Home » Island News

Debt, the musical

Submitted by on 1, May 22, 2009 – 5:45 am14 Comments

Okay, maybe not a musical per se (the song rights would strain our poor little budget), but I do have a little song-and-dance for you about the city’s debt.

As part of her continuing series of budget “chalk talks,” Interim City Manager Ann Marie Gallant laid out the nitty gritty details of the city’s debt to date (the information is also contained in our city budget, by the way). Here’s the deal:

All told, the city’s got about $140 million in debt on the books through 2033. With interest, we’re looking at almost $365 million. Of course, there are several different types of debt, and the money to pay it off comes from different places. Let me try to walk you through it.

The biggest (and probably most controversial) amount is tax increment debt. Including interest, we owe $151.7 million for bonds we have issued to improve out business and waterfront districts. The bonds are paid with increased property tax revenues that are generated by the improvements that were made. (After those are paid off, the money goes to all the places it normally goes – state, county, city, schools.)

We’ve also got $24 million due against lease revenues at Alameda Point.

Next up are bonds that are secured by land. That $134.1 million is paid with special assessment dollars in Harbor Bay, Marina Village and Paragon Gate.

The city’s got about $9.6 million in “general obligation” debt (we’ll pay $20.8 million when you include interest) for our libraries. That money gets paid back through property taxes. We’ve also got bonds for City Hall, police headquarters and the sewer system. That $34.2 million gets paid back by the departments the debt was issued for (and in the case of City Hall, that means every department that uses city hall pays a little piece).

Legally, there are limits to how much debt the city can carry, though certain kinds of debt – including tax increment debt – aren’t applied to that limit. The California Constitution (Article 16, Section 18 if you’re looking) says cities can’t incur more debt in a year than revenue.

All told, we’ve got $15.9 million due this year, with about $5 million for redevelopment bonds, $7.9 million of it land-secured debt paid by special taxes and assessments, with the remaining $3 milion distributed among those other categories.

As far as I can tell, there are no legal limits on the amount of tax increment debt municipalities can incur. I know the amount that the folks at development services say they will bond up to – $184 million – was based on the amount of property tax revenue they think development at the site will generate.

“We do have an interesting debt portfolio and we are managing it well,” Gallant told the council the other night.

For fellow nerds only: I put together a little spreadsheet with some of the numbers from Tuesday night, and you can view that right here.


  • There are very strict limits for the amount of tax increment debt that a redevelopment agency can carry. They are limited to the bonding capacity supported by the tax increment being collected at the time of bond issuance. Tax Increment bonds are not issued based on assumptions of future tax increment collection.

    Second, Redevelopment Agencies, not Municipalities carry tax increment debt. the State requires this debt to be shown in a municipality's financial statements, but they are carried and funded separately. Redevelopment agencies are separate from cities, just like school districts, BART and AC Transit.

  • Neal_J says:

    Any idea what other items comprise the City’s total liability portfolio?

    Specifically, I wonder how unfunded pension costs, workers comp “do-over” and other liabilities add to the total picture of what the City owes in the future.

  • D Kirwin says:

    …And we see how well AC transit, BART and our schools are doing with all our tax money. Really scary when the agencies that depend on tax dollars for their very survival can create more gross debt without voter approval, but I guess that's what creates the kind of mess CA is in now.

    More of the same is not an attractive thought.

  • David Kirwin says:

    Again Michele, thank you for your research – the spread sheets leads me to many questions I hope you can further educate me.

    What happen to all of the pre-‘2003 re-dev debt? Was it all resold at a time of favorable interest rates? Where is the re-dev debt for Alameda Point, and the theater project, Bay Port etc? –

    I thought COP debt, (Certificates of Participation) were supposed to be short-term debts that got turned around or spun into longer term instruments within 2-3 years of issue.

    What categories do our other debts fall into – like the millions Dominick says we owe the county for ‘Advanced Life Support Services’, and the other debts Ms Gallent has spoken of? (I hope to watch her recent reviews which I did not see real-time.)

    Do you think you have a handle on the city budget? Can you give personal or on-line tutorials?

    Despite what JKW says, City of Industry in S.Cal has outstanding re-development debt in excess of $1Million per capita.

    Reality is that most of CA’s redevelopment debt was created as bonds were issued approaching and during the peak of property valuation, which most people now agree is overvalued. While it is true that local agencies, not the State create the redevelopment debt burden by bonding, (or selling future tax revenue), to pay private developers, and that debt encumbers the local redevelopment agency, think for a moment what that actually means. 1st, those agencies are all supported solely by our taxes, -it is not like somebody else’s bag of money is responsible for that debt, those are public entities creating additional public debt.

    Without redevelopment, property tax, with all tax increments due to increased property values, goes to pay for the services government provides for the citizens. The largest portion goes to the State to be re-distributed, and the biggest recipient is California’s Educational System, followed by other safety, health and welfare benefits, and so many other things for which we can arguer the merits thereof. Most of the parcel taxes collected for Alameda property not going to our State treasury goes to the general fund of the City of Alameda, -about 17% of the total property tax, and we all know where most of that money goes. (And super kudos to APD officer Koby Burns, who noticed questionable actions by a driver of a Lincoln Continental, then learned the car was stolen, gave chase, captured two fleeing suspects after they crashed and abandoned their car, and also recovered their weapon. – I’m proud of our blue force for their abilities and teamwork! Wow – you don’t hear Oakland PD stories like that! Our guys rock, and deserve our thanks and respect! )

    Back to TIF;
    Now look at the scenario with Redevelopment – All tax increases for all properties within an entire arbitrarily created ‘re-development district’ are considered “tax increments” whether or not the construction projects which forced the selling of bonds to create the debt had anything to do with the increased value of the properties or not. In case no one noticed, property values tend to go up regardless if local governments spend bond money on construction projects or not. In fact sometimes construction projects can lower nearby property values.

    In Alameda just by looking at the redevelopment zones on the maps, (even excluding the old Naval Base which is 1/3 of our island), thousands and thousands of residences and commercial properties have been included in re-development zones even though they never received any benefit from the local agencies spending to create the debt. With the exception of South Shore most of our business and retail stores are part of redevelopment zones. That is a huge portion of our city’s property tax source though most business properties are held for generations thus values don’t fully increase to current market values, and local property tax revenue is our city’s largest source of income. Once a bond is sold for each of Alameda’s ‘redevelopment zones’ the property tax increases of all those parcels does not go to the State or our City treasuries, but instead goes toward all the bond obligations.

    As property values escalate, the tax increment doesn’t help the State or our City pay for all their escalating costs. CA had the largest increase on property values in history – a huge revenue boom should have been the result – what happened? We have the biggest deficits in our history! Alameda has had incredible growth – thousands of new homes, many brand new developments, lots of new commercial space, yet the city is closer to bankruptcy than ever before.

    It is a crazy myth that increased development, despite it’s overcrowding, and promised fouled traffic, is good for strengthening or improving our community either socially or economically.

  • It's all in the California Redevelopment Law.

    There's a short, decent overview which includes the passage:

    State law allows each city and county within California to establish a redevelopment agency to oversee the redevelopment of urban, blighted areas within that community. While the governing body for redevelopment agencies 9 Overview of Redevelopment Law typically consists of the local city council/board of supervisors, and such agencies are typically staffed by city/county personnel, the agency itself is technically considered an independent state agency.


    I believe it’s codified here:

    33100. Existence in each community

    There is in each community a public body, corporate and politic, known as the redevelopment agency of the community.

    It's late and I'm tired, so I hope I’ve quickly grabbed the right parts, this is where the law says that redevelopment bonds do not belong to the city, but solely to the agency:

    33644. Limitation on indebtedness

    The bonds and other obligations of any agency are not a debt of the community, the State, or any of its political subdivisions and neither the community, the State, nor any of its political subdivisions is liable on them, nor in any event shall the bonds or obligations be payable out of any funds or properties other than those of the agency;

    • Hmm. I just pulled up a law firm primer on California Redevelopment Law that listed the title of 33644 as

      Limitation of Liability on Bonds

      I think you may have been looking for 33344.1 (no title in the state codes online, but it's the Health and Safety code if you're looking for it, folks) and it says:

      33334.1. If the plan authorizes the issuance of bonds to be repaid
      in whole or in part from the allocation of taxes pursuant to Section
      33670, the plan shall establish a limit on the amount of bonded
      indebtedness which can be outstanding at one time without an
      amendment of the plan. This section shall apply only to
      redevelopment plans adopted on or after October 1, 1976.

      Are there more specific limitations on the debt that redevelopment agencies can incur that I missed?

  • DL Morrison says:

    Thanks for covering this. I think you had something on redevelopment awhile back which said essentially that plans established before a certain date (1994?) had limitations on the debt, and plans established after that date had limitations on the lifespan of the redevelopment district.

    In addition, as I recall, the RDA can establish a spending cap, but it can also vote to amend the spending cap. (I can try and track that down again.) In any event, given that districts can be merged and that plans can be amended, it doesn't appear that any meaningful restrictions exist.

  • David Kirwin says:

    I thought Redevelopment Districts could not "sunset" until their debt is paid off.

    Their was a end-date for incurring new debt, but this is established or amended by individual re-dev "authorities". Alameda CC, sitting with their hats turned to "CIC" -their term for when CC is acting as re-dev "authority"; eliminated the sunset date for creating new redevelopment debt in Alameda.

    Currently thousands of Alameda properties never benefiting from our re-dev debts have their increased portions of parcel taxes going to debt servicing re-dev bonds instead of going to State and local general funds. The diminished resources which should be funding our general funds contribute significantly to underfunding the needs of our society.

    But at least the private contractors are happy, even if their projects were only half completed and are now more of a “blight" than whatever pre-existed their taxpayer rip-off.

  • Like i said, it was late, I was tired (still there, another long day) I wasn't posting about the limits for how much bonding can be incurred, I was linking to the liability issue, vis-a-vis my comment about whether the redevelopment bond debt is linked to the city's general fund. I'll try and dig up the bond limits in the next day or so. I don't know why, but the primer you used has a different title than the actual law, going to <a href="http://www.leginfo.ca.gov/cgi-bin/waisgate?WAISdocID=22820416319+0+0+0&WAISaction=retrieve&quot; rel="nofollow">leginfo health and safety code 33644 which matches what I posted earlier.

    Have a good memorial day!

  • Jayne Smythe says:

    Yes, thank you for looking into that, because I think D.L. is right–the "limit" can be amended at any time.

  • Michele, you’ve already pointed out that the limits aren’t in the redevelopment law. However, there are limits to how much bonding can be issued. It just wasn’t what I said it was, I conflated two separate issues into a completely incorrect statement.

    Redevelopment bonds can only be issued once a project is not only approved, but has broken ground and is collecting tax-increment (I am 85% confident on this last piece, I waited a day to try and re-confirm before posting, but alas I didn’t want to delay responding, I’ll post again if I hear either way). At that point, the bonds are issued based on the projected collection of tax-increment for the project.

    The bonds are not unlimited and solely based on whatever the agency decides to issue, they are specifically limited to the amount of tax-increment to be collected, once some of that collection has started to happen. (In the case of Alameda Point, that limit has been calculated to be $184 million).

  • Great post! Just wanted to let you know you have a new subscriber- me!

Leave a comment!

Add your comment below, or trackback from your own site. You can also subscribe to these comments via RSS.

Be nice. Keep it clean. Stay on topic. No spam.

You can use these tags:
<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

This is a Gravatar-enabled weblog. To get your own globally-recognized-avatar, please register at Gravatar.