TO:
Honorable Mayor and Members of the City Council
THROUGH:
Talyn Mirzakhanian, City Manager
FROM:
Libby Bretthauer, Finance Director
Julie Bondarchuk, Financial Controller
Emy-Rose Hanna, Budget and Financial Analyst
SUBJECT:Title
Consideration of a Resolution Approving the Issuance of Not-to-Exceed $13.4 Million Certificates of Participation Series 2025A to Reimburse the General Fund Balance for the Purchase of 400 Manhattan Beach Boulevard and Not-to-Exceed $3.8 Million Certificates of Participation Series 2025B to Reimburse the City’s General Fund for the Purchase of Public Safety Radio Communications Equipment; and Approving Trust Agreements, a Site Lease, a Lease Agreement, a Contract of Purchase, an Official Statement and a Continuing Disclosure Certificate (Budgeted)(Finance Director Bretthauer).
(Estimated Time: 30 Min.)
ADOPT RESOLUTION NO. 25-0103
Body
_________________________________________________________
RECOMMENDATION:
Staff recommends that the City Council adopt Resolution No. 25-0103 approving the issuance of Not-to-Exceed $13.4 Million Certificates of Participation Series 2025A to Reimburse the General Fund Balance for the Purchase of 400 Manhattan Beach Boulevard and Not-to-Exceed $3.8 Million Certificates of Participation Series 2025B to Reimburse the City’s General Fund for the Purchase of Public Safety Radio Communications Equipment; and approving Trust Agreements, a Site Lease, a Lease Agreement, a Contract of Purchase, an Official Statement and Continuing Disclosure Certificate. Resolution No. 25-0103 also approves a Site and Facilities Lease, Lease Agreement, Trust Agreements, Contract of Purchase, Preliminary Official Statement, and Continuing Disclosure Certificate.
FISCAL IMPLICATIONS:
The City Council approved General Fund appropriations for the purchase of 400 Manhattan Beach Boulevard on April 1, 2025, and the purchase of public safety radio communications equipment on June 17, 2025. With the approval of both items, the City Council approved resolutions of intention to issue tax-exempt debt obligations, which will reimburse the General Fund balance and maintain liquidity in the City’s funds. If the COPs are not issued as planned, the General Fund balance would remain below the City’s financial policy designation of 20% of expenditures.
The below table summarizes the proposed financing plans, which are further discussed below.
|
|
Series 2025A (400 MBB) |
Series 2025B (Radio Equip) |
Total |
|
Sources |
|
|
|
|
Par Amount |
$12,710,000 |
$3,350,000 |
$16,060,000.00 |
|
Premium |
553,139.20 |
294,847.55 |
847,986.75 |
|
TOTAL SOURCES |
$13,263,139.20 |
$3,644,847.55 |
$16,907,986.75 |
|
|
|
|
|
|
Uses |
|
|
|
|
General Fund Reimbursement |
$13,004,145.47 |
$3,584,056.72 |
$16,588,202.19 |
|
Cost of Issuance |
190,900.00 |
48,350.00 |
239,250.00 |
|
Underwriter’s Discount |
63,550.00 |
16,750.00 |
80,300.00 |
|
Rounding Proceeds |
4,543.73 |
-4,309.17 |
234.56 |
|
TOTAL USES |
$13,263,139.20 |
$3,644,847.55 |
$16,907,986.75 |
BACKGROUND:
In January 2025, real property located at 400 Manhattan Beach Boulevard (MBB) was listed for sale by the owner, U.S. Bank National Association. Staff was authorized to commence negotiations with the seller’s representative for the purchase of the property in a series of duly noticed closed sessions with the City Council. At the regular City Council meeting on April 1, 2025, the City Council approved Resolution No. 25-0035 authorizing the land acquisition and Resolution No. 25-0036 stating the intention to issue tax-exempt obligations.
City staff negotiated the sale for $13.0 million, and the transaction closed on April 15, 2025. Upon closing, the City expended $13,004,145.47 for the purchase price plus closing costs. These funds were drawn from the General Fund with the intention of issuing tax-exempt obligations to replenish the General Fund balance.
After the acquisition of 400 MBB, staff has been working with the City’s Municipal Advisor (KNN Public Finance) and Bond Counsel (Stradling, Yocca, Carlson & Rauth) to issue Certificates of Participation (COPs). During a discussion of that financing, staff communicated the need to replace critical public safety radio equipment and desire to lock in pre-tariff pricing to save the City between $250,884 and $358,406 (7% to 10%).
Financing options were then analyzed, and the lowest cost option was through the sale of tax-exempt COPs. With the financing for 400 MBB already in progress, the City will save on financing costs while also expediting the equipment replacements. On June 17, 2025, the City Council approved the public safety radio equipment purchase and Resolution No. 25-0081 stating the intention to issue tax-exempt obligations.
DISCUSSION:
Utilizing municipal bonds and other types of debt to fund public infrastructure is a valuable strategy for local governments to spread the cost of significant long-term assets over their useful life and maintain financial flexibility. As described in the City Council agenda items on April 1, 2025, and June 17, 2025, the City plans to issue debt for the purchases of (1) property at 400 MBB and (2) public safety radio communications equipment. Certificates of Participation will be issued in two series (2025A and 2025B) for the purchases and to fund costs of issuance. Each series has specific and unique parameters as described below and in the attached presentation.
Series 2025A - 400 MBB Acquisition
The acquisition of 400 MBB was a unique investment opportunity given the location of the site in the City’s downtown, its proximity to the City’s Civic Center, and the potential for long-term investment value, community benefits, preservation of local character, and revenue generation. Future development of this site will be funded through debt issuance and possibly future General Fund and/or CIP funding sources. Although the potential use of the site is still unknown, the acquisition of 400 MBB is expected to provide a revenue generating asset.
Given the legal timing restrictions to issue tax-exempt debt after the land acquisition, and unknown use of the future development, financing options are limited. Alternative financing structures considered by the City (e.g. private financing or a temporary Letter of Credit) were more costly and offered less flexibility.
The City’s Municipal Advisor, KNN Public Finance, recommends a “soft put” bond structure for the Series 2025A COPs. This “soft put” structure allows the City to achieve two critical objectives: first, to allow the City to utilize cost-effective tax-exempt financing to reimburse itself for the cost of the property acquisition; and second, to preserve flexibility while the City determines the best use of the 400 MBB project site.
The Series 2025A COPs will be structured as a 30-year obligation, with principal payments beginning on July 1, 2028 (when the initial put period ends). During the put period, debt service payments will be interest-only. Over the next three years, annual debt service will range from $536,644 in FY 2025-26 to $635,500 in FY 2027-28. In the unlikely event that the City is unable to refinance the 2025A COPs by July 1, 2028 as described below, the 2025A COPs would remain outstanding (theoretically through the entire 30-year term) and the interest rate would increase first to 6% and then to 8%, as described in the attached presentation. However, the City would plan to refinance the Series 2025A COPs on or before July 1, 2028, in conjunction with the financing of the design and construction costs of the ultimate use of the project site. If additional time is needed for project planning, the City could remarket the 2025A COPs for a new soft put period.
The attached financing plan allows the City to reimburse the General Fund for the purchase price of $13.0 million plus closing costs for 400 MBB. The FY 2025-26 Adopted Budget includes $1.0 million in CIP funds for initial costs of the 400 MBB project. However, the City’s Engineering Division estimates the initial entitlement and conceptual design phases will cost up to $2.0 million over the next two to three years:
|
Schematic (Entitlement Phase) |
$225,000 |
|
Environmental Review |
300,000 |
|
Design Development (Concept) |
200,000 |
|
Construction Documents |
550,000 |
|
Bidding/Construction Administration |
250,000 |
|
Record Drawings |
50,000 |
|
Contingency |
425,000 |
|
Total |
$2,000,000 |
An additional appropriation and a possible drawdown from the CIP Fund reserve will be factored into the FY 2026-2027 CIP budget.
The FY 2025-26 Adopted Budget also included a placeholder appropriation of $627,777 within the CIP Fund to pay for anticipated debt service. KNN has since provided a revised debt service estimate of $536,644 for FY 2025-26, which reflects preliminary market rates. The ultimate cost of funds will be determined when the City sells its COPs, expected Wednesday, August 13, 2025.
Series 2025B - Public Safety Radio Communications Equipment
With large scale regional events like the World Cup and Olympics coming to the Los Angeles area over the next few years, the need arose to replace critical mobile and portable public safety communications radios nearing the end of their useful lives.
After City Council approval on June 17, 2025, a Notice to Proceed was issued to Motorola Solutions, Inc. to secure the equipment in advance of tariff-related price increases. A purchase order was issued after July 1 and shipment of the order is anticipated in August.
The 2025B COPs will reimburse for the purchase of radio communications equipment and pay for costs of issuance. The proposed structure is for fixed rate, tax-exempt COPs with a seven-year term maturing in 2032. Average annual debt service is $685,622, beginning in FY 2026-27 and ending FY 2031-32, spanning over six fiscal years. Debt service payments will be included within General Fund expenditures in future budget years accordingly.
Several documents require City Council and/or Capital Improvements Corporation approval in order to move ahead with this financing. In the interest of source reduction, all of the documents, regardless of whether approved by one or both entities, are presented once within this staff report. A brief description of each document is listed as well.
Resolution No. 25-0103
If adopted, the City resolution approves the documents (Trust Agreements, Site and Facilities Lease, Lease Agreement, Contract of Purchase, Preliminary Official Statement, and Continuing Disclosure Certificate) and authorizes the execution and delivery of COPs for the purchases of 400 MBB and Public Safety Radio Communications Equipment.
Capital Improvements Corporation Resolution No. CIC-14
If adopted, the Capital Improvements Corporation resolution approves the documents (Trust Agreements, Site and Facilities Lease, Lease Agreement, Contract of Purchase, Assignment Agreement) and authorizes the execution and delivery of COPs for the purchases of 400 MBB and Public Safety Radio Communications Equipment.
Trust Agreements
These documents establish/continue the City’s existing relationship with U.S. Bank as trustee. U.S. Bank will be responsible for receiving proceeds of the 2025 COPs and distributing funds, handling on-going principal and interest payments, as well as other expenses associated with the 2025 COPs. (Executed by City and Capital Improvements Corporation.)
Site and Facilities Lease
This agreement establishes a Site and Facilities Lease on Peck Reservoir from the City to the City’s Capital Improvements Corporation to encompass the 2025A and 2025B COPs. (Executed by City and Capital Improvements Corporation.)
Lease Agreement
This agreement establishes the lease of the property from the City’s Capital Improvements Corporation back to the City. This establishes the framework for lease payments to be made by the City to the Capital Improvements Corporation. The Capital Improvements Corporation assigns these lease payments to the Trustee, who then pays the investors (in practice, the actual payments are made directly from the City to the Trustee - see the Assignment Agreement below). (Executed by City and Capital Improvements Corporation.)
Contract of Purchase
This agreement is among the Underwriter (BofA Securities, Inc.), the City and the Capital Improvements Corporation whereby BofA Securities, Inc. agrees to purchase the COPs from the City for marketing purposes. (Executed by City and Capital Improvements Corporation.)
Official Statement
This document is used to market the COPs and includes demographic, financial and other information about the City and the purchases of 400 MBB and public safety radio communications equipment. Under federal securities laws, this document must contain all relevant information relating to the financing and to the City’s finances generally that would be material to investors. For approval purposes, the statement is preliminary, subject to minor modifications. (Executed by City.)
Assignment Agreement
This document establishes the assignment by the Capital Improvements Corporation of its rights to receive lease payments from the City pursuant to the Lease Agreement directly to the Trustee (U.S. Bank) to encompass the 2025A and 2025B COPs. (Executed by Capital Improvements Corporation only.)
Continuing Disclosure Certificate
This document, 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 COPs.
Good Faith Estimates
In compliance with SB 450, the City has obtained from its Municipal Advisor good faith estimates of total costs to be incurred by the City in connection with the COPs. The estimates are attached to Resolution No. 25-0103.
Copies of these documents have been included with this report. These documents are in substantially final form; however, minor modifications may need to be made during the course of the financing including the final terms of the pricing subject to the thresholds included in the Resolution. By adopting Resolutions Nos. 25-0103 (and CIC-14) the City Council (and Board of Directors) authorize the Mayor (President) and City Manager (Chief Administrative Officer) to negotiate those changes and execute the final versions of the agreements when in final form. All final documents will be approved as to form by the Special Counsel. If the financing is approved, the documents will be finalized with the sale of the certificates of participation expected to take place in August, subject to market conditions.
Marketing of Certificates of Participation
Following a Request for BofA Securities, Inc. as the underwriter. BofA Securities, Inc. has retail and institutional marketing channels, which will ensure a successful sale of the COPs. In addition to the usual channels, BofA Securities, Inc. will place an advertisement in The Beach Reporter to notify residents of the opportunity to purchase the COPs. In past City bond sales, this approach has generated a high degree of interest among residents.
Capital Improvements Corporation
The Manhattan Beach Capital Improvements Corporation was formed in 1996 to facilitate the execution and delivery of COPs for improvements to the water and wastewater systems (refunded in 2012 and 2021). The Capital Improvements Corporation was also the conduit for the Marine Sports Field COPs in 2002 (refunded in 2016), the Metlox Public Improvements in 2003 (refunded in 2012 and 2021), the original Police & Fire Facility financing in 2004 (refunded in 2013) and Fire Station No. 2 in 2021.
On the agenda this evening is a meeting of the City’s Capital Improvements Corporation. That meeting is an integral part of the approval process. Please refer to the associated staff report for that agenda item.
Standard & Poor’s (S&P) AAA Credit Rating
Staff is pleased to announce that S&P has reaffirmed the City’s AAA credit rating as of July 25, 2025. The reaffirmation process involved a presentation to S&P with an overview of the City’s economic and demographic highlights, including our diverse and resilient tax base, as well as information on our General Fund financial history, FY 2025-2026 Adopted Budget, and strong fiscal management practices.
S&P also issued a rating of AA+ for the COPs issuance. COPs are not backed by the City’s general taxing authority and therefore the highest possible rating is AA+ due to the risk of non-appropriation of debt service costs.
By maintaining these credit ratings, the 2025 COPs will be more desirable to investors while providing the City with competitive interest rates.
Next Steps
Following this City Council Meeting, City staff and the financing team will need to complete the following activities to facilitate the issuance of the 2025 COPs:
• Wednesday, August 6, 2025: Post Preliminary Official Statement
• Wednesday, August 13, 2025: Pricing of the 2025 COPs
• Wednesday, August 20, 2025: Post Final Official Statement
• Tuesday, August 26, 2025: Pre-closing of 2025 COPs
• Wednesday, August 27, 2025: Closing of 2025 COPs
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; 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:
The City Attorney has reviewed this report and determined that no additional legal analysis is necessary. The City’s Bond Counsel has prepared the draft resolutions and other documents approved as to form.
ATTACHMENTS:
1. Resolution No. 25-0103 (Including Good Faith Estimates)
2. CIC Resolution No. CIC-14 (To be approved by CIC)
3. Trust Agreement - 2025 A COPs (400 MBB)
4. Trust Agreement - 2025 B COPs (Public Safety Radios)
5. Site and Facilities Lease
6. Lease Agreement
7. Contract of Purchase
8. Preliminary Official Statement
9. Assignment Agreement
10. Continuing Disclosure Certificate
11. PowerPoint Presentation