Council Meeting: March 28, 2006
8 B
TO: Mayor
and City Council
Chairperson
and Redevelopment Agency
FROM: City and Redevelopment Staff
SUBJECT: Recommendation for the City Council and Redevelopment Agency to
Adopt Resolutions Authorizing Issuance of Earthquake Recovery Redevelopment
Project Area Tax Allocation Refunding Bonds (’Refunding Bonds”) and Approval of
Various Documents, Budget Actions and Other Matters Related Thereto
In December 1999
the City of Santa Monica Redevelopment Agency issued tax-exempt tax allocation
bonds totaling $65,285,000 to finance, for redevelopment purposes, the purchase
of approximately 11.3 acres in the
The Agency has an
opportunity to refinance the 1999 Bonds and realize interest savings by issuing
Refunding Bonds with lower interest rates.
Because the first call date for the 1999 Bonds is July 1, 2009, monies
realized from the sale of Refunding Bonds will be placed in escrow until the
call date and will be sufficient to:
This type of
refinancing is known as an advance refunding because the new debt is issued in
advance of the old debt’s redemption.
At Council’s
direction, the Agency has recently entered into negotiations to develop
affordable and market-rate housing on a portion of the land purchased with the
proceeds of the 1999 Bonds. The
development of market-rate housing is expected to result in net revenue for the
Agency of $14 million to $21 million. The portion of the 1999 Bonds used to
purchase the land where market-rate housing will be developed will no longer
meet the tests for tax-exempt status; therefore, the Redevelopment Agency will
issue Refunding Bonds in two series, Series A (tax-exempt) and Series B
(taxable). Interest paid to bondholders
of the Series A bonds will be tax-exempt and interest paid to bondholders of
the Series B bonds will be taxable and therefore be at somewhat higher interest
rates. Notwithstanding this taxable component of the refunding, which would be
required by federal tax law whether or not savings were generated, the
refunding is expected to produce savings in excess of 6.5% of the par amount of
the Refunding Bonds of which the tax-exempt refunding generates approximately
7.4% savings and the taxable refunding generates 3.8% savings.
1.
Indenture
2.
First Supplement to Indenture of Trust
3.
Escrow Agreement
4.
Preliminary Official Statement
5.
Official Notice of
6.
Notice of Intention to Sell for use in connection with the
offering and sale of the bonds.
The attached City
and Agency Resolutions approve all of the above-described documents
substantially in the form presented at this meeting and authorize the execution
and delivery of these documents by specified City and Redevelopment Agency officials
and employees.
The preparation,
execution and delivery of the final Official Statement and execution and
delivery of any additional documents as may be necessary to affect the
offering, sale and issuance of these Refunding Bonds are also authorized and
approved by the attached Resolutions.
Also on file for
review in the City Clerk’s office is a list of questions which various national
associations and the Federal Securities and Exchange Commission recommend that
public officials ask when approving the issuance of bonds. For your convenience, staff and the City’s
Financial Advisor and Bond Counsel have provided answers to each question.
It is necessary to establish
revenue budgets for the proceeds from the issuance of the Refunding Bonds and
expenditure budgets for the defeasance of the 1999 Bonds and payment of
issuance costs. Revenue and
appropriation budget actions necessary at this time to record the sale of the
Refunding Bonds and defeasance of the 1999 Bonds in the Earthquake Recovery
Project Area Fund and the Low/Moderate Housing Fund follow:
Other
Financing Sources (proceeds from the sale of Refunding Bonds,
net of
the estimated maximum original issue discount):
Acct.
No. 17990.601001 $56,000,000
Acct. No. 15990.601001
14,000,000
$70,000,000
Other Financing Uses (defeasance of
1999 Bonds):
Acct. No. 17990.601003 $50,720,000
Acct. No. 15990.601003 12,680,000
$63,400,000
Bond
Issue Costs (costs of issuance, underwriter’s
discount
and bond insurance)
Acct. No. 17274.555980 $ 1,440,000
Acct. No. 15274.555980
360,000
$ 1,800,000
NOTE: The remaining $4.8
million of Refunding Bonds proceeds may be deposited into a required reserve
account. The City may substitute a
surety bond for this required reserve, in which case the costs of issuance will
increase and the par amount of Refunding Bonds will decrease.
The estimated annual debt service on the Refunding Bonds is approximately $4.8 million which will be paid from tax increment received by the Agency. Budget actions necessary for future fiscal years will be reflected in the City’s proposed budget documents in future years. The expected net present value of all future savings in annual debt service payments is approximately $3.9 million, which would represent 6.5% of the 1999 Bonds. A schedule prepared by the City’s Financial Advisor summarizing expected savings is available for review in the City Clerk’s office.
It is recommended that the City Council and Redevelopment Agency:
1. Adopt the attached Resolutions authorizing issuance of Redevelopment Agency Earthquake Recovery Redevelopment Project Area Tax Allocation Bonds, 2006 Series A and B and approve the execution and delivery of an Indenture and First Supplement to Indenture of Trust, Escrow Agreement, Preliminary Official Statement, Official Notice of Sale and Notice of Intention to Sell.
2. Approve the budget changes as outlined in the Budget/Financial Impact section of this report.
City Resolution Authorizing
Issuance of Refunding Bonds
Due to
their voluminous nature the following documents are on file in the City Clerk’s
office and available for review:
Indenture
First Supplement to Indenture of Trust
Escrow Agreement
Preliminary Official Statement
Official Notice of
Notice of Intention to Sell
Qs For Public Officials To Ask Before Approving A Bond Issue
Summary of Expected Savings
Prepared by:
Marsha
Jones Moutrie, City Attorney