City officials are monitoring a plan that would allow the City to recoup its property tax revenues the state plans to borrow sooner than later.
The state budget, which passed in July, calls for raiding $2 billion from cities and counties by borrowing 8 percent of their property tax revenue, to be repaid with interest in three years. The state is expected to borrow $2.5 million from Mission Viejo.
A part of the FY 2009-10 state budget, it was agreed to allow for “securitization” (bonding) that would give local governments an opportunity to get their borrowed property tax funds in this fiscal year rater than waiting for the state to repay them in fiscal year 2012-13.
The provision, called Proposition 1A Securitization, allows cities to sell their state repayment obligations to the California Statewide Communities Development Authority (California Communities). California Communities will issue bonds and pass on the cash proceeds to participating public agencies.
Once the program’s details are ironed out, cities that choose to participate in the program can receive 100 percent of their loss paid through the securitization process. Because the state is paying the interest on the bonds plus the costs of issuing, the full amount of the funds will be available to cities. The city would not suffer any loss of funds.
Cities that do not participate in the securitization program will forego the FY 2009-10 payments until the state repays the loan in 2013. These funds will be paid back with interest at that time.
City staff is keeping an eye on the plan, which could have some issues related to the marketability of such bonds since the interest rate is capped at 8 percent. The state’s low credit rating is also a factor, along with the absence of available bond insurance. It’s also unknown what interest rate the state will pay on the receivables for cities that do not participate in the program.
The decision to participate in the securitization program is expected to be made sometime in October.