PREPARED BY: J. KELLY SESSIONS DATE OF MEETING: 06/19/17
SUBJECT:
TITLE
PUBLIC HEARING ON RESOLUTIONS OF THE CITY COUNCIL OF THE CITY OF SAN PABLO, CALIFORNIA, AND THE CITY OF SAN PABLO JOINT POWERS FINANCING AUTHORITY APPROVING THE ISSUANCE OF LEASE REVENUE BONDS SERIES 2017 BY THE CITY OF SAN PABLO JOINT POWERS FINANCING AUTHORITY; AUTHORIZING AND APPROVING A FIRST AMENDMENT TO SITE AND FACILITY LEASE, A FIRST AMENDMENT TO LEASE AGREEMENT, AN AMENDED AND RESTATED ASSIGNMENT AGREEMENT, A FIRST SUPPLEMENTAL INDENTURE, A PRELIMINARY OFFICIAL STATEMENT, A FINAL OFFICIAL STATEMENT, A CONTINUING DISCLOSURE AGREEMENT AND A BOND PURCHASE AGREEMENT; DECLARING THE CITY’S INTENTION TO REIMBURSE CERTAIN EXPENDITURES FROM THE PROCEEDS OF DEBT; APPROVING FINANCING TEAM MEMBERS AND CONTRACTS; AND AUTHORIZING CERTAIN OTHER ACTIONS IN CONNECTION THEREWITH
Label
CITY MANAGER RECOMMENDATION
Recommendation
Conduct Public Hearing and Adopt City Resolution and Financing Authority Resolution
Body
Compliance statements
Budget Spending Controls, General Fund Reserves Protection, Increase Financial Transparency, and Circle S Project Development are adopted policy items under the FY 2015-17 Council Priority Workplan Update, effective October 1, 2016.
CEQA Compliance Statement
The issuance of bonds is not a project under the California Environmental Quality Act (CEQA) as it is not an activity that may cause a direct or reasonably foreseeable indirect physical environment change pursuant to Public Resources Code section 21080(a) and 14 California Code of Regulations section 15002(d). If deemed a project, it can be would be exempt as having no possible significant effect on the environment pursuant to 14 California Code of Regulations section 15061. However, how the funds are used could require further review under CEQA as described in the staff report and resolution regarding the City Hall project that is also before the City Council at this meeting.
BACKGROUND
The City Hall Project will be a new, two-story, 42,000 square foot office building to be constructed on 2.50 acres of City-owned land at the corner of Gateway Avenue and Chattleton Lane. Upon completion of the Project, all City employees located in the existing City Hall will be relocated to the new facility. Project completion is expected by end of first quarter 2019, whereupon pursuant to the Purchase and Sale Agreement considered by the City Council earlier in this meeting and further discretionary land use entitlements and CEQA review, the existing City Hall is expected to be sold and demolished, and in its place a mixed-use and/or residential project will be developed that preserves and enhances the historic structures located at the site including Alvarado Adobe and the Blume, Bunk and Teixeira Houses.
Plan of Finance
The Plan of Finance for the City Hall Project anticipates the issuance of approximately $12,000,000 of long-term, fixed-rate, tax-exempt Lease Revenue Bonds in August 2017 by the City of San Pablo Joint Powers Financing Authority (“Authority”). Resolutions from both the San Pablo City Council and the San Pablo Joint Powers Financing Authority are required; this single staff report covers both entities and includes the necessary authorizing resolutions for each.
Bond proceeds together with approximately $4,500,000 of General Fund Designated Reserves (GFDR) plus $2,500,000 of proceeds from the sale of the existing City Hall, will pay: (a) the costs of constructing and furnishing the City Hall Project; (b) the costs of issuing the Bonds; and (c) the cost of paying interest on the Bonds during the anticipated Project construction period.
Timetable
If the Project and the financing proceed according to the schedule then closing will occur in August, 2017. However, in no event shall the Bonds be issued until after the City Hall Project has been duly approved by the City Council, and after all of the applicable statutory time periods to challenge the legality of the City Hall Project have lapsed.
Legal Structure and Financing Documents
The Bonds are “Lease Revenue Bonds” which is a type of financing commonly used by California cities to finance large capital projects. The Bonds will be secured by and payable from annual lease payments made by the City to the Authority for the use of the leased assets, which are anticipated to consist of the completed City Hall Project and the City of San Pablo Police Building located at 13880 San Pablo Avenue.
The proposed Bonds to be authorized by the City Council are not secured and payable from parcel tax assessments from property owners. Instead, these types of Bonds are secured and payable directly from lease payments made by the City to the Authority as annual debt service obligations from annual appropriations contained in the City’s Adopted General Fund Operating Budget so long as the City has beneficial use, and occupancy of the leased assets.
The attached City Council Resolution authorizes the appointment of certain financing team members and execution of agreements, including Bond and Disclosure Counsel Norton Rose Fulbright US LLP, Municipal Advisor Steven Gortler, and Underwriter Stifel, Nicolaus & Company, Incorporated. Special Counsel Murphy & Associates also assisted in reviewing various documents and providing the opinion of counsel. In addition, the law firm of Jarvis, Fay, Doporto and Gibson has been providing specialized legal services regarding the underlying agreements regarding the development of the new City Hall and these services may be reimbursable from the bond proceeds if the City desires to do so.
The Resolution also authorizes the execution and delivery of various Financing Documents including a Preliminary Official Statement, First Supplemental Indenture, First Amendment to Site and Facility Lease, First Amendment to Lease Agreement, Amended and Restated Assignment Agreement and Bond Purchase Agreement. Attached hereto are drafts of each such Financing Document, which drafts may be modified prior to execution by authorized City Staff, as necessary.
FISCAL IMPACT
At current market interest rates, annual debt service on the Bonds will equal approximately $700,000 per year for 30-years. These are fixed-rate Bonds and as such, annual debt service will be fixed when the Bonds are sold, and not subject to change over the life of the Bonds.
However, annual debt service will depend on prevailing interest rates when the Bonds are sold in August, and in the unlikely event that interest rates increase significantly between now and then, it could become necessary to re-evaluate the Plan of Finance.
Lease payments are subject to annual General Fund appropriations, which the City has covenanted to budget and appropriate, so long as it has beneficial use and occupancy of the leased assets.
City Staff has carefully analyzed the City’s existing General Fund financial reserves, current and projected General Fund financial resources and obligations, and the long-term general fund financial outlook, and concluded that both the up-front costs of the Project, and the on-going future costs of the Project and the Bonds, are within the City’s financial means. Indeed, debt service is already scheduled to begin at $700,000 in FY 2018/19 in the FY 2018-21 Multi-Departmental Professional Services line-item (100-1430-43600) as part of a conservatively balanced budget.
The total cost of issuing the Bonds is expected not-to-exceed approximately $450,000 including the fees and expenses for Bond and Disclosure Counsel (Norton Rose Fulbright, $95,000); Bond Insurance and Surety Provider (AGM, $90,000); Financial Advisor (Steven Gortler, $75,000); Underwriter (Stifel Nicolaus, $60,000); Special Counsel (Jarvis, Fay, Doporto & Gibson, LLP, $50,000; Special Counsel Murphy & Associates; and miscellaneous other fees and expenses. Appropriate contracts and engagement letters are attached, except for Special Counsel Murphy & Associates, who assisted in reviewing various documents on behalf of the City and Authority and will be paid under an existing contract with the City, and Special Counsel Jarvis Fay for specialized legal services related to the City Hall project, which is also already under contract with the City. However, staff is seeking authorization to amend the existing agreement with Jarvis Fay for specialized legal services related to the City Hall project for an additional $50,000 for a total contract amount not to exceed $100,000.
Mr. Gortler, who is serving as financial advisor and has his own company, insisted that the indemnification and hold harmless provision in the City’s standard consultant services agreement be modified to limit his exposure to the extent covered by his insurance. This means that should there be a claim or lawsuit regarding Mr. Gortler’s services or the transaction, he intends that neither he nor his company be held liable for any amount beyond his insurance coverage. The Assistant City Manager, as the City’s Risk Manager, has recommended that this contract provision be approved.
All costs of issuance are payable from Bond proceeds upon closing. If for any reason the Bonds are not issued, then all costs of issuance will be waived, with the exception of a portion of the Rating Fee and the fee for Special Counsel.
Approval of contracts for the Financing Team are enclosed, including contracts for Bond and Disclosure Counsel (Norton Rose Fulbright US LLP) and the Municipal Advisor (Steven Gortler). Special Counsel (Murphy & Associates) will be paid under an existing contract with the City. Also enclosed is the Engagement Letter for the Underwriter (Stifel, Nicolaus & Company, Incorporated).
In addition, staff is seeking authorization to amend an existing agreement with Jarvis Fay for specialized legal services related to the City Hall project for an additional $50,000 for a total contract amount not to exceed $100,000.
Attachments:
1. Resolution of the City Council (RESO 2017-###)
2. Resolution of the Joint Powers Financing Authority (RESO JPFA2017-###)
3. DRAFT Preliminary Official Statement including Continuing Disclosure Agreement
4. DRAFT First Supplemental Indenture
5. DRAFT First Amendment to Site and Facility Lease
6. DRAFT First Amendment to Lease Agreement
7. DRAFT Amended and Restated Assignment Agreement
8. DRAFT Bond Purchase Agreement
9. Contract for Bond and Disclosure Counsel (Norton Rose Fulbright US LLP)
10. Contract for Municipal Advisor (Steven Gortler)
11. Engagement Letter for Underwriter (Stifel, Nicolaus & Company, Incorporated)
12. Notice of Public Hearing and Proof of Publication