can be no assurance that the State electorate will not at some future time adopt initiatives or that the State Legislature will not enact legislation that will amend the Dissolution Act, the Redevelopment Law or other laws or the Constitution of the State resulting in a reduction of Pledged Tax Revenues, which could have an adverse effect on the Successor Agency’s ability to pay debt service on the 2022 Bonds.
Investment Risk
Funds held under the Indenture are required to be invested in Permitted Investments as provided under the Indenture. See Appendix B for a summary of the definition of Permitted Investments. The funds and accounts of the Successor Agency, into which a portion of the proceeds of the 2022 Bonds will be deposited and into which Pledged Tax Revenues are deposited, may be invested by the Successor Agency in any investment authorized by law. All investments, including the Permitted Investments and those authorized by law from time to time for investments by municipalities, contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected and loss or delayed receipt of principal. See also the caption “—Bankruptcy and Foreclosure.” Secondary Market
There can be no guarantee that there will be a secondary market for the 2022 Bonds, or, if a secondary market exists, that the 2022 Bonds can be sold for any particular price. Although the Successor Agency has committed to provide certain financial and operating information on an annual basis, there can be no assurance that such information will be available to Owners of the 2022 Bonds on a timely basis. See the caption “CONCLUDING INFORMATION—Continuing Disclosure” and Appendix G. Any failure to provide annual financial information, if required, does not give rise to monetary damages but merely an action for specific performance. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon the then prevailing circumstances. Such prices could be substantially different from the original purchase price.
No Validation Proceeding Undertaken
Code of Civil Procedure Section 860 authorizes public agencies to institute a process, otherwise known as a “validation proceeding,” for purposes of determining the validity of a resolution or any action taken pursuant thereto. Section 860 authorizes a public agency to institute validation proceedings in cases where another statute authorizes its use. Relevant to the 2022 Bonds, Government Code Section 53511 authorizes a local agency to “bring an action to determine the validity of its bonds, warrants, contracts, obligations or evidences of indebtedness.” Pursuant to Code of Civil Procedure Section 870, a final favorable judgment issued in a validation proceeding shall, notwithstanding any other provision of law, be forever binding and conclusive, as to all matters therein adjudicated or which could have been adjudicated, against all persons: “The judgment shall permanently enjoin the institution by any person of any action or proceeding raising any issue as to which the judgment is binding and conclusive.” The Successor Agency has not undertaken or endeavored to undertake any validation proceeding in connection with the issuance of the 2022 Bonds. The Successor Agency and Bond Counsel have relied on the provisions of AB 1484 authorizing the issuance of the 2022 Bonds and specifying the related deadline for any challenge to the 2022 Bonds to be brought. Specifically, Section 34177.5(e) of the Dissolution Act provides that notwithstanding any other law, an action to challenge the issuance of bonds (such as the 2022 Bonds), the incurrence of indebtedness, the amendment of an enforceable obligation, or the execution of a financing agreement authorized under Section 34177.5, must be brought within 30 days after the date on which the oversight board approves the resolution of the successor agency approving such financing. Such challenge period expired with respect to the 2022 Bonds and the Oversight Board Resolution on February 23, 2022.
It is possible that the definition, levy, collection, distribution, or availability of Pledged Tax Revenues could be affected by changes in law or judicial decisions relating to the dissolution of redevelopment agencies. However, any action by a court to invalidate provisions of the Dissolution Act required for the timely payment of principal of, and interest on, the 2022 Bonds could be subject to issues regarding unconstitutional impairment of contracts and unconstitutional taking without just compensation. The Successor Agency believes this constitutional provision would provide some protection against the adverse consequences upon the Successor Agency and the availability of Pledged Tax Revenues for the payment of debt service on the 2022 Bonds in the event of successful challenges to the Dissolution Act or portions thereof. However, the Successor Agency provides no assurance that any other lawsuit challenging the Dissolution Act or portions thereof will not result in an outcome that may have a detrimental effect on the Successor Agency’s ability to timely pay debt service on the 2022 Bonds.
IRS Audit of Tax-Exempt Bond Issues
The Internal Revenue Service has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the 2022A Bonds will be selected for audit by the Internal Revenue Service. It is also possible that the market value of the 2022A Bonds might be affected as a result of such an audit of the 2022A Bonds (or by an audit of similar municipal obligations).
Loss of Tax Exemption
As discussed under the caption “TAX MATTERS,” in order to maintain the exclusion from gross income for federal income tax purposes of the interest on the 2022A Bonds, the City and the Successor Agency have covenanted in the Indenture and the Tax Certificate relating to the 2022A Bonds not to take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the 2022A Bonds under Section 103 of the Internal Revenue Code of 1986, as amended. Interest on the 2022A Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of issuance, as a result of acts or omissions of the City or the Successor Agency subsequent to the issuance of the 2022A Bonds in violation of such covenants with respect to the 2022A Bonds. Should such an event of taxability occur, the 2022A Bonds are not subject to redemption by reason thereof and will remain outstanding until maturity or unless earlier redeemed pursuant to the redemption provisions of the Indenture.
Bonds Are Limited Obligations
Neither the faith and credit nor the taxing power of the Successor Agency (except to the limited extent set forth in the Indenture), the City, the State or any political subdivision thereof is pledged to the payment of the 2022 Bonds. The 2022 Bonds are special obligations of the Successor Agency; and, except as provided in the Indenture, they are payable solely from Pledged Tax Revenues. Pledged Tax Revenues could be insufficient to pay debt service on the 2022 Bonds as a result of delinquencies in the payment of property taxes or the insufficiency of proceeds derived from the sale of land within the Successor Agency following a delinquency in the payment of the applicable property taxes. As discussed under the caption “PROPERTY TAXATION IN CALIFORNIA—Property Tax Collection Procedures—Delinquencies,” under its current policies, the County Auditor-Controller distributes 100% of tax increment revenues allocated to each redevelopment successor agency in the County without regard to delinquencies in the payment of property taxes. However, there can be no assurance that such policies will not be changed in the future. The Successor Agency has no obligation to pay debt service on the 2022 Bonds in the event of insufficient Pledged Tax Revenues, except to the extent that money is available for such purpose in the Redevelopment Obligation Retirement Fund, the Debt Service Fund and the Reserve Account.
Bond Insurance
In the event of default of the payment of the scheduled principal of or interest on the 2022 Bonds when all or some becomes due, the Trustee on behalf of any owner of the 2022 Bonds shall have a claim under the Policy for such payments. In the event the 2022 Insurer makes a payment to Owners of the 2022 Bonds under the Policy, the 2022 Insurer will be subrogated to the rights of such Owners of the 2022 Bonds to direct and consent to remedies with respect to the 2022 Bonds. The 2022 Insurer may direct and must consent to any remedies with respect to the 2022 Bonds and the 2022 Insurer’s consent may be required in connection with amendments to any applicable documents relating to the 2022 Bonds. See Appendix B – “SUMMARY OF THE INDENTURE—SECURITY OF BONDS; FLOW OF FUNDS—Provisions Relating to 2022 Insurance Policy.” The long-term ratings on the 2022 Bonds are dependent in part on the financial strength of the 2022 Insurer and its claims paying ability. The 2022 Insurer’s financial strength and claims paying ability are predicated upon a number of factors which could change over time. No assurance is given that the long-term ratings of the 2022 Insurer and the ratings on the Bonds will not be subject to downgrade and such event could adversely affect the market price of the Bonds or the marketability (liquidity) for the Bonds. See “CONCLUDING INFORMATION—Ratings” herein.
The obligations of the 2022 Insurer are unsecured contractual obligations and in an event of default by the 2022 Insurer, the remedies available may be limited by applicable bankruptcy law or state law related to insolvency of insurance companies.
Neither the Successor Agency nor the Underwriter has made independent investigation into the claims paying ability of the 2022 Insurer and no assurance or representation regarding the financial strength or projected financial strength of the 2022 Insurer is given. Thus, when making an investment decision, potential investors should carefully consider the ability of the Successor Agency to make the payments on the 2022 Bonds and the claims paying ability of the 2022 Insurer, particularly over the life of the investment. See “BOND INSURANCE” herein for further information regarding the 2022 Insurer and the Policy, which includes further instructions for obtaining current financial information concerning the 2022 Insurer.
Limitations on Remedies
Remedies available to the Owners of the 2022 Bonds may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the 2022 Bonds or to preserve the tax-exempt status of the 2022 Bonds.
Bond Counsel has limited its opinion as to the enforceability of the 2022 Bonds and of the Indenture to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or other similar laws affecting generally the enforcement of creditors’ rights, by equitable principles and by the exercise of judicial discretion. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the Owners.
Enforceability of the rights and remedies of the Owners of the 2022 Bonds, and the obligations incurred by the Successor Agency, may become subject to the United States Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the federal Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against governmental entities in the State. See the caption “—Bankruptcy and Foreclosure.”
TAX MATTERS
2022A Bonds
In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the 2022A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. In the further opinion of Bond Counsel, interest (and original issue discount) on the 2022A Bonds is exempt from State of California personal income tax.
Bond Counsel’s opinion as to the exclusion from gross income for federal income tax purposes of interest (and original issue discount) on the 2022A Bonds is based upon certain representations of fact and certifications made by the Successor Agency and others and is subject to the condition that the Successor Agency comply with all requirements of the Code that must be satisfied subsequent to the issuance of the 2022A Bonds to assure that interest (and original issue discount) on the 2022A Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the 2022A Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2022A Bonds. The Successor Agency has covenanted to comply with all such requirements.
In the opinion of Bond Counsel, the difference between the issue price of a 2022A Bond (the first price at which a substantial amount of the 2022A Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity of such 2022A Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Beneficial Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Beneficial Owner will increase the Beneficial Owner’s basis in the applicable 2022A Bond. The amount of original issue discount that accrues to the Beneficial Owner of a 2022A Bond is excluded from the gross income of such Beneficial Owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals, and is exempt from State of California personal income tax.
The amount by which a 2022A Bond Owner’s original basis for determining loss on sale or exchange in the applicable 2022A Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Code; such amortizable bond premium reduces the 2022A Bond Owner’s basis in the applicable 2022A Bond (and the amount of tax-exempt interest received with respect to the 2022A Bonds), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a 2022A Bond Owner realizing a taxable gain when a 2022A Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2022A Bond to the Owner. Purchasers of the 2022A Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium.
The IRS has initiated an expanded program for the auditing of taxexempt bond issues, including both random and targeted audits. It is possible that the 2022A Bonds will be selected for audit by the IRS. It is also possible that the market value of the 2022A Bonds might be affected as a result of such an audit of the 2022A Bonds (or by an audit of similar municipal obligations). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the 2022A Bonds to the extent that it adversely affects the exclusion from gross income of interest (and original issue discount) on the 2022A Bonds or their market value.
SUBSEQUENT TO THE ISSUANCE OF THE 2022A BONDS THERE MIGHT BE FEDERAL, STATE OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR REGULATORY CHANGES TO OR INTERPRETATIONS OF FEDERAL, STATE OR LOCAL LAW) THAT AFFECT THE FEDERAL, STATE OR LOCAL TAX TREATMENT OF THE 2022A BONDS, INCLUDING THE IMPOSITION OF ADDITIONAL FEDERAL INCOME OR STATE TAXES ON OWNERS OF TAX-EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE 2022A BONDS. THESE CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE 2022A BONDS. NO ASSURANCE CAN BE GIVEN THAT SUBSEQUENT TO THE ISSUANCE OF THE 2022A BONDS STATUTORY CHANGES WILL NOT BE INTRODUCED OR ENACTED OR JUDICIAL OR REGULATORY INTERPRETATIONS WILL NOT OCCUR HAVING THE EFFECTS DESCRIBED ABOVE. BEFORE PURCHASING ANY OF THE 2022A BONDS, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING POSSIBLE STATUTORY CHANGES OR JUDICIAL OR REGULATORY CHANGES OR INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE 2022A BONDS.
Bond Counsel’s opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Indenture and the Tax Certificate relating to the 2022A Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross income of interest (and original issue discount) for federal income tax purposes with respect to any 2022A Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation.
Although Bond Counsel has rendered an opinion that interest (and original issue discount) on the 2022A Bonds is excluded from gross income for federal income tax purposes provided that the Successor Agency continues to comply with certain requirements of the Code, the ownership of the 2022A Bonds and the accrual or receipt of interest (and original issue discount) on the 2022A Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of 2022A Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the 2022A Bonds.
Should interest (and original issue discount) on the 2022A Bonds become includable in gross income for federal income tax purposes, the 2022A Bonds are not subject to early redemption and will remain outstanding until maturity or until redeemed in accordance with the Indenture.
A complete copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix C. 2022B Bonds
In the opinion of Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, interest on the 2022B Bonds is not excluded from gross income for federal income tax purposes under Section 103 of the Code but interest on the 2022B Bonds is exempt from State of California personal income tax.
With certain exceptions, the difference between the issue price of a 2022B Bond (the first price at which a substantial amount of the 2022B Bonds of the same maturity is to be sold to the public) and the stated redemption price at maturity with respect to such 2022B Bond (to the extent the redemption price at maturity is greater than the issue price) constitutes original issue discount. Original issue discount accrues under a constant yield method, and the amount of original issue discount deemed received by the Owner of a 2022B Bond will increase the 2022B Bond Owner’s basis in the 2022B Bond. Owners of the 2022B Bonds should consult their own tax advisors with respect to taking into account any original issue discount on the 2022B Bonds.
The amount by which a 2022B Bond Owner’s original basis for determining loss on sale or exchange in the applicable 2022B Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which the 2022B Bond Owner may elect to amortize under Section 171 of the Code. Such amortizable bond premium reduces the 2022B Bond Owner’s basis in the applicable 2022B Bond (and the amount of taxable interest received) and is deductible for federal income tax purposes. The basis reduction as a result of the amortization of 2022B Bond premium may result in the 2022B Bond Owner realizing a taxable gain when a 2022B Bond is sold by the 2022B Bond Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2022B Bond to the 2022B Bond Owner. The 2022B Bond Owners that have a basis in the 2022B Bond that is greater than the principal amount of the 2022B Bonds should consult their own tax advisors with respect to whether or not they should elect to amortize such premium under Section 171 of the Code.
In the event of a legal defeasance of a 2022B Bond, such 2022B Bond might be treated as retired and “reissued” for federal tax purposes as of the date of the defeasance, potentially resulting in recognition of taxable gain or loss to the applicable 2022B Bond Owner generally equal to the difference between the amount deemed realized from the deemed redemption and reissuance and the 2022B Bond Owner’s adjusted tax basis in such 2022B Bond.
The federal tax and State of California personal income tax discussion set forth above with respect to the 2022B Bonds is included for general information only and may not be applicable depending upon a 2022B Bond Owner’s particular situation. The ownership and disposal of a 2022B Bond and the accrual or receipt of interest with respect to the 2022B Bond may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences.
A complete copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix C.
CONCLUDING INFORMATION
Underwriting
The 2022 Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated (the “Underwriter”) pursuant to a Bond Purchase Agreement, dated ________, 2022 (the “Purchase Agreement”), by and between the Underwriter and the Successor Agency. The Underwriter has agreed to purchase the 2022A Bonds at a price of $__________ (being the aggregate principal amount thereof, [plus/less] an original issue [premium/discount] of $___________ and less an Underwriter’s discount of $____________). The Underwriter has agreed to purchase the 2022B Bonds at a price of $__________ (being the aggregate principal amount thereof, less an Underwriter’s discount of $__________). The Purchase Agreement provides that the Underwriter will purchase all of the 2022 Bonds if any are purchased. The obligation to make such purchase is subject to certain terms and conditions set forth in the Purchase Agreement, the approval of certain legal matters by counsel and certain other conditions. [The Underwriter has entered into an agreement with its affiliate, Vining-Sparks IBG, LLC for the distribution of certain municipal securities offerings at the original issue price. Pursuant to that distribution agreement, Vining-Sparks may purchase 2022 Bonds from the Underwriter at the original issue price less a negotiated portion of the selling concession applicable to any 2022 Bonds that Vining-Sparks sells.] The initial public offering prices stated on the inside front cover page of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the 2022 Bonds to certain dealers (including dealers depositing Bonds into investment trusts), dealer banks, banks acting as agents and others at prices lower than said public offering prices.
Municipal Advisor
Urban Futures, Inc., Tustin, California, has served as municipal advisor (“Municipal Advisor”) to the Successor Agency in connection with the 2022 Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. The Municipal Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. Compensation for the Municipal Advisor’s services is entirely contingent upon the sale and delivery of the 2022 Bonds.
Legal Opinion
The opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, approving the validity of the 2022 Bonds, stating that interest on the 2022A Bonds is exempt from federal personal income taxes and interest on the 2022 Bonds is exempt from California personal income taxes under present State income tax laws will be furnished to the Underwriter at the time of delivery of the 2022 Bonds at the expense of the Successor Agency. Compensation for Bond Counsel’s services is entirely contingent upon the sale and delivery of the 2022 Bonds.
A copy of the proposed form of Bond Counsel’s final approving opinion with respect to the 2022 Bonds is attached hereto as Appendix C. The legal opinion is only as to legality and is not intended to be nor is it to be interpreted or relied upon as a disclosure document or an express or implied recommendation as to the investment quality of the 2022 Bonds.
In addition, certain legal matters will be passed on for the Underwriter by Jones Hall, a Professional Law Corporation, as Underwriter’s Counsel, for the Successor Agency by the City Attorney of the City, as counsel to the Successor Agency, and by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, as Disclosure Counsel, and for the Trustee by its counsel. Compensation for Underwriter’s Counsel and Disclosure Counsel is entirely contingent upon the sale and delivery of the 2022 Bonds.
Litigation
There is no action, suit or proceeding known to the Successor Agency to be pending and notice of which has been served upon and received by the Successor Agency, or threatened, restraining or enjoining the execution or delivery of the 2022 Bonds or the Indenture or in any way contesting or affecting the validity of the foregoing or any proceedings of the Successor Agency taken with respect to any of the foregoing.
Ratings
In connection with the issuance and delivery of the 2022 Bonds, S&P Global Ratings, a Standard & Poor’s Financial Services, LLC business (“S&P”) is expected to assign its underlying municipal rating of “_____” to the 2022 Bonds. S&P is also expected to assign the 2022 Bonds the rating of “_____” based upon the delivery of the Policy by the 2022 Insurer at the time of issuance of the 2022 Bonds. See the caption “BOND INSURANCE.” There is no assurance that the credit ratings given to the 2022 Bonds will be maintained for any period of time or that the ratings may not be lowered or withdrawn entirely by S&P if, in the judgment of S&P, circumstances so warrant. Any downward revision or withdrawal of either of such ratings may have an adverse effect on the market price of the 2022 Bonds. Such ratings reflect only the views of S&P and an explanation of the significance of such ratings may be obtained from S&P. Generally, rating agencies base their ratings on information and materials furnished to them (which may include information and material from the Successor Agency which is not included in this Official Statement) and on investigations, studies and assumptions by the rating agencies.
Continuing Disclosure
The Successor Agency has covenanted in a Continuing Disclosure Certificate (the “Continuing Disclosure Certificate”) for the benefit of the holders and Beneficial Owners of the 2022 Bonds to provide certain financial information and operating data relating to the Successor Agency by March 31, or the date that is nine months after the end of the Successor Agency’s fiscal year if the Successor Agency’s fiscal year is changed (the Successor Agency’s fiscal year currently ends June 30) (the “Annual Report”), commencing with the report for fiscal year ending June 30, 2022, and to provide notices of the occurrence of certain enumerated events.
The Annual Report and the notices of enumerated events will be filed by the Successor Agency with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for municipal securities disclosures, maintained on the Internet at http://emma.msrb.org/. The specific nature of the information to be contained in the Annual Report and the notices of enumerated events are set forth in Appendix G. These covenants have been made in order to assist the Underwriter in complying with Rule 15c212(b)(5) promulgated under the Securities Exchange Act of 1934 (“Rule 15c2-12”). [The Former Agency previously entered into a continuing disclosure undertaking under Rule 15c2-12 in connection with the issuance of the Refunded Obligations. During the last five years, __________. The Successor Agency has taken steps to ensure future compliance with its continuing disclosure obligations by adopting disclosure policies and procedures and by retaining Urban Futures, Inc. to serve as continuing disclosure consultant to the Successor Agency. Agency staff has also received training relating to the Successor Agency’s continuing disclosure obligations.] [TO BE UPDATED BASED ON REVIEW BY UNDERWRITER] Miscellaneous
All of the preceding summaries of the Indenture, the Bond Law, the Dissolution Act, the Redevelopment Law, other applicable legislation, the Redevelopment Plan for the Project Area, agreements and other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the Successor Agency for further information in connection therewith.
This Official Statement does not constitute a contract with the purchasers of the 2022 Bonds. Any statements made in this Official Statement involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized.
The execution and delivery of this Official Statement by the Executive Director of the Successor Agency, has been duly authorized by the Successor Agency.
SUCCESSOR AGENCY TO THE
HERCULES REDEVELOPMENT AGENCY
By:
Executive Director
APPENDIX A
FISCAL CONSULTANT REPORT
[TO COME FROM RSG]
APPENDIX B
SUMMARY OF THE INDENTURE
[TO COME FROM BOND COUNSEL]
APPENDIX C
FORM OF BOND COUNSEL OPINION
[TO COME FROM BOND COUNSEL]
APPENDIX D
BOOK-ENTRY ONLY SYSTEM
The information in this Appendix concerning The Depository Trust Company (“DTC”), New York, New York, and DTC’s book-entry system has been obtained from DTC and the Successor Agency takes no responsibility for the completeness or accuracy thereof. The Successor Agency cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the 2022 Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the 2022 Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the 2022 Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.
The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the 2022 Bonds. The 2022 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the 2022 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2022 Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2022 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the 2022 Bonds is discontinued.
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2022 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2022 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the 2022 Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the 2022 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the 2022 Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Successor Agency as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Principal, premium (if any), and interest payments on the 2022 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Successor Agency or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the Successor Agency, subject to any statutory or regulatory requirements as may be in effect from time to time. Principal, premium (if any), and interest payments with respect to the 2022 Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Successor Agency or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as depository with respect to the 2022 Bonds at any time by giving reasonable notice to the Successor Agency or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, certificates representing the 2022 Bonds are required to be printed and delivered.
The Successor Agency may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, representing the 2022 Bonds will be printed and delivered to DTC in accordance with the provisions of the Indenture.
The information in this Appendix concerning DTC and DTC’s book-entry system has been obtained from sources that the Successor Agency believes to be reliable, but the Successor Agency takes no responsibility for the accuracy thereof.
APPENDIX E
ANNUAL COMPREHENSIVE FINANCE REPORT FOR
FISCAL YEAR ENDED JUNE 30, 2021
[TO BE INSERTED]
APPENDIX F
STATE DEPARTMENT OF FINANCE LETTER
[TO COME FROM DEPARTMENT OF FINANCE]
APPENDIX G
FORM OF CONTINUING DISCLOSURE CERTIFICATE
[TO BE INSERTED]
APPENDIX H
SUPPLEMENTAL INFORMATION—THE CITY OF HERCULES
The following information relating to the City of Hercules (the “City”) and the County of Contra Costa, California (the “County”) is supplied solely for purposes of information. Neither the City nor the County is obligated in any manner to pay principal of or interest on the 2022 Bonds or to cure any delinquency or default on the 2022 Bonds. The 2022 Bonds are payable solely from the sources described in the Official Statement. The Successor Agency makes no representation as to the accuracy of the information set forth in this Appendix.
City Council
The members of the City Council and the expiration dates of their respective terms are as follows:
CITY OF HERCULES
City Council
Name
Term Expires
Dion Bailey
November 2022
Alexander Walker-Griffin
November 2022
Tiffany Grimsley
November 2024
Chris Kelley
November 2022
Dan Romero
November 2024
The City Council appoints the City Manager who serves as the Chief Executive Officer of the City and supervises the various City services, prepares proposals for the City Council’s consideration and implements the City Council’s policy.
Population
The following table shows the historical population figures for the City, the County and the State for the last 10 years.
POPULATION
For Years 2018 through 2022(1)
Year
(January 1)
City of
Hercules
County of
Contra Costa
State of
California
2012
24,361
1,072,470
37,924,661
2013
24,440
1,086,069
38,269,864
2014
24,564
1,098,959
38,556,731
2015
24,740
1,113,221
38,865,532
2016
24,861
1,127,634
39,103,587
2017
25,315
1,137,577
39,352,398
2018
25,392
1,143,188
39,519,535
2019
25,513
1,471,623
39,605,361
2020
25,494
1,149,853
39,648,938
2021
25,864
1,153,854
39,466,855
2022
(2)
1,072,470
37,924,661
As of January 1.
Not Available.
Source: 2012-21 (2010 Census Benchmark): California Department of Finance for January 1.
Building Activity
Residential building activity for the past five calendar years for the City is shown in the following tables.
CITY OF HERCULES
New Housing Units Building Permits
2016
2017
2018
2019
2020
Single Family Units
31 41
56 17
2 Multifamily Units
0 0
172
232
0 Total Units
31 41
228
249
2 Source: Construction Industry Research Board and California Homebuilding Foundation.
CITY OF HERCULES
Building Permit Valuations
(Dollars in Thousands)
2016
2017
2018
2019
2020
Residential
New Single Family
$ 9,911,225
$ 13,807,843
$ 18,690,281
$ 5,826,192
$ 254,616
New Multifamily
0 0
34,024,592
46,314,709
0 Res. Alt. & Adds
3,598,235
2,153,093
2,404,493
2,834,450
2,746,989
Total Residential
$ 13,509,460
$ 15,960,936
$ 55,119,366
$ 54,975,351
$ 3,001,605
Nonresidential
New Commercial
$ 0
$ 0
2,546,530
$ 8,523,395
$ 429,835
New Industrial
0 0
0 0
0 New Other(1)
1,441,413
165,000
161,675
910,845
12,541,013
Alters. & Adds.
250,960
694,200
884,963
867,888
2,048,400
$ 1,692,373
$ 859,200
$ 3,593,168
$ 10,302,128
$ 15,019,248
Total All Building
$ 15,201,833
$ 16,820,136
$ 58,712,534
$ 65,277,479
$ 18,020,853
(1) Includes churches and religious buildings, hospitals and institutional buildings, schools and educational buildings, residential garages, public works and utilities buildings.
Note: “Total All Building” is the sum of Residential and Nonresidential Building Permit Valuations. Totals may not add to sum because of independent rounding.
Source: Construction Industry Research Board and California Homebuilding Foundation.
Personal Income
Personal Income is the income that is received by all persons from all sources. It is calculated as the sum of wage and salary disbursements, supplements to wages and salaries, proprietors’ income with inventory valuation and capital consumption adjustments, rental income of persons with capital consumption adjustment, personal dividend income, personal interest income, and personal current transfer receipts, less contributions for government social insurance.
The personal income of an area is the income that is received by, or on behalf of, all the individuals who live in the area; therefore, the estimates of personal income are presented by the place of residence of the income recipients.
The following tables show the personal income and per capita personal income for the County, State of California and United States from 2016 through 2020.
PERSONAL INCOME
County of Contra Costa, California, and United States
2016-2020
Year
County of
Contra Costa
California
United States
2016
$ 81,451,804
$2,218,457,774
$16,092,713
2017
86,986,057
2,318,644,417
16,845,028
2018
91,653,896
2,431,821,953
17,681,159
2019
97,550,344
2,544,234,978
18,402,004
2020
106,318,748
2,763,311,977
19,607,446
Note: Dollars in Thousands.
Source: U.S. Department of Commerce, Bureau of Economic Analysis.
Income
The following table summarizes per capita personal income for the County, the State, and the United States for the past 10 years.
PER CAPITA personal income(1)
2011 through 2020
County of Contra Costa, the State of California, and the United States Year
County of
Contra Costa
State of
California
United States
2011
$57,294
$45,574
$42,783
2012
61,502
48,154
44,614
2013
61,063
48,549
44,894
2014
63,390
51,332
47,017
2015
68,323
54,632
48,891
2016
71,621
56,667
49,812
2017
75,929
58,942
51,811
2018
79,641
61,663
54,098
2019
84,614
64,513
56,047
2020
92,264
70,192
59,510
(1) All dollar estimates are in current dollars (not adjusted for inflation).
Per capital personal income was computed using Census Bureau midyear population estimates.
Estimates for 2011 – 2020 reflect county population estimates available as of March 2021.
Source: U.S. Department of Commerce, Bureau of Economic Analysis.
Employment
The following table summarizes the labor force, employment and unemployment figures over the past five years for the City, the County of Contra Costa, the State of California and the nation as a whole.
CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT
2016 through 2020(1)
City of Hercules, County of Contra Costa, the State of California, and the United States
Year and Area
Labor Force
Employment(2)
Unemployment(3)
Unemployment
Rate (%)
2016
City of Hercules
13,800
13,200
600
4.0%
County of Contra Costa
553,100
528,400
24,700
4.5 State of California
19,012,000
17,965,400
1,046,600
5.5 United States
159,187,000
151,436,000
7,751,000
4.9 2017
City of Hercules
13,900
13,400
500
3.6%
County of Contra Costa
558,600
537,200
21,400
3.8 State of California
19,173,800
18,246,800
927,000
4.8 United States
160,320,000
153,337,000
6,982,000
4.4 2018
City of Hercules
13,900
13,500
400
2.9%
County of Contra Costa
560,900
542,800
18,100
3.2 State of California
19,263,900
18,442,400
821,500
4.3 United States
162,075,000
155,761,000
6,314,000
3.9 2019
City of Hercules
13,900
13,500
400
2.8%
County of Contra Costa
561,800
544,500
17,300
3.1 State of California
19,353,700
18,550,500
803,200
4.2 United States
163,539,000
157,538,000
6,001,000
3.7 2020
City of Hercules
13,700
12,600
1,200
8.5%
County of Contra Costa
541,300
493,200
48,000
8.9 State of California
18,821,200
16,193,100
1,908,100
10.1 United States
160,742,000
147,795,000
12,947,000
8.1 Note: Data is not seasonally adjusted.
(1) Includes persons involved in labor-management trade disputes. (2) Includes all persons without jobs who are actively seeking work. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures in this table.
Source: California Employment Development Department, based on March 2020 benchmark and U.S. Department of Labor, Bureau of Labor Statistics.
Industry
The County of Contra Costa is included in the Oakland-Hayward-Berkeley Metropolitan Division (the “MD”). The distribution of employment is presented in the following table for the past five years. These figures are multi countywide statistics and may not necessarily accurately reflect employment trends in the County.
INDUSTRY EMPLOYMENT & LABOR FORCE ANNUAL AVERAGES
2016 through 2020
County of Contra Costa (Oakland-Hayward-Berkeley MD)
Category
2016
2017
2018
2019
2020
Total Farm
1,300
1,400
1,300
1,400
1,500
Total Nonfarm
1,134,100
1,160,400
1,180,000
1,189,000
1,092,200
Total Private
960,700
985,800
1,005,300
1,014,100
926,300
Goods Producing
159,400
167,200
175,800
176,700
168,900
Mining, Logging, and Construction
68,200
71,400
75,100
75,700
70,600
Manufacturing
91,300
95,700
100,600
101,000
98,200
Service Providing
974,700
993,300
1,004,200
1,012,300
923,400
Private Service Providing
801,200
818,600
829,600
837,400
757,500
Trade, Transportation and Utilities
201,200
204,400
204,300
200,800
187,500
Wholesale Trade
48,100
48,700
47,500
45,400
42,000
Retail Trade
113,400
114,400
114,400
111,700
100,500
Transportation, Warehousing &
Utilities
39,700
41,300
42,300
43,700
45,100
Information
26,500
26,900
27,600
27,600
25,800
Financial Activities
55,800
56,300
55,300
55,400
52,700
Professional and Business Services
181,100
184,500
189,500
193,200
184,600
Educational and Health Services
185,900
191,500
194,300
198,400
189,800
Leisure and Hospitality
111,700
114,900
117,700
121,000
84,100
Other Services
39,100
40,200
41,000
41,200
32,900
Government
173,400
174,600
174,700
174,800
165,900
Total, All Industries
1,135,400
1,161,800
1,181,300
1,190,400
1,093,700
Note: The “Total, All Industries” data is not directly comparable to the employment data found herein.
Source: State of California, Employment Development Department, Labor Market Information Division, Average Labor Force and Industry Employment. March 2020 Benchmark.
Commercial Activity
The following table summarizes the annual volume of taxable transactions within the City for the years 2015 through 2020.
CITY OF HERCULES
TABLE OF TAXABLE TRANSACTIONS
For the Years 2015 Through 2020
Year
Retail
Permits
Retail and Food Taxable Transactions
Total Permits
Total Outlets
Taxable Transactions
2015
185
89,884,754
266
178,895,615
2016
183
87,116,645
261
177,342,531
2017
178
98,522,480
257
172,736,661
2018
181
104,262,432
270
200,735,708
2019
187
110,569,709
281
225,795,557
2020
184
112,047,923
288
222,050,049
Source: California Department of Tax and Fee Administration.
APPENDIX I
SPECIMEN MUNICIPAL BOND INSURANCE POLICY
[TO COME FROM INSURER]
4856-0275-1234v6/200861-0005
i
4856-0275-1234v6/200861-0005
52 4856-0275-1234v6/200861-0005
1 4856-0275-1234v6/200861-0005
A-1
4856-0275-1234v6/200861-0005
B-35
4856-0275-1234v6/200861-0005
B-1
4856-0275-1234v6/200861-0005
C-3
4856-0275-1234v6/200861-0005
C-1
4856-0275-1234v6/200861-0005
D-2
4856-0275-1234v6/200861-0005
D-1
4856-0275-1234v6/200861-0005
4856-0275-1234v6/200861-0005
E-1
4856-0275-1234v6/200861-0005
F-1
4856-0275-1234v6/200861-0005
G-8
4856-0275-1234v6/200861-0005
G-1
4856-0275-1234v6/200861-0005
H-6
4856-0275-1234v6/200861-0005
H-1
4856-0275-1234v6/200861-0005
I-1
4856-0275-1234v6/200861-0005
4856-0275-1234v6/200861-0005
4856-0275-1234v6/200861-0005
4856-0275-1234v6/200861-0005
4856-0275-1234v6/200861-0005
4856-0275-1234v6/200861-0005
4856-0275-1234v6/200861-0005
2 4856-0275-1234v6/200861-0005
Preliminary, subject to change.
† CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Global Market Intelligence. Copyright© 2022 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. None of the Underwriter, the Successor Agency or the City, or their agents or counsel, assume responsibility for the accuracy of such numbers. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Global Market Intelligence. Copyright© 2022 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. None of the Underwriter, the Successor Agency or the City, or their agents or counsel, assume responsibility for the accuracy of such numbers.
Preliminary, subject to change.
Stradling Yocca Carlson & Rauth
Draft Dated March 10, 2022
TABLE OF CONTENTS
(continued)
Page
TABLE OF CONTENTS