TO:
Honorable Mayor and Members of the City Council
THROUGH:
Bruce Moe, Acting City Manager
FROM:
Steve S. Charelian, Acting Finance Director
Henry Mitzner, Controller
Libby Bretthauer, Financial Analyst
SUBJECT:Title
Approval of Refinancing of Underground Utility Assessment Districts 04-1, 04-3, 04-5, 05-2 and 05-6; Adoption of a Debt Management and Disclosure Policy (Acting Finance Director Charelian).
APPROVE; ADOPT RESOLUTIONS; ADOPT POLICY
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Recommended Action
RECOMMENDATION:
Staff recommends that the City Council: a) adopt Resolution Nos. 18-0015, 18-0016, 18-0017 and 18-0018, as well as all related documents, approving the refunding (refinancing) of Underground Utility Assessment Districts 04-1, 04-3, 04-5, 05-2 and 05-6; and b) adopt a Debt Management and Disclosure Policy.
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FISCAL IMPLICATION:
The economic benefit from the refunding plan accrues directly to the homeowners with outstanding assessments. Based on current market conditions, assessment payers in Districts 04-1, 04-3 and 04-5 will save an average of $441 while Districts 05-2 and 05-6 will save an average of $1,568 from this refunding.
In addition, staff is recommending that unspent construction funds remaining after project completion be refunded to the current homeowners in Districts 05-2 and 05-6 as provided by State law. The total amount to be refunded is $593,556 and will be allocated based on the original assessment amounts. The refunds will come in the form of either a direct reduction in the amount refinanced or a cash refund for those who previously paid-off the assessment.
BACKGROUND:
In 2004 and 2005, several utility underground assessment districts (UUADs) were formed for the purpose of placing overhead wires and cables from the major utilities (electric, cable, internet) into underground conduits. At that time, homeowners had a choice of paying cash for the improvements, or participating in a bond issue. If they chose the latter, they would pay-off the assessments over a 20 year period. The assessments are paid to the City through the annual consolidated property tax bill. The City then remits the proceeds to the bond trustee for payment to the bond holders.
Bonds were sold in two separate series: the 2004 series included Districts 1, 3 and 5; the 2006 series included Districts 2 and 6. The 2004 series included 390 parcels, with the bond issue totaling $5.3 million. The 2006 series encompassed 352 parcels and the bonds totaled $14.4 million.
The bonds for all five districts were issued with total interest cost of 4.72% to 4.92%. The refunding bonds have an estimated true interest cost of 2.527%.
DISCUSSION:
A review of existing UUAD debt has indicated that savings for the assessment payers may be achieved by refunding (refinancing) the existing bonds outstanding. Once all costs of issuance are considered, the net present value of savings equals 11.3%, or $704,386.
In addition to the refunding of debt, Districts 05-2 and 05-6 have construction funds that remain with the trustee. Because the projects are completed and closed out, it is appropriate to refund those moneys to the existing homeowners. Those funds will be allocated based on the original assessments. City Council will be asked to adopt a resolution in order to initiate those refunds. As previously stated, those refunds may come in the form of a reduction in the amount refinanced or a cash refund for those who previously paid-off the assessments.
The refunding plan and all associated and requisite documents are included with this report for approval by the City Council. If approved, the sale of refunding bonds will close on March 1, 2018.
The Finance Subcommittee reviewed and approved the refunding plan.
Documents to be Approved
There are several documents that require City Council adoption/approval in order to move ahead with this refinancing. A brief description of each document is listed as well.
Resolution No. 18-0015 (Attachment 1)
This Resolution directs disposition of the balance in the improvement funds for Districts 05-2 and 05-6. District 05-2 has $383,877 on account, while District 05-6 has $209,679 in funds remaining. These will be distributed in cash to the current property owners if the assessments have been paid-off, or will be applied as a reduction to the principle for those properties being refinanced.
Resolution No. 18-0016 (Attachment 2)
This resolution declares City Council’s intention to levy reassessments and to issue refunding bonds for the new reassessment District (2018)
Resolution No. 18-0017 (Attachment 3)
This resolution adopts the reassessment report, confirming and ordering the reassessment by summary proceedings and authorizing and directing related actions for reassessment district 2018
Resolution No. 18-0018 (Attachment 4)
This resolution authorizes the execution of the Indenture, Continuing Disclosure Agreement, the Bond Purchase Contract, the Preliminary Official Statement, the issuance of the redemption notice for the prior bonds, and the issuance of refunding bonds, and approves and authorizes related documents and actions.
Continuing Disclosure Agreement (Attachment 5)
Executed by the City. Includes a list of annual City reporting requirements and events that, if they were to occur, would require disclosure during the life of the debt.
The Indenture (Attachment 6)
Establishes the City’s relationship with U.S. Bank as trustee of the funds. U.S. Bank will be responsible for receiving proceeds of the refunding bonds and distributing funds, handling on-going principal and interest payments, as well as other expenses associated with the bonds.
The Purchase Contract (Attachment 7)
Contract between the Underwriter (Bank of America Merrill Lynch, through its broker-dealer subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated), and the City, whereby Merrill Lynch, Pierce, Fenner & Smith Incorporated agrees to purchase the bonds from the City for marketing purposes.
The Preliminary Official Statement (Attachment 8)
Used to market the bonds and includes demographic, financial and other information about the refunding. Under federal securities laws, this document must contain all relevant information relating to the refunding generally that would be material to investors. For approval purposes, the statement is preliminary, subject to minor modifications.
Debt Management and Disclosure Policy (Attachment 9)
On September 12, 2016, Governor Brown signed SB 1029, which requires debt issuers to adopt debt policies addressing five areas:
1. The purpose for which the debt proceeds may be used (See Section 4);
2. The types of debt that may be issued (See Section 6);
3. The relationship of the debt to, and integration with, the issuer’s capital improvement program or budget (See Section 7);
4. Policy goals related to the issuer’s planning goals and objectives (See Section 3);
5. The internal controls procedures that the issuer has implemented, or will implement, to ensure that the proceeds of the proposed debt issuance will be directed to the intended use (See Section 9).
The bill requires a state or local public agency to submit an annual report for any issue of debt for which it has submitted a report of final sale on or after January 21, 2017. While the City has limited debt policies within the existing adopted Financial Policies, with this refunding of several utility underground assessment districts, it is a requirement that the City adopt this comprehensive policy prior to the refunding.
The proposed policy is consistent with other existing City financial policies. It simply expands definitions and articulates what has been past practice absent a full policy.
This new debt management policy must be adopted by the City Council prior to the issuance of the Preliminary Report of Sale for this debt, which is filed with the California Debt and Investment Advisory Commission (CDIAC) 30 days before the debt sale.
This policy has been reviewed by the City’s Bond Counsel and Municipal Advisor, and approved by the Finance Subcommittee.
SB450 Letter (Attachment 10)
California Senate Bill No. 450, CHAPTER 625 was approved on October 9, 2017. The bill requires the governing body of a public entity to obtain and disclose specified information in a public meeting prior to authorizing the issuance of bonds. The information is to be obtained as good faith estimates from an underwriter, financial advisor, or private lender or from a third-party borrower if the public body issuing bonds is a conduit financing provider.
Information relating the issuance of bonds to be disclosed include: true interest cost of the borrowing, costs of borrowing, proceeds received from the borrowing, and total debt service payments. Such information is further defined and provided in the attached document for the City of Manhattan Beach Reassessment District No. 2018 Limited Obligation Refunding Bonds, Series 2018.
Please see Attachment #10 for full information.
CONCLUSION:
Refunding (refinancing) of the Underground Utility Districts will benefit property owners with outstanding assessments. Based on current market conditions, assessment payers in Districts 04-1, 04-3 and 04-5 will save an average of $441 while Districts 05-2 and 05-6 will save an average of $1,568 from this refunding. Further, staff is recommending that unspent construction funds remaining after project completion be refunded to the current homeowners in Districts 05-2 and 05-6 as provided by State law. The total amount to be refunded is $593,556 and will be allocated based on the original assessment amounts. The refunds will come in the form of either a direct reduction in the amount refinanced or a cash refund for those who previously paid-off the assessment.
The refunding bonds are scheduled to close March 1, 2018. The new, lower assessments will first appear on the property tax bills issued in late 2018.
PUBLIC OUTREACH/INTEREST:
After analysis, staff determined that public outreach was not required for this issue.
ENVIRONMENTAL REVIEW
The City has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity is not a “Project” as defined under Section 15378 of the State CEQA Guidelines; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines the activity is not subject to CEQA. Thus, no environmental review is necessary.
LEGAL REVIEW
Bond/Disclosure Counsel has reviewed this report and determined that no additional legal analysis is necessary.
Attachments:
1. Resolution No. 18-0015
2. Resolution No. 18-0016
3. Resolution No. 18-0017
4. Resolution No. 18-0018
5. Continuing Disclosure Agreement
6. Indenture
7. Purchase Contract
8. Preliminary Official Statement
9. Debt Management and Disclosure Policy
10.SB450 Letter