HomeMy WebLinkAbout12/11/2001, C1 - STATE LOAN FOR MARSH STREET GARAGE EXPANSION 2 council Mce�D•rc
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C I TY OF SAN LU IS O B I S P O
l
FROM: Bill Statler, Director of Finance
Prepared By: Linda Asprion, Revenue Manager
SUBJECT: STATE LOAN FOR MARSH STREET GARAGE EXPANSION
CAO RECOMMENDATION
1. Adopt a resolution approving a loan with the State of California Infrastructure and Economic
Development Bank (CIEDB) to assist in financing the Marsh Street garage expansion in the
amount of$7,765,900 and authorizing the Director of Finance to execute loan documents.
2. Approve revised project funding sources based on this loan amount: $7,765,900 from the
CIEDB loan and $991,500 from Parking Fund working capital.
DISCUSSION
Marsh Street Parking Garage Expansion Financing Plan
Since the Marsh Street parking garage expansion was approved in the 1995-97 Financial Plan,
we have planned to use debt financing to fund its construction in accordance with the City's debt
financing policies. Typically, we would issue lease-revenue bonds for this type of project
through a competitive sale in the private market. Under this structure, the General Fund would
have the underlying obligation for repayment, although the Parking Fund would be financially
responsible for making the debt service payments under the lease agreement. The bond term
would be for 30 years.
Assuming at least an "A" rating and a 30-year term, we projected a net interest rate of about
6.5% in the 2001-03 Financial Plan. Due to the interest rate decreases since then, the current
"market" interest rate is about 5.0% under these same assumptions. As discussed below, the
interest rate under the proposed CIEDB loan program is 3.07% (combined with an annual fee of
0.3% of the outstanding balance, this results in an effective rate of 3.37%). This results in
significantly lower debt service costs than projected in the 2001-03 Financial Plan.
CIEDB Loan Program
Created in 1994, the purpose of the CIEDB is to provide an infrastructure revolving loan fund
program to assist local governments with the financing of public facilities. It was not funded
until 1998, when a $475 million loan bank was authorized. It has subsequently been reduced to
$200 million as part of recent State budget cuts. The interest rate charged on loans under the
program is 67% of the Thompson's Municipal Market Data Index for an "A" rated tax-exempt
security.
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Council Agenda Report—State Loan for Marsh Street Garage Expansion
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In accordance with the program guidelines, we submitted a"pre-application" with the CIEDB on
March 10, 2000, and received the State's approval to submit a formal application. On July 18,
2000, the Council adopted a resolution authorizing staff to complete and submit a formal
application.
The formal application was submitted in August 2001. As mentioned in previous reports to the
Council, we were not optimistic about the likelihood of our loan application being approved.
However, on September 24, 2001, the CIEDB Board of Directors approved the application in the
amount of$7,765,900.
There are two primary advantages to the City in using the CIEDB loan program over
conventional debt financing:
1. Lower Interest Costs. As noted above, the interest rate is set at 67% of a conventional "A"
rated bond issue. In our case, this results in a 3.07% interest rate for a 30-year loan.
Although there are supplemental fees associated with this loan program (issuance costs of
$66,000 and an annual fee of 0.3% of the outstanding principal, for an effective interest rate
of 3.37%), the net cost is significantly lower than a conventional bond issue, where issuance
costs would be about$150,000 and the interest rate would be about 5.0%.
We projected an annual debt service of$625,000 in the 2001-03 Financial Plan. However,
based on this lower interest rate (including the supplemental fees), the debt service payments
will be about $410,000 annually. This results in an annual savings of about $215,000, or
$6.5 million over the life of the loan.
2. Direct Parking Fund Obligation. The loan will be a direct obligation of the Parking Fund
with no underlying General Fund responsibility. Because of this, there is a debt service
coverage ratio requirement of 130% of debt service requirements. This means that parking
rates must be set at rates that cover:the full cost of operations and maintenance; 100% of the
annual debt service from this loan (about $410,000); and an additional 30% of the annual
debt service costs (or about $123,000). Coverage ratios of 110% to 150% are standard
requirements in similar revenue-based financings, since net enterprise fund revenues are
pledged as the sole source of repayment. Since the 1994 lease-revenue bonds are paid from
the Parking Fund (in the amount of$650,000 annually), but are not included in calculating
this ratio, we should have no difficulties in meeting this coverage requirement.
Next Steps
We currently have final loan documents from CIEDB that require Council approval. Once the
loan documents have been signed and returned to CIEDB, we will submit invoices to the State
from the contractor that have previously been paid by the City and receive reimbursement per the
loan documents. Submittals for reimbursement will then be made to the State on a monthly
basis.
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Council Agenda Report—State Loan for Marsh Street Garage Expansion
Page 3
During construction and afterwards, there are a number of compliance and ongoing disclosure
requirements. For the most part, they are similar to those we would expect with a conventional
debt financing. And for those that reflect a uniquely State perspective, we believe they should
not cause an undue administrative burden on us, especially in light of the substantial cost savings
of this program over the life of the issue.
CONCURRENCES
The City's financial advisor (Fieldman Rolapp) and bond counsel (Jones Hall) concur that the
CIEDB loan is the most cost-effective approach for the City in financing this project.
FISCAL IMPACT
Overall, the proposed financing results in favorable impacts on the Parking Fund: annual debt
service costs will be much lower than projected in the 2001-03 by about $215,000; and about
$500,000 less in Parking Fund working capital will be required.
Debt Service Schedule
As noted above, the savings on the debt service payments will be approximately $215,000
annually: $625,000 was budgeted in the 2001-03 Financial Plan compared with actual debt
service payments—including annual CIEDB fees of 0.31/6—of$410,000 annually.
Initially, however, the debt service payments will be "lumpy" (but lower than the future "full'
debt service payments), since we will receive the principal over time as we draw down the loan
proceeds over the next year based on construction progress payments.
Under the CIEDB loan program, the first payments are due on February 1 and August 1, 2002.
As such, the debt service payment due on February 1, 2002 will only include interest on the
amount of the loan monies disbursed prior to that date, with interest accruing from the date of
disbursement; and it is likely that the full amount of the loan proceeds will not be drawn-down by
the August 1, 2002. Further, under generally accepted accounting principles for enterprise funds,
we will accrue into 2001-02 most of the interest and the principal due on August 1, 2002.
Because of these pro-rations, we may not see the "regular" annual debt service payment in our
financial statements until 2003-04. Additionally, this means there will be some debt service
costs in 2001-02, while none was anticipated in the 2001-03 Financial Plan until 2002-03.
However, based on the lower costs of this loan, and a decrease in the use of working capital to
fund this project based on the approved loan amount, there will be no adverse impacts on ending
working capital for 2001-03. Revised projections for debt service costs for 2001-02 and 2002-03
will be presented in the mid-year budget review.
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Council Agenda Report—State Loan for Marsh Street Garage Expansion
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Revised Project Funding
With approval of this loan at $7,765,900 (with net proceeds of $7,699,900 after adjusting for
one-time loan fees of$66,000), the following is the revised funding for this project based on the
final project budget approved by the Council on September 18, 2001:
Pro'ect Costs and Funding Sources (Excludin Land Costs
Parking Fund
CIEDB Loan Working Capital
Total
Design 553,600 553,600
Construction
Construction Contract 6,548,000 6,548,000
Construction Contingency @ 10% 654,800 654,800
Archeological Contingency 75,000 75,000
Additional Public Art 15,000 15,000
Promotion During Construction 10,000 10,000
Water and Sewer Impact Fees 100,000 100,000
Construction Management 497,100 237,900 735,000
Project Total 7,699,900 991,50b 816919400
CIEDB Issuance Fee 66,000 66,000
Revised Total 7,765,900 991,500 8,757,400
Original Estimated Funding Sources 7,200,000 1,491,400 8,691,400
Variance 565,900 (499,900) 66,000
As reflected above, the only change in project costs is the one-time loan fee of$66,000. This
compares favorably with the likely issuance costs of about $150,000 for similar services (such as
bond counsel, financial advisor and trustee) that we would incur in a conventional financing.
And the revised loan amount results in a reduced use of working capital of about $500,000.
Basis for the Loan Amount. As reflected above, more of this project will be funded through
debt financing than we originally envisioned (about $566,000). However, because of the
favorable interest rates through the State loan, we applied for the most funding that the State
would allow (essentially, construction and directly related costs). This frees up about $500,000
in Parking Fund working capital to be used for other parking projects
ALTERNATIVE
The Council could choose not to approve the CIEDB loan documents and go forward with
conventional financing. However, this would be significantly more expensive.
ATTACHMENT
Resolution approving a loan with the CIEDB to assist in financing the Marsh Street garage
expansion and authorizing the Director of Finance to execute loan documents.
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Council Agenda Report—State Loan for Marsh Street Garage Expansion
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ON FILE IN THE COUNCIL OFFICE
CIEDB Loan Documents
G:CIEDB Loan program/Council Agenda Report Requesting Loan Approval
Al
( j.
RESOLUTION NO. (2001 Series)
A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
APPROVING A LOAN WITH THE STATE OF CALIFORNIA TO
ASSIST IN FINANCING THE MARSH STREET GARAGE EXPANSION AND
AUTHORIZING THE DIRECTOR OF FINANCE TO EXECUTE LOAN DOCUMENTS
WHEREAS, the State of California Infrastructure and Economic Development Bank
("Infrastructure Bank") administers a financing program to assist local governments with the
financing of Public Development Facilities as described in Section 63000 et seq. of the
California Government Code; and
WHEREAS, the City of San Luis Obispo ("City") submitted an application ("Loan
Application") in August 2001 to the Infrastructure Bank for the financing of the Marsh Street
Parking Garage Expansion ("Project"); and
WHEREAS, the Loan Application in the amount of $7,765,900 was approved on
September 24, 2001 in Resolution No. 01-39 by the Infrastructure Bank.
NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo
as follows:
SECTION 1. The Director of Finance is authorized and directed to execute and deliver
the Enterprise Fund Installment Sale Agreement (the "Agreement") proposed to be entered into
by the City and the Infrastructure Bank dated as of September 24, 2001, for and on behalf of the
City.
SECTION 2. The Director of Finance is hereby authorized and directed, in the name and
on behalf of the City, to take any and all steps and to execute and deliver any and all certificates,
contracts and other documents deemed necessary or appropriate in order to consummate the
delivery of the Agreement and otherwise to effectuate the purposes of this resolution, including
the execution of a tax certificate, and such actions previously taken by the City are hereby ratified
and confirtned.
Upon motion of , seconded by
and on the following roll call vote:
AYES:
NOES:
ABSENT:
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Resolution No. (2001 Series)
Page 2
The foregoing resolution was adopted this day of , 2001.
Mayor Allen Settle
ATTEST:
Lee Price, City Clerk
APPROVED AS TO FORM:
J J rg en, ity Attorney
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