Report to Mayor and City Council
Tuesday, January 24, 2017
Consent
SUBJECT:
Title
CONSIDER Resolution No. 17-008, A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARSON, CALIFORNIA, APPROVING AND AUTHORIZING THE EXECUTION OF AN ESCROW AGREEMENT IN CONNECTION WITH THE REFINANCING OF THE CARSON PUBLIC FINANCING AUTHORITY’S REVENUE BONDS (REMEDIATION PROJECT), SERIES 2009 (CITY COUNCIL)
CONSIDER Resolution No. 17-01-CPFA, A RESOLUTION OF THE CARSON PUBLIC FINANCING AUTHORITY APPROVING AND AUTHORIZING THE EXECUTION OF AN ESCROW AGREEMENT IN CONNECTION WITH THE REFINANCING OF THE CARSON PUBLIC FINANCING AUTHORITY REVENUE BONDS (REMEDIATION PROJECT), SERIES 2009 (PUBLIC FINANCING AUTHORITY)
Body
I. SUMMARY
This agenda includes proposed resolutions for the City Council, Successor Agency Board, and Public Financing Authority Board. These resolutions are the final actions necessary for the Successor Agency to issue taxable refunding bonds to refinance the Carson Public Financing Authority’s Series 2009 Lease Revenue Bonds (“Series 2009 Bonds). The Authority’s Series 2009 Bonds can now be refunded as tax allocation bonds pursuant to an agreement with the State Department of Finance and is expected to generate debt service savings, leaving more property tax for distribution to taxing entities, including the City. The Refunding Bonds would also remove existing tax restrictions from development of a 157-acre former landfill site, maximizing the development potential of the site and remove the City’s General Fund obligation to make lease payments to Public Financing Authority. The City’s Community Center is currently leased from Public Financing Authority.
II. RECOMMENDATION
Recommendation
1. WAIVE further reading and ADOPT Resolution No. 17-008, A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARSON, CALIFORNIA, APPROVING AND AUTHORIZING THE EXECUTION OF AN ESCROW AGREEMENT IN CONNECTION WITH THE REFINANCING OF THE CARSON PUBLIC FINANCING AUTHORITY’S REVENUE BONDS (REMEDIATION PROJECT), SERIES 2009.
2. WAIVE further reading and ADOPT Resolution No. 17-01-CPFA, A RESOLUTION OF THE CARSON PUBLIC FINANCING AUTHORITY APPROVING AND AUTHORIZING THE EXECUTION OF AN ESCROW AGREEMENT IN CONNECTION WITH THE REFINANCING OF THE CARSON PUBLIC FINANCING AUTHORITY REVENUE BONDS (REMEDIATION PROJECT), SERIES 2009.
Body
III. ALTERNATIVES
TAKE another action deemed appropriate by the City Council and Public Financing Authority Board.
IV. BACKGROUND
In 2009, the City’s Public Financing Authority issued and sold an aggregate principal amount of $12,165,000 in Lease Revenue Bonds to help finance certain remediation improvements on the prior 157-acre Cal Compact or Carson Marketplace Site. While the former Redevelopment Agency was obligated to make debt service payments pursuant to an Installment Payment Agreement between the Agency and the Carson Public Financing Authority, the City’s General Fund was also obligated under the 2009 Bonds to make lease payments to the Carson Public Financing Authority in event Agency funds were insufficient.
In 2016, the City had planned to refinance the 2009 Lease Revenue Bonds. During this process, the State Department of Finance (the “DOF”) disallowed the Successor Agency’s obligation to make the Installment Payment Agreement debt service payments to the Public Financing Authority. The City challenged this determination in Court. Pursuant to a legal settlement, the DOF agreed to the Successor Agency’s obligation under the Installment Payment Agreement provided the City no longer receive an additional payment it had been receiving annually for lending its credit to the former Redevelopment Agency. Furthermore, the Settlement allows the Successor Agency to refinance the Public Financing Authority’s $11,055,000 in 2009 Lease Revenue Bonds as tax allocation bonds. This structure will remove the City’s obligation to make lease payments and remove the City’s Community Center as the subject of the lease.
On November 14, 2016, the Successor Agency adopted Resolution No. 16-25-CSA (Authorizing Resolution) approving certain documents and authorizing the sale and issuance of Tax Allocation Refunding Bonds Series 2017A on a taxable basis for the purpose of refinancing the Carson Public Financing Authority’s Series 2009 Lease Revenue Bonds. The documents were subsequently approved on December 12, 2016 by the Oversight Board with the adoption of Resolution Number OBSA16-42. It is expected that the DOF will approve the refinancing no later than February 15, 2017. The proposed resolutions on tonight’s agenda would result in the following actions being taken:
1. Successor Agency Board Approving the form of a Continuing Disclosure Certificate and Preliminary Official Statement, in connection with the issuance of the Tax Allocation Refunding Bonds Series 2017A; and
2. City Council and Public Financing Authority authorizing the execution of the related Escrow Agreement.
The 2009 Lease Revenue Bonds were originally issued on a tax-exempt basis for the purpose of financing portions of the remediation and redevelopment of the project located at the 157-acre former Cal-Compact landfill site or Carson Marketplace Site. In addition to the 2009 Lease Revenue Bonds, the former Redevelopment issued its 2009 Tax Allocation Bonds for the same purpose. To maximize the development potential and flexibility for the project site, the issuance of taxable refunding bonds was proposed for both the 2009 Tax Allocation Bonds (TABs) and the 2009 Lease Revenue Bonds. The 2009 TABs were successful refinanced in December of 2016.
Current Information
The proposed resolutions on this agenda would complete the actions necessary to approve the issuance of the refunding bonds. The refunding will remove the City’s obligation to make lease payments, remove the City’s Community Center as the leased asset in the 2009 transaction, and complete the City’s objective to refinance both series of 2009 bonds on a taxable basis thereby maximizing the City’s flexibility in ultimately developing the 157-acre former Carson Marketplace site. As previously discussed, The 2009 Lease Revenue Bonds were additionally secured by an Installment Payment Agreement between the Public Financing Authority and former Redevelopment Agency.
The Successor Agency is authorized by Health and Safety Code Section 34177.5(a)(1) to refund the 2009 Lease Revenue Bonds Installment Payment Agreement as long as the following conditions are met (Refunding Test).
1. The total interest cost to maturity on the Refunding Bonds plus the principal amount of the Refunding Bonds shall not exceed the total remaining interest cost to maturity plus the remaining principal of the 2009 Lease Revenue Bonds.
2. The principal amount of the Refunding Bonds shall not exceed the amount required to defease the 2009 Lease Revenue Bonds, establish customary debt service reserves, and pay related costs of issuance including the costs of consultants and staff related to the refunding.
Under current market conditions, gross present value savings total $216,406 or 1.95% of bonds refunded. When accounting for the timing of the bond debt service reserve fund impact, net present value savings total $537,172 or 4.85% of the bonds refunded. The 2009 Bond Reserve Fund is being used to reduce the size of the proposed 2017 bond issue. The bonds are expected to be sold in February of 2017, and savings may be higher or lower depending on market conditions at time of sale. The interest rates on the 2009 Lease Revenue Bonds to be refunded are currently 6.35%. It is expected that Standard & Poors will issue a rating of “A-“ to the 2017 bonds; and that the bonds will qualify for bond insurance, and therefore a “AA” bond rating.
Based on current and expected bond market conditions, the above state law requirements for savings are expected to be met. If the state law requirements are not met, no bonds will or can be issued without a contribution from the City.
The Refunding Bonds Series 2017A will be subordinate to the Agency’s outstanding 2003B and 2014A bonds, and on parity with the just issued 2016A Bonds. All costs of issuance will be paid from the proceeds of the Refunding Bonds Series 2017A as provided for under state law.
Escrow Agreement
The City and Public Financing Authority would be taking action to authorize execution of an Escrow Agreement in a form approved by the City Attorney. This document describes the deposit and investment of the funds in an escrow account to pay off the 2007 Lease Revenue Bonds and cancel the Installment Payment Agreement and Lease Agreement. Once effective, the City will no longer be obligated for the payments if the Successor Agency does not pay.
Next Steps & Timeline
If the Agency Board approves the proposed resolution, the underwriter team, Piper Jaffray & Co., as a representative of itself, and FTN Financial Capital Markets and BOK Financial Securities, Inc., will distribute the Preliminary Official Statement (POS) to investors and negotiate the sale of the bonds. The bonds are expected to be sold in mid-February and to close in early March 2017.
V. FISCAL IMPACT
As noted above, the estimated net present value of debt service savings is approximately $537,172, which may result in an additional property tax distribution of approximately $1,800 per year to the City. The City General Fund will no longer be obligated to make annual lease payments should the Agency fail to make annual payments under the Installment Payment Agreement. The City’s Community Center will also no longer by encumbered by the bonds.
VI. EXHIBITS
Resolution No. 17-008, A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARSON, CALIFORNIA, APPROVING AND AUTHORIZING THE EXECUTION OF AN ESCROW AGREEMENT IN CONNECTION WITH THE REFINANCING OF THE CARSON PUBLIC FINANCING AUTHORITY’S REVENUE BONDS (REMEDIATION PROJECT), SERIES 2009 (pages 6-9)
Resolution No. 17-01-CPFA, A RESOLUTION OF THE CARSON PUBLIC FINANCING AUTHORITY APPROVING AND AUTHORIZING THE EXECUTION OF AN ESCROW AGREEMENT IN CONNECTION WITH THE REFINANCING OF THE CARSON PUBLIC FINANCING AUTHORITY REVENUE BONDS (REMEDIATION PROJECT), SERIES 2009 (pages 10-13)
Escrow Deposit and Trust Agreement (pages 14-28)
Prepared by: Kathryn Downs, Director of Finance