2 Office of the Executive Officer CONSENT CALENDAR June 12, 2007 To: Honorable Chairperson and Members of the Redevelopment Agency From: Phil Kamlarz, Executive Officer Submitted by: Dan Marks, Director, Planning and Development Department Subject: Settlement Agreement: Berkeley Unified School District and City of Berkeley RECOMMENDATION Adopt a Resolution authorizing the Executive Officer or his designee to commit the Agency’s participation in a Settlement Agreement and any amendments to provide all statutorily required pass through payments to Berkeley Unified School District (BUSD) to the repayment of debt from BUSD to the City and abide by the methodology for pass though payment calculations under the terms of the Agreement. FISCAL IMPACTS OF RECOMMENDATION No impact on the Agency. The Agency is statutorily required to make pass through payments to the BUSD starting in FY07 and running through the life of the West Berkeley Redevelopment Plan. The Settlement Agreement will allow the Agency to make the payment to the City, rather than to BUSD. CURRENT SITUATION AND ITS EFFECTS Agency is required to begin pass through payment in the current Fiscal Year and make payment through the life of the West Berkeley Redevelopment Plan. BUSD and the City owe each other in excess of $1M each and wish to settle the debts with timely payment and minimal impact to operating budgets. A settlement agreement has been arrived at to serve this purpose. As BUSD’s debt to the City exceeds the City’s debt to BUSD, BUSD desires to use funds it would otherwise receive from the Agency as partial repayment to the City. BACKGROUND The remaining portion of the funds owed by BUSD to the City plus interest accrued on the funds from the date of the Agreement until full repayment at the rate of 5% per annum, are to be repaid by the School District by assigning BUSD’s pass through payments received from the Agency pursuant to the West Berkeley Redevelopment Plan to the City. The pass through payment is an obligation of the Agency that became effective when the Agency amended the Redevelopment Plan in 2006 to repeal its debt incurrence limit. Under the California Redevelopment Law, certain plan amendments, including the elimination of the debt incurrence limit, triggers what are called statutory pass through payments to the taxing agencies. These payments are designed to alleviate the fiscal burden of a redevelopment plan on taxing agencies. 2180 Milvia Street, Berkeley, CA 94704 ● Tel: (510) 981-7000 ● TDD: (510) 981-6903 ● Fax: (510) 981-7099 E-Mail: firstname.lastname@example.org Website: http://www.ci.berkeley.ca.us/manager BUSD/COB/Agency Settlement Agreement CONSENT CALENDAR June 12, 2007 Under a formula proscribed by statute, the Redevelopment Agency will pass through to BUSD and other taxing agencies, such as BART, the East Bay Regional Park District and the County, a portion of the tax increment generated by West Berkeley Project Area. The amount of the actual pass through received by each taxing agency depends upon the taxing agencies’ tax allocation factor and the growth in tax increment each year. The actual annual payments will depend upon the increase in assessed valuation each year. The methods for calculating pass through payments under the statute is the subject of some disagreement between school districts and redevelopment agencies and is currently the subject of a lawsuit in Los Angeles County. Based on projections prepared by the Redevelopment Agency's financial consultant, Seifel and Associates, the projected pass through payments to be made by the Agency to the District for the remaining life of the West Berkeley Redevelopment Plan could amount to approximately $255,000 assuming the payments are calculated in accordance with the Agency interpretation of the statutory language. Pending outcome of the Los Angeles lawsuit, the Agency may face higher payments to the BUSD under the terms of the Agreement. This higher payment may both increase the cost to the Agency as well as reduce the payment level paid directly to the City (that is if BUSD share increases, the City share may decline even if total payments by Agency are increased). Projections made by BUSD consultants are as high as $385,000, but all projections are dependent upon the growth rate in tax increment, which may fluctuate during the term of the agreement. Based on conservative projections prepared by Seifel and Associates, it appears that the remaining amount to be repaid by BUSD after payment of six installments as called for in the Agreement, can be fully repaid by the assignment of the pass through payment. In the event that the pass through payments are greater than projected and the District's debt is repaid prior to expiration of the West Berkeley Redevelopment Plan, the Agreement provides that the remaining pass through payments will accrue to the District or under the terms of the Agreement, the District can direct the Agency to pay the additional pass through amounts to the City for ongoing payment obligations owed to the City. Should the payments increase due to court decision the increased payments will reduce or eliminate the District’s sixth year installment payment to the City in an amount equal to the increased pass through payment amount. RATIONALE FOR RECOMMENDATION Agreement between BUSD and City resolves long standing debt in relatively efficient manner and allows Agency’s pass through payment to be utilized by the City and BUSD for their relative priority needs. Any risk Agency is exposed to regarding future changes to payment levels are relatively controlled by Agreement and risk of legal conflict between either Agency and BUSD or City and BUSD averted. Page 2 BUSD/COB/Agency Settlement Agreement CONSENT CALENDAR June 12, 2007 ALTERNATIVE ACTIONS CONSIDERED BUSD staff deemed it infeasible to require full payment of the BUSD debt to the City early in negotiations between the City and BUSD. Legal suit could be the only alternative in absence of a successfully negotiated agreement. CONTACT PERSON Wendy Cosin, AICP, Deputy Director, Planning and Development Department, 981-7402 Amber Evans, Senior Redevelopment Planner, Planning and Development Depart., 981-7418 Attachments: 1: Resolution Page 3 RESOLUTION NO. ##,###-N.S. SETTLEMENT AGREEMENT: AUTHORIZE AGENCY PARTICIPATION IN BERKELEY UNIFIED SCHOOL DISTRICT AND CITY AGREEMENT RESOLVING MUTUAL DEBT AND APPLYING STATUTORILY REQUIRED AGENCY PASS THROUGH PAYMENTS TO BUSD DEBT REPAYEMNT WHEREAS, the Berkeley Redevelopment Agency is statutorily required to make pass through payment of tax revenues generated from the West Berkeley Redevelopment Plan to the BUSD as of Fiscal Year 2007 for the remainder of the West Berkeley Redevelopment Plan's life; and WHEREAS, the BUSD and City have negotiated terms that result in the satisfactory resolution of their mutual debts, assuming the Agency’s consent to abide by the terms of the agreements; and WHEREAS, BUSD has the right and authority to assign its pass though payments owed by the Agency annually in the manner described by the agreement to the City and the City may make use of such funds as it sees fit to the benefit of the City and potentially the Project Area in ways BUSD could not. NOW THEREFORE, BE IT RESOLVED that the Executive Officer or his designee is authorized to enter into an agreement applying Agency pass through payments owed to BUSD to the City.
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