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CC 2016-08-23_09c Redemption of Fire Station Bonds TO: FROM: SUBJEC DATE: RECOM It is reco 1) A P 2 2) A S B IMPACT The cos estimate eliminati BACKG Pursuan City on J a propos of gene upgrade two-third adopted to financ On Feb Bonds, S of $1,90 CITY DEBB CT: CONS THE THE BOND AUGU MMENDATI ommended t Adopt a Res Providing for 003 (Fire S Authorize th Services To Bonds (2003 T ON FINAN st to redee ed to be ap ing future in GROUND: nt to the Ca July 9, 200 sition was s eral obligat e and expa ds of the vo d Resolution ce the Proje ruary 25, 2 Series A of 00,000, of w COUNCIL BIE MALIC SIDERATIO CITY OF OPTIONA DS, SERIE UST 23, 20 ON: the City Co solution of r the Option Station Proje e Mayor, th Take All Ac 3A GO Bond NCIAL AND em the out pproximate nterest pay alifornia Go 2, a specia submitted t ion bonds nd the Fire otes cast a n No. 3648 ect. 2003, the C f 2003 (Fire which curren MEM L COAT, DIRE ON OF A ARROYO AL REDEM ES A OF 20 016 uncil: the City C nal Redemp ect) he Acting C ctions Nece ds) D PERSON tstanding 2 ly $882,32 ments of ap overnment al election w o the qualif in a not-t e Station loc t the electio 8 on Januar City issued e Station Pr ntly $855,00 MORANDUM ECTOR OF RESOLUT GRANDE MPTION O 03 (FIRE S Council of th ption of its G City Manag essary To P NNEL RESO 2003A GO 3, including pproximate Code and was held on fied voters to-exceed cated on T on were in ry 28, 2003 the City o roject) in the 00 remains M F ADMINIST TION OF T E, CALIFO OF ITS G STATION P he City of A General Ob ger and the Pay Off The OURCES: Bonds on g transactio ely $151,102 Ordinance n Novembe in the City principal a Traffic Way favor of th 3 providing of Arroyo G e original a s outstandin TRATIVE S THE CITY ORNIA, PR GENERAL PROJECT) Arroyo Gra bligation Bon e Director o 2003 A Ge n Septemb on costs. T 2 through A e No. 532 r 5, 2002 a providing f amount of (the “Proje he propositi for the issu Grande Gen aggregate p ng. SERVICES COUNCIL OVIDING OBLIGAT ande, Califo nds, Series of Administr eneral Oblig ber 23, 201 The City w August 1, 2 adopted by at which ele for the issu $1.9 millio ect”). More on and the uance of b neral Oblig principal am L OF FOR TION ornia, s A of rative ation 16 is ill be 023. y the ction ance on to than e City onds ation mount Item 9.c. - Page 1 CITY COUNCIL CONSIDERATION OF A RESOLUTION PROVIDING FOR THE OPTIONAL REDEMPTION OF GENERAL OBLIGATION BONDS, SERIES A OF 2003 (FIRE STATION PROJECT) AUGUST 23, 2016 PAGE 2 ANALYSIS OF ISSUES: The 2003A GO Bonds are currently subject to redemption at par or 100% on any date at a redemption price equal to the outstanding principal amount, together with accrued interest to the date fixed for redemption. Such redemption may next be made on September 23, 2016. There is currently approximately $786,275 in property tax assessments deposited in the Debt Service Fund with respect to the 2003A GO Bonds and approximately $180,700 of Fire Protection Impact Fees available to the City to cause the redemption of the 2003A GO Bonds. Property tax assessments are based on the best estimates of assessed valuation from the County and it is common for small residual balances to build up in these types of accounts due to slight variances in final valuations and supplemental property tax transactions. In this case, assessments were levied in prior years that slightly exceeded the debt service cost of the bonds, thus accumulating the current balance. The balance is legally restricted and can only be used to pay these specific bond payments. Fire Protection Impact Fees are also restricted in their use and are intended to provide for fire facilities, and can’t be utilized to pay for operations. Utilizing the funding available from impact fees to redeem the bonds is consistent with the establishment of the fees. Interest rates on the outstanding 2003A GO Bonds range from 4.10% to 4.45%, which are significantly higher than what the City is receiving from the market on its current investment portfolio. For that reason and given the available funds on hand, it makes economic sense for the City to pay off the 2003A GO Bonds from existing funds on hand and redeem them in full, resulting in the City saving the interest cost it would have otherwise incurred, had it left the 2003A GO Bonds outstanding until their maturity on August 1, 2023. These savings will be passed on to the property owners in the City and the City will no longer levy property taxes in connection with these bonds once they are paid off. To ensure that the City can complete the redemption activities of the 2003A GO Bonds in September, it is vital that the City receive the required direction and approval from Council. Upon Council direction and approval of the Resolution, staff will proceed with the necessary activities to pay off the 2003A GO Bonds. ALTERNATIVES: The following alternatives are provided for City Council consideration: 1. Adopt the Resolution and redeem the outstanding bonds at the earliest opportunity; 2. Do not adopt the Resolution and redeem the outstanding bonds. This is not recommended. The City would forgo the opportunity to save future interest costs Item 9.c. - Page 2 CITY COUNCIL CONSIDERATION OF A RESOLUTION PROVIDING FOR THE OPTIONAL REDEMPTION OF GENERAL OBLIGATION BONDS, SERIES A OF 2003 (FIRE STATION PROJECT) AUGUST 23, 2016 PAGE 3 and relieve property owners in the City from the annual property tax collections to pay the debt service on the 2003A GO Bonds. Potential interest earnings on the cash needed to pay off the debt is approximately 0.5% compared to the 2003A GO Bonds interest rate of more than 4%; or 3. Provide direction to staff. ADVANTAGES: The City would save future interest costs of approximately $151,100 and relieve property owners in the City from the annual property tax collections to pay the debt service on the 2003A GO Bonds. DISADVANTAGES: No disadvantages are evident. ENVIRONMENTAL REVIEW: No environmental review is required for this item. PUBLIC NOTIFICATION AND COMMENTS: The Agenda was posted in accordance with Government Code Section 54954.2. Item 9.c. - Page 3 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ARROYO GRANDE, CALIFORNIA, PROVIDING FOR THE OPTIONAL REDEMPTION OF ITS GENERAL OBLIGATION BONDS, SERIES A OF 2003 (FIRE STATION PROJECT) WHEREAS, pursuant to the provisions of Chapter 4 of Division 4 of Title 4 of the California Government Code (Sections 43600 et seq.), as amended, and pursuant to Ordinance No. 532 adopted by the City Council of the City of Arroyo Grande (the “City”) on July 9, 2002 (the “Ordinance”), a special election was duly and regularly held on November 5, 2002 within the City (the “Election”) at which Election there was submitted to the qualified voters of the City a proposition providing for general obligation bonds not to exceed $1,900,000 (the “Proposition”) to upgrade and expand the Fire Station located on Traffic Way (the “Project”); and WHEREAS, more than two-thirds of the votes cast at the Election were in favor of the incurring of such indebtedness, and the City adopted Resolution No. 3648 on January 28, 2003 (“Resolution No. 3648”) providing for the issuance of bonds to finance the Project; WHEREAS, pursuant to Resolution No. 3648, as supplemented by Supplement to Resolution No. 3648, dated as of February 1, 2003 (“Supplement to Resolution No. 3648”), the City issued the City of Arroyo Grande General Obligation Bonds, Series A of 2003 (Fire Station Project) in the original aggregate principal amount of $1,900,000 (the “Bonds”) to finance the Project; and WHEREAS, the Project has been completed; and WHEREAS, $855,000 aggregate principal amount of the Bonds is currently outstanding; and WHEREAS, pursuant to Section 8 of Supplement to Resolution No. 3648, the Bonds are subject to redemption, at the option of the City, in whole or in part on any date commencing August 1, 2012, at a redemption price equal to the principal amount thereof, together with accrued interest to the date fixed for redemption, without premium, commencing August 1, 2014; and WHEREAS, approximately $786,275 in property tax assessments deposited in the Debt Service Fund with respect to the Bonds and approximately $180,700 of Fire Protection Impact Fees are available to the City to cause the redemption of the Bonds; and Item 9.c. - Page 4 RESOLUTION NO. PAGE 2 WHEREAS, Wells Fargo Bank, National Association (the “Fiscal Agent”) acts as the Fiscal Agent with respect to the Bonds pursuant to the Supplement to Resolution No. 3648 and a Fiscal Agent Agreement between the City and the Fiscal Agent, dated as of February 1, 2003 (the “Fiscal Agent Agreement”); and WHEREAS, it is found and determined by this City Council that it is prudent in the management of the fiscal affairs of the City to cause the defeasance and/or optional redemption of the Bonds; NOW, THEREFORE, the City Council of the City of Arroyo Grande, California, DOES HEREBY RESOLVE, DETERMINE AND ORDER as follows: SECTION 1. Each of the above recitals is true and correct. SECTION 2. The Mayor of the City, the Acting City Manager, the Director of Administrative Services, or their written designee, is hereby authorized and directed to enter into any agreements or take any actions necessary to achieve the defeasance and/or optional redemption of the Bonds and the purposes of this Resolution, including without limitation, engaging Stradling Yocca Carlson and Rauth to advise the City with respect to the defeasance and/or optional redemption of the Bonds, as Bond Counsel, engaging Fieldman, Rolapp & Associates to advise the City with respect to the defeasance and/or optional redemption of the Bonds, as Financial Advisor, engaging Grant Thornton LLP to conduct the final rebate arbitrage report with respect to the Bonds, and notifying the Fiscal Agent of the defeasance and/or optional redemption of the Bonds and instructing the Fiscal Agent to provide the notices of Bond redemption required pursuant to Section 8 of the Supplement to Resolution No. 3648 and to establish the Redemption Fund for the purposes of redeeming the Bonds, in accordance with the Supplement to Resolution No. 3648. On motion of Council Member ________________, seconded by Council Member ________________, and on the following roll call vote, to wit: AYES: NOES: ABSENT: the foregoing Resolution was passed and adopted on this 23rd day of August, 2016. Item 9.c. - Page 5 RESOLUTION NO. PAGE 3 _____________________________________ JIM HILL, MAYOR ATTEST: _____________________________________ KELLY WETMORE, CITY CLERK APPROVED AS TO CONTENT: ______________________________________ GEOFF ENGLISH, ACTING CITY MANAGER APPROVED AS TO FORM: ______________________________________ HEATHER WHITHAM, CITY ATTORNEY Item 9.c. - Page 6