Lease revenue loss will have budget impact

Termination of the revenue-producing lease with Yorba Linda Friends Church for a 32-acre city-owned site planned for a Christian high School will have a decided impact on the city's budget for the upcoming fiscal year.

Loss of lease payments totaling $1.1 million already put a crimp in the budget for the current fiscal year, and the shortfall is likely to continue, even if the City Council quickly approves an alternate plan for the land.

Although a one-year loss of $842,624 in lease revenues seems small for an approximate $28 million budget, the amount is significant because city expenses have exceeded income on an average in the $1 million range the past few years.

Basically, the council has three choices for the vacant site, two of which could produce future cash: sell the land or seek another lease. A third option is for the city to use all or portions of the site for recreational or other public purposes.

Should the council choose a revenue-producing option, time would be needed to prepare and issue a request for proposals, evaluate responses and negotiate potential sale or lease terms.

Meanwhile, city officials face the possibility of further drawing down cash reserves built up in better economic times. Final figures aren't available until the close of the fiscal year June 30, but expected expenses outran anticipated income in the adopted 2012-13 budget.

Shortfalls associated with the city's Black Gold Golf Club and the Landscape Maintenance Assessment District account for red ink in past budgets, and the loss of lease income adds new problems for 2013-14.

Interestingly, if the city decides to either sell or lease the 32 acres at Bastanchury Road and Casa Loma Avenue, Friends Christian High School leaders could remain in the mix, with an offer to buy the land or present a new lease in competition with other suitors for the location.

Of course, accepting a new lease from the Friends group would be unlikely, considering the five quarters of missed payments, but school officials asked to purchase the site last year, a request denied by the council.

A legal effort to recover past-due payments from the church is possible. A report by City Attorney Todd Litfin notes a $403,088 grading bond that could be pursued. The city also holds other deposits.

Different property appraisals led to the failure of negotiations to reduce lease payments. The city's appraisal of a value in the $32-$36 million range led council to believe the current lease was reasonable. The church's appraisal was in the $10-$16.8 million range.

Church officials said onerous lease terms prevented them from obtaining $39 million in loans for construction. They had already invested $14 million in the $53 million project.