AGENDA REPORT
REQUEST FOR CITY COUNCIL
AND
CORONA UTILITY AUTHORITY ACTION
DATE: 7/5/2018
TO: Honorable Mayor and City Council Members
Honorable President and Board Members
FROM: Administrative Services Department
SUBJECT:
Title
City Council and Corona Utility Authority consideration to adopt Resolution No. 2018-052 authorizing the issuance of bonds of Community Facilities District No. 2018-1 (Bedford) designated 2018 Special Tax Bonds (Improvement Area No. 1), appointing fiscal agent, approving Fiscal Agent Agreement and Purchase Contract and authorizing negotiation of terms of the sale of said bonds, approving Preliminary Official Statement and authorizing preparation of Final Official Statement and approving Continuing Disclosure Certificate.
End
RECOMMENDED ACTION:
Recommended action
That the City Council:
1. Adopt Resolution No. 2018-052 authorizing the issuance of bonds of Community Facilities District No. 2018-1 (Bedford) designated 2018 Special Tax Bonds (Improvement Area No. 1) (the “Bonds”), appointing fiscal agent, approving Fiscal Agent Agreement and Purchase Contract and authorizing negotiation of terms of the sale of said bonds, approving Preliminary Official Statement and authorizing preparation of Final Official Statement and approving Continuing Disclosure Certificate.
2. Authorize the City Manager and the Assistant City Manager/Administrative Services Director to execute all related service agreements and purchase orders for the financing team.
3. Authorize the Purchasing Agent to increase Purchase Order P20751 in the amount of $7,500.
4. Corona Utility review, ratify and to the extent necessary direct the City Council to take the above actions.
Body
ANALYSIS:
On June 20, 2018, Community Facilities District No. 2018-1 (Bedford) of the City of Corona (the “District”) was established by adoption by the City Council of a Resolution of Formation, which resolution designated five improvement areas within the District; on the same date the City Council adopted a Resolution Determining the Necessity for the District to Incur a Bonded Indebtedness for each Improvement Area. Also on June 20, 2018, consolidated elections were held within each Improvement Area of the District on propositions regarding the annual levy of special taxes within each Improvement Area to pay principal of and interest on bonds of each Improvement Area and to pay the costs of public facilities, the annual levy of special taxes within each Improvement Area to pay the costs of certain services, and establishing an appropriations limit for the District, as a result of which the District was authorized to issue bonds for each Improvement Area for the purpose of financing certain public facilities for the District. The authorized bonded indebtedness for Improvement Area No. 1 is $24,000,000.
At the July 5, 2018 meeting the City Council will consider the adoption of a resolution authorizing the issuance and sale of the Bonds of Improvement Area No. 1 of the District in an aggregate principal amount not to exceed $9,000,000. These bonds will be sold to finance certain facilities of the City and facilities of the Riverside County Flood Control and Water Conservation District (the “Facilities”).
Pursuant to Government Code Section 53345.8, the City Council, as the legislative body of the District, may sell bonds of the District only if it determines prior to the sale of such bonds that the value of the real property that would be subject to the special tax to pay debt service on the bonds will be at least three (3) times the principal amount of the bonds to be sold and the principal amount of all other bonds outstanding that are secured by a special tax levied pursuant to the Mello-Roos Community Facilities Act of 1982 on property within the District or a special assessment levied on property within the District.
The appraised value of the taxable property within Improvement Area No. 1 of the District, based upon the appraisal prepared by Kitty Siino & Associates, Inc., the City’s Appraiser, is $36,000,000 as of April 23, 2018. If the Bonds of Improvement Area No. 1 are issued in an aggregate principal amount that does not exceed $9,000,000, then the appraised value of the taxable property in Improvement Area No. 1 of the District, as set forth in the Appraisal, will be more than four (4) times such principal amount of the bonds.
The bond resolution authorizes the Mayor, the City Manager and the Assistant City Manager/Administrative Services Director to proceed with the issuance of the Bonds and to execute and deliver the final form of the Purchase Contract between the City on behalf of the District and Stifel, Nicolaus & Company, Incorporated (the “Underwriter”) within certain parameters, which are (a) the true interest cost on the Bonds shall not exceed six and one half percent (6.50%), (b) the purchase price to be paid by the Underwriter for the purchase of the Bonds shall not be more than an amount equal to two percent (2.00%) (exclusive of original issue discount) of the aggregate principal amount of the Bonds, and (c) the last maturity of the Bonds shall be paid and redeemed no later than September 1, 2049.
The documents, the form of which are presented to the City Council, include a Fiscal Agent Agreement, a Preliminary Official Statement, a Purchase Contract, and a Continuing Disclosure Certificate.
The Fiscal Agent Agreement provides for the terms of the Bonds to be issued and provides for certain funds and accounts into which proceeds of the Bonds will be deposited and invested until spent on the Facilities. Additionally, the Fiscal Agent Agreement creates certain other funds and accounts which provide for the payment of principal of and interest on the Bonds, including the redemption of the Bonds.
The Purchase Contract provides the conditions which must be met in order to successfully deliver the Bonds to the Underwriter, and the price to be paid for the Bonds.
The Preliminary Official Statement describes the terms of the Bonds and describes the security for payment of the Bonds. Once the terms of the Bonds are set (i.e. price, interest rate and maturity), that information is included in a final Official Statement which is used by the Underwriter to provide to the investing public.
The Continuing Disclosure Certificate, which is included as an exhibit to the Preliminary Official Statement, requires that the City provide certain information regarding the development and the special taxes on a regular basis to the secondary market place.
Should the bond resolution be approved, the bond sale will proceed according to a schedule which calls for the Bonds being delivered to the Underwriter in July, 2018 in exchange for the purchase price that will be received on the date of closing.
GOOD FAITH ESTIMATES:
The good faith estimates set forth herein are provided with respect to the Bonds in accordance with California Government Code Section 5852.1. Such good faith estimates have been provided to the City by CSG Advisors Incorporated, the City’s municipal advisor (the “Municipal Advisor”) in consultation with the Underwriter:
Principal Amount. The Municipal Advisor has informed the City that, based on the financing plan and current market conditions, it’s good faith estimate of the aggregate principal amount of the Bonds to be sold for Improvement Area No. 1 is $9,000,000 (the “Estimated Principal Amount”), which excludes approximately $463,000 of net premium estimated to be generated from current market pricing. Net premium is generated when, on a net aggregate basis for a single issuance, the prices paid for bonds are higher than the face values of such bonds.
True Interest Cost of the Bonds. The Municipal Advisor has informed the City that, assuming that the Estimated Principal Amount of the Bonds is sold, and based on market interest rates prevailing at the time of preparation of such estimate, its good faith estimate of the true interest cost of the Bonds, which means the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the Bonds, is 5.25%.
Finance Charge of the Bonds. The Municipal Advisor has informed the City that, assuming that the Estimated Principal Amount of the Bonds is sold, and based on market interest rates prevailing at the time of preparation of such estimate, its good faith estimate of the finance charge for the Bonds, which means the sum of all fees and charges paid to third parties (or costs associated with the Bonds), is $560,000.
Amount of Proceeds to be Received. The Municipal Advisor has informed the City that, assuming that the Estimated Principal Amount of the Bonds is sold, and based on market interest rates prevailing at the time of preparation of such estimate, its good faith estimate of the amount of proceeds expected to be received by the City, on behalf of the District, for the sale of the Bonds, less the finance charge of the Bonds, as estimated above, and any reserves or capitalized interest paid or funded with proceeds of the Bonds, is $8,024,000.
Total Payment Amount. The Municipal Advisor has informed the City that, assuming that the Estimated Principal Amount of the Bonds is sold, and based on market interest rates prevailing at the time of preparation of such estimate, its good faith estimate of the total payment amount, which means the sum total of all payments the District will make to pay debt service on the Bonds, plus the finance charge for the Bonds, as described above, not paid with the proceeds of the Bonds, calculated to the final maturity of the Bonds, is $19,239,000.
The foregoing estimates constitute good faith estimates only. The actual principal amount of the Bonds issued and sold, the true interest cost thereof, the finance charges thereof, the amount of proceeds received therefrom and total payment amount with respect thereto may differ from such good faith estimates due to (a) the actual date of the sale of the Bonds being different than the date assumed for purposes of such estimates, (b) the actual principal amount of Bonds sold being different from the Estimated Principal Amount, (c) the actual amortization of the Bonds being different than the amortization assumed for purposes of such estimates, (d) the actual market interest rates at the time of sale of the Bonds being different than those estimated for purposes of such estimates, (e) other market conditions, or (f) alterations in the financing plan, or a combination of such factors. The actual date of sale of the Bonds and the actual principal amount of Bonds sold will be determined by the City, on behalf of the District, based on the timing of the need for proceeds of the Bonds and other factors. The actual interest rates borne by the Bonds will depend on market interest rates at the time of sale thereof. The actual amortization of the Bonds will also depend, in part, on market interest rates at the time of sale thereof. Market interest rates are affected by economic and other factors beyond the control of the City.
The foregoing estimates constitute good faith estimates only. The actual principal amount of the Bonds issued and sold, the true interest cost thereof, the finance charges thereof, the amount of proceeds received therefrom and total payment amount with respect thereto may differ from such good faith estimates due to (a) the actual date of the sale of the Bonds being different than the date assumed for purposes of such estimates, (b) the actual principal amount of Bonds sold being different from the Estimated Principal Amount, (c) the actual amortization of the Bonds being different than the amortization assumed for purposes of such estimates, (d) the actual market interest rates at the time of sale of the Bonds being different than those estimated for purposes of such estimates, (e) other market conditions, or (f) alterations in the financing plan or finance charges, or a combination of such factors. The actual date of sale of the Bonds and the actual principal amount of Bonds sold will be determined by the City, on behalf of the District, based on the timing of the need for proceeds of the Bonds and other factors. The actual interest rates borne by the Bonds will depend on market interest rates at the time of sale thereof. The actual amortization of the Bonds will also depend, in part, on market interest rates at the time of sale thereof. Market interest rates are affected by economic and other factors beyond the control of the City.
The City awarded the special tax consulting services to Spicer Consulting Group (SCG) in January 2018 through a competitive process. A Purchase Order (PO) was issued in the amount of $160,000 to cover all existing special tax district administration work. The administration service for the Bonds was not listed under the existing contract. Therefore, staff is requesting to increase PO P20751 by $7,500.
COMMITTEE ACTION:
Not applicable.
STRATEGIC PLAN:
This item supports the City’s Strategic Plan Goal 6: Improve Communications with Our Community; Objective a: Commit to transparency in all City actions.
FISCAL IMPACT:
The sale of the Bonds has no direct fiscal impact to the City of Corona. The Bonds to be issued by the District for Improvement Area No. 1 therein will be the sole responsibility of the property owners through a levy of special taxes on property within Improvement Area No. 1 of the District; the City has no responsibility for the debt service associated with these bonds. Cost of issuance will be borne by the bond proceeds as well. The administration cost for the Bonds will be built into the annual levy process and reimbursed by the special taxes collected.
ENVIRONMENTAL ANALYSIS:
This action is exempt pursuant to Section 15061(b)(3) of the Guidelines for the California Environmental Quality Act (CEQA), which states that a project is exempt from CEQA if the activity is covered by the general rule that CEQA applies only to projects that have the potential for causing a significant effect on the environment. Where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment, the action is not subject to CEQA. This action merely adopts the resolutions and authorizes the approval of other documents necessary to issue the Bonds, and there is no possibility that adopting the resolution will have a significant effect on the environment.
PREPARED BY: LIEN-CHI CANTUBA, FINANCIAL ANALYST III
REVIEWED BY: KERRY D. EDEN, ASSISTANT CITY MANAGER/ADMINISTRATIVE SERVICES DIRECTOR
SUBMITTED BY: DARRELL TALBERT, CITY MANAGER
1. Fiscal Agent Agreement
2. Purchase Contract
3. Preliminary Official Statement
4. Continuing Disclosure Certificate