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HomeMy WebLinkAboutItem UAGENDA REPORT ✓���a 10� DATE: June 11, 2001 TO: Honorable Mayor and City Council //�� FROM: John B. Bahorski, City Manager/L/ SUBJECT: Approval of OCFA Financing Plan for Regional Fire Operations & Training SUMMARY OF REOUEST: Adopt attached resolution approving the issuance of long -tern bonded indebtedness by the Orange County Fire Authority (OCFA) for the purpose of financing the Regional Fire Operations & Training Center (Attachment 1) BACKGROUND: OCFA has requested that its member agencies approve the issuance of long -term bonded indebtedness to finance the Regional Fire Operations & Training Center ( RFOTC). The RFOTC will serve as OCFA's headquarters facility and the center of its public service operations. The RFOTC project site is located at the intersection of Jamboree Road and Tustin Ranch Road in northwest Irvine. The 16.5 acre site will house a 911 Emergency Communications Center, Training Tower and Drill Grounds, Vehicle Maintenance Center, Material Management Center and Public and Support Services. The total cost of the RFOTC is estimated at $50.4 million. This estimate includes program management, design professional fees, facility construction, construction contingency, furniture fixtures and equipment cots. OCFA anticipates that construction will begin in November 2001 and be completed in about 18 months. Transition to the new facility is expected to begin in August 2003. The following provisions from the Amended Joint Powers Agreement are applicable to the RFOTC proposed debt issuance : • OCFA must obtain approval by two- thirds of its members to issue long -term debt. • OCFA shall be a public entity separate from the members of the JPA and its debts, liabilities, and obligations shall not be the debts, liabilities and obligations of its members. As a consequence of the latter provision, the obligation to repay this debt issuance falls on OCF, not the individual members. Agenda Item l/ t, 9 Approval of Financing - OCFA Regional Fire Operations Training Center - Page 2 June 11, 2001 The Authority has provided a Preliminary Financing Plan outlining the structure and terms of the proposed debt issuance (Attachment 2). A Financing Technical Advisory committee (FTAC) was established by OCFA to provide an independent third party review of this financing plan. The FTAC reviewed and unanimously approved the Preliminary Financing Plan in April 2001. Members of the FTAC include: Tim Casey - City Manager, City of Laguna Niguel (Chair of City Mgr. Budget & Finance Com.) Ron Nault - Finance Director, City of Tustin Gary Burton - Chief Financial Officer, County of Orange Joan Steiner - Assistant Chief, OCFA OCFA held a workshop for thew Budget & Finance Committee and Board of Directors to review and discuss the Preliminary financing plan on May 9, 2001. The Board of directors unanimously recommended that the Plan be forwarded for final approval at the regular Board meeting scheduled for May 24, 2001. OCFA staff also held a workshop providing an overview of the Preliminary Financing Plan for all member City Manager's Finance Directors and the County's Assistant CEO on May 23, 2001. Subsequently, the Authority's Board of Directors unanimously approved the plan on May 24, 2001 and adopted a resolution authorizing OCFA staff to submit the Plan to the members for approvals by their City Councils or Board of supervisors. A copy of OCFA's adopted resolution is provided as attachment 3. OCFA's goal is to obtain 100% approval of its members. OCFA is requesting that each member adopt the resolution approving OCFA's issuance of long -term bonded indebtedness and return the executed resolution to OCFA by the end of July. FISCAL IMPACT: The City's proportional share of the long -teen debt repayment obligation will be included in the calculation of cash contract charges pursuant to Article IV.3.B of the Amended Joint Powers Agreement. The total cash contract charge will not exceed the caps on annual adjustments. RECOMMENDATION: That Council adopt Proposed Resolution No. , approving the issuance of long- term bonded indebtedness by the Orange County Fire Authority (OCFA) for the purpose of financing the Regional Fire Operations & Training Center Attachment 1- Resolution of City Council Attachment 2 - Preliminary Financing Plan Attachment 3 - Resolution of OCFA Board of Directors June 13, 2001 Ms. Lori Zeller Orange County Fire Authority 145 South Water Street Orange, California 92866 Dear Ms. Zeller, Forwarded for your information is a certified copy of Resolution Number 4907 "Approving the Issuance of Long -Term Bonded Indebtedness by the Orange County Fire Authority for the Purpose of Financing the Regional Fire Operations & Training Center." Resolution Number 4907 was adopted by the Seal Beach City Council at their regular meeting of June 11�. Very truly yours, Joanne M. Yeo, City Clerk City of Seal Beach Encl. May 30, 2001 ORANGE COUNTY FIRE AUTHORITY PO Box 86, Orange, CA 92856 -9086. 145 South Water St., Orange, CA 92866 -2123 Chip Prather, Fire Chief (714) 744 -0400 www.ocfa.org John Bahorski City Manager City of Seal Beach 211 8th Street Seal Beach, California 90740 -6379 Dear John: Subject: Member Approval of OCFA Debt Financingfor RFOTC The Orange County Fire Authority is requesting member approval to issue long -term debt. The debt will provide funding for the new Regional Fire Operations & Training Center ( RFOTC). Any long -term debt issued by the OCFA must be approved by a 2/3 majority of our members. On May 24, 2001, OCFA's Board of Directors unanimously approved the RFOTC Preliminary Financing Plan and authorized staff to begin working with member agencies to obtain the required approvals. Staff is requesting that each member agency schedule the RFOTC Preliminary Financing Plan for City Council consideration during the month of June or early July. We've enclosed the following items to facilitate your preparation of this agenda item: is Minute order and signed resolution documenting approval by the OCFA Board of Directors (attachments 1 and 2) is RFOTC Preliminary Financing Plan (attachment 3) • Sample staff report and sample resolution for member agencies (attachments 4 and 5) is Bond Counsel Opinion commuting that the proposed bond issue will be considered a debt of the Authority and not of its member agencies (attachment 6) as Copies of the RFOTC Plan for distribution to each City Council member (attachment 8) We can also provide most of these documents to you by e-mail, if you prefer. OCFA staff will be happy to assist you in presenting this item to your City Council and we can request members of our finance team to attend the meeting if you would like (Financial Advisors, Bond Counsel, and/or Underwriter). Would you please contact Nancy Swanson, OCFA Clerk, at (714) 289 -3701 to advise us of the scheduled agenda date and to let us know if you would like the attendance of OCFA staff and/or members of the financing team. We will then follow -up with you to address your needs. Once a resolution is adopted by your City Council, would you please send the approved resolution and minute order to Nancy Swanson. Serving the Cities of Buena Park • Cypress • Dana Point • Irvine • Laguna Hills • Laguna Niguel • Laguna Woods • lake Forest • La Palma • Los Alamitos • Mission Vielo Placentia • San Clemente • San Juan Capistrano • Seal Beach • Station • Tus in • Villa Park • Westminster • Yorba Linda and Unincorporated Areas of Orange County RESIDENTIAL SPRINKLERS AND SMOKE DETECTORS SAVE LIVES May 30, 2001 Page Two Our goal is to obtain 100% approval from our members by the end of July. If you have any questions about this proposed financing, please contact Joan Steiner at (714) 289 -3726 or Lori Zeller at (714) 744- 0542. I would like to thank you in advance for your assistance in coordinating this agenda item for your City Council's consideration. R/esp ttfully, Chip v Pv1Pra "thheer Fire Chief Attachment RESOLUTION NO. 2001-07 RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY FIRE AUTHORITY APPROVING A PRELIMINARY FINANCING PLAN FOR THE REGIONAL FIRE OPERATIONS & TRAINING CENTER WHEREAS, the Board of Directors (the `Board's of the Orange County Fire Authority (the "Authority') desires to issue long -term bonded indebtedness to finance a Regional Fire Operations & Training Center (the "Facility"); and WHEREAS, the Amended Orange County Fire Authority Joint Powers Agreement dated as of September 23, 1999 (the "JPA Agreement's requires that the Authority obtain the consent of not less than two- thirds of its members in order to issue long -term bonded indebtedness; and WHEREAS, there is on file with the Clerk of the Board a Preliminary Financing Plan dated as of May 24, 2001 (the "Preliminary Financing Plarn; and WHEREAS, the Authority desires to approve the Preliminary Financing Plan and submit it to its members in order to obtain their consent to having the Authority issue long -term bonded indebtedness to finance the Facility; NOW, THEREFORE, the Board of Directors of the Orange County Fire Authority HEREBY RESOLVES as follows: 1. Each of the above recitals is true and correct. 2. The Preliminary Financing Plan is hereby approved and the Fire Chief, and his designees, are authorized and directed to submit the Preliminary Financing Plan to the members of the Authority and to request that the members approve the Authority to issue up to $28,500,000 of long -term bonded indebtedness (the `Bonds' with a true interest cost not to exceed 5.5% and a maturity of not more than 9 years in order to finance the Facility. 3. The Fire Chief, and his designees, are authorized to take all steps necessary to obtain the approvals of the member agencies and to cause the necessary financing documents to be prepared for submission to this Board at a later date. 4. This Resolution shall take effect immediately upon its adoption. C of the OCFA Board of Directors DOCSOC1817505, I W 3 B 1.0001 Resolution No. 2001.07 Page — 2 STATE OF CALIFORNIA } COUNTY OF ORANGE } ss. CITY OF ORANGE I, Nancy Swanson, Clerk of the Orange County Fire Authority, do hereby certify that the foregoing Resolution No. 2001 -07 was duly passed and adopted at a regular meeting of the Board of Directors of the Orange County Fire Authority held on the 20 day of May, 2001 by the following roll call vote, to wit: AYES: Bob Bell, Villa Park; Steve Berry, alternate, Buena Park; Ken Blake, La Palma; Shawn Boyd, Seal Beach; Joe Brown, Laguna Niguel; Sheri Butterfield, Mission Viejo; Carol Gamble, Rancho Santa Margarita; John Greiner, San Juan Capistrano; Tony Lam, Westminster; Chris Lowe, Placentia; Frank McCoy, Cypress; Marilynn Poe, Los Alamitos; Susan Ritschel, San Clemente; Dr. Brenda Ross, Laguna Hills; Ken Ryan, Yorba Linda; R- Craig Scott, Laguna Hills; Todd Spitzer, County of Orange; Tracy Worley, Tustin; Helen Wilson, Lake Forest. NOES: None ABSENT: Harold Kaufman, Dana Point; Patsy Marshall, Buena Park; Chris Mears, Irvine; David Shawver, Stanton; Tom Wilson, County of Orange. G/1 l,� Yn- �O.a.LtiJ NANCY SWANSON Clerk of the Orange County Fire Authority MINUTES ORANGE COUNTY FIRE AUTHORITY Board of Directors Meeting May 24, 2001 6:30 P.M. 11. Approval of Preliminary Financing Plan for RFOTC On motion of Director Butterfield and second by Director Lowe, the Board voted unanimously to adopt Resolution No. 2001 -07, approving the Preliminary Financing Plan for the Regional Fire Operations .& Training Center and requesting member agency approval by July 26, 2001. Minutes OCFA Board of Directors May 24, 2001 Page-11 STRADLING YOCCA CARLSON & RAUTH A PROFESSIONAL CORPORATION ATTORNEYS AT LAW ROBERT J. WHALEN DIRECT DIAL: (949) 725 -6166 RWMALEMQSYCR.COM Ms. Lori Zeller Orange County Fire Authority 145 South Water Street Orange, California 92866 Dear Lori: 660 NEWPORT CENTER DRIVE. SMITE 1600 NEWPORT BEACH. CA 926606622 TELEPHONE (969) 72E.UIOO FACSIMILE (INS) 725 -4100 May 22, 2001 Re: Authority Revenue Bonds SAN FRANCISCO OFFICE 44 MONTGOMERY 3TREET. SUITE 4300 SAN FRENCISCO, GLIF ORMP.4104 TELEFNONE 141!1 iRY.140 i0Y MCSIMILE 14131 1255 SANTA BARBARA OFFICE 5@ OWE STREET SANTA SARSARA. CALIFORNIA .5101 TELITMONE I.0313.400.. FACSIMILE 1.0513Y10Y You have asked us to confirm that revenue bonds issued by the Orange County Fire Authority (the "Authority's pursuant to the provisions of Article 4, Chapter 5, Division 7, Title 1 (commencing with Section 6584) of the Government Code of the State of California will be considered a debt of the Authority and not of any of its member agencies. This is coned. The Authority is formed pursuant to the provisions of Article 1, Chapter 5, Division 7, Title 1 (commencing with Section 6500) of the Goverment Code of the State of California. Goverment Code Section 6508.1 provides that "the debts, liabilities and obligations of the agency shall be debts, liabilities and obligations of the parties to the agreement, unless the agreement specifies otherwise" In this case, Section 1 of the Amended Orange County Fire Authority Joint Powers Agreement (the "Agreement') expressly provides as follows: "The Authority shall be a separate entity separate from the parties hereto and its debts, liabilities and obligations shall not be the debts, liabilities and obligations of its members." Thus, by virtue of the express language of Section 1 of the Agreement and the language of Goverment Code Section 6508.1, it is the case that the debts of the Authority, including the revenue bonds that it proposes to issue to finance the Regional Fire Operations and Training Center (the "Facility) will not be debts of the member agencies. The fact that the revenue bonds to finance the Facility are obligations of the Authority and not of its member agencies is further reinforced by Government Code Section 6591(d), which provides that "every issue of its bonds shall be general obligations of the authority payable from any revenues or moneys of the authority available therefor and not otherwise pledged." This section speaks only in terms of revenues or moneys of the Authority available to pay the bonds and does not DOCSOC18234750124381.0001 Ms. Lori Zeller May 22, 2001 Page Two reference revenues or moneys of any member agencies. When we draft the Indenture pursuant to which the revenue bonds will be issued, we will include express language that the bonds are limited obligations of the Authority payable from net revenues (as that term will be defined in the Indenture). We will also include a provision that expressly states that the bonds are an indebtedness of the Authority and not a debt of any member agency. Finally, I would call to your attention Government Code Section 6593, which provides as follows: "No member of the governing body of the authority shall be personally liable on the bonds or be subject to any personal liability or accountability by reason of the issuance of the bonds." Please call me should you have any questions or require further clarification regarding the foregoing. very truly yours, STRADLING YOCCA CARLSON & RAUTH Robert J. alen RJW:pm D0CS0C%2347511124381.0001 I *. Orange County Fire Authority Regional Fire Operations Training Center (RFOTC) Preliminary Financing Plan May 24, 2001 ORANGE COUNTY FIRE AUTHORITY RFOTC - PRELIMINARY FINANCING PLAN I. RECOMMENDED RFOTC FINANCING STRUCTURE ......................... 1 A. BACKGROUND ...................................................... ............................... 1 B. LEGAL STRUCTURE ALTERNATIVES ...................... ............................... 1 C. ANALYSIS OF CASH FLOWS REGARDING DEBT /CASH Mix ..................2 D. SIZE OF ISSUE, COST AND INTEREST RATES .......... ............................... 3 E. MATURITY /TERM .................................................. ..............................4 F. INTEREST RATE MODE ........................................... ..............................4 G. RATINGS AND INSURANCE ..................................... ..............................4 H. METHOD OF SALE ................................................. ............................... 4 II. RFOTC CONSTRUCTION SCHEDULE AND STATUS...... III. APPROVAL BY THE MEMBER AGENCIES ....................... IV. RFOTC FINANCING SCHEDULE .......... ............................... SUMMARY OF 1 O -YEAR FINANCIAL FORECAST ..... ............................... SUMMARY OF ESTIMATED COSTS OF ISSUANCE ..... ............................... d.�I• .9 ..6 ..7 I. RECOMMENDED RFOTC FINANCING STRUCTURE A. BACKGROUND The OCFA Executive Committee selected a financing team consisting of a joint partnership of PMG Financial Consulting and Kelling, Northcross and Nobriga, Inc serving as Financial Advisors; and Stradling, Yocca, Carlson and Rauth serving both as Bond Counsel and Disclosure Counsel. After careful consideration, the OCFA staff, the FTAC and Financial Advisor determined that the RFOTC should be structured as a fixed rate issue and be marketed as a negotiated sale. The OCFA Executive Committee then selected Stone & Youngberg to serve as Senior Managing Underwriter and Bank of America and J.P. Morgan to serve as Co- Managing Underwriters. B. LEGAL STRUCTURE ALTERNATIVES RECOMMENDATION: REVENUE BONDS OF THE AUTHORITY, PAYABLE FROM OCFA NET GENERAL FUND REVENUES The legal structure recommended by the financing team is JPA revenue bonds payable from a pledge of net OCFA General Fund revenues (payment on bond debt service made after funding the OCFA's operations and maintenance expenditures). The OCFA has several structuring options; however, revenue bonds and certificates of participation (COPS) are the two most applicable structures given the complexity of the OCFA's credit and the market's acceptance of these structures. Revenue bonds are a type of tax - exempt security issued by municipalities to finance capital improvement projects and equipment acquisitions. Revenue bonds differ from COPS in that the issuer must have the power to issue revenue bonds. The OCFA has this power. Revenue bonds are secured by a pledged source of revenues. The issuer generally pledges general operating revenues to pay the annual debt payments. The revenue bond structure was selected for several reasons. In general, revenue bonds are a familiar structure to the market and are favorably received by investors. For OCFA in particular, the revenue bond pledge highlights the broad pledge of revenues, including property tax revenues, which the Authority can make under State law; this power favorably distinguishes OCFA from cities and most other municipal credits. Finally, this structure was selected to balance the operating requirements of the Authority with the requirements of bond investors. The revenue bond structure, however, requires a public hearing by the City of Irvine, the location of the project site, subject to Government Code Section 6586.5 (a) (2). The finding to be made is that the financing of the facility results in one or more significant public benefits as listed in government Code Section 6586. The significant benefit here is Section 6586(d), a finding that the facility will result in a more efficient delivery of local agency services to residential and commercial development. An alternative to issuing revenue bonds is COPs. COPS represent an undivided interest in the payments made by a public agency pursuant to a financing lease, or an installment purchase agreement. COPS are not treated as indebtedness of the issuer under state law. Under the typical COP lease financing structure, payment obligations are subject to; 1) annual appropriation of lease payments; 2) potential termination of lease payments if there is a loss of use of the facility; and 3) the need for borrowed interest (or capitalized interest). Another disadvantage of the COP structure is the required establishment of a non -profit public benefit corporation/authority for the purpose of serving as lessor in the financing. The following summarizes the terms and provisions of the RFOTC recommended revenue bond structure: I ECAL STRUCTURE JPA REVENUE BONDS AUTHORIZING PARAMETER $28.5M NOT -TO- EXCEED TOTAL BOND ISSUE; 5.5% NOT -TO- EXCEED INTEREST RATE TOTAL PROJECT COST APPROXIMATELY $50M BOND ISSUE PAR AMOUNT APPROXIMATELY $25m (NET AFTER 10% RESERVE AND COST OF ISSUANCE) CASH CONTRIBUTION APPROXIMATELY $25M($22M FROM OCFA CAPITAL RESERVES, $3M FROM STATE GRANT) PAYMENTS APPROXIMATELY $4.1M / 9 YEARS / LEVEL ANNUAL INTEREST RATE MODE FIXED PAYMFNT DAT s MARCH AND SEPTEMBER OPTIONAL CAI PROM IONS TO BE DETERMINED, WILL EVALUATE THE COST IMPLICATIONS OF 7 YEAR PAR CALL RATIN EXPECT INSURANCE AND RATINGS (MOODY'S /S&P) Timm fi SEPTEMBER 2001/ TO COINCIDE WITH AWARD OF CONSTRUCTION CONTRACT C. ANALYSIS OF CASH FLOWS REGARDING DEBT /CASH MIX RECOMMENDATION: ACHIEVE A 50150 DEBT AND CASH MIX The Authority's projected cash flow indicates that the debt repayment can be comfortably managed over a nine -year term, avoiding the complexities of structuring the repayment beyond the current 10 -year member commitment period. The RFOTC financing will entail both a $25 million cash contribution from OCFA and a bond financing for $25 million in net proceeds. Having examined OCFA's balance sheet, the OCFA staff, FTAC and financing team believe that this 50150 mix accomplishes an optimal mix between cash and debt financing. The proposed amount of debt leaves OCFA with debt service requirements of approximately 3% of its projected 2001/02 operating revenues. By way of comparison, according to Moody's Investors Services, the median debt burden for all California cities is 3.5 %, for cities with populations in excess of 250,000 is 6.4% and for counties is approximately 2.4 %. Taking into account future lease payments under the OCFA's master lease program, the projected debt burden goes to approximately 4.25 %. OCFA should be viewed as having a moderate and manageable level of debt by the rating agencies and one of the credit strengths is the relatively fast amortization of the debt (nine years). From the perspective of available fund balances, a $25 million cash contribution results in reasonable and prudent unreserved fund balances over the next several years, even after accounting for the 15% operating reserves and other reserves. This is a reasonable and prudent level of available balance for capital and operating contingencies. A cash flow summary is attached as Exhibit A. It is important to note that the cash flow projection assumes a very conservative rate of property tax growth, assuming only %2 of the growth projected by RSG for the fiscal years 2003 /04 through 2009/10. The exact amount of the cash contribution will be finalized following the receipt of construction bids in order to provide sufficient funds in the event bids come in higher than estimated. D. SIZE OF ISSUE, COSTS AND INTEREST RATES RECOMMENDATION: NOT- TO•EXCEED PAR VALUE OF $28.5 MILLION AND 5.5% INTEREST RATE Based on funding $25 million in net proceeds, the estimated amount of the bond issue would be $28,115,000, including a 10% debt service reserve fund (which is ultimately applied to debt service), estimated costs of issuance and underwriter's discount of approximately $300,000. A summary is attached as Exhibit B itemizing the estimated costs of issuance. This estimate does not include a bond insurance premium. Bond insurance will be pursued and evaluated for cost effectiveness in light of any conditions imposed by the bond insurers. If insurance is obtained, the amount of the issue would increase but debt service would be lower compared to an uninsured issue. Based on market conditions as of mid April, annual gross debt service would be slightly under $3.86 million. The estimated true interest cost, which takes into account the interest rates and underwriting discount, would be a little under 4.5 %. Based on the current timetable, the bond sale is scheduled to take place in September. The actual interest rates are subject to market conditions at the time the bonds are sold. Interest rates may move as a result of general interest rate movements as well as supply and demand conditions specific to the municipal market and the State's issuance of power related debt. To provide mom for potentially higher interest rates, it is recommended that the not -to- exceed true interest cost for the purpose of member agency approval be set at 5.5 %. At the not -to- exceed level the annual debt service increases to approximately $4.1 million, which is supportable by the cash flows. The not -to- exceed par value of the bonds is $28.5 million. This contingency will give OCFA staff operating flexibility to complete the financing. E. MATURITYITERM RECOMMENDATION: NINE -YEAR AMORTIZATION MATCHING REMAINING NINE YEARS ON 10-YEAR SERVICE CONTRACTS Investors will be particularly interested in the amortization of the OCFA's debt based upon the length of the OCFA's contracts with its participating members. Assuming a September 2001 issuance and given the fact that the OCFA will have nine years remaining on its 10 -year contracts to provide services to member cities, the financing team recommends a final maturity that matches the remaining life of the contract term, 9- years. Another approach is to amortize the debt further beyond 10 years. Due to the uncertainty of member agency participation beyond the current contract period and given the OCFA's demonstrated ability to fund nine -year debt service on a $28.5 million bond issue based on the Authority's cash flows, the financing team is recommending against issuing bonds with a maturity exceeding nine years. INTEREST RATE MODE RECOMMENDATION: FIXED RATE MODE The financing team recommends that OCFA issue its bonds in a fixed -rate mode. There is sufficient uncertainty regarding your long -term cash flows, both in teams of revenues and long -teen reserves, that we cannot recommend that you incur any additional risk in the form of variable interest rates. Furthermore, a variable rate structure may add a level of complexity (for example, letter of credit counter -party risk and interest rate volatility) that may make gaining member approval more difficult. G. RATINGS AND INSURANCE RECOMMENDATION: PURSUE BOTH INSURANCEAND RATINGS Given the complexity of the OCFA Joint Powers Authority, the number of member agencies and various credit considerations, the financing team recommends soliciting bids for municipal bond insurance. An insurer will be selected based on the lowest most responsive bid. Also, ratings will be requested from both Standard & Poor's and Moody's. Rating results should be received during July 2001. If the OCFA receives an "A" or better rating from both agencies, the financing team will evaluate the cost effectiveness of insurance given the cost of the lowest bid. H. METHOD OF SALE RECOMMENDATION: NEGOTIATED SALE TO ALLOW FOR EXTENSIVE RETAIL PRE - MARKETING (AS APPROVED BY THE BUDGET B FINANCE AND EXECUTIVE COMMITTEES) The two most common sale methods are competitive and negotiated. Under the competitive sale method, the OCFA would solicit bids from underwriters to purchase its bonds. The bonds are sold to the bidder that submitted the lowest overall interest rate. With a negotiated sale, the issuer selects the underwriter in advance. The underwriter participates in structuring the issue, and the issuer participates in agreeing to interest rates and underwriter spreads based on various market factors. The RFOTC issue will be sold through a negotiated sale to produce the lowest overall cost of financing. Listed below are some of the areas we considered when making this recommendation. OCFA Credit Complexities hies • OCFA has not previously issued debt and does not plan to issue additional debt in the foreseeable future. This is a drawback because the OCFA is an unknown credit in the long- term tax- exempt market and OCFA debt will be considered less liquid in the secondary market compared to frequent issuers. • OCFA has severely limited revenue raising ability and little control over its key expenditures. • The financial condition of each cash contract city is relevant to OCFA's overall credit, which adds some degree of complexity. This is further complicated by the caps on the cash contract charges. • OCFA has exposure to future labor negotiation issues due to the potential for binding arbitration in future contract negotiations. • The introduction of AB 1104 by Assemblyman Maddox represents a credit issue because of the uncertainties posed by this legislation. • The RFOTC financing structure will be somewhat unique when compared to "plain vanilla" revenue bonds or Certificates of Participation. Retail Marketine • OCFA debt is expected to be attractive to the large retail investor base living in Orange County and elsewhere in California due to the quality of the underlying tax base and economy and the relatively shorter term of the debt. • Retail investors are not as yield sensitive as institutional investors such as mutual funds; therefore, retail investors may accept a lower yield, resulting in savings to OCFA. • A negotiated sale permits the use of an exclusive retail order period which may be targeted to Orange County/ Southern California investors. Unstable Market Conditions • The financial markets have been fairly volatile. Therefore, it will be advantageous to have the flexibility of a negotiated sale, allowing OCFA some greater flexibility in timing its bond sale than could be accommodated with a competitive sale. • The volume of bonds in the market is growing, and this factor is compounded by the large upcoming State issuance of power and transmission bonds. With a high volume of competing bonds in the market, attracting investor interest to OCFA's smaller issue can be more difficult. RFOTC CONSTRUCTION SCHEDULE AND STATUS The OCFA accepted an irrevocable offer of dedication from the Irvine Company for 16.5 acres of land to be used for the RFOTC. The property is located in the City of Irvine and was valued at over $10 million in 1996 and currently is estimated to be worth $16 million. In addition, in 1999 the OCFA was awarded a $3 million state grant for the construction of a training facility. The total estimated cost of the RFOTC is $50 million. Therefore, all debt analyses are based on a net cost of $47 million. Once completed, the new facility will house a 24 -hour Emergency Communications Center, a Training Center, an Automotive Center, a Material Management Center, administrative and executive functions, and a Public Services and Support Center. A conceptual four -year project and baseline implementation plan has been developed for the RFOTC. The information below summarizes past and future RFOTC implementation progress: FY 2000/2001: OCFA took ownership of the property, hired a construction management team; updated the needs analysis, hired an architect, and developed the budget for the project. FY 2001/02: OCFA is overseeing the completion of the project design, awarding the construction contract, and hiring an essential facilities inspector. FY 2002/03: OCFA will monitor the actual construction, develop furniture and moving plan, and make preparations for the disposition of current OCFA headquarters' properties. FY 2003/04: OCFA will implement the relocation to the new facility and the disposition of current buildings. APPROVAL BY THE MEMBER AGENCIES The Authority's Amended JPA document requires that any long -term bonded indebtedness to be incurred by OCFA be approved by two- thirds of the member agencies. IV. RFOTC FINANCING SCHEDULE Following is the current financing schedule for the purpose of indicating the steps and time frames for implementing a debt transaction for the financing of the RFOTC. The timeline reflects that bonds will be priced in September 2001 and the financing will coincide with bid award. Date Activity April - May, 2001 Financing team/staff prepare recommended financing plan, review plan with the FTAC. First draft legal documents and preliminary official statement. May 9, 2001 Present workshop on preliminary financing plan to the Board of Directors. May 24, 2001 Present preliminary financing plan to the Board of Directors for approval. Week of May 21, 2001 Workshop for all Member Cities and County - Overview of Financing Plan. June — July, 2001 Make presentations to rating agencies and bond insurers. Obtain member cities/county, approval of financing plan (213 member approval required). OCFA staff to assist as needed with presentations to City Councils/Board of Supervisors. July 11, 2001 Present Preliminary Official Statement to the Budget and Finance Committee. July 20, 2001 Obtain ratings and insurance bids. July 26, 2001 Obtain approval from the Board of Directors to distribute the Preliminary Official Statement. July 27, 2001 Print and mail the Preliminary Official Statement. Sept 12, 2001 Present final financing plan and documents to the Budget and Finance Committee. Sept 27, 2001 Obtain final approval of the financing plan and documents from the Board of Directors. Price bonds, award construction contract, and sign the bond purchase contract agreement. AGENDA ITEM NO. AGENDA ITEM DATE: June 2001 TO: City Council / Board of Supervisors FROM: Staff REVIEWED BY: City Manager / Assistant County Executive Officer SUBJECT: Approval of the Orange County Fire Authority's Financing Plan for the Regional Fire Operations & Training Center RECOMMENDED ACTION: Adopt and execute the submitted resolution approving the issuance of long -term bonded indebtedness by the Orange County Fire Authority for the purpose of financing the Regional Fire Operations & Training Center (attachment 1). FISCAL IMPACT: (Structural Fire Fund Members) None. (Cash Contract Cities) The City's proportional share of the long -term debt repayment obligation will be included in the calculation of cash contract charges pursuant to Article fV.3.B of the Amended Joint Powers Agreement. The total cash contract charge will not exceed the caps on annual adjustments. DISCUSSION- The Orange County Fire Authority (OCFA) has requested that its member agencies approve the issuance of long -term bonded indebtedness to finance the Regional Fire Operations & Training Center ( RFOTC). The RFOTC will serve as OCFA's headquarters facility and the center of its public service operations. The RFOTC project site is located at the intersection of Jamboree Road and Tustin Ranch Road in northwest Irvine. The 16.5 acre site will house a 911 Emergency Communications Center, Training Tower and Drill Grounds, Vehicle Maintenance Center, Materiel Management Center, and Public and Support Services. The total cost of the RFOTC is estimated at $50.4 million. This estimate includes program management, design professional fees, facility construction, construction contingency, furniture, fixtures and equipment costs. OCFA anticipates that construction will begin in November 2001 and be completed in about 18 months. Transition to the new facility is expected to begin in August 2003. The following provisions from the Amended Joint Powers Agreement are applicable to the RFOTC proposed debt issuance: • OCFA must obtain approval by two- thirds of its members to issue long term debt. • OCFA shall be a public entity separate from the members of the JPA and its debts, liabilities, and obligations ghall = be the debts, liabilities, and obligations of its members. As a consequence of the latter provision, the obligation to repay this debt issuance falls on OCFA, not the individual members. The Authority has provided a Preliminary Financing Plan outlining the structure and terms of the proposed debt issuance (attachment 2). A Financial Technical Advisory of this financing (FTAC) The established by OCFA to provide an independent third party FTAC reviewed and unanimously approved the Preliminary Financing Plan in April 2001. Members of the FTAC include: • Tim Casey - City Manager, City of Laguna Niguel (chair of the city Manger Budget & Finance Comminm) • Ron Nault - Finance Director, City of Tustin • Gary Burton - Chief Financial Officer, County of Orange • Joan Steiner -Assistant Chief, OCFA OCFA held a workshop for their Budget & Finance Committee and Board of Directors to review and discuss the Preliminary Financing Plan on May 9, 2001. The Board of Directors unanimously recommended that the Plan be forwarded for final approval at the regular Board meeting scheduled for May 24, 2001. OCFA staff also held a workshop providing an overview of the Preliminary Financing Plan for all member City Managers, Finance Directors, and the County's Assistant CEO on May 23, 2001. Subsequently, the Authority's Board of Directors unanimously approved the Plan on May 24, 2001 and adopted a resolution authorizing OCFA staff to submit the Plan to the members for approval by their City Councils / Board of Supervisors. A copy of OCFA's adopted resolution is provided as attachment 3. OCFA's goal is to obtain approval by 100% of its members. OCFA is requesting that each member adopt the resolution approving OCFA's issuance of long -term bonded indebtedness and return the executed resolution to OCFA by the end of July. ATTA('HMRNTS Attachment 1: Resolution of the City Council / Board of Supervisors Approving OCFA's Issuance of Long -Term Debt Attachment 2: Preliminary Financing Plan Attachment 3: Resolution of the OCFA Board of Directors Approving the Preliminary Financing Plan