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HomeMy WebLinkAbout08/16/2011, PH 3 - CONDUIT FINANCING REQUEST FROM THE UNIVERSITY MINISTRY BOARD OF THE SANTA BARBARA PRESBYTERY FOR AN o council MmyD� 8-16-11 AQcnaa Report CITY OF SAN LUIS OBISPO FROM: Mary Bradley, Interim Director of Finance& Information Technology SUBJECT: CONDUIT FINANCING REQUEST FROM THE UNIVERSITY MINISTRY BOARD OF THE SANTA BARBARA PRESBYTERY FOR AN EIGHT-UNIT HOUSING PROJECT CONSTRUCTED AT 1468 EAST FOOTHILL BOULEVARD RECOMMENDATION Adopt a resolution allowing the California Municipal Finance Authority on behalf of University Ministry Board of the Santa Barbara Presbytery to issue tax-exempt bonds to assist in refinancing its eight-unit housing project constructed at 1468 East Foothill Boulevard. DISCUSSION Overview The University Ministry Board of the Santa Barbara Presbytery(UMBSBP) is requesting that the City approve its borrowing up to $4 million in tax-exempt bonds to assist in refinancing its eight- unit housing project constructed at 1468 East Foothill Boulevard. Even though there is no financial participation (or liability, direct or indirect) by the City in approving this "conduit" financing, Council approval of the borrowing is required under federal regulations for tax-exempt bond financing. Project Summary 1. The UMBSBP project is "group housing:" seven apartments, caretaker's residence and recreation room located at East Foothill Boulevard, adjacent to the Cal Poly campus. Maximum occupancy is 48 persons("The Project"). 2. The Planning Commission approved the use permit on March 12, 2008, and the Architectural Review Commission granted final project approval on May 19, 2008. The building permits were issued and The Project was completed and occupied in February 2011. 3. The Community Development Department was supportive of the request because it locates high density student housing in the Cal Poly neighborhood. The Council also approved a zone change on September 16, 2008 to increase the density from R-3 to R-4 in this vicinity to encourage projects like this one. 4: On November 17, 2009, the City conducted a:public hearing under the Tax and.Equity Fiscal Responsibility Act ("TEFRA") and the requirements of the Internal Revenue Code of 1986, approved the City joining the California Municipal Finance Authority (CMFA) and adopted Resolution No. 10127 approving the issuance of Bonds by CMFA to finance The Project. PH3-1 J 0 Conduit Financing Request: University Ministry Board, Santa Barbara Presbytery Page 2 5. The completion of The Project was delayed due to the construction contractor, Walker Construction Company, suffering financial reverses and filing for bankruptcy, leaving behind claims by subcontractors and an inability to complete the job. The owner proceeded to assume responsibility for finishing The Project. The result was a substantial delay in completing construction. This resulted in the 12 month timeframe for the original TEFRA resolution and issuance of Bonds by CMFA to have lapsed, requiring the City to conduct a new TEFRA Public Hearing and adopt a new resolution. No City Liability for the Financing There is no City liability in approving this "conduit" financing. The bonds will be issued by the CMFA and annual debt service payments will be the sole responsibility of the UMBSBP. The City will have no financial, legal, or moral obligation, liability or responsibility for the project or for the repayment of the bonds. All financing documents with respect to the issuance of the bonds will contain clear disclaimers that they are not obligations of the City or the State of California, but are to be repaid solely from funds provided by UMBSBP. There are no costs associated with membership in the CMFA and the City in no way is exposed to any financial liability by reason of its membership in the CMFA. In addition, participation by the City in the CMFA will not impact the City's appropriations limits and will not constitute any type of indebtedness by the City. Outside of holding this hearing and adopting the required resolution, no other participation or activity of the City with respect to the bonds will be required. City's Conduit Financing Policy While the Council is not obligated to approve this request, it would be consistent with past City actions regarding The Project. Under the City's debt financing and management policies, consideration of a request for conduit financing is generally a two-step process: 1. First asking the Council if they are interested in considering the request and establishing the ground rules for evaluating it. 2. And then returning with the results of this evaluation and recommending approval of appropriate financing documents if warranted. This two-step approach was completed in 2009 when the City conducted the original TEFRA hearing and adopted Resolution No. 10127 approving the issuance of Bonds by CMFA to finance The Project. City's Past Experience with Conduit Housing Bonds The City has approved six "conduit" housing bond issues in the past as reflected in the following summary: PH3-2 I 0 10 Conduit Financing Request: University Ministry Board, Santa Barbara Presbytery Page 3 1. 1985. 168-unit apartment development on Southwood Drive(refinanced in 1993). 2. 1998. 30-unit development (all "affordable" for seniors and persons with disabilities) on Brizzolara Street. 3. 1999. 122-unit apartment development by the De Vaul Ranch Company, of which 26 units will be affordable-24 for"very-low" and 2 for"moderate"income households. In this case, the Housing Authority is not the developer, but will loan the funds to the De Vaul Ranch Company. This funding has not yet occurred. 4. 2002. 19-unit seniors apartment development at 433 Pacific Street (Pacific and Carmel). 5. 2005. 40 affordable one-bedroom units for seniors as well as one manager's unit in an existing historic single-family residence at 2005 Johnson Avenue ("Del Rio Terrace"). 6. 2009. Original approval of The Project at 1468 East Foothill Boulevard. There have been no financial difficulties with any of these bond issues. Next Steps L Conduct new TEFRA Public Hearing and adopt Resolution approving issuance of Bonds by CMFA. As was discussed earlier, the City conducted a TEFRA Public Hearing and adopted Resolution No. 10127 on November 17, 2009 for The Project. The Project encountered construction delays resulting in the original TEFRA Public Hearing and Resolution No. 10127 lapsing after 12 months. Therefore, the City needs to conduct a new TEFRA Public Hearing and adopt a new Resolution approving the issuance of Bonds (Attachment No. 1). H. CMFA issuance of tax-exempt Bonds for The Project. After the TEFRA Public Hearing and adoption of the Resolution, the CMFA Board will approve the issuance of tax-exempt Bonds to refinance The Project at a future Board meeting. There will be no further actions required by the City. FISCAL IMPACT There are no adverse fiscal impacts associated with this financing. As noted above, the City has no liability—directly or indirectly—for this financing. Assuming bond issuance of$4 million, the City will be reimbursed $10,000 from the bond proceeds (0.25%) to cover our City administrative costs, the cost of the Jones Hall opinion(time and materials, not to exceed $1,500) and the cost of Fieldman, Rolapp & Associates time to review the information (time and materials, not to exceed $1,200). PH3-3 Conduit Financing Request: University Ministry Board, Santa Barbara Presbytery Page 4 ALTERNATIVES 1. Do not approve the requested financing. Given the discretionary approvals that this project has already received from the City and the lack of any liability for repayment of the bonds by the City, this option is not recommended. 2. Defer consideration of the request. Due to the time requirements for this financing, this option is not recommended. ATTACHMENTS 1. Resolution allowing the CMFA to issue tax-exempt bonds T:\Council Agenda Repons\Finance&IT CAR\Finance\201I\TEFRA Hearing_8-16-11.doc PH3-4 J 0 Attachment RESOLUTION NO. (2011 Series) A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO APPROVING THE ISSUANCE OF BONDS BY THE CALIFORNIA MUNICIPAL FINANCE AUTHORITY FOR THE PURPOSE OF FINANCING OR REFINANCING A HOUSING DEVELOPMENT FOR UNIVERSITY MINISTRY BOARD OF THE SANTA BARBARA PRESBYTERY AND CERTAIN OTHER MATTERS RELATING THERETO WHEREAS, pursuant to Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the "Act"), certain public agencies (the "Members") have entered into a Joint Exercise of Powers Agreement, effective on January 1, 2004 (the "Agreement") in order to form the California Municipal Finance Authority (the "Authority"), for the purpose of promoting economic, cultural and community development, and in order to exercise any powers common to the Members, including the issuance of bonds, notes or other evidences of indebtedness; and WHEREAS, the City of San Luis Obispo (the "City"), had determined that it was in the public interest and for the public benefit that the City become a Member of the Authority in order to facilitate the promotion of economic, cultural and community development activities in the City, including the financing of projects therefor by the Authority; and WHEREAS, the California Municipal Finance Authority (the "Authority") is authorized to issue and sell revenue bonds for the purpose, among others, of financing or refinancing the construction of capital projects; and WHEREAS, the University Ministry Board of the Santa Barbara Presbytery, a California nonprofit religious corporation (the "Borrower") has requested that the Authority issue and sell revenue bonds in the maximum principal amount of$4,000,000 (the "Bonds") for the purpose of making a loan to the Borrower, to enable the Borrower to refinance the costs of a campus ministry and student housing development at California Polytechnic State University located at 1468 E. Foothill Blvd. San Luis Obispo, California (the"Project"); and WHEREAS, in order for the interest on the Bonds to be tax-exempt, Section 147(f) of the Internal Revenue Code of 1986, as amended (the "Code"), requires that an "applicable elected representative" with respect to the Authority hold a public hearing on the issuance of the Bonds and approve the issuance of the Bonds following such hearing; and WHEREAS, the Authority has determined that the Council is an "applicable elected representative" for purposes of holding such hearing; and WHEREAS, notice of such public hearing has been duly given as required by the Code, and the Council has heretofore held such public hearing at which all interested persons were given an opportunity to be heard on all matters relative to the financing or refinancing of the Project and the Authority's issuance of the Bonds therefor; and WHEREAS, it is in the public interest and for the public benefit that the Council approve the issuance of the Bonds by the Authority for the aforesaid purposes; NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo as follows PH3-5 0 I�) Resolution No. (2011 Series) Attachment, Page 2 Section 1. The Council hereby approves the issuance of the Bonds by the Authority for the purpose of providing funds to make a loan to the Borrower to enable the Borrower to finance or refinance the Project. Section 2. The issuance of the Bonds shall be subject to the approval of the Authority of all financing documents relating thereto to which the Authority is a party. The City shall have no responsibility or liability whatsoever with respect to the Bonds. Section 3. The adoption of this Resolution shall not obligate the City or any department thereof to (i) provide any financing to acquire or construct the Project or any refinancing of the Project; (ii) approve any application or request for or take any other action in connection with any planning approval, permit or other action necessary for the acquisition, rehabilitation or operation of the Project; (iii) make any contribution or advance any funds whatsoever to the Authority; or (iv) take any further action with respect to the Authority or its membership therein. Section 4. The Mayor, the Clerk and all other proper officers and officials of the City are hereby authorized and directed to execute such other agreements, documents and certificates, and to perform such other acts and deeds, as may be necessary or convenient to effect the purposes of this Resolution and the transactions herein authorized. Section 5. The Clerk shall forward a certified copy of this to the Authority in care of its counsel: Harriet M. Welch,Esq. Squire, Sanders &Dempsey LLP. 555 South Flower St., Suite 3100 Los Angeles, CA 90071-2300 Section 6. This resolution shall take effect immediately upon its passage. PH3-6 0 D Resolution No. (2011 Series) Attachment Page 3 Upon motion of , seconded by and on the following roll call vote: AYES: NOES: ABSENT: the foregoing resolution was adopted on August 16, 2011. Jan Howell Marx, Mayor ATTEST: Elaina Cano, City Clerk APPROVED AS TO FORM: J C ' e•Dietrick, City Attorney 1672526.1 PH3-7