City to default on housing project debt?
A scrapped debt deal that paid for affordable housing upgrades may force the city of Rocklin into default with one of its creditors, according the city.
The possible default is unsettling news for some residents.
“Without this place I’m homeless,” said Placer West Apartment resident Lucinda Smith, who is disabled and underemployed.
The city used $500,000 to upgrade 44 Placer West units, including installing wheelchair ramps.
“They did some really nice improvements to the place, but they could have handled it better,” said Smith, who has lived at the complex for 11 years. “Now they have a loan and they’re not going to be able to pay for it.”
City Manager Rick Horst said the root cause is the statewide abolition of redevelopment agencies, making it illegal for Rocklin to issue municipal bonds to cover the debt.
The city’s redevelopment agency has consistently used available cash to pay down the outstanding debt, Horst indicated.
“They’re getting their interest, but the principal is now due,” Horst said.
According to city documents, a principal balance of more than $3.3-million remains outstanding and no other cash is available to further reduce the outstanding balance, which matured in July.
“Bank of America has agreed to push back the default date on our existing line of credit to the end of December,” Horst recently reported to the city council.
In June of 2008, Rocklin opened the $5 million credit line with Bank of America to help fund affordable housing projects. The Rocklin Redevelopment Agency used about $4.83 million to fund low- and very low-income housing projects, including construction of a 156-unit low income multi-family housing project at Whitney Ranch Apartments, rehabilitation of 94 low-income multi-family housing units at Placer West and Shannon Bay Apartments and the rehabilitation of 264 units at Vicara at Whitney Ranch.
The city estimates about 70 additional Rocklin homeowners were given money to rehabilitate privately-owned residences.
James Burton, who lost his home during the housing bust, is now staying with friends at Vicara at Whitney Ranch.
“As far as what it can do to the people that live here that really depends on what kind of stand Bank of America takes,” Burton said. “I just don’t know how they are going to react to it.”
In a report to the council on Oct. 11, Horst indicated Bank of America doesn’t want to seize the properties in order to get its money back.
“Bank of America has moved this issue to their top leadership and they are planning to engage the Governor’s office directly,” he reported.
The city of San Jose has a similar default situation and leaders there helped craft a bill in the legislature that would fix the problem, but Governor Jerry Brown vetoed it last month.
The law that abolished redevelopment agencies and established a voluntary alternative program is currently the subject of litigation before the California Supreme Court, which could rule as late as Jan 15.
In a letter to the city of Rocklin, Gov. Brown said the legislature shouldn’t do anything until the court rules on the redevelopment agency issue.
“Until the court issues its ruling in the case, it would be premature to consider the modifications proposed in this bill,” Brown said.
The default could have a negative impact on Rocklin’s high grade bond rating, currently at AA minus.
“It is the RDA that will potentially default, however, since the RDA is a component unit of the city, it may impact future city financing and possible credit rating,” Horst said. “Thus, the unintended consequences of (the new law).”
Horst is confident something will be resolved before the December deadline.
“I suspect, however, that Bank of America does not want a default anymore than we do and will not allow a few weeks or months to stand in the way of a potential resolution,” Horst said.
The Placer West apartment resident hopes the city will find a way to resolve the issue with Bank of America.
“I don’t want to be homeless in January because I have no where to go,” Smith said.
Properties affected by Rocklin’s credit line
Whitney Ranch Apartments: 156 units
Placer West Apartments: 44 units
Shannon Bay Apartments: 50 units
Vicara at Whitney Ranch: 264 units
Individually owned: 70 units
Source: City of Rocklin