New cities would be on hook for development debt.

With secession movements afoot in Hollywood and two other sections of the city, what happens to community redevelopment projects like the one at Hollywood & Highland if a breakaway actually occurs? Who ends up with the bonded indebtedness?

State law allows for all redevelopment projects in these areas to transfer to the new cities. State legislation governing redevelopment law requires that revenues collected within community redevelopment project areas remain in those project areas. And if that area changes jurisdiction, it would make sense to have the project also change jurisdiction.

But the interpretation of the law is that there is no definitive requirement that a specific project area be transferred to a new city. Ultimately, it's up to case-by-case negotiations between the parties involved.

"This would become part and parcel of the complex negotiations over asset transferal," said Craig Hoshijima, senior managing consultant with the Newport Beach office of Public Financial Management Inc., which just completed an analysis concluding that Hollywood could be a viable city. "In most cases, the new city would take tide to the redevelopment projects."

That's predicated on the assumption that the new cities would establish their own community redevelopment agencies. And since setting up that structure takes time, the new cities may opt to contract with the Los Angeles Community Redevelopment Agency, at least on an interim basis, according to CRA Deputy Administrator Richard Benbow.

The situation is murkier for those projects like Hollywood & Highland, which have decades worth of bond payments still outstanding.

"It all depends on the bond covenants," said Larry Kosmont, an L.A.-based economic development consultant. "Some bond covenants allow for the transfer of debt to another jurisdiction; others don't."

For those that do allow the transfer of debt, splitting up the revenues is fairly simple, thanks to the requirement that all revenues generated by a project stay within the redevelopment project area it's located in.

But for those that don't, Kosmont said it might be necessary to have the new jurisdiction refinance the bonds or pass through revenues to the L.A. Community Redevelopment Agency. The refinancing option, though, could come at a price: Kosmont said some bond covenants place a penalty on refinancing, typically about 2 percent of the remaining principal.