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HomeMy WebLinkAbout09-16-2014 PH1 LOVR Interchange FinancingCity of San Luis Obispo, Council Agenda Report, Meeting Date, Item Number FROM: Wayne Padilla, Finance and Information Technology Director SUBJECT: PUBLIC HEARING TO CONSIDER A RESOLUTION AUTHORIZING THE ISSUANCE OF UP TO $8.305 MILLION PAR VALUE LEASE REVENUE BONDS FOR THE EXPANSION OF THE LOS OSOS VALLEY ROAD (LOVR) / HIGHWAY 101 OVERPASS RECOMMENDATION ADOPT THE RESOLUTION AUTHORIZING THE ISSUANCE OF UP TO $8.305 MILLION PAR VALUE LEASE REVENUE BONDS FOR THE LOS OSOS VALLEY ROAD INTERCHANGE PROJECT AND APPROVING THE FORM OF DOCUMENTATION FOR ITEMS RELATED TO THE FINANCING AND THE ACTIONS NECESSARY TO ISSUE THE DEBT DISCUSSION The City Council, in anticipation of the action of the San Luis Obispo Public Financing Authority to consider and approve the issuance of lease revenue bonds to finance the LOVR Interchange Project will consider a resolution that will allow the debt to be issued and provide for the completion of documents and additional work tasks necessary to issue the debt. Staff has worked with the City’s financial advisor PFM and bond counsel, Orrick Herrington & Sutcliffe to develop the documentation required to issue up to $8.305 million par value (the gross amount of the bonds issued) lease revenue bonds. Background The City Council authorized the call for construction bids to construct the LOVR interchange project improvements on June 10, 2014. Bids have been received and a separate agenda item has been prepared for this Council meeting to allow the City Council to con sider staff’s request to award the construction bid. Based on the bids received, the City Engineer has set the final construction cost of the LOVR improvements remaining to be funded at $23,338,000. Of this amount $16,000,000 will come from a state grant and $7.5 will come from the issuance of lease revenue bonds if the City Council approves staff’s recommendations this evening. The excess amount borrowed over the estimated construction cost will cover costs of issuance of the Bonds, a reserve fund and a contingency in the event that construction costs exceed the estimate. If the contingency amount is not used for this construction, it may be applied to eligible and priority roadway projects. As a part of the approval process, the City Council will conduct a public hearing and make certain findings concerning the financing pursuant to Section 6586.5 of the Government Code, as more particularly described in Section 1 of the attached Resolution. 9/16/14 PH-1 PH1-1 AUTHORIZE THE ISSUANCE OF UP TO $8.305 MILLION PAR VALUE LEASE REVENUE BONDS FOR THE EXPANSION OF THE LOS OSOS VALLEY ROAD (LOVR) / HIGHWAY 101 OVERPASS Page 2 Proposed Financing Structure and Documents The proposed debt is based on a 30-year lease financing structure. When a lease revenue bond transaction is created, a city-owned property is identified as the subject of the lease in order to provide security for the debt transaction. Under the proposed financing the city would enter into a lease agreement with the Public Financing Authority in order to lease to them and then lease back from that entity, the property that is serving as the leased collateral for the debt. The payments made by the City under this arrangement would fund the debt payments for the bonds that have been issued under an assignment agreement created by the Public Financing Authority that provides that the payments are being made for the benefit of the bondholders. Under the financing plan proposed for the LOVR project, the par amount of the bonds is currently estimated not to exceed $8.305 million. The breakout of this amount is shown below (all amounts are estimates): Project Funds $7,502,550 Cost of Issuance $ 200,000 Underwriter’s Discount $ 83,050 Debt Service Reserve $ 519,400 Total: $8,305,000 The final par amount of the debt will be determined once the bids from prospective underwriters have been received and evaluated. The amounts shown are not to exceed amounts. The estimated average annual debt service payments will be $517,000. Based on the most up-to-date market and construction figures, this estimate is more than the financial forecast estimate of $493,000 starting in 2015-16. The documents provided for the proposed financing are described below. The documents are in substantially final form but there may be technical changes required as the financing is finalized and such changes will be reviewed by bond counsel and city staff to reflect the final financing terms derived from the closing of this borrowing, within the parameters approved by the City Council in the resolution. Preliminary Official Statement – This serves as a form of prospectus for the debt and provides information on the project, demographics for the City and information about the City’s finances and ability to pay the debt. Site Lease – As stated above, this type of financing requires the identification of one or more General Fund properties having a combined value equal to the par amount of the debt and which will serve as the collateral for the financing. The proposed Lease Agreement identifies the use of the parking structure at 842 Palm along with the fire stations located at 1280 Laurel Lane and 1395 Madonna Road for this purpose. Staff is awaiting an appraisal for the land value of these properties. If the total of the land and structure values for 842 Palm is sufficient to secure this debt, no other property needs to be included and the Site Lease and Facility Lease documents will be amended to reflect that change. Other structures owned by the City such as City Hall have been encumbered in previous lease revenue financings and are not eligible for consideration in this financing. The Site Lease, together with the Facility Lease described below, creates the lease back arrangement between the City and the Public Financing Authority. PH1-2 AUTHORIZE THE ISSUANCE OF UP TO $8.305 MILLION PAR VALUE LEASE REVENUE BONDS FOR THE EXPANSION OF THE LOS OSOS VALLEY ROAD (LOVR) / HIGHWAY 101 OVERPASS Page 3 Facility Lease – This document relates to the same property identified in the Site Lease and establishes the City’s obligation to make payments under the lease equal to the annual debt service payments on the lease revenue bonds. This document contains the payment terms applicable to the City and various covenants necessary to provide security to the bondholders, such as insurance requirements and a covenant to budget and appropriate the rent in each year. Official Notice of Sale – This document establishes the terms and form of the bids to be submitted by underwriters who wish to market and purchase the bonds from the City. Continuing Disclosure Agreement – This document specifies the timing and content of annual reports that will be provided by the City with regard to certain financial information and market changes that may occur after the bonds are issued. The terms of this document are identified in the Preliminary Official Statement. Project Highlights The project will correct operational deficiencies and improve safety at the southern entry to the City at LOVR by widening LOVR to four lanes between the recently constructed Calle Joaquin intersection and South Higuera Street. To accomplish this, a new two-lane bridge structure will be constructed south of, and adjacent to, the existing overcrossing. The existing bridge will carry the westbound traffic and the new bridge will carry eastbound traffic. An adjacent bridge crossing of San Luis Obispo Creek will be widened to accommodate the four travel lanes. The project will also include minimum 6-foot wide sidewalks over the freeway, 6.5-foot wide bike lanes, and will improve the on and off-ramps. Sidewalks across the San Luis Obispo Creek Bridge will be widened to allow additional area for pedestrians and bicyclists accessing the Bob Jones Trail and future integration with the Trail segment south of LOVR. The City is the project sponsor, with the California Department of Transportation (Caltrans) serving in an oversight role since they are stewards of the State Highway System. All necessary property acquisitions have been secured. FISCAL IMPACT If the debt issuance is approved along with the proposed form of documents the construction fund proceeds of $7.5 million will be received by the City and disbursed to the contractor working on the LOVR project. Any remaining construction proceeds not needed for the project can be utilized on eligible and priority roadway projects. The annual debt service payments have been programmed in the City’s budget and 5 Year Financial Forecast beginning in 2014 -15. Since the debt is being issued after the start of the fiscal year the first year payment will be less than the budget estimate of $250,000 while the annual payments starting in 2015-16 are estimated to be $24,000 more than the amount included in the 5 Year Forecast. It is anticipated that this difference may be offset by an increase in the amount transferred from the Traffic Impact Fee program each year. The City Council approved the future use of Traffic Impact Fees (TIF) to finance at least ½ of the cost of the annual debt service payments as TIF becomes available. Traffic Impact Fee revenues are not pledged as a source of repayment for the bonds, however staff is working on an update to the fee schedule for both TIF and LOVR traffic fees in order to ensure that future charges to new development include the full cost of the debt service. The update is currently PH1-3 AUTHORIZE THE ISSUANCE OF UP TO $8.305 MILLION PAR VALUE LEASE REVENUE BONDS FOR THE EXPANSION OF THE LOS OSOS VALLEY ROAD (LOVR) / HIGHWAY 101 OVERPASS Page 4 awaiting completion of the Land Use and Circulation Element (LUCE) process (currently scheduled to conclude in October) to resolve potential land use changes that effect final impact fee calculations for the two funds. Changes to these funds will be geared towards reducing the overall General Fund obligation for the debt. However, over the 30 year life of the debt, it is possible that the General Fund will have paid more toward the cost of the debt service than the TIF program has been able to collect and reimburse for the debt payment. After LUCE decisions are made staff will be amending impact fee projections and return to Council with recommendations for change. NEXT STEPS If this item is approved and the Public Financing Authority also approves the issuance of the proposed debt, staff will work with the financial advisor and bond counsel to sell the debt and complete the documents shown above to represent the final terms of the sale. As indicated above, if the value of the parking structure located at 842 Palm is adequate to allow that property alone to serve as the leased location under this transaction, none of the fire stations identified above will need to be encumbered for this financing. ALTERNATIVE Do not approve this financing transaction. This option is not recommended because the City does not have the resources to finance the construction of the LOVR project without the issuance of lease revenue bonds. ATTACHMENT Resolution authorizing bond issuance COUNCIL READING FILE 1. Preliminary Official Statement 2. Site Lease 3. Facility Lease 4. Official Notice of Sale PH1-4 OHSUSA:758876382.5 CITY OF SAN LUIS OBISPO RESOLUTION NO. ___ 2014 SERIES A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO AUTHORIZING THE ISSUANCE, SALE AND DELIVERY OF SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS; THE EXECUTION AND DELIVERY OF A CONTINUING DISCLOSURE CERTIFICATE, A SITE LEASE AND A FACILITY LEASE; THE PREPARATION AND DISTRIBUTION OF A PRELIMINARY AND A FINAL OFFICIAL STATEMENT; AND CERTAIN OTHER ACTIONS IN CONNECTION THEREWITH ____________________________________________________________ WHEREAS, the City of San Luis Obispo (the “City”) proposes to finance the expansion of the Los Osos Valley road interchange (the “Project”); and WHEREAS, in order to assist in financing the Project, it is proposed that the City lease the real property located at 842 Palm Street, 1280 Laurel Lane and 1395 Madonna Road, San Luis Obispo, and improvements thereon (the “Leased Property”) to the Authority pursuant to a Site Lease (the “Site Lease”) and lease the Leased Property back from the Autho rity pursuant to a Facility Lease (the “Facility Lease”); WHEREAS, it is further proposed that the Authority issue its San Luis Obispo Public Financing Authority Lease Revenue Bonds in the aggregate principal amount of not to exceed $8,305,000 (the “Bonds”), pursuant to Article 4 of Chapter 5 of Division 7 of Title 1 of the California Government Code (the “Code”), for the purpose of making a payment to the City pursuant to the Site Lease to finance the Project, fund a debt service reserve account, if deemed necessary, and pay costs of issuance; WHEREAS, it is further proposed that the Authority issue the Bonds pursuant to a trust agreement (the “Trust Agreement”) by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”); WHEREAS, in order to take advantage of the bond issuance options under the Code to achieve debt service savings for the Authority and maximize benefits to the City, the City Council deems it necessary and desirable to authorize the sale of the Bonds by a competitive sale to the lowest true interest cost bidder; WHEREAS, the City heretofore held a public hearing on the proposed financing following publication of the notice of the public hearing at least five days prior thereto in a newspaper of general circulation in the City; WHEREAS, the Authority has prepared an official statement relating to the Bonds (the “Official Statement”) for use in preliminary form in connection with the marketing of the Bonds to potential purchasers and for use in final form for distribution to the actual purchasers thereof; PH1-5 2 OHSUSA:758876382.5 NOW, THEREFORE, BE IT RESOLVED by the Council as follows: Section 1. The foregoing recitals are true and correct and the City Council hereby so finds and determines. Section 2. In accordance with Section 6586.5 of the California Government Code, the Council hereby finds and determines that the proposed financing of said proposed public capital improvements will have one or more of the following public benefits to the citizens of the City, and that such benefits will be significant: (a) demonstrable savings in effective interest rate, bond preparation, bond underwriting or bond issuance costs; (b) significant reductions in effective user charges levied by the City; (c) employment benefits from undertaking the proposed public capital improvements in a timely fashion; and (d) more efficient delivery of local agency services to residential and commercial development. Accordingly, the Council hereby approves the financing of the public capital improvements proposed to be financed with the proceeds of the Bonds. Section 3. The Council hereby approves the issuance of the Bonds by the Authority in an aggregate principal amount not to exceed $8,305,000 to finance the Project, including reserve fund requirements if deemed necessary, costs of issuance and related fees and expenses; provided, however that such Bonds shall be sold on or before December 31, 2014, and shall mature no later than October 1, 2044. The Director of Finance and Information Technology of the City is hereby directed to perform the duties imposed upon him by the provisions of the financing documents, including the Trust Agreement, the Site Lease and the Facilities Lease, and is hereby authorized to act as treasurer of the Authority and to hold the funds and accounts in trust as a fiduciary for the owners of the Bonds as set forth in said documents. Section 4. The City Council authorizes the sale of the Bonds through a competitive sale to the lowest true interest cost bidder, subject to the terms and conditions of the Official Notice of Sale describing the Bonds. The true interest cost of the Bonds shall not be in excess of six percent (6%), and the Bonds shall otherwise conform to the limitations specified herein. The proposed forms of the Official Notice of Sale and the Notice to Sell Bonds in substantially the forms on file with the City Clerk are hereby approved. Public Financial Management, Inc., as financial advisor (the “Financial Advisor”), is hereby authorized and directed to cause to be delivered to prospective bidders for the Bonds copies of said Official Notice of Sale, in substantially said form with such additions, corrections and revisions as may be determined to be necessary or desirable by the Director of Finance and Information Technology of the City, the City Manager, or their designees (each, an “Authorized Officer”), the Financial Advisor, or the City’s bond counsel. The true interest cost limitations described in this Section, and the terms of the Bonds described in Section 2, shall apply to such competitive sale. PH1-6 3 OHSUSA:758876382.5 Section 5. The Site Lease, in substantially the form submitted to this meeting, is hereby approved. Any Authorized Officer, each acting alone, is hereby authorized and directed, for and on behalf of the City, to execute and deliver the Site Lease in substantially said form, with such changes therein as any Authorized Officer, with the advice of the City Attorney and the City’s bond counsel, may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. Section 6. The Facility Lease, in substantially the form submitted to this meeting, is hereby approved. Any Authorized Officer, each acting alone, is hereby authorized and directed, for and on behalf of the City, to execute and deliver the Facility Lease in substantially said form, with such changes therein as any Authorized Officer, with the advice of the City Attorney and the City’s bond counsel, may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. Section 7. The form of Continuing Disclosure Certificate presented at this meeting is hereby approved. Any Authorized Officer, each acting alone, is hereby authorized and directed, for and on behalf of the City to execute and deliver the Continuing Disclosure Certificate in substantially the form presented at this meeting, with such changes therein as the officer executing the same may, with the advice of the City Attorney and the City’s bond counsel, require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. Section 8. The preliminary form of the Official Statement to be used in connection with the offer and sale of the Bonds is hereby adopted and approved, and any Authorized Officer, each acting alone, is hereby authorized to execute and deliver a certificate deeming the preliminary form of the Official Statement (including, if applicable, as modified by any amendment or supplement thereto) “final” within the meaning of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 and to execute and deliver the same in final form, for and on behalf of the Authority, with such changes therein as the officer executing the same, with the advice of the City Attorney, may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. Section 9. The Financial Advisor is hereby authorized and directed to cause to be supplied to prospective bidders for the Bonds copies of a preliminary Official Statement in such form, and to supply the winning bidder of the Bonds with copies of a final Official Statement, completed to include, among other things the interest rate or rates and final sale information. Any of the Authorized Officers is hereby authorized and directed to execute a certificate confirming that the preliminary Official Statement has been “deemed final” b y the City for purposes of Rule 15c2-12. Section 10. The officers of the City are hereby authorized and directed, jointly and severally, to do any and all things and to execute and deliver any and all documents, including all things and documents that may be necessary to provide insurance or other credit enhancement with respect to the Bonds, which they may deem necessary or advisable in order to consummate the issuance, sale and delivery of the Bonds or related documents and otherwise to effectuate the purposes of this resolution. PH1-7 4 OHSUSA:758876382.5 Section 11. This resolution shall take effect immediately. ******************** PH1-8 5 OHSUSA:758876382.5 PASSED AND ADOPTED this 16th day of September, 2014, by the following vote: AYES: Councilmembers: NOES: Councilmembers: ABSENT: Councilmembers: APPROVED: Mayor [Seal] ATTEST: City Clerk APPROVED AS TO FORM: City Attorney PH1-9 OHSUSA:758876382.5 CITY CLERK’S CERTIFICATE I, the undersigned, duly appointed and qualified City Clerk of the City of San Luis Obispo (the “City”), certify that attached is a full, true and correct copy of Resolution No. _______, adopted September 16, 2014, during a meeting of the City Council of the City. Such meeting was duly and legally held at the regular meeting place of the City Council. All of the members of said council had due notice of such meeting and a majority thereof was present at such meeting. I have carefully compared the same with the original minutes of said meeting on file and of record in my office, and the foregoing is a full, true and correct copy of such resolution adopted at said meeting and entered in said minutes. Said resolution has not been amended, modified or rescinded since the date of its adoption, and the same is now in full force and effect. Dated: By: City Clerk PH1-10