HomeMy WebLinkAbout07/20/2010, B7 - FIRE APPARATUS FINANCING council MeetinaDate 7-20-10
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CITY O F SAN LUIS O B I S P O
FROM: Debbie Malicoat, Acting Director of Finance& Information Technology-
SUBJECT:
echnologySUBJECT: 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 2009-11 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.
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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 turn, 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.
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:
Task DatQ_
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.
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\Rcvenue Division\Debt Financings\2010 Fire Truck Private Placement\Agenda Reports\Council Agenda Report-Approve
2010 Private Placement 7-20-10.doc
RESOLUTION NO._(2010 Series) Anac 1ment��
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO
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 City is a charter city organized and existing under the Constitution and laws of
the State of California, and as such the City is authorized to make and enforce all laws and regulations in
respect to municipal affairs, subject only to such restrictions and limitations as may be provided in the
Charter of the City and in the Constitution of the State of California, and as such the City is authorized to
provide financing for the Fire Truck in the manner set forth in this Resolution;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of San Luis Obispo
as follows:
SECTION 1. Approval of Financing. The City Council 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 City Clerk, is hereby approved. The acceptance of such
proposal by the City Manager or her designee is hereby rarified, confirmed and approved.
SECTION 2. Approval of Financing Documents. The City Council hereby approves each of the
following agreements required for the financing of the Fire Truck, in substantially the respective forms
on file with the City Clerk together with any changes therein or additions thereto deemed advisable by
the City Manager, whose execution thereof shall be conclusive evidence of the approval of any such
changes or additions. The City Manager is hereby authorized and directed for and in the name and on
behalf of the City to execute, and the City Clerk 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
SECTION 3. Approval of Assignment to Lender. The City Council hereby approves the
assignment by the Board to the Lender of the lease payments which are payable by the City under the
Lease Agreement, together with certain other rights of the Board under the Lease Agreement and other
interests of the Board with respect to the Fire Truck.
13-?- S
Resolution No. (2010 Series) Attachment. L
Page 2
SECTION 4. Official Actions. The Mayor, the City Manager, the Interim Director of Finance
and Information Technology, the Finance Manager, the City Clerk and all other officers of the City are
each authorized and directed in the name and on behalf of the City 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 City 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 in the case such officer is
absent or unavailable.
SECTION 5. 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 20th day of July, 2010.
Mayor David F. Romero
ATTEST:
Elaina Cano
City Clerk
APPROVED AS O FORM:
J. Christine Dietrick
City Attorney
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Attachment 2
Chase Equipment Finance Proposal 10 Year Term
Principal Interest Total Debt Service
$ 1,080,000 $ 171,536 $ 1,251,536
BANA proposal 10 Year term
Principal Interest Total Debt.Service
$ 1,090,000 $ 218,815 $ 1,308,815
BANA proposal 12 Year Term
Principal Interest Total Debt_ Service
$ 1,090,000 $ 288,000 $ 1,378,000
Oshkosh Lease Proposal-Fixed Payment Amount for 15 Years
Principal Interest Total Debt_ Service
$ 1,014,181 $ 471,327 $ 1,485,508