HomeMy WebLinkAbout07/20/2010, B 6 - MEETING OF THE CAPITAL IMPROVEMENT BOARD TO APPROVE MINUTES AND APPROVE FINANCING OF FIRE APPARATUS san Luis oBispo capitaL impttovement BoAiza
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Pt1EETINAGENDA_ 6
July 20, 2010 DATE o ITEM #
FROM: Debbie Malicoat, Acting Director of Finance&Information Technology �/�
SUBJECT: MEETING OF THE CAPITAL IMPROVEMENT BOARD TO APPROVE
MINUTES AND APPROVE FINANCING OF FIRE APPARATUS
RECOMMENDATION
1. Approve minutes of meeting held on March 3,2009.
2. Elect officers for the Capital Improvement Board(President and Vice President).
3. Adopt a resolution approving the issuance of bonds to assist in financing the purchase of a fire
truck.
4. Adjourn to the next regular meeting.
DISCUSSION
In April 1986, the City of San Luis Obispo Capital Improvement Board was established as a public
authority to implement financings for constructing and improving City facilities and infrastructure.
The Council serves as the Board of Directors for this agency. The following four actions are before
the Board tonight:
1. Approval of Minutes from March 3, 2009. Minutes from the Board's last meeting are
attached for approval. These minutes are based on the regular Council meeting minutes already
approved by the Council for this date..
2. Election of Officers. In keeping with past practice, it is recommended that the Mayor serve as
President and the Vice-Mayor serve as Vice-President.
3. Approve Fire Truck Project Financing. The key issues related to this financing are fully
described in the Council Agenda Report separately prepared for this item. The Council Agenda
Report is attached to this report for reference.
4. Adjournment. Adjourn to the next regular meeting.
ATTACHMENTS
1. Minutes from March 3, 2009 meeting
2. Council Agenda Report from July 20, 2010 regarding Fire Apparatus Financing
3. Resolution approving the financing for the Fire Truck project
G:\Finance Division\Rcvcnue Division\Debt Financings\2010 Fire Truck Private Placement\Agenda Repores\CB agenda report 7-20-10.DOC
a.G- -I
� Attachment 1
MEETING OF THE CAPITAL IMPROVEMENT BOARD
March 3, 2009
Finance and Information Technology Director Statler and Finance Manager Malicoat
presented the agenda report and responded to questions .
Public Comments
No comments were forthcoming .
—end of public comments---
ACTION : Moved by Settle/Marx to: 1 . Approve minutes of meeting held on May 6 ,
2008. 2 . Elect officers for the Capital Improvement Board (President and Vic e
President) . 3. Adopt Resolution No. 10063 (2009 Series) approving the issuance of
lease-revenue bonds to assist in financing the Public Safety Communications and
Emergency Operations Center Project. 4 . Adjourn to the next regular meeting ; motion
carried 5:0.
Attachment—L
council Mwig Dam 7.20-10
acEnba REpojzt 'pmN
CITY OF SAN LUIS OBISPO
FROM: Debbie Malicoat, Acting Director of Finance& Information Technology
SUBJECT: FIRE APPARATUS FINANCING
RECOMMENDATION
Adopt a resolution approving financing to assist in the acquisition of a new fire apparatus.
DISCUSSION
Overview
The purchase of a 100-foot "Quint" fire engine/truck was approved in the 2009-11 Financial
Plan. At that time three funding sources were identified: new development, Cal Poly, and debt
financing. The attached resolution implements the debt financing previously approved by the
Council for the project.
Background
The 2009-1.1 Financial Plan identified the need to replace the City's 75-foot "Quint," which has
been in service since 1993, with a 100-foot "Quint" (hereafter referred to as "fire truck") that
would serve the City over the next sixteen to twenty years. There were two factors driving the
need for a longer aerial on the apparatus: the new "tall buildings" that are anticipated to be
developed within the City in the future, and the City's contract with Cal Poly to provide
emergency service to the campus. Over the past few years Cal Poly has built several new
buildings that need 100-foot ladder access. Based on these two factors, Council adopted
Development Impact fees that would provide for development to pay a fair share of the added
costs ($300,000) and staff negotiated with Cal Poly to pay an annual contribution of$25,000 for
the second (2009-10) through fifth year of its five year contract. These two sources will provide
$400,000 in funding for the project over a period of several years, but the City would need to
issue bonds in order to purchase the Quint.
Upon the approval of the 2009-11 Financial Plan, and required bidding process was followed, the
City entered into an agreement with Pierce Manufacturing to build the new fire apparatus. The
fire truck was delivered in June 2010 and it is, therefore, timely to issue the bonds to pay for the
purchase.
Debt Management Policy Links
The proposed financing is consistent with the City's adopted capital financing and debt
management policies as provided in the 2009-11 Financial Plan. The use of debt financing is
appropriate for one-time capital improvement projects when the project's useful life exceeds the
term of the financing.
Attachment
Fire Apparatus Financing Page 2
Structure of the Financing
The financing will be issued through the San Luis Obispo Capital Improvement Board (Board).
The City has already purchased the fire truck and, in order to provide financing for the truck, the
City has proposed to sell the truck to the Board under an Acquisition Agreement for a purchase
price sufficient to reimburse the City for its costs of purchasing the fire truck. The Board will
then lease the fire truck to the City via a lease-purchase agreement for semiannual lease
payments, which will be equal to the debt service payments of the bonds. In tum, the City
commits that it will annually budget for the lease payments..
Private Placement versus Public Offering. It is the City's standard practice to conduct debt
financings through a competitive public offering of municipal bonds. This means that the City's
bonds would essentially be "auctioned" to the buyer willing to give the City the highest price.
However, a private placement makes more sense in this case due to the small size of the
financing. In a private placement, the City works directly with the entity that will purchase the
bonds, rather than offering the bonds for sale to the public. Even so, the City has an obligation to
get the best price for the bonds, whether they are sold through an auction-type environment or
directly to a private buyer. In an effort to ensure the best price, a request for proposals (RFP) was
issued by the City's independent financial advisor, which was targeted at likely "buyers," in this
case, financial institutions. These included large banks and leasing companies. The attached
resolution authorizes the City Manager to approve the proposal from Chase Equipment Finance,
Inc., which is the best bidder in this case.
Term of the Financing. When the 2009-11 Financial Plan was adopted, it was anticipated that
the fire truck would be debt financed for a term of 16 years, which was the expected useful front-
line service life of the equipment, and an interest rate of.5.25%. Since that time, there have been
many changes in the banking industry and the results of the RFP indicate that banks are not
willing to lend for this length of time for this type of equipment. The two responses to the RFP
were for terms of 10 or 12 years. Pierce Manufacturing has a financing division that is willing to
extend the City credit for a period of 15 years; however, an analysis of the costs reveals that this
would be substantially more expensive than procuring financing from the banks (Attachment 2).
Although financing the purchase for a shorter time period will mean debt service payments that
are slightly higher than originally anticipated, interest rates are much more favorable than the
Financial Plan assumed, which will help mitigate these higher payments; ultimately it results in a
lower total cost and is, therefore, recommended by staff. The 2009-11 Financial Plan anticipated
debt service payments of approximately$97,000. The proposed financing is based on an interest
rate of 2.99% and principal of$1,080,000, which includes debt issuance costs. The debt service
payments range from approximately $96;500 to $130,800, with costs for the 2010-11 fiscal year
of$96,504.80. The adopted 2010-11 budget includes $97,000 for debt service on this purchase.
Future financial plans will include adequate budget to cover the debt service costs in each fiscal
year.
I��I
Attachment a
Fire Apparatus Financing Page 3
Professional Assistance
In accordance with service agreements previously approved by the Council, bond counsel
services will be provided by the law firm of Jones Hall and financial advisor services will be
provided by Fieldman Rolapp.
Description of Financing Documents
The attached resolution approves a variety of documents that are required in order to proceed
with the financing. Prepared by the City's bond counsel (Jones Hall), the following is a brief
description of these three documents,which are on file in the Council office:
1. Acquisition Agreement This document is an agreement between the City and the Board
which will sell the fire truck to the Board in order to provide financing for the acquisition of
the truck. The purchase price will be sufficient to reimburse the City for its costs of
purchasing the fire truck..
2. Equipment Lease-Purchase Agreement The lease-purchase agreement is between the City
and the Board. In order to secure the bonds, the Board will lease the fire equipment to the
City. Semiannual rental payments from the City will be sufficient to pay principal and
interest on the bonds.
3. Assignment Agreement The assignment agreement is between the City and the Board. The
assignment consists of the Board transferring certain rights to the lender, such as collecting of
the lease payments from the City and protecting the interests of the lender.
As reflected in the attached resolution approving these financing documents, the City Manager is
authorized to make minor amendments to these documents as recommended by bond counsel and
the financial advisor, and to execute the final documents.
Project Financing Schedule
The following outlines key dates in issuing these bonds:
Council and Capital Improvement Board approval of refinancing July 20, 2010
Bond closing and receipt of funds July 27, 2010
FISCAL IMPACT
The average annual debt service payment is approximately $131,600, with payments ranging
from approximately $96,500 to $130,800. Debt service payments will begin on February 1,
2011. The 2009-11 Financial Plan Supplement anticipated this financing issue and includes
adequate resources for the debt service payments. A detailed analysis of key project financing
assumptions and annual debt service costs prepared by the City's financial advisor is on file in
the Council office.
-Aftachrnent L
Fire Apparatus Financing Page 4
ALTERNATIVES
1. Continue consideration and direct staff to return with alternative financing. This is not
recommended as the proposed financing represents the most competitively priced financing
package for the fire truck.
2. Do not finance the fire truck, rather use reserves. This is not recommended as financing is
consistent with the City's capital financing policy, given the useful life and one-time nature
of the equipment.
ATTACHMENT
1. Resolution authorizing the execution and delivery of documents and approving official
actions related to lease-purchase financing of fire truck.
2. Total cost comparison for proposals received.
AVAILABLE FOR REVIEW IN THE COUNCIL OFFICE
1. Acquisition Agreement
2. Equipment Lease-Purchase Agreement
3. Assignment Agreement
4. Financing Analysis Prepared by Fieldman Rolapp
G:\Finance Division\Revenue Division\Debt Financings\2010 Fire Truck Private Placement\Agenda Reports\Council Agenda Report-Approve
2010 Private Placement 7-20-10.doc
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'—J Attachment 3
RESOLUTION NO. (2010 Series)
RESOLUTION OF THE BOARD OF DIRECTORS OF THE CITY OF SAN
LUIS OBISPO CAPITAL IMPROVEMENT BOARD AUTHORIZING THE
EXECUTION AND DELIVERY OF DOCUMENTS AND APPROVING
OFFICIAL ACTIONS RELATING TO LEASE-PURCHASE FINANCING
OF FIRE TRUCK
WHEREAS, the City of San Luis Obispo (the "City") is proceeding to acquire a fire truck made
by Pierce Manufacturing Inc., Arrow XT Series (the "Fire Truck"), and in order to provide financing for
the Fire Truck the City has proposed to sell the Fire Truck to the City of San Luis Obispo Capital
Improvement Board (the "Board") for a purchase price which is sufficient to reimburse the City for its
costs of acquiring the Fire Truck; and
WHEREAS, in order to raise funds required to purchase the Fire Truck from the City, the Board
has proposed to lease the Fire Truck back to the City in consideration of the agreement by the City to pay
semiannual lease payments and the Board has proposed to assign such lease payments and other of its
rights under the lease to Chase Equipment Finance Inc. (the"Lender"); and
WHEREAS, the Board is authorized to provide financial assistance to the City under Ordinance
No. 1059 (1986 Series)adopted by the City Council of the City on April 15, 1986;
NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the City of San Luis
Obispo Capital Improvement Board as follows:
SECTION 1. Approval of Financing. The Board of Directors hereby approves the financing of
the Fire Truck in the manner set forth in this Resolution. The proposal from the Lender to provide
financing for the Fire Truck, in the form on file with the Secretary, is hereby approved.
SECTION 2. Approval of Financing Documents. The Board of Directors hereby approves each
of the following agreements required for the financing of the Fire Truck, in substantially the respective
forms on file with the Secretary together with any changes therein or additions thereto deemed advisable
by the Executive Director, whose execution thereof shall be conclusive evidence of the approval of any
such changes or additions. The Executive Director is hereby authorized and directed for and in the name
and on behalf of the Board to execute, and the Secretary is hereby authorized and directed to attest, the
final form of each such agreement:
• Acquisition Agreement, between the City and the Board, under which the City sells
the Fire Truck to the Board for a purchase price which is sufficient to reimburse the
City for its costs of acquiring the Fire Truck.
• Lease Agreement,between the Board and the City, under which the Board leases the
Fire Truck to the City and the City agrees to pay semiannual lease payments as the
rental thereof, and
• Assignment Agreement, between the Board and the Lender, whereby the Board
assigns certain of its rights under the Lease Agreement to the Lender in
consideration of the payment by the Lender of an amount which is sufficient to
enable the Board to purchase the Fire Truck from the City and to pay related
financing costs.
Resolution No. (2010 Series)
ATTACHMENT 3
Page 2
SECTION 3. Official Actions. The President, the Executive Director, the Interim Chief
Financial Officer, the Secretary, the Board Attorney and all other officers of the Board are each
authorized and directed in the name and on behalf of the Board to make any and all leases, assignments,
certificates, requisitions, agreements, notices, consents, instruments of conveyance, warrants and other
documents, which they or any of them deem necessary or appropriate in order to consummate any of the
transactions contemplated by the agreements and documents approved under this Resolution. Whenever
in this Resolution any officer of the Board is authorized to execute or countersign any document or take
any action, such execution, countersigning or action may be taken on behalf of such officer by any person
designated by such officer to act on his or her behalf if such officer is absent or unavailable.
SECTION 4. Effective Date. This Resolution shall take effect immediately upon its passage
and adoption.
Upon motion of seconded by and on the
following vote:
AYES:
NOES:
ABSENT:
The foregoing Resolution was passed and adopted this 20`x'day of July, 2010.
David F. Romero,President
ATTEST:
Elaina Cano, Secretary
APPROVED:
J. Christine Dietrick,Board Attorney
I hereby certify that the foregoing Resolution was passed and adopted by the Board of Directors
of the City of San Luis Obispo Capital Improvement Board at a special meeting thereof duly held on July
20, 2010,by a majority vote of all of its members .
Elaina Cano, Secretary