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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