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Home My WebLink AboutPW Pt. San Pedro Limited Obligation Bonds 2012CITY OF�I%/ Agenda Item No: 5 a Meeting Date: July 16, 2012 SAN RAFAEL CITY COUNCIL AGENDA REPORT Department: FINANCE DEPARTMENT Prepared by: Mark Moses, City Manager Approva Interim Finance Director SUBJECT: RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL AUTHORIZING THE CITY'S PURCHASE OF THE PT. SAN PEDRO ROAD MEDIAN LANDSCAPING ASSESSMENT DISTRICT LIMITED OBLIGATION IMPROVEMENT BONDS RECOMMENDATION: Staff recommends that the City Council adopt the resolution approving the purchase of up to $1,750,000 in limited obligation improvement bonds issued on behalf of the Pt. San Pedro Road Median Landscaping Assessment District (the "Assessment District'). BACKGROUND: Pt. San Pedro Road Median Landscaping Assessment District was formed in June 2011 for the purpose of financing median improvements that benefit property owners within the Assessment District. The annual assessment levy includes a debt service component, for those property owners that did not prepay this portion, as well as a component for ongoing maintenance of the medians (for all property owners), once the improvements have been made. The financing plan originally estimated that the project would require the issuance of $1,750,000 in bonds in order to support the construction of the median improvements. The increased construction costs that followed the withdrawal of the lowest bidder resulted in an increase of the bond sizing to $1,835,000. The projected term of the bond issue is 20 - 23 years, depending upon the final design of the bond structure. ANALYSIS: There are two potential alternatives to selling the bonds in the municipal market: One is to arrange for a private placement with an outside party (e.g., a bank or investment management firm); the other is for the City to purchase the bonds as an investment for its own portfolio. Both of these purchasing scenarios have the advantage of significantly reduced costs of issuance, thus generating savings for the taxpayers in the Assessment District. The City's financial advisor on this bond issue, NHA Advisors, informed staff that the current market for private placement bonds does not consider terms in excess of 15 years, and it did not appear possible to structure the repayment within this timeframe; therefore, this alternative was FOR CITY CLERK ONLY Council Meeting: / m, f Disposition: Ess <o0") r ' SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 2 not pursued. Because the City has sufficient liquidity in its investment portfolio to purchase the proposed bonds, staff worked with the financial advisor to assess the impact of such a purchase. The City maintains an investment portfolio that typically fluctuates between $25 million and $40 million during the year. The portfolio includes all City funds (e.g., internal service funds, parking, capital, general fund, etc.). Although most of these funds are encumbered or restricted in use, they are available to be invested in accordance with the City's investment policy. The City's investment policy allows the purchase of special assessment district debt for maturities up to 30 years, upon approval by the City Council. The City is currently earning 0.4% on its investment portfolio, which is invested short-term with LAIF (Local Agency Investment Fund). Assuming that short-term rates rise over the next 10 years and level off at 4% (historical average), this creates an opportunity for the City to increase its investment earnings by approximately $820,000 over the 20 -year term. NHA advisors evaluated the current market conditions, and recommended that for a City purchase of the Assessment District bonds, the interest rate should be set at 5.25%. The financing costs would be reduced by removing the need to issue tax-exempt bonds through an underwriter. This structure saves the cost of producing the preliminary official statement (including disclosure counsel), underwriting costs, and other costs of issuance, generating a savings of approximately $65,000. If the City purchases the Assessment District bonds, there is the future ability to liquidate the investment through a reissuance of the assessment bonds. If this event were to occur, the City would reissue the bonds as a tax-exempt obligation, create an official statement, and sell the new bonds to the capital markets or as a private placement. The market would determine the applicable interest rate at that point in time. The City does have potential interest rate exposure, to the extent that interest rates are higher at the point in time the City chooses to sell the bonds. Benefits of private placement with City's portfolio: Assessment District Taxnavers City Reduce costs of issuance by $65,000 (from $125,000 to $60,000) Opportunity to balance portfolio with higher yielding, longer-term investment Reduce debt service reserve from $120,000 to $100,000 Reduce term from 23 years to 20 years Reduce bond size from $1,835,000 to $1,750,000 Save $400,000 in interest costs over term Construction can begin in July 2012, rather than j in August 2012. f SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 3 Summary of Bond Terms: Purchase Date September 1, 2012 Principal Amount $1,750,000 Interest Rate 5.25% Final Maturity September 2, 2032 If this recommendation is accepted, staff will instruct the contractor, Cleary Brothers Landscaping, to begin work on the median improvements. Staff will return to City Council on August 6, 2012 for authorization to issue the bonds on behalf of the Assessment District. FISCAL IMPACT: The recommended action has two fiscal impacts: 1) Provides the City with the ability to invest a portion of its investment portfolio at a return of 5.25% for a term of 20 years. 2) Allows for the conservation of capital resources within the Pt. San Pedro Road Median Landscaping Assessment District by reducing the bond sizing from $1,835,000 to $1,750,000 and the cost of issuance from an estimated $125,000 to $60,000. This results in interest savings of approximately $400,000, and a three year reduction in the term of the bonds. RECOMMENDATION: Staff recommends Council accept the report and adopt the Resolution as presented. ATTACHMENTS Resolution W:AManaaementServices-WorkFile,Finance-WorkFileACoanciIMateriai\,StaftReports'20121CityiSpeeialAssessmentDistBondPurch.doe RESOLUTION NO. 13387 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL AUTHORIZING THE CITY'S PURCHASE OF THE PT. SAN PEDRO ROAD MEDIAN LANDSCAPING ASSESSMENT DISTRICT LIMITED OBLIGATION IMPROVEMENT BONDS WHEREAS, the financing of the construction of the Pt. San Pedro Road Median Landscaping improvements in the Pt. San Pedro Road Median Landscaping Assessment District previously established by the City Council requires the issuance by the City of San Rafael of the Pt. San Pedro Road Median Landscaping Assessment District Limited Obligation Improvement Bonds; and WHEREAS, the purchase by the City of San Rafael, rather than sale on the open market, of the Pt. San Pedro Road Median Landscaping Assessment District Limited Obligation Improvement Bonds will result in a reduction in the cost of financing the construction of the Pt. San Pedro Road Median Landscaping improvements, which will benefit the Assessment District property owners who are required to pay assessments to cover the cost of these improvements; and WHEREAS, the City of San Rafael's Investment Policy, as contained in City Council Resolution No. 13350 approved on June 4, 2012, allows the City of San Rafael to purchase obligations issued by the City as Limited Obligation Bonds related to special assessment district debt, for maturities up to 30 years, upon approval by the City Council; NOW THEREFORE, the CITY COUNCIL OF THE CITY OF SAN RAFAEL RESOLVES that the City Council approves the purchase by the City of San Rafael of the Pt. San Pedro Road Median Landscaping Assessment District Limited Obligation Improvement Bonds, consistent with the specifications in the Term Sheet attached hereto as Exhibit "A". 1, ESTHER C. BEIRNE, Clerk of the City of San Rafael, hereby certify that the foregoing Resolution was duly and regularly introduced and adopted at a regular meeting of the City Council of said City held on Monday, the 16th day of July, 2012 by the following vote, to wit: AYES: COUNCILMEMBERS: Connolly, McCullough & Mayor Phillips NOES: COUNCILMEMBERS: None ABSENT: COUNCILMEMBERS: Heller, Levine ESTHER C. BEIRNE, City Clerk EXHIBIT A Purchaser: Purchase Date: Principal Amount: Interest Rate: Final Maturity: City of San Rafael 2012 Limited Obligation Improvement Bonds (Point San Pedro Assessment District) Bond Purchase Term Sheet City of San Rafael September 1, 2012 $1,750,000 (2032 Term Bond) 5.25% September 2, 2032 Annual Principal Sinking Fund: September 2, 2013 —September 2, 2032 CITY OF SAN RAFAEL INSTRUCTIONS: USE THIS FORM WITH EACH SUBMITTAL OF A CONTRACT, AGREEMENT, ORDINANCE OR RESOLUTION BEFORE APPROVAL BY COUNCIL / AGENCY. SRRA / SRCC AGENDA ITEM NO. 5 a DATE OF MEETING: July 16, 2012 FROM: Mark Moses DEPARTMENT: Finance DATE: July 9, 2012 TITLE OF DOCUMENT: RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL AUTHORIZING THE CITY'S PURCHASE OF THE PT. SAN PEDRO ROAD MEDIAN LANDSCAPING ASSESSMENT DISTRICT LIMITED OBLIGATION IMPROVEMENT BONDS Department 'artment Head (signature) (LOWER HALF OF FORM FOR APPROVALS ONLY) APPROVED AS COUNCIL / AGENCY AGENDA ITEM: J ! )/h City Manager (signature) 1� % v j City Attorney (signature)T