On April 30, 2008, Florida Power & Light Company (FPL) announced their proposal to modernize its power plant in Riviera Beach. The proposal was to convert the 280 megawatt coal-fired facility to a 1,250 megawatt combined natural gas facility with three units. The new proposed facility had an estimated construction cost of $1.3 billion. The FPL property on which the electricity generating facility sits is located within the Community Redevelopment District.
Based on the anticipated cost of construction for the new facility, the Community Redevelopment Agency (CRA) projected that the fiscal windfall to the CRA would be an increase in property tax revenue of approximately $10 million beginning in Fiscal Year 2016. Relying on their projections of future tax revenue from FPL, the CRA undertook an aggressive capital plan fueled by debt. In 2011 and again in 2013, the CRA issued stand-alone debt in a total of $29,235,000. This debt was in addition to previous debt commitments to the City for a 2006 Note and a 2009 Loan.
In May 2015, the City received preliminary taxable values from the Palm Beach County Property Appraiser. Preliminary assessments increased $1.1 billion over the prior year’s taxable values. Knowing that the FPL plant was coming onto the tax rolls for Fiscal Year 2016, the increase in overall values was much anticipated. What was not expected was that the CRA’s tax values would only increase $67 million and that the City’s values would increase over $1 billion. The fiscal impact of the FPL plant was an additional $6.8 million to the City.
The reason behind the shift in the anticipated values for the CRA to actual values for the City is the classification of FPL’s generating and transmission equipment. The equipment is classified by the Property Appraiser as “personal property”. Under Florida statutes, community redevelopment agencies only receive revenue for “real property”. “Real property” is generally defined as buildings and land. Therefore, the City, and not the CRA, was the beneficiary of the taxable values of the installed equipment.
The shifting of the taxable values from the CRA to the City has a significant impact on both parties. On June 3, 2015, the CRA Executive Director issued a memorandum advising the CRA Board of the budget implications on the CRA. The memorandum highlighted the inability of the CRA to fund future Marina upland improvements, Marina Upland operations, non-upland capital improvements and on-going programs.
On July 24, 2015 the CRA Executive Director submitted a memorandum dated July 8, 2015 to the City Manager requesting budgetary relief through the restructure of debt owed by the CRA to the City. During the budget process for both the City and the CRA, there were a number of public discussions and presentations regarding how best to allocate the increased FPL tax revenue between the City and the CRA. Considerable amount of discussion revolved around the structure of the ultimate assistance to be provided to the CRA by the City. After due consideration and deliberation, considering the financial needs of both parties and the impact certain decisions may have on the City’s bond rating and future borrowings, the decision was made to provide $3,917,028 to the CRA for Fiscal Year 2016.
1. $62,356 – Marina Operating Lease for the office space being provided for the Marina staff
2. $970,664 – Payment for common area charges on the Marina uplands
3. $1,466,980 – Funding for ongoing CRA programs such as small business loans, neighborhood services, ambassador program and special events
4. $500,000 – Reimbursement for ongoing and future capital project on the Marina Uplands
5. $917,028 – Capital for outdoor amenities, Avenue C reconstruction and Marina administrative office relocation
In addition to the cash funding, the Council authorized a restructuring of the Ocean Mall Loan providing for zero interest and an extended amortization/pay-off period.
As has been the standard operating procedure between the City and the CRA, all agreements between the parties are memorialized through interlocal agreement approved by both the City Council and the CRA Board.
If adopted, this Resolution authorizes execution of the Second Modification to Loan Agreement for the Ocean Mall.
On October 21, 2009, the City and the CRA entered into a loan agreement where the City agreed to loan the CRA an amount not to exceed $10,400,000 from the City’s Insurance Fund. Restrictions were placed on the funds limiting their use to the construction and infrastructure improvements to the Ocean Mall and Municipal Beach properties as agreed to in an agreement between, the City, the CRA, and the Ocean Mall Redevelopment, LLC (OMRD). The CRA in turn agreed to provide a grant up to $10,400.000 to the developer (OMRD) to make required infrastructure, parking and beach improvements in support of the project. On behalf of the CRA, the City advanced the loan proceeds to OMRD based on draw requests from OMRD for construction of the improvements based on inspection and approval of the requests by the City. The Ocean Mall and the Municipal Beach are owned by the City of Riviera Beach. The Ocean Mall project was catalytic in the development of other commercial properties in the area, including the Ritz Carlton, the largest tax increment revenue generating property in the CRA boundaries.
The Loan Agreement entered into in 2009 provided for the following terms:
1. 4.75% interest
2. Level payments of $985,100 payable on March 31st of each year commencing on March 31, 2010.
In April 2011, the First Modification to the Loan Agreement amended the terms to
1. Reduction of the interest rate to 2% commencing July 1, 2012 until June 30, 2016.
2. Amortize the debt over a 15 year period, payable on July 1st
3. A balloon payment on July 1, 2026
4. Level payments of $985,100 payable on March 31st of each year commencing on July 31, 2017.
The Second Modification of the Loan Agreement would provide the following changes to the loan terms:
1. Reduction to the interest rate to zero percent retro-active to July 1, 2015
2. Amortize the debt over a 20 year period
3. Eliminate the balloon payment
4. Level payments of $509,731.06 payable on July 1st of each year commencing on July 1, 2017.
The CRA Board previously approved a similar agreement on February 24, 2016. However, there are several differences between the two agreements. The CRA version:
1. Defers all payments until October 1, 2023
2. Amortizes debt over a 15-year period
3. Provides for level payments of $679,641.40 payable October 1st of each year commencing October 1, 2023.
The City’s Auditor and Financial Advisor has reviewed the term changes and have provided written comments which have been attached as background for this item. A summary of each response is below.
Auditor – Both the City and the CRA will be required to disclose the loan modification as Troubled Debt in their respective audited financial statements. The CRA Executive Director has outlined the pressures being placed on the CRA’s ability to meet all obligations of the CRA as currently constituted. The loan modification has been requested by the CRA and is being presented for consideration to provide cash flow relief to the CRA. Under Governmental Accounting standards, this meets the definition of Troubled Debt.
Financial Advisor – Credit or Rating Agency considerations are two part; quantitative and qualitative. Whereas both the City and CRA are governed by the same individuals, the Financial Advisor is more concerned about the quantitative measures since it is the governing bodies that have made the decisions that have placed the loan into a Troubled Debt status.
Entering into this Agreement will defer the full repayment of the Loan until 2036 and will cost the City $4,373,799 in lost interest.