SR-203-001-03 (6)
IF
SEP . 9 2003
F I NANCE: DC:f:\finance\treas\share\litr04
Council Meeting: September 9, 2003
Santa Monica, CA
TO Mayor and City Council
FROM: City Staff
SUBJECT: Ordinance Setting the FY 2003-04 Tax Rate for the 1990 and 2002 Library
General Obligation Bonds
INTRODUCTION
This report recommends that the City Council adopt the attached ordinance setting the
FY 2003-04 tax rates for the 1990 and 2002 Library General Obligation Bonds The
combined rate will be $.016821 per $100 of assessed valuation.
BACKGROUND
On April 10, 1990, the City issued $4.5 million in General Obligation Bonds to acquire
property adjacent to the Main Library to meet immediate parking needs and for future
library expansion. On June 25, 1998, the City refunded a portion of the 1990 bonds at a
lower interest rate resulting in a lower tax override rate assessed to local property
owners. All 1990 bonds have either been matured or refunded. On August 27, 2002,
the City issued $25 million of voter approved General Obligation bonds for construction,
improvement, and remodeling of the Main Library and branch libraries, The annual debt
service on all Library-related General Obligation bonds is payable from annual overrides
on the Property Tax levy.
1
1F
SEP 9 2003
FY 2002-03 was the first year that included the 2002 Library Bonds. Based on
information available at the time, one tax rate was set covering the debt service of both
bond issues. However, it was later determined Proposition 87 requires a different tax
rate for each bond issue using different methodologies. The difference in the
methodologies relates to the portion of Redevelopment Agency (RDA) parcel assessed
valuation included in the rate calculation. The two rates for FY 2003-04 were
calculated using these methodologies.
DISCUSSION
The City Treasurer has calculated the total necessary property tax overrides to be
$.002413 per $100 of assessed valuation for the 1998 Bonds and $.014408 per $100 of
assessed valuation. Attachment 1 provides details of the tax rate calculation.
In accordance with Section 1501 of the City Charter, the City uses the County system of
assessment and collection of property taxes.
BUDGET/FINANCIAL IMPACT
There are no budget changes resulting from adoption of the attached ordinance. The
Property Tax impact of this override levy is approximately $16.82 per $100,000 of
assessed valuation. This is $6.59 less than in FY 2002-03 reflecting the proper setting
of separate rates for each issue and City-wide increases in assessed valuations.
2
RECOMMENDATION
It is recommended that the City Council introduce and adopt the attached ordinance
setting the FY 2003-04 tax rates for all Library-related General Obligation bonds as
follows
1) $.002413 per $100 of assessed valuation for the 1998 Bonds
2) $.0144080 per $100 of assessed valuation for the 2002 Bonds
Prepared by:
Steve Stark, Director of Finance
David Carr, Acting City Treasurer/Revenue Manager
Attachments: Calculation of Tax Rate
Ordinance
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September 9,2003
Santa Monica, CA
INFORMATION ITEM
To:
From:
Subject:
Mayor and City Council members
City Staff
Adjustment Regarding Prior Year Library Bond Tax Rate
Introduction
This report provides information on an adjustment regarding the FY 2002/03 Library
bond property tax assessment. This information does not alter the recommendation or
facts presented in the September 9, 2003 staff report on the FY2003/04 tax rate.
Backoround
The September 9, 2003 staff report describes an error made in calculating the rate last
year. To calculate the FY 2002/03 tax rate, the rates of the 1990 bond issue and the
2002 bond issue were combined. In fact, different methodologies are required for each
because of the years in which the bonds were approved. Use of the incorrect
methodology resulted in a slightly higher tax rate than was required.
In December 2002, staff identified the error in an Information Item to Council. That
report described the net impact of the error as some parcels being "under charged" and
others "over charged" by an aggregate amount of approximately $286,000. This is not
the case since all parcels are charged the same tax rate, and therefore, all parcels were
over charged.
Discussion
At this time, staff cannot readily determine the exact amount of the overpayment and
whether the excess revenue accrued to the redevelopment agency and other taxing
entities because of the County's system of calculating and allocating tax increment
payments. The error is likely in the range of $4 per $100,000 of assessed value. Staff
is researching the issues with the County, will report to Council in an Information Item,
and will make the adjustment in the FY 2004/05 rate.
Conclusion
As a result of the overcharge made to the Library bond rate for FY 2002/03, it appears
excess funds were distributed to the redevelopment agency by the County. Staff will
research the issues and ensure repayment from the redevelopment agency. Taxpayer
rates will be adjusted downward for the overpayment when the FY 2004/05 Library bond
tax rates are set.
Prepared by:
Steve Stark, Finance Director
David Carr, Acting Treasurer
Mona Miyasato, Assistant to the City Manager for
Management Services
Attachment A:
Explanation of Proposition 87 and Property Tax Rates
Proposition 87 and Property Tax Rates
Every year the City sets the tax rates of government obligations bonds issued by the
City and submits them to the County of Los Angeles for inclusion on property tax bills.
The rate is calculated to cover the debt service owed in that year.
Prior to the passage of Proposition 87 in November 1998, all assessed valuation above
the base year in a redevelopment project area was excluded when setting the override
rates for general obligations bonds. The base year value is the assessed value of the
project area the year that the project area was adopted. This means that the debt
service needed for the bonds was gained from a smaller pool of assessed valuation,
creating a higher tax rate. Proposition 87 changed the law for debt approved by voters
after January 1, 1989. For post 1989 debt, the total assessed valuation of
redevelopment project areas (not just the base year) is included in the calculation of the
tax override rate. This results in the debt service being charged to a larger pool of
assessed valuation, and therefore, a lower tax rate. The City is required by Proposition
87 to use the first methodology for the 1990 bonds and the second methodology for the
2002 Library bond issues.
For example - assume total assessed value in City is $1.0 billion of which $0.1 billion is
base year RDA amount and another $0.1 billion is incremental RDA amount. Assume
debt service of $100,000 per year.
Tax rate if bonds are pre-1/1/89 bonds
City assessed value$.8 billion
Base Year RDA $.1 billion
Total $.9 billion
Tax rate = 100,000/($.9 billion/100)
= $.011111 per $100 of assessed value
Tax rate if bonds are 1/1/89 and after
City assessed value$.8 billion
Total RDA $.2 billion
Total $1.0 billion
Tax rate = 100,000/($1.0 billion/1 00)
= $.010000 per $100 of assessed value
In FY 2002/03, the City incorrectly used a combined rate for the 1990 bonds and the
2002 bonds, and in doing so, calculated the rate based on the methodology for bond
issues approved before 1998. The rate for the 2002 bond issue was therefore
calculated on a smaller assessed value pool, resulting in a slightly higher rate.