HomeMy WebLinkAbout10/20/2009, C8 - PARTICIPATION IN PROPOSITION 1A SECURITIZATION PROGRAM council ^c�q°W 10-20-09
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CITY OF SAN LU IS O B I S P O
FROM: Bill Statler, Director of Finance & Information Technology
Debbie Malicoat. Finance Manager
SUBJECT: PARTICIPATION IN PROPOSITION 1A SECURITIZATION PROGRAM
RECOMMENDATION
Adopt a resolution approving the form of and authorizing the execution and delivery of a
purchase and sale agreement and related documents with respect to the sale of the City's
Proposition IA receivable from the State; and directing and authorizing certain other actions in
connection therewith.
DISCUSSION
Overview
As the Council is aware, the State enacted its ability to borrow $1.9 billion from local
government under Proposition I A as part of the State's 2009-10 budget. The City's share of this
takeaway is $1.2 million. Under the State Constitution, this loan must be paid back with interest
within three years.
On the positive side, the State budget also provided for the "securitization" of this loan, under
which the California Statewide Communities Development Authority (California Communities)
— a joint powers authority sponsored by the League of California Cities and California State
Association of Counties (CSAC), of which the City is a member—is authorized to sell bonds,
secured solely by the State's pledge to make these repayments. The proceeds from the bonds
would then be used to make all agencies that choose to voluntarily participate "whole" in 2009-
10 for the full loan amount. The State is required to pay all issuance and interest costs associated
with the securitization program. Under the program:
1. The City would receive$1.2 million this fiscal year, thus fully mitigating the State takeaway.
2. The participation process is simple and straightforward..
3. There are no liabilities to the City in participating in the program: the only pledge to bond
holders is the State's promise to repay. The City would not be a direct party to the bond issue:
its only obligation under the program is to "sell" its loan receivable from the State to
California Communities.
4. There are no hidden costs. The City will receive the full value of the $1.2 million loan as if it
never occurred.
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Participation in Proposition 1A Securitization Program Page 2
However, as we discussed with.the Council at the October 6, 2009 meeting as part of the first
quarter fiscal status report, moving forward with the program depended upon the State legislature
and the Governor approving minor, non-controversial clean-up legislation before adjourning.
Unfortunately, this approval did not happen. To get the program back on track, the League,
CSAC and California Special Districts Association have jointly urged the State legislature to
immediately reconvene to approve the needed budget clean-up measures.
Status of Clean-Up Legislation: SB 67. The legislature is currently reviewing a clean-up bill,
SB67, which would enact the minor changes required to finalize the program. While SB 67 has
not yet been passed and signed into law, California Communities expects this approval to occur
prior to funding the program. In order to move forward with the program and meet required
deadlines for the securitization to occur this year, the City must adopt its participation documents
by November 6, 2009. If for any reason SB 67 is not enacted and the bonds cannot be sold by
December 31, 2009, all approved documents placed in escrow will be of no force and effect, and
will be destroyed.
Background
Proposition lA "Suspension"and$1.9 Billion Loan from Local Government
Proposition 1 A was passed by California voters in 2004 to ensure local property tax and sales tax
revenues remain with local government — cities, counties and special districts — in order to
protect funding for public safety, street maintenance, flood protection, public health, libraries,
parks and other local services. Its provisions can only be suspended if the Governor declares a
fiscal necessity and two-thirds of the Legislature concur.
The emergency suspension of Proposition IA was passed by the Legislature and signed by the
Governor as ABX4 14 and ABX4 15 as part of the State's budget on July 28, 2009. Under these
provisions, the State will borrow 8% of the amount of property tax revenue apportioned to cities,
counties and special districts. This totals $1.9 billion statewide, of which the City's share is
$1,249,800. The State will be required to repay those obligations plus interest by June 30, 2013.
Proposition IA Securitization Program
As authorized as part of the State's budget package under ABX4 14 and ABX4 15, the
Proposition 1A securitization program was developed by California Communities. It allows
local agencies, on a voluntary basis, to sell their respective Proposition IA receivables to
California Communities. Under the securitization program, California Communities will
simultaneously purchase the Proposition IA receivables, issue bonds and provide each
participating agency with the proceeds in two equal installments, on January 15 and May 3, 2010,
which coincides with the dates that the State will be shifting property tax from local agencies.
The purchase price paid to the local agencies will equal 100% of the amount of the property tax
reduction. All transaction costs of issuance and interest will be paid by the State of California.
Participating local agencies will have no obligation on the bonds and no credit exposure to the
State.
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Participation in Proposition 1A Securitization Program Page 3
If the City sells its Proposition. IA receivable under the securitization program, California
Communities will pledge the City's receivable to secure the repayment of a corresponding
amount of the bonds it issues. The City's sale of its Proposition IA receivable will be
irrevocable. Bondholders will have no recourse to the City if the State does not make the
Proposition IA repayment.
Proposition 1A Securitization Program Sponsor
California Communities is a joint powers authority sponsored by the California State Association
of Counties and the League of California Cities. The member agencies include 230 cities and 54
counties throughout California. As noted above, the City is already a member of California
Communities, although membership in this agency is not required to participate in the program.
All participation documents have been drafted by California Communities' financing team.
Given the complexity of a sale that involves a large number of agencies, these documents must
be adopted as prepared, unless there are compelling reasons to do otherwise. No changes to the
loan documents are recommended. To date, 770 local agencies have enrolled in the
securitization program: 55 counties, 300 cities and 415 special districts.
Benefits of Participation in the Proposition 1A Securitization Program
1. Immediate cash relief. The sale of the City's Proposition IA receivable to California
Communities will provide us with 100% of our Proposition IA receivable in two equal
installments on January 15, 2010 and May 3, 2010.
2. Fully mitigates impact of 8% property tax withholding in January and May 2010. As set
forth in ABX4 14 and ABX4 15 and the proposed clean-up legislation in S1367, the State will
withhold 8% of property tax receivables otherwise due to cities, counties and special districts
under Proposition ]A. The financing outlines bond proceeds to be distributed to coincide
with the dates that the State will be shifting property tax from local agencies.
3. All costs of financing borne by the State of California. The City will not have to pay any
interest cost or costs of issuance in connection with our participation.
4. No obligation on bonds. The City has no obligation with respect to the payment of the
bonds, nor any reporting, disclosure or other compliance requirements. In short, these bonds
are being issued by California Communities, not the City. The City's only obligation is to
sell our receivable to California Communities. The only"pledge"being made to bondholders
by California Communities is the State's promise to repay the Proposition IA loan.
Proceeds of the Sale of the City's Proposition lA Receivable
Upon delivery of the Proposition 1 A bonds, California Communities will make available to the
City its fixed purchase price, which will equal 100% of the local agency's Proposition IA
receivable. These funds may be used for any lawful purpose of the City and are not restricted by
the program.
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Participation in Proposition 1A Securitization Program Page 4
Participation Documents
There are two documents associated with the City's participation in this program:
Proposition lA Receivables Sale Resolution
The attached resolution:
1. Authorizes the sale of the City's Proposition IA receivable to California Communities for
100% of its receivable.
2. Approves the form, and directs the execution and delivery, of the Purchase and Sale
Agreement with California Communities and related documents.
3. Authorizes and directs the "Authorized Officer" (in our case, the City Manager or Director of
Finance & Information "technology) to send, or to cause to be sent, an irrevocable written
instruction required by statute to the State Controller notifying the State of the sale of the
City's Proposition IA receivable and instructing the disbursement of the Proposition IA
receivable to the Proposition IA bond trustee.
4. Appoints the City Manager and Director of Finance & Information Technology as Authorized
Officers for purposes of signing documents.
5. Authorizes related actions and makes certain ratifications, findings and determinations
required by law.
Purchase and Sale Agreement
The Purchase and Sale Agreement is approved by the reference in the resolution and is available
for review in the Council office. The agreement:
1. Provides for the sale of'the Proposition I receivable to California Communities.
2. Contains representations and warranties of the Cit to assure California Communities that the
Proposition I receivable has not been previously sold, is not encumbered, that no litigation
or other actions is pending or threatened to disrupt the transaction and the this is an arm's
length "true sale" of the City's Proposition 1 A receivable.
3. Provides mechanics for payment of the purchase price(the amount of the receivable, or in our
case, $1,249,800).
4. Contains other miscellaneous provisions required by law for the City's sale of our
Proposition I A receivable.
The Purchase and Sale Agreement also includes the following exhibits:
B1 Opinion of Counsel: This is an opinion of the City Attorney covering basic approval of
the documents, litigation, and enforceability of the document. It will be dated as of the
pricing date of the bonds (currently expected to be November 10, 2009).
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Participation in Proposition 1A Securitization Program Page 5
(B2) Bringdown Opinion: This simply "brings down" the opinions to the closing date
(currently expected to be November 19, 2009).
(C1) Certificate of the City Clerk: This certificate confirms that the resolution was duly
adopted and is in full force and effect.
(C2) Seller Certificate: This certification by the City will be dated as of the "pricing date" and
confirms that the representations and warranties of the "Seller" (the City) are true as of
the pricing sate, confirms authority to sign, confirms due approval of the resolution and
provides payment instructions.
(C3) Bill of Sale and Bringdown Certificate: This certificate "brings" the certifications of C2
down to the closing date and confirms the sale of the Proposition IA receivable as of the
closing date.
(D) Irrevocable Instructions to the Controller: This is required in order to let the State
Controller know that the Proposition 1 A receivable has been sold by the City and directs
the State to make payment of the receivable to the Trustee on behalf of the bond
purchaser.
(E) Escrow Instruction Letter: This authorizes the "Transaction Counsel' (Orrick) to hold all
documents in escrow until closing, and if closing does not occur by December 31, 2009
for any reason, to destroy all documents.
FISCAL IMPACT
Participation in the securitization program will fully mitigate the impact of the $1.2 million
Proposition I A loan by the State in 2009-11.
ALTERNATIVES
The City could choose not to participate in the program and wait until June 2013 to receive the
loan repayment from the State. In this case, we would receive annual interest on the loan of 2%.
Given the lack of liability in participating in this program, full mitigation of the fiscal impact of
the loan at no cost to the City and 100% surety of repayment, we do not recommend this option.
ATTACHMENTS
Resolution approving participation in the Proposition I securitization program.
AVAILABLE FOR REVIEW IN THE COUNCIL OFFICE
Purchase and Sale Agreement
G:1Finance Division.Revenue DivisioanDebt Financings2009 Prop I A SeeuritvvtionlCouncil Agenda ReporiTropostion I A Securitization.CAR 10-20-09 2.doc ^X
ATTACHMENT
RESOLUTION NO.
CITY COUNCIL
OF THE
CITY OF SAN LUIS OBISPO
A RESOLUTION APPROVING THE FORM OF AND AUTHORIZING THE
EXECUTION AND DELIVERY OF A PURCHASE AND SALE AGREEMENT
AND RELATED DOCUMENTS WITH RESPECT TO THE SALE OF THE
SELLER'S PROPOSITION IA RECEIVABLE FROM THE STATE; AND
DIRECTING AND AUTHORIZING CERTAIN OTHER ACTIONS IN
CONNECTION THEREWITH
WHEREAS, pursuant to Section 25.5 of Article XIII of the California Constitution and
Chapter 14XXXX of the California Statutes of 2009 (Assembly Bill No. 15), as amended (the
"Act"), certain local agencies within the State of California (the "State") are entitled to receive
certain payments to be made by the State on or before June 30, 2013, as reimbursement for
reductions in the percentage of the total amount of ad valorem property tax revenues allocated to
such local agencies during the State's 2009-10 fiscal year (the "Reimbursement Payments"),
which reductions have been authorized pursuant to Sections 100.05 and 100.06 of the California
Revenue and Taxation Code;
WHEREAS, the City of San Luis Obispo, a local agency within the meaning of Section
6585(f) of the California Government Code (the "Seller"), is entitled to and has determined to
sell all right, title and interest of the Seller in and to its "Proposition 1A receivable", as defined in
Section 6585(g) of the California Government Code (the "Proposition I Receivable"), namely,
the right to payment of moneys due or to become due to the Seiler pursuant to Section
25.5(a)(1)(B)(iii) of Article XIII of the California Constitution and Section 100.06 of the
California Revenue and Taxation Code, in order to obtain money to fund public capital
improvements or working capital;
WHEREAS, the Seller is authorized to sell or otherwise dispose of its property as the
interests of its residents require;
WHEREAS, the California Statewide Communities Development Authority, a joint
exercise of powers authority organized and existing under the laws of the State (the
"Purchaser"), has been authorized pursuant to Section 6588(x) of the California Government
Code to purchase the Proposition I Receivable;
WHEREAS, the Purchaser desires to purchase the Proposition IA Receivable and the
Seller desires to sell the.Proposition I A Receivable pursuant to a purchase and sale agreement by
and between the Seller and the Purchaser in the form presented to this City Council (the "Sale
Agreement") for the purposes set forth herein;
WHEREAS, in order to finance the purchase price of the Proposition I Receivable from
the Seller and the purchase price of other Proposition IA Receivables from other local agencies,
the Purchaser will issue its bonds (the "Bonds") pursuant to Section 6590 of the California
Government Code and an Indenture (the "Indenture"), by and between the Purchaser and Wells
Fargo Bank, National Association, as trustee (the "Trustee"), which Bonds will be payable solely
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ATTACHMENT
from the proceeds of the Seller's Proposition IA Receivable and other Proposition lA
Receivables sold to the Purchaser by local agencies in connection with the issuance of the
Bonds;
WHEREAS, the Seller acknowledges that (i) any transfer of its Proposition IA
Receivable to the Purchaser pursuant to the Sale Agreement shall be treated as an absolute sale
and transfer of the property so transferred and not as a pledge or grant of a security interest by
City of San Luis Obispo to secure a borrowing, (ii) any such sale of its Proposition lA
Receivable to the Purchaser shall automatically be perfected without the need for physical
delivery, recordation, filing or further act, (iii) the provisions of Division 9 (commencing with
Section 910 1) of the California Commercial Code and Sections 954.5 to 955.1 of the California
Civil Code, inclusive, shall not apply to the sale of its Proposition IA Receivable, and (iv) after
such transfer, the Seller shall have no right, title; or interest in or to the Proposition IA
Receivable sold to the Purchaser and the Proposition IA Receivable will thereafter be owned,
received, held and disbursed only by the Purchaser or a trustee or agent appointed by the
Purchaser;
WHEREAS, the Seller acknowledges that the Purchaser will grant a security interest in
the Proposition I A Receivable to the Trustee and any credit enhancer to secure payment of the
Bonds;
WHEREAS, a portion of the proceeds of the Bonds will be used by the Purchaser to,
among other things, pay the purchase price of the Proposition 1 A Receivable;
WHEREAS, the Seller will use the proceeds received from the sale of the Proposition l A
Receivable for any lawful purpose as permitted under the applicable laws of the State;
NOW THEREFORE, the City Council of the City of San Luis Obispo hereby resolves as
follows:
Section 1. All of the recitals set forth above are true and correct, and this City
Council hereby so finds and determines.
Section 2. The Seller hereby authorizes the sale of the Proposition 1 A Receivable
to the Purchaser for a price equal to the amount certified as the Initial Amount (as defined in the
Sale Agreement) by the County auditor pursuant to the Act. The form of Sale Agreement
presented to the City Council is hereby approved. An Authorized Officer (as set forth in
Appendix A of this Resolution, attached hereto and by this reference incorporated herein) is
hereby authorized and directed to execute and deliver the Sale Agreement on behalf of the Seller,
which shall be in the form presented at this meeting.
Section 3. Any Authorized Officer is hereby authorized and directed to send, or
to cause to be sent, an irrevocable written instruction to the State Controller (the "Irrevocable
Written Instruction") notifying the State of the sale of the Proposition IA Receivable and
instructing the disbursement pursuant to Section 6588.6(c) of California Government Code of the
Proposition I A Receivable to the Trustee, on behalf of the Purchaser, which Irrevocable Written
Instruction shall be in the form presented at this meeting.
2
-' ATTACHMENT
Section 4. The Authorized Officers and such other Seller officers, as appropriate,
are hereby authorized and directed,jointly and severally, to do any and all things and to execute
and deliver any and all documents, including but not limited to, if required, appropriate escrow
instructions relating to the delivery into escrow of executed documents prior to the closing of the
Bonds, and such other documents mentioned in the Sale Agreement or the Indenture, which any
of them may deem necessary or desirable in order to implement the Sale Agreement and
otherwise to carry out, give effect to and comply with the terms and intent of this Resolution; and
all such actions heretofore taken by such officers are hereby ratified, confirmed and approved.
Section 5. All consents, approvals, notices, orders, requests and other actions
permitted or required by any of the documents authorized by this Resolution, whether before or
after the sale of the Proposition IA Receivable or the issuance of the Bonds, including without
limitation any of the foregoing that may be necessary or desirable in connection with any default
under or amendment of such documents, may be given or taken by an Authorized Officer
without further authorization by this City Council, and each Authorized Officer is hereby
authorized and directed to give any such consent, approval, notice, order or request, to execute
any necessary or appropriate documents or amendments, and to take any such action that such
Authorized Officer may deem necessary or desirable to further the purposes of this Resolution.
Section 6. The City Council acknowledges that, upon execution and delivery of
the Sale Agreement, the Seller is contractually obligated to sell the Proposition IA Receivable to
the Purchaser pursuant to the Sale Agreement and the Seller shall not have any option to revoke
its approval of the Sale Agreement or to determine not to perform its obligations thereunder.
3 n �,�
ATTACHMENT
Section 7. This Resolution shall take effect from and after its adoption and
approval.
PASSED AND ADOPTED by the City Council of the City of San Luis Obispo,
State of California, this day of , 2009, by the following vote:
AYES:
NOES:
ABSENT:
Mayor
Attest:
City Clerk
Approved as to form
SELLER'S COUNSEL
By
Dat .
4 ��� I
ATTACHMENT
APPENDIX A
CITY OF SAN LUIS OBISPO
Authorized Officers: William C. Statler, Director of Finance& Information Technology
Ken Hampian, City Manager
any designee of any of them, as appointed in a written certificate of
such Authorized Officer delivered to the Trustee.
08'--/o
council MCMORAnoum
RECEIVED
October 20, 2009 OCT 2 0 2009
TO: City Council SLO CITY CLERK
FROM: Ken Hampian, City Manager
Bill Statler, Director of Finance & Information Technology 9 '
SUBJECT: COUNCIL AGENDA ITEM C-8:
PARTICPATION IN PROPOSITION 1 SECURITIZATION PROGRAM
As discussed in the agenda report, moving forward with this program required approval by the
State Legislature and the Governor of minor, non-controversial legislation (SB 67).
Unfortunately, while the Assembly passed this legislation, the Senate did not before adjourning
from its regular session.
On October 14, 2009, in a special session, the Senate unanimously passed SB 67, which the
Governor signed on Monday, October, 19, 2009.
Along with over 1,220 other local agencies so far — 57 counties, 389 cities and 778 special
districts—this means we are on track to complete this securitization and fully mitigate the State's
$1.2 million takeaway.
We will be prepared to respond to any questions you may ave at tonight's meeting.
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