Victorville Defaults On Bonds
VICTORVILLE, CA - Victorville City Manager Doug Robertson said the city's November default on bond payments totaling $10.6 million has not prompted an inquiry from a federal agency that has been investigating the city's bond debt for the last two years.
In an e-mail, Robertson said investigators from the Securities and Exchange Commission (SEC) has not made any inquiries about the defaults thus far, but he is expecting they will.
"We don't believe we've done anything wrong so our biggest concern is the timely completion of their inquiry so we can move on," Robertson said.
The city received a notice from the Bank of New York Mellon, dated Dec. 16, indicating it had failed to pay a total of $535,000 in principal payments that were due on Dec. 1. The bank, which holds the city's reserve funds in trust, said reserve funds could not be used to make payments on the principal.
The city was, however, able to use the reserve funds to cover interest on the bonds totaling $1.3 million.
According to the notice, the bank could demand that the principal of all issued bonds and accrued interest be paid immediately.
In 2010, the SEC launched an investigation into the city's bond debt and how it spent the money, and the investigation has now entered its third year.
On Dec. 1, debt service payments for seven bonds the Southern California Logistics Airport Authority, or SCLAA, took out came due. The SCLAA, of which Robertson serves as executive director, is the redevelopment agency that secures funding and oversees development of the 2,500-acre airport, formerly the George Air Force Base, which the city envisions as its future economic engine that will drive growth.
The bonds taken out by the SCLAA are secured by redevelopment tax increments, not city funds, and the state's efforts to dissolve redevelopment agencies has thwarted Victorville's ability to use its redevelopment funds to help pay its bond debt, according to a letter Robertson sent to bondholders dated Nov. 21.
Robertson believes the SCLAA will be able to make the payment once Victor Valley Economic Development Authority (VVEDA) property tax distributions are made, which typically occur in April.
Even under legislation eliminating redevelopment agencies, VVEDA will be entitled to receive property tax distributions for purposes of making debt service payments, Robertson said.
"We would have liked the opportunity to borrow the money temporarily from the Victorville (Redevelopment Agency) but the actions of the state and the Supreme Court prevent this," Robertson said.
The San Bernardino County Grand Jury has been investigating Victorville's fiscal management for the last three years. The 2009-2010 Grand Jury requested $195,000 from the county for a forensic audit. In November, the newly appointed 2011-2012 Grand Jury commissioned a second audit of the city.
An audit released in March by auditing firm Mayer Hoffman McCann warned that the city was on the brink of insolvency, citing ongoing losses, net asset deficiencies in major funds and a lack of liquidity.
Among their findings, auditors noted a deficit in the city's general fund of $4.5 million, an SCLAA deficit of $101.3 million, and a $2.9 million loss to the Victorville Municipal Utilities Enterprise Fund.
The city has ensured its bondholder that neither it nor the SCLAA is going bankrupt, maintaining that the funds securing the SCLAA bonds do not belong to the city and that the Southern California Logistics Airport generates sufficient revenue to keep it solvent.
Victorville's fiscal picture is improving slowly, with small sales tax increases and a belief that the city will end this fiscal year balanced. The city, however, is still depending on using more than $1 million in reserves to help shore up its budget, Robertson said.
"We're hopeful that by June 30 we will have a slight increase in revenues and combined with savings throughout the fiscal year that we may actually not have to tap into reserves at all," he said.
Reach Joe via email, call him at 909-386-3874, or find him on Twitter @SBCountyNow.