CC 2018-03-13_12a Successor Agency_Refunding 2007 Tax Allocation Bonds
MEMORANDUM
TO: CITY COUNCIL/SUCCESSOR AGENCY TO THE DISSOLVED ARROYO
GRANDE REDEVELOPMENT AGENCY
FROM: JIM BERGMAN, CITY MANAGER
BY: DEBBIE MALICOAT, DIRECTOR OF ADMINISTRATIVE SERVICES
SUBJECT: CONSIDERATION OF REFUNDING 2007 TAX ALLOCATION BONDS
DATE: MARCH 13, 2018
SUMMARY OF ACTION:
Approve actions that will allow the refunding of the 2007 Tax Allocation Bonds issued by
the former Redevelopment Agency in order to save significant interest costs.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
By refunding the 2007 Bonds, the Successor Agency can generate an estimated total
debt service savings of $1,179,681 net of all costs of issuance, including the consultants
fees described in this report, or about $60,000 annually to be shared by the City and the
other affected taxing entities. The repayment of principal and interest on the Bonds will
be payable solely from Tax Revenues, which is tax increment revenues from the
Redevelopment Project deposited into the Successor Agency’s Redevelopment
Property Tax Trust Fund, and available after satisfying certain administrative costs of
the County and pass through obligations to affected taxing entities. The Bonds will not
be a debt of the City’s General Fund or the State, or any of its political subdivisions
(except the Successor Agency).
RECOMMENDATION:
It is recommended that the Board of the Successor Agency:
1. Provide authorization to issue taxable tax allocation refunding bonds to refund in full
the Arroyo Grande Redevelopment Agency, Arroyo Grande Redevelopment Project
Area, 2007 Tax Allocation Bonds (the “2007 Bonds”);
2. Adopt a Resolution approving the issuance of refunding bonds and certain other
actions as specified in the attached Resolution; and
Item 12.a. - Page 1
CITY COUNCIL/SUCCESSOR AGENCY TO THE DISSOLVED ARROYO GRANDE
REDEVELOPMENT AGENCY
CONSIDERATION OF REFUNDING 2007 TAX ALLOCATION BONDS
MARCH 13, 2018
PAGE 2
3. Authorize the Executive Director to amend or revise minor, non-substantive changes
and execute final documents and agreements as needed to affect the bond
refunding, provided they are in substantial compliance with the draft documents and
Board direction.
It is recommended that the City Council:
1. Adopt a Resolution approving a Debt Management Policy.
BACKGROUND:
Pursuant to section 34172(a) of the California Health and Safety Code (unless
otherwise noted, all section references hereinafter being to such Code), the Arroyo
Grande Redevelopment Agency (the “Former Agency”), has been dissolved and no
longer exists as a public body, corporate and politic, and pursuant to section 34173, and
the Successor Agency to the Dissolved Arroyo Grande Redevelopment Agency (the
“Successor Agency”) has become the successor entity to the Former Agency.
A redevelopment plan for the Former Agency’s Arroyo Grande Redevelopment Project
in the City of Arroyo Grande (the “City”) has been adopted in compliance with all
requirements of the Code (the “Redevelopment Project”).
Prior to the dissolution, the Former Agency issued the 2007 Bonds to finance
redevelopment activities within and for the benefit of the Redevelopment Project.
Section 34177.5 authorizes the Successor Agency to issue refunding bonds pursuant to
Article 11 (commencing with section 53580) of Chapter 3 of Part 1 of Division 2 of Title
5 of the California Government Code (the “Refunding Law”) for the purpose of achieving
debt service savings within the parameters set forth in section 34177.5(a)(1) (the
“Savings Parameters”).
The Savings Parameters in summary are:
(i) the total interest cost to maturity on the refunding debt plus the principal amount of
the refunding debt shall not exceed the total remaining interest cost to maturity on the
refunded debt, plus the remaining principal of the refunded debt to be refunded, and
(ii) the principal amount of the refunding debt shall not exceed the amount required to
defease the defunded debt, to establish customary debt service reserves and pay
related costs of issuance.
To determine compliance with the Savings Parameters for purposes of the issuance by
the Successor Agency of its tax allocation refunding bonds, the Successor Agency has
Item 12.a. - Page 2
CITY COUNCIL/SUCCESSOR AGENCY TO THE DISSOLVED ARROYO GRANDE
REDEVELOPMENT AGENCY
CONSIDERATION OF REFUNDING 2007 TAX ALLOCATION BONDS
MARCH 13, 2018
PAGE 3
caused its municipal advisor, Wulff, Hansen & Co. (the “Municipal Advisor”), to prepare
an analysis of the potential savings that will accrue to the Successor Agency and to
applicable taxing entities as a result of the use of the proceeds of the refunding bonds to
repay or refund all or a portion of the 2007 Bonds (the “Debt Service Savings Analysis”).
An initial analysis based on current interest rates and the refunding bonds being insured
has produced an estimated total debt service savings of approximately $1,179,681 by
issuing refunding bonds. The 2007 Bonds have an interest rate on the longest term
bonds of 5.80%. It is anticipated that the proposed refunding bonds would have an
interest rate of approximately 4.70% on the longest term bonds. The term of the
refunding bonds would not be extended, and would match the current final maturity date
(09/01/2037) of the 2007 Bonds.
The Successor Agency desires at this time to authorize the issuance of its Successor
Agency to the Dissolved Arroyo Grande Redevelopment Agency Taxable Tax Allocation
Refunding Bonds, Series 2018, to refund the 2007 Bonds (the “Bonds”), pursuant to an
indenture of trust (the “Indenture”), by and between the Successor Agency and Wells
Fargo Bank, National Association, as trustee (the “Trustee”)
Following approval by the Successor Agency, the Oversight Board to the Successor
Agency will be asked to approve the Successor Agency’s actions relating to the Bonds.
The Oversight Board action is expected on March 15, 2018.
Following action by the Oversight Board, a package including the adopted Oversight
Board Resolution, the adopted Successor Agency Resolution and the Debt Service
Savings Analysis will be submitted to the State Department of Finance (the “DOF”). The
DOF is permitted 65 days to review and approve the Oversight Board action and
therefore, such approval is expected on or about May 21, 2018.
It is anticipated that the Bonds will be sold to the public through a public offering by
Brandis Tallman LLP, as underwriter (the “Underwriter”) and that the issue will be
insured by a national bond insurance company. The final savings will be determined
when the Bonds are priced and sold, which is expected to occur by the third week of
June 2018.
In addition to approval of the Bonds and authorizing the preparation and execution of
related documents, the Resolution designates the consultants for the Bonds as Wulff,
Hansen & Co as Municipal Advisor, Quint & Thimmig LLP as Bond Counsel and
Disclosure Counsel, Urban Futures as Fiscal Consultant and as Continuing Disclosure
Consultants, and Brandis Tallman LLP as Underwriter.
Wulff, Hansen & Co., is currently the Municipal Advisor for the Successor Agency under
a master contract that provides for addendums to be completed to describe specific
services to be provided and the fees to be paid for such services. The addendum for
Item 12.a. - Page 3
CITY COUNCIL/SUCCESSOR AGENCY TO THE DISSOLVED ARROYO GRANDE
REDEVELOPMENT AGENCY
CONSIDERATION OF REFUNDING 2007 TAX ALLOCATION BONDS
MARCH 13, 2018
PAGE 4
this financing includes a success based fee of $45,000 to be paid out of the proceeds of
the issue. No other fees or expenses will be due to the Municipal Advisor.
Quint & Thimmig will serve as bond counsel for this refunding. The fee for the bond
counsel and disclosure counsel services for this refunding is a success based fee of
$75,000 to be paid out of proceeds of the issue. No other fee or expenses will be due.
Urban Futures will provide Fiscal Consulting Services and Continuing Disclosure
Services for this refunding. The Contract provides for a fee of $15,500 to be paid out of
the proceeds of the Refunding. In the event the refunding is not completed, up to 50%
of the fee will be paid by the Successor Agency. The Successor Agency may be able to
recoup this fee as part of the ROPs process. As a result, this contract will not be signed
until the DOF has approved the refunding.
Brandis Tallman LLP will serve as Underwriter for this refunding. The fee for their
services will be $6.25 per $1,000 of Bond principal. Brandis Tallman LLP was selected
by staff after proposals were provided to the Successor Agency.
An item will be returned to the Successor Agency at the May 8, 2018, meeting to
approve an offering document to be used in connection with the sale of the Bonds by
the Underwriter.
ANALYSIS OF ISSUES:
Per the attached Resolution, the Successor Agency is being asked to approve the form
of an Indenture, an Escrow Agreement and a Bond Purchase Agreement.
The Indenture defines the payment terms and conditions of Bonds, and establishes the
funds and accounts that will be held by the Trustee on behalf of the Successor Agency,
including a debt service reserve account, if required.
The Escrow Agreement will establish an escrow fund that will be used to provide for the
payment and redemption of the 2007 Bonds.
The Bond Purchase Agreement sets forth the terms of purchase of the Bonds by the
Underwriter.
The resolution also provided certain authorized officers to execute and take all actions
necessary to complete the documentation approved by this resolution and to obtain all
requested approvals by the Oversight Board and the Department of Finance.
The forms of the Indenture, the Escrow Agreement and the Bond Purchase Agreement
are on file with the Secretary of the Successor Agency. Erick Cruz and Mark Pressman
of Wulff Hansen & Co. will be at the meeting to answer any questions.
Item 12.a. - Page 4
CITY COUNCIL/SUCCESSOR AGENCY TO THE DISSOLVED ARROYO GRANDE
REDEVELOPMENT AGENCY
CONSIDERATION OF REFUNDING 2007 TAX ALLOCATION BONDS
MARCH 13, 2018
PAGE 5
ALTERNATIVES:
The following alternatives are provided for the Council’s consideration:
1. Proceed with the refunding of the 2007 Tax Allocation Bonds as recommended,
thereby saving over $1 million for City taxpayers;
2. Do not proceed with the refunding, thereby not saving over $1 million for City
taxpayers; or
3. Provide other direction to staff
ADVANTAGES:
Refunding the Bonds will result in significant savings in interest costs to the City’s
taxpayers.
DISADVANTAGES:
Staff time will be utilized to implement the refunding. However, the Municipal Advisor,
Wulff, Hansen & Co. will minimize the impact to City staff for this effort.
ENVIRONMENTAL REVIEW:
No environmental review is required for this item.
PUBLIC NOTIFICATION AND COMMENTS:
The Agenda was posted at City Hall and on the City’s website in accordance with
Government Code Section 54954.2.
Attachments:
1. Total estimated cost of issuance
2. Debt service savings analysis
Item 12.a. - Page 5
RESOLUTION NO. SA-2018-___
A RESOLUTION OF THE SUCCESSOR AGENCY TO THE DISSOLVED
ARROYO GRANDE REDEVELOPMENT AGENCY APPROVING THE
ISSUANCE OF REFUNDING BONDS IN ORDER TO REFUND CERTAIN
OUTSTANDING OBLIGATIONS OF THE FORMER ARROYO GRANDE
REDEVELOPMENT AGENCY, APPROVING THE FORMS AND
AUTHORIZING THE EXECUTION AND DELIVERY OF AN INDENTURE OF
TRUST, AN ESCROW AGREEMENT AND A BOND PURCHASE
AGREEMENT RELATING THERETO, REQUESTING OVERSIGHT BOARD
APPROVAL OF THE ISSUANCE OF THE REFUNDING BONDS,
REQUESTING CERTAIN DETERMINATIONS BY THE OVERSIGHT
BOARD, AND PROVIDING FOR OTHER MATTERS RELATING THERETO
WHEREAS, pursuant to section 34172(a) of the California Health and Safety Code
(unless otherwise noted, all section references hereinafter being to such Code), the
Arroyo Grande Redevelopment Agency (the “Former Agency”), has been dissolved and
no longer exists as a public body, corporate and politic, and pursuant to section 34173,
and the Successor Agency to the Dissolved Arroyo Grande Redevelopment Agency
(the “Successor Agency”) has become the successor entity to the Former Agency; and
WHEREAS, a redevelopment plan for the Former Agency’s Arroyo Grande
Redevelopment Project in the City of Arroyo Grande (the “City”) has been adopted in
compliance with all requirements of the Code (the “Redevelopment Project”); and
WHEREAS, prior to the dissolution of the Former Agency, the Former Agency issued its
Arroyo Grande Redevelopment Agency, Arroyo Grande Redevelopment Project Area,
2007 Tax Allocation Bonds (Federally Taxable) to finance redevelopment and low and
moderate income housing activities within and for the benefit of the Redevelopment
Project, which remain outstanding (the “2007 Bonds”); and
WHEREAS, section 34177.5 authorizes the Successor Agency to issue refunding
bonds pursuant to Article 11 (commencing with section 53580) of Chapter 3 of Part 1 of
Division 2 of Title 5 of the California Government Code (the “Refunding Law”) for the
purpose of achieving debt service savings within the parameters set forth in section
34177.5(a)(1) (the “Savings Parameters”); and
WHEREAS, to determine compliance with the Savings Parameters for purposes of the
issuance by the Successor Agency of its tax allocation refunding bonds (the “Refunding
Bonds”), the Successor Agency has caused its municipal advisor, Wulff Hansen & Co.
(the “Municipal Advisor”), to prepare an analysis of the potential savings that will accrue
to the Successor Agency and to applicable taxing entities as a result of the use of the
proceeds of the Refunding Bonds to repay or defease all or a portion of the 2007 Bonds
(the “Debt Service Savings Analysis”); and
Item 12.a. - Page 6
RESOLUTION NO. SA-2018-__
PAGE 2
WHEREAS, the Debt Service Savings Analysis has demonstrated that a refunding of
the 2007 Bonds will satisfy the Savings Parameters; and
WHEREAS, the Successor Agency desires at this time to authorize the issuance of its
Successor Agency to the Dissolved Arroyo Grande Redevelopment Agency Taxable
Tax Allocation Refunding Bonds, Series 2018, to refund the 2007 Bonds (the “Bonds”),
pursuant to an indenture of trust (the “Indenture”), by and between the Successor
Agency and Wells Fargo Bank, National Association, as trustee (the “Trustee”); and
WHEREAS, pursuant to section 34179, an oversight board (the “Oversight Board”) has
been established for the Successor Agency; and
WHEREAS, the Successor Agency is now requesting that the Oversight Board approve
the issuance of the Bonds pursuant to this Resolution and the Indenture; and
WHEREAS, the Successor Agency further requests that the Oversight Board make
certain determinations described below on which the Successor Agency will rely in
undertaking the refunding proceedings and the issuance of the Bonds; and
WHEREAS, the Successor Agency has determined to sell the Bonds to Brandis
Tallman LLC (the “Underwriter”).
NOW, THEREFORE, THE BOARD OF DIRECTORS OF THE SUCCESSOR AGENCY
TO THE DISSOLVED ARROYO GRANDE REDEVELOPMENT AGENCY DOES
RESOLVE AS FOLLOWS:
SECTION 1. Determination of Savings. The Successor Agency has determined that
there are significant potential savings available to the Successor Agency and to
applicable taxing entities in compliance with the Savings Parameters by the issuance by
the Successor Agency of the Bonds to provide funds to refund and defease the 2007
Bonds, all as evidenced by the Debt Service Savings Analysis on file with the
Successor Agency Secretary, which Debt Service Savings Analysis is hereby approved.
SECTION 2. Approval of Issuance of the Bonds. The Successor Agency hereby
authorizes and approves the issuance of the Bonds under the Law and the Refunding
Law in the aggregate principal amount of not to exceed $5,500,000, provided that the
Bonds are in compliance with the Savings Parameters at the time of sale and delivery.
SECTION 3. Approval of Indenture. The Successor Agency hereby approves the
Indenture prescribing the terms and provisions of the Bonds and the application of the
proceeds of the Bonds in the form on file with the Secretary of the Successor Agency.
The Chair of the Successor Agency, the Executive Director of the Successor Agency
and the Treasurer of the Successor Agency (each, an “Authorized Officer”), each acting
alone, are hereby authorized and directed to execute and deliver, and the Secretary of
the Successor Agency is hereby authorized and directed to attest to such signatures on,
the Indenture for and in the name and on behalf of the Successor Agency in such form,
Item 12.a. - Page 7
RESOLUTION NO. SA-2018-__
PAGE 3
together with such changes therein, deletions therefrom and additions thereto as the
Authorized Officer executing the same shall approve, such approval to be conclusively
evidenced by the execution and delivery of the Indenture. The Successor Agency
hereby authorizes the delivery and performance of the Indenture.
SECTION 4. Approval of Escrow Agreement. The form of escrow agreement, by and
among the City, the Successor Agency and Wells Fargo Bank, National Association, as
escrow bank (the “Escrow Bank”), relating to the defeasance of the 2007 Bonds (the
“Escrow Agreement”), in the form on file with the Secretary of the Successor Agency, is
hereby approved and the Authorized Officers, each acting alone, are hereby authorized
and directed, for and in the name and on behalf of the Successor Agency, to execute
and deliver the Escrow Agreement in such form together with such changes therein,
deletions therefrom and additions thereto as the Authorized Officer executing the same
shall approve, such approval to be conclusively evidenced by the execution and delivery
of the Escrow Agreement. The Successor Agency hereby authorizes the delivery and
performance of the Escrow Agreement.
SECTION 5. Approval of Bond Purchase Agreement. The Successor Agency hereby
authorizes the sale of the Bonds to the Underwriter so long as the Underwriter’s
discount, excluding original issue discount which does not constitute compensation to
the Underwriter, does not exceed 0.75%. The form of bond purchase and agreement,
by and between the Successor Agency and the Underwriter (the “Bond Purchase
Agreement”), in the form on file with the Successor Agency Secretary, is hereby
approved and the Authorized Officers, each acting alone, are hereby authorized and
directed, for and in the name and on behalf of the Successor Agency, to execute and
deliver the Bond Purchase Agreement in such form together with such changes therein,
deletions therefrom and additions thereto as the Authorized Officer executing the same
shall approve, such approval to be conclusively evidenced by the execution and delivery
of the Bond Purchase Agreement. The Successor Agency hereby authorizes the
delivery and performance of the Bond Purchase Agreement.
SECTION 6. Oversight Board Approval of the Issuance of the Bonds. The Successor
Agency hereby requests the Oversight Board, as authorized by section 34177.5(f), to
direct the Successor Agency to undertake the refunding proceedings and, as authorized
by section 34177.5(f) and section 34180, to approve the issuance of the Bonds
pursuant to section 34177.5(a)(1) this Resolution and the Indenture.
SECTION 7. Determinations by the Oversight Board. The Successor Agency requests
that the Oversight Board make the following determinations upon which the Successor
Agency will rely in undertaking the refunding proceedings and the issuance of the
Bonds:
(a) The Successor Agency is authorized, as provided in section
34177.5(f), to recover its costs related to the issuance of the Bonds from the
proceeds of the Bonds, including the cost of reimbursing its administrative staff
for time spent with respect to the authorization, issuance, sale and delivery of the
Bonds;
Item 12.a. - Page 8
RESOLUTION NO. SA-2018-__
PAGE 4
(b) The application of the proceeds of the Bonds by the Successor Agency
to the prepayment and defeasance, as applicable, of the Former Agency
Obligations, as well as the payment by the Successor Agency of costs of
issuance of the Bonds, as provided in section 34177.5(a), shall be implemented
by the Successor Agency promptly upon sale and delivery of the Bonds,
notwithstanding section 34177.3 or any other provision of law to the contrary,
without the approval of the Oversight Board, the California Department of
Finance, the San Luis Obispo County Auditor-Controller or any other person or
entity other than the Successor Agency; and
(c) The Successor Agency shall be entitled to receive its full Administrative
Cost Allowance under section 34181(a)(3) without any deductions with respect to
continuing costs related to the Bonds, such as trustee’s fees and auditing and
fiscal consultant fees (collectively, “Continuing Costs of Issuance”), and such
Continuing Costs of Issuance shall be payable from property tax revenues
pursuant to section 34183. In addition and as provided by section 34177.5(f), if
the Successor Agency is unable to complete the issuance of the Bonds for any
reason, the Successor Agency shall, nevertheless, be entitled to recover its costs
incurred with respect to the refunding proceedings for the Former Agency
Obligations from such property tax revenues pursuant to section 34183 without
reduction in its Administrative Cost Allowance.
SECTION 8. Filing of Debt Service Savings Analysis and Resolution. The Secretary of
the Successor Agency is hereby authorized and directed to cause the Municipal Advisor
to file the Debt Service Savings Analysis, together with a certified copy of this
Resolution, with the Oversight Board, and, as provided in section 34180(j) with the San
Luis Obispo County Administrative Officer, the San Luis Obispo County Auditor-
Controller and the California Department of Finance.
SECTION 9. Designation of Consultants.
(a) Wulff Hansen & Co. is hereby designated as municipal advisor to the
Successor Agency in connection with the issuance of the Bonds. The Executive Director
of the Successor Agency or his designee is hereby authorized to execute an agreement
for municipal advisory services with such firm in the form on file with the Secretary of
the Successor Agency.
(b) Quint & Thimmig LLP is hereby designated as bond counsel and disclosure
counsel to the Successor Agency in connection with the issuance of the Bonds. The
Executive Director of the Successor Agency or his designee is hereby authorized to
execute an agreement for legal services with such firm in the form on file with the
Secretary of the Successor Agency.
(c) Urban Futures, Inc. is hereby designated as fiscal consultant to the
Successor Agency in connection with the issuance of the Bonds. The Executive Director
Item 12.a. - Page 9
RESOLUTION NO. SA-2018-__
PAGE 5
of the Successor Agency or his designee is hereby authorized to execute an agreement
with such firm in the form on file with the Secretary of the Successor Agency.
SECTION 10. Official Actions. The Authorized Officers and any and all other officers of
the Successor Agency are hereby authorized and directed, for and in the name and on
behalf of the Successor Agency, to do any and all things and take any and all actions,
which they, or any of them, may deem necessary or advisable in obtaining the
requested approvals by the Oversight Board and the California Department of Finance
and in the issuance, sale and delivery of the Bonds. Whenever in this Resolution any
officer of the Successor Agency is directed to execute or countersign any document or
take any action, such execution, countersigning or action may be taken on behalf of
such officer by any person designated by such officer to act on his or her behalf in the
case such officer is absent or unavailable.
SECTION 11. Effective Date. This Resolution shall take effect from and after the date of
its passage and adoption.
SECTION 12. Certification. The Secretary shall certify to the passage and adoption
hereof.
On motion of Board Member , seconded by Board Member , and
on the following roll call vote, to wit:
AYES:
NOES:
ABSENT:
the foregoing Resolution was passed and adopted this 13th day of March, 2018.
Item 12.a. - Page 10
RESOLUTION NO. SA-2018-__
PAGE 6
JIM HILL, CHAIR
ATTEST:
KELLY WETMORE, SECRETARY
APPROVED AS TO CONTENT:
JAMES A. BERGMAN, EXECUTIVE DIRECTOR
APPROVED AS TO FORM:
HEATHER K. WHITHAM, GENERAL COUNSEL
Item 12.a. - Page 11
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF ARROYO GRANDE APPROVING A DEBT
MANAGEMENT POLICY
WHEREAS, pursuant to the provisions of section 8855(i) of the California Government
Code, prior to the issuance or incurrence of any debt, the City is required to adopt local
debt policies concerning the use of debt and that any proposed debt issuance is
consistent with those local debt policies; and
WHEREAS, a debt management policy has been developed for the City and the
Council desires to adopt such policy in connection with any proposed debt of the City.
NOW, THEREFORE BE IT RESOLVED, it is hereby ORDERED and DETERMINED by
the City Council of the City of Arroyo Grande, as follows:
Section 1. The debt management policy, in the form attached hereto as Exhibit A (the
“Debt Policy”), is hereby adopted by the Council for the City. The Debt Policy has been
developed to provide guidance in the issuance and management of debt by the City or
its related entities and is intended to comply with section 8855(i) of the California
Government Code effective on January 1, 2017. The main objectives are to establish
conditions for the use of debt, to ensure that debt capacity and affordability are
adequately considered, to minimize the City’s interest and issuance costs, to maintain
the highest possible credit rating, to provide complete financial disclosure and reporting
and to maintain financial flexibility for the City.
Section 2. The City Manager, the Administrative Services Director, the City Clerk, and
other appropriate officials of the City are hereby authorized and directed to take any
actions and execute and deliver any and all documents as are necessary to accomplish
the provisions and directives of this Resolution.
Section 3. This Resolution shall be effective upon adoption by the Council.
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 this 13th day of March, 2018.
Item 12.a. - Page 12
RESOLUTION NO.
PAGE 2
JIM HILL, MAYOR
ATTEST:
KELLY WETMORE, CITY CLERK
APPROVED AS TO CONTENT:
JAMES A. BERGMAN, CITY MANAGER
APPROVED AS TO FORM:
HEATHER K. WHITHAM, CITY ATTORNEY
Item 12.a. - Page 13
RESOLUTION NO.
PAGE 3
EXHIBIT A
CITY OF ARROYO GRANDE
DEBT MANAGEMENT POLICY
This Debt Management Policy (the “Debt Policy”) of the CITY OF ARROYO
GRANDE (the “City”) was approved by the City Council of the City (the “Council”) on
March 13, 2018. The Debt Policy may be amended by Council as it deems appropriate
from time to time in the prudent management of the debt of the City.
This Debt Policy will also apply to any debt issued by any public agency for which
the Council acts as its legislative body.
The Debt Policy has been developed to provide guidance in the issuance and
management of debt by the City or its related entities and is intended to comply with
section 8855(i) of the California Government Code effective on January 1, 2017. The
main objectives are to establish conditions for the use of debt; to ensure that debt
capacity and affordability are adequately considered; to minimize the City’s interest and
issuance costs; to maintain the highest possible credit rating; to provide complete
financial disclosure and reporting; and to maintain financial flexibility for the City.
Debt, properly issued and managed, is a critical element in any financial
management program. It assists in the City’s effort to allocate limited resources to
provide the highest quality of service to the public. The City understands that poor debt
management can have ripple effects that hurt other areas of the City. On the other
hand, a properly managed debt program promotes economic growth and enhances the
vitality of the City for its residents and businesses.
1. Findings
This Debt Policy shall govern all debt undertaken by the City. The City hereby
recognizes that a fiscally prudent debt policy is required in order to:
Maintain the City’s sound financial position.
Ensure the City has the flexibility to respond to changes in future service
priorities, revenue levels, and operating expenses.
Protect the City’s credit-worthiness.
Ensure that all debt is structured in order in a manner that protects both
current and future taxpayers, ratepayers and constituents of the City.
Ensure that the City’s debt is consistent with the City’s planning goals and
objectives and capital improvement program or budget, as applicable.
Item 12.a. - Page 14
RESOLUTION NO.
PAGE 4
Encourage those that benefit from a facility/improvement to pay the cost of
that facility/improvement without the need for the expenditure of limited
general fund resources.
2. Policies
A. Purposes For Which Debt May Be Issued
The City will consider the use of debt financing primarily for capital improvement
projects (CIP) when the project’s useful life will equal or exceed the term of the
financing and when resources are identified sufficient to fund the debt service
requirements. An exception to this CIP driven focus is the issuance of short-term
instruments such as tax and revenue anticipation notes, which are to be used for
prudent cash management purposes and conduit financing, as described below.
Bonded debt should not be issued for projects with minimal public benefit or support, or
to finance normal operating expenses.
If a department has any project which is expected to use debt financing, the
department director is responsible for expeditiously providing the City Manager and the
Administrative Services Director with reasonable cost estimates, including specific
revenue accounts that will provide payment for the debt service. This will allow an
analysis of the project’s potential impact on the City’s debt capacity and limitations. The
department director shall also provide an estimate of any incremental operating and/or
additional maintenance costs associated with the project and identify sources of
revenue, if any, to pay for such incremental costs.
(i) Long-Term Debt. Long-term debt may be issued to finance or refinance
the construction, acquisition, and rehabilitation of capital improvements and facilities,
equipment and land to be owned and/or operated by the City.
(a) Long-term debt financings are appropriate when the following conditions
exist:
When the project to be financed is necessary to provide basic services.
When the project to be financed will provide benefit to constituents over
multiple years.
When total debt does not constitute an unreasonable burden to the City
and its taxpayers and ratepayers.
When the debt is used to refinance outstanding debt in order to produce
debt service savings or to realize the benefits of a debt restructuring.
Item 12.a. - Page 15
RESOLUTION NO.
PAGE 5
(b) Long-term debt financings will not generally be considered appropriate for
current operating expenses and routine maintenance expenses.
(c) The City may use long-term debt financings subject to the following
conditions:
The project to be financed has been or will be approved by the Council.
The weighted average maturity of the debt (or the portion of the debt
allocated to the project) will not exceed the average useful life of the
project to be financed by more than 20%, unless specific conditions exist
that would mitigate the extension of time to repay the debt and it would not
cause the City to violate any covenants to maintain the tax-exempt status
of such debt, if applicable.
The City estimates that sufficient income or revenues will be available to
service the debt through its maturity.
The City determines that the issuance of the debt will comply with the
applicable requirements of state and federal law.
The City considers the improvement/facility to be of vital, time-sensitive
need of the community and there are no plausible alternative financing
sources
(d) Periodic reviews of outstanding long-term debt will be undertaken to
identify refunding opportunities. Refunding will be considered (within federal tax
law constraints, if applicable) if and when there is a net economic benefit of the
refunding. Refundings which are non-economic may be undertaken to achieve
City objectives relating to changes in covenants, call provisions, operational
flexibility, tax status of the issuer, or the debt service profile.
In general, refundings which produce a net present value savings of at least
three (3) percent of the refunded debt will be considered economically viable.
Refundings which produce a net present value savings of less than three (3)
percent or negative savings will be considered on a case-by-case basis, and are
subject to Council approval.
(ii) Short-term debt. Short-term borrowing may be issued to generate funding
for cash flow needs in the form of Tax and Revenue Anticipation Notes (TRAN).
Short-term borrowing, such as commercial paper, and lines of credit, will be
considered as an interim source of funding in anticipation of long-term borrowing.
Short-term debt may be issued for any purpose for which long-term debt may be
issued, including capitalized interest and other financing-related costs. Prior to
issuance of the short-term debt, a reliable revenue source shall be identified to
Item 12.a. - Page 16
RESOLUTION NO.
PAGE 6
secure repayment of the debt. The final maturity of the debt issued to finance the
project shall be consistent with the economic or useful life of the project and, unless
the Council determines that extraordinary circumstances exist, must not exceed
seven (7) years.
Short-term debt may also be used to finance short-lived capital projects; for
example, the City may undertake lease-purchase financing for equipment, and such
equipment leases may be longer than seven (7) years.
(iii) Financings on Behalf of Other Entities. The City may also find it beneficial
to issue debt on behalf of other governmental agencies or private third parties in
order to further the public purposes of City. In such cases, the City shall take
reasonable steps to confirm the financial feasibility of the project to be financed and
the financial solvency of any borrower and that the issuance of such debt is
consistent with the policies set forth herein. In no event will the City incur any liability
or assume responsibility for payment of debt service on such debt.
B. Types of Debt
In order to maximize the financial options available to benefit the public, it is
the policy of the City of Arroyo Grande to allow for the consideration of issuing all
generally accepted types of debt, including, but not exclusive to the following:
General Obligation (GO) Bonds: General Obligation Bonds are suitable for
use in the construction or acquisition of improvements to real property that
benefit the public at large. Examples of projects include libraries, parks,
and public safety facilities. All GO bonds shall be authorized by the
requisite number of voters in order to pass.
Revenue Bonds: Revenue Bonds are limited-liability obligations tied to a
specific enterprise or special fund revenue stream where the projects
financed clearly benefit or relate to the enterprise or are otherwise
permissible uses of the special revenue. An example of projects that
would be financed by a Revenue Bond would be improvements to a water
system, which would be paid back with money raised from the rates and
charges to water users. Generally, no voter approval is required to issue
this type of obligation but in some cases, the City must comply with
proposition 218 regarding rate adjustments.
Lease-Backed Debt/Certificates of Participation (COP/Lease Revenue
Bonds): Issuance of Lease-backed debt is a commonly used form of debt
that allows a City to finance projects where the debt service is secured via
a lease agreement and where the payments are budgeted in the annual
budget appropriation by the City from the general fund. Lease-Backed
debt does not constitute indebtedness under the state or the City’s
constitutional debt limit and does not require voter approval.
Item 12.a. - Page 17
RESOLUTION NO.
PAGE 7
Special Assessment/Special District Debt: The City will consider requests
from developers for the use of debt financing secured by property based
assessments or special taxes in order to provide for necessary
infrastructure for new development only under strict guidelines adopted by
the Council, which may include minimum value-to-lien ratios and
maximum tax burdens. Examples of this type of debt are Assessment
Districts (AD) and Community Facilities Districts (CFD) or more commonly
known as Mello-Roos Districts. In order to protect bondholders as well as
the City’s credit rating, the City will also comply with all State guidelines
regarding the issuance of special district or special assessment debt, as
well as any policy required to be adopted under Government Code
Section 53312.7.
The City may from time to time find that other forms of debt would be
beneficial to further its public purposes and may approve such debt without an
amendment of this Debt Policy.
To maintain a predictable debt service burden, the City will give
preference to debt that carries a fixed interest rate. An alternative to the use of
fixed rate debt is variable rate debt. The City may choose to issue securities that
pay a rate of interest that varies according to a pre-determined formula or results
from a periodic remarketing of securities. When making the determination to
issue bonds in a variable rate mode, consideration will be given in regards to the
useful life of the project or facility being financed or the term of the project
requiring the funding, market conditions, credit risk and third party risk analysis,
and the overall debt portfolio structure when issuing variable rate debt for any
purpose. The maximum amount of variable-rate debt should be limited to no
more than 20 percent of the total debt portfolio.
The City will not employ derivatives, such as interest rate swaps, in its
debt program. A derivative product is a financial instrument which derives its own
value from the value of another instrument, usually an underlying asset such as a
stock, bond, or an underlying reference such as an interest rate. Derivatives are
commonly used as hedging devices in managing interest rate risk and thereby
reducing borrowing costs. However, these products bear certain risks not
associated with standard debt instruments.
C. Relationship of Debt to Capital Improvement Program and Budget
The City intends to issue debt for the purposes stated in this Debt Policy
and to implement policy decisions incorporated in the City’s capital budget and
the capital improvement plan.
The City shall strive to fund the upkeep and maintenance of its
infrastructure and facilities due to normal wear and tear through the expenditure
of available operating revenues. The City shall seek to avoid the use of debt to
Item 12.a. - Page 18
RESOLUTION NO.
PAGE 8
fund infrastructure and facilities improvements that are the result of normal wear
and tear, unless a specific revenue source has been identified for this purpose,
such as Gas Tax funds.
The City shall integrate its debt issuances with the goals of its capital
improvement program by timing the issuance of debt to ensure that projects are
available when needed in furtherance of the City’s public purposes.
The City shall seek to issue debt in a timely manner to avoid having to
make unplanned expenditures for capital improvements or equipment from its
general fund.
D. Policy Goals Related to Planning Goals and Objectives
The City is committed to financial planning, maintaining appropriate
reserves levels and employing prudent practices in governance, management
and budget administration. The City intends to issue debt for the purposes
stated in this Debt Policy and to implement policy decisions incorporated in the
City’s annual operating budget.
It is a policy goal of the City to protect taxpayers, ratepayers and
constituents by utilizing conservative financing methods and techniques so as to
obtain the highest practical credit ratings (if applicable) and the lowest practical
borrowing costs.
The City will comply with applicable state and federal law as it pertains to
the maximum term of debt and the procedures for levying and imposing any
related taxes, assessments, rates and charges.
Except as described in Section 2.A., when refinancing debt, it shall be the
policy goal of the City to realize, whenever possible, and subject to any
overriding non-financial policy considerations minimum net present value debt
service savings equal to or greater than 3% of the refunded principal amount.
E. Internal Control Procedures
When issuing debt, in addition to complying with the terms of this Debt
Policy, the City shall comply with any other applicable policies regarding initial
bond disclosure, continuing disclosure, post-issuance compliance, and
investment of bond proceeds.
The City will periodically review the requirements of and will remain in
compliance with the following:
any continuing disclosure undertakings under SEC Rule 15c2-12,
Item 12.a. - Page 19
RESOLUTION NO.
PAGE 9
any federal tax compliance requirements, including without limitation
arbitrage and rebate compliance, related to any prior bond issues, and
the City’s investment policies as they relate to the investment of bond
proceeds.
Whenever reasonably possible, proceeds of debt will be held by a third-
party trustee and the City will submit written requisitions for such proceeds. The
City will submit a requisition only after obtaining the signature of the City
Manager or the Finance Director.
F. Method of Sale
For the sale of any City-issued debt, the City Manager or the Finance
Director or designee shall recommend the method of sale with the potential to
achieve the lowest financing cost and/or to generate other benefits to the City.
Potential methods of sale include:
A competitive bidding process through which the award is based on,
among other factors, the lowest offered true interest cost
Negotiated sale, subject to approval by the City to ensure that interest
costs are in accordance with comparable market interest rates
Private placement sale, when the financing can or must be structured for a
single or limited number of purchasers or where the terms of the private
placement are more beneficial to the City than either a negotiated or
competitive sale
G. Waivers of Debt Policy
There may be circumstances from time to time when strict adherence to a
provision of this Debt Policy is not possible or in the best interests of the City and
the failure of a debt financing to comply with one or more provisions of this Debt
Policy shall in no way affect the validity of any debt issued by the City in
accordance with applicable laws.
Item 12.a. - Page 20
ATTACHMENT 1
The Total Estimated Cost of Issuance, which is subject to change when bonds are
priced, is estimated at $315,414. All fees are payable solely from proceeds of the
refunding.
Service Provider Amount Percent of Est.
Issuance Fee
Bond Counsel – Quint & Thimmig LLP $45,000 14.27%
Disclosure Counsel – Quint & Thimmig LLP $30,000 9.51%
Municipal Advisor – Wulff, Hansen & Co. $45,000 14.27%
Fiscal Consultant – Urban Futures $13,000 4.12%
Continuing Disclosure Consultant – Urban
Futures $2,5000 0.79%
Rating Agency $25,000 7.93%
Admin Fee (City)
$25,000 7.93%
Trustee/Escrow – Wells Fargo
$5,5000 1.74%
Verification Agent – Grant Thornton
$2,5000 0.79%
Miscellaneous
$6,5000 2.06%
Underwriter – Brandis Tallman $33,095 10.49%
Municipal Bond Insurance – TBD $66,461 21.07%
Reserve Fund Insurance - TBD $15,858 5.03%
Total Estimate $315,414 100.0%
Item 12.a. - Page 21
WULFF, HANSEN&CO.ESTABLISHED 1931March 13, 2018Successor Agency to the Dissolved Arroyo Grande Redevelopment Agency2007 Tax Allocation Bonds Refunding –Debt Service Savings AnalysisPrepared by: Wulff, Hansen & Co. Erick CruzMark Pressman100 Smith Ranch Road, Suite 330San Rafael, CA 94903415‐421‐8900www.wulffhansen.comATTACHMENT 2Item 12.a. - Page 22
WULFF, HANSEN&CO.ESTABLISHED 1931Refunding Summary2Item 12.a. - Page 23
WULFF, HANSEN&CO.ESTABLISHED 19313Arroyo Grande RDA: Refunding Summary•With interest rates currently attractive, the Successor Agency to theDissolved Arroyo Grande Redevelopment Agency is moving forward with therefunding of their existing 2007 Tax Allocation Bonds•The refunding will allow the entities within the Redevelopment Agency tomore quickly receive a larger share of the property tax revenue by reducingprincipal and/or interest costs•While we do not have the fiscal consultant’s report currently to give apreliminary estimate of each taxing entities portion of savings, we areestimating a total savings of $1,179,682.•We will not be adding additional debt, nor extending the current debt term,simply refinancing the debt to achieve savings.Item 12.a. - Page 24
WULFF, HANSEN&CO.ESTABLISHED 1931Debt Summary4Item 12.a. - Page 25
WULFF, HANSEN&CO.ESTABLISHED 19315Arroyo Grande RDA: Bond SummaryTotal Bond Amount OutstandingDate SeriesOriginal Issue AmountAmount OutstandingCall DateS&P Underlying RatingCoupon Range05/20072007 TABs –Term 1$1,280,000 $305,000 Non‐Callable* A‐5.304%05/20072007 TABs –Term 2$5,005,000 $5,005,000Any Date as of nowA‐5.800%*To be escrowedItem 12.a. - Page 26
WULFF, HANSEN&CO.ESTABLISHED 19312018 Refunding – Preliminary Debt Service Savings Analysis6Item 12.a. - Page 27
WULFF, HANSEN&CO.ESTABLISHED 1931Arroyo Grande RDA: 2007 TABs Refunding Opportunity7Current RefundingRefunded Principal $5,310,000Net DebtService Savings$1,179,682Average AnnualSavings$61,914Present Value of Debt Service Savings$337,276NPV Savings as %6.4%* Based on analysis on 03/05/2018; Subject to change; Assuming 07/10/2018 IssuancePresented figures are preliminary, estimated, and subject to change$0$50,000$100,000$150,000$200,000$250,000$300,000$350,000$400,000$450,000$500,0002018 2020 2022 2024 2026 2028 2030 2032 2034 2036Proposed Refunding Debt Service*Existing Debt ServiceSavingsItem 12.a. - Page 28
WULFF, HANSEN&CO.ESTABLISHED 1931Summary of Cash Flow Savings8Item 12.a. - Page 29
WULFF, HANSEN&CO.ESTABLISHED 1931Arroyo Grande RDA: Cash Flow Savings9YearExisting 2007 TABs Debt ServiceProposed Refunding Debt ServiceSavingsPresent Value to 07/10/2018 @ 4.3215727%2018 303,233.60 299,925.453,308.153,288.172019 453,511.20 389,623.5063,887.7061,810.102020 455,290.00 394,776.5060,513.5056,110.862021 455,720.00 394,160.5061,559.5054,639.562022 455,570.00 392,920.5062,649.5053,230.382023 454,840.00 391,401.5063,438.5051,599.232024 453,530.00 394,240.5059,289.5046,214.292025 456,640.00 396,452.5060,187.5044,909.072026 453,880.00 392,965.5060,914.5043,510.122027 455,540.00 394,012.0061,528.0042,071.992028 456,330.00 394,383.5061,946.5040,550.272029 456,250.00 394,107.0062,143.0038,942.872030 455,300.00 392,500.0062,800.0037,675.972031 453,480.00 390,455.0063,025.0036,197.932032 455,790.00 392,972.0062,818.0034,539.082033 456,940.00 394,832.0062,108.0032,689.562034 456,930.00 396,035.0060,895.0030,679.382035 455,760.00 395,525.0060,235.0029,048.792036 453,430.00 394,310.0059,120.0027,289.212037 454,940.00 387,625.0067,315.0029,834.478,952,904.80 7,773,222.951,179,681.85794,831.30Debt Service Savings AnalysisSuccessor Agency to the Dissolved Arroyo Grande Redevelopment Agency2018 Refunding ‐ Public Offering*PRELIMINARY**All figures are estimated, preliminary and subject to changeItem 12.a. - Page 30