TO:
Honorable Mayor and Members of the City Council
THROUGH:
Talyn Mirzakhanian, City Manager
FROM:
Onyx Jones, Interim Finance Director
Libby Bretthauer, Financial Services Manager
SUBJECT:Title
Consideration of a Request from Sunrise Senior Living to Utilize Tax-Exempt Bond Financing for the Approved Project at 250, 350, and 400 North Sepulveda Boulevard (Interim Finance Director Jones).
(Estimated Time: 30 Mins.)
A) DISCUSS AND PROVIDE DIRECTION
B) CONSIDER ADOPTING RESOLUTION NO. 24-0129
Body
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RECOMMENDATION:
Staff recommends that the City Council discuss and provide direction regarding the request from Sunrise Senior Living (the “Developer”). Approval of the request would require adoption of Resolution No. 24-0129.
FISCAL IMPLICATIONS:
There are no fiscal implications associated with the recommended action. If issued, the bonds would be issued by the California Public Finance Authority (“CalPFA”), and not the City. Therefore, the bonds would not be a debt of the City, nor would they obligate the City in any way.
BACKGROUND:
In 1982, the federal government passed the Tax Equity and Fiscal Responsibility Act (TEFRA). The Act amended the Internal Revenue Code and placed a public approval requirement for private activity bonds (PABs) to qualify as tax-exempt. As a result of TEFRA, tax-exempt bond financing requires compliance with the requirements of Section 147(f) of the Internal Revenue Code of 1986. Section 147(f) of Internal Revenue Code is a provision that addresses the approval process for the issuance of tax-exempt bonds for PABs. This section requires that, in order for a tax-exempt bond to qualify as a PAB under the Code, it must receive approval from both the relevant State or local government and, in some cases, the affected local community.
The key components of Section 147(f) are as follows:
1. Public Approval Requirement: Section 147(f) mandates that the issuance of bonds for a private activity project (such as bonds financing private businesses or certain types of private facilities) must be approved by the "applicable elected representative" of the governmental unit having jurisdiction over the area in which the project is proposed. This typically means a vote or a formal resolution from the local governing body, such as a city council or county board.
2. Public Hearing Requirement: Before approval can be granted, there must be a public hearing that allows residents and other stakeholders to express concerns or support for the project being financed with the bonds. The hearing provides transparency and public participation in the decision-making process.
The purpose of Section 147(f) is to ensure that tax-exempt bonds are used appropriately for projects that serve a public interest, while preventing the abuse of tax-exempt status for private purposes.
The Sunrise Senior Living project, located at 250, 350 and 400 North Sepulveda (the “Project”), was approved by the City on July 28, 2021. On October 1, 2024, the City received a request from the Developer to approve the utilization of tax-exempt bond financing for the Project. The role of the City Council is limited to considering adoption of a resolution that approves utilization of tax-exempt financing for the Project.
DISCUSSION:
At the request of the Developer, the City Council may consider adopting a resolution that would approve issuance of PABs, to be issued by the California Public Finance Authority (“CalPFA”) in an aggregate principal amount not to exceed $145,000,000 (the “Bonds”). CalPFA would loan the proceeds of the Bonds to QSH/MB, LLC (the “Borrower”) to finance the construction, furnishing and equipping of the Project. The Borrower will be a limited liability company whose sole member is Quality Senior Housing Foundation, Inc., a nonprofit corporation as described in Section 501(c)(3) of the Code. The Project will initially be operated by Sunrise Senior Living Management, Inc.
As required by Section 147(f) of the Internal Revenue Code, a public hearing was conducted by CalPFA on October 30, 2024, to allow any interested parties to gain information about the Project and express their views. Per the attached Developer’s Public Hearing Report, no members of the public attended the hearing or provided comments. Following the public hearing, and on November 5, 2024, CalPFA board of directors considered the Bond request and adopted a resolution of approval (attached).
The City’s bond counsel, Stradling Yocca Carlson & Rauth LLP, provided the attached memorandum as background on the TEFRA hearing process. Per the memorandum, the City is under no legal obligation to provide approval of the Bonds to assist the Developer. Furthermore, the City would have no financial or other liability in the event the City Council declines to adopt the resolution providing for approval.
PUBLIC OUTREACH:
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 because it consists of an administrative activity of government that will not result in direct or indirect physical changes in the environment. 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 Counsel has reviewed this report and determined that no additional legal analysis is necessary.
ATTACHMENTS:
1. Resolution No. 24-0129
2. TEFRA Hearing Report Regarding Public Hearing Held on October 30, 2024
3. TEFRA Hearing Proof of Publication
4. Stradling Memorandum Regarding Request for TEFRA Approval
5. CalPFA November 5, 2024 Staff Report
6. CalPFA November 5, 2024 Resolution of Approval