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May 22, 2000 1�" o 1
AGENDA REPORT
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TO: MAYOR AND MEMBERS OF THE CITY COUNCIL ytJ-i
FROM: KEITH TILL, CITY MANAGE!?(I14?'
SUBJECT: Sewer Rate Charges and Certificates of Participation (2000
Sewer System Improvement Project)
SUMMARY OF REQUEST:
City Council to approve sewer rate adjustments with the 2nd reading of Ordinance No. 1460 and
approve execution of documents related to the sewer system financing.
BACKGROUND:
On April 24th, Council approved the City's Sewer Master Plan, received the Sewer Rate Study
recommending the addition of a sewer capital improvement charge and approved Ordinance
#1460 re sewer rate adjustments. The public hearing was continued to May 8, 2000 for additional
public input. On May 8th, the public hearing was closed, and Council approved the resolutions
creating the Seal Beach Public Financing Authority. Tonight's actions will complete the process
and adopt sewer rate adjustments and the accompanying resolutions approving execution of sewer
system financing as explained below.
As previously reported to City Council, the aging sewer system is in immediate need of critical
repairs and replacement. The most prudent means of funding these essential projects is through a
public financing device. After evaluation of a number of financing alternatives, certificates of
participation emerged as the most appropriate. The following description was prepared with the
assistance of bond counsel.
The use of certificates of participation to finance capital projects is the most prevalent securities
vehicle in California. This financing technique provides long-term financing through a lease,
installment sale agreement or loan agreement that does not constitute indebtedness under the state
constitutional debt limitation and is not subject to other statutory requirements applicable to
bonds, including interest rate limitations, election requirements, competitive sale requirements, or
semi-annual or fixed rate interest payment requirements. Certificates of participation allow the
public to purchase (in $5,000 increments) participation in a stream of lease payments, installment
payments or loan payments relating to the acquisition or construction of specific equipment, land
or facilities.
Agenda Item(/9c V
Mr. Keith Till May 22,2000
Page 2
In the current financing, the obligation that will serve as the basis for the certificates of
participation will be an installment sale agreement pursuant to which the City will make
installment payments exclusively from a designated special fund, the City's sewer enterprise.
Although installment payments are subject to the constitutional debt limitation, they do not violate
the debt limitation under the"special fund" exception. The City will be obligated to appropriate
payments from the special fund. The installment payments are composed of components of
principal and interest. The future right to receive the installment payments is sold to investors in
individual portions and the proceeds of that sale are available to the City to pay for the capital
improvements.
Since the installment payments include an interest component, the repayment to the investors of
the interest portion of the installment payments is tax-exempt income. Because the investor does
not need to pay State or federal income tax on the interest it receives, the interest rates
attributable to the interest component of the installment payments and payable by the City is
significantly lower than the interest rates for conventional financing.
If authorized by the Council, the Seal Beach sewer transaction will be structured as follows:
The City will purchase the financed capital improvements from the newly-created Seal Beach
Public Financing Authority(see description below) pursuant to the installment sale agreement.
The Authority will assign its interests in the installment sale agreement, including its right to
receive installment payments from the City and its rights to enforce remedies against the City for
nonpayment, to a trustee bank. The trustee bank will be BNY Western Trust Company. The
trustee bank will execute and deliver certificates of participation evidencing direct, undivided
fractional interests in the installment payments. The certificates of participation will be sold to
investors, by competitive sale, and the proceeds of the sale will be deposited with the trustee
bank, for investment and disbursement for construction costs at the direction of the City. The City
will make semi-annual installment payments for the project directly to the trustee bank (as
assignee of the Authority) and the trustee bank will make debt service payments to the investors.
Since certificates of participation financing is based upon the structure of a lease or sale(as here),
a"seller," or conduit entity, must be identified. In California, the most common entity employed in
this situation is a nonprofit corporation or joint powers authority created by the affected city.
Experience has shown that the use of a joint powers authority is preferable because, as a new
public entity, its annual maintenance is minimal as compared to a nonprofit corporation which
would require the preparation of annual financial statements and the filing of tax returns. For that
reason, this financing contemplates the use of the"Seal Beach Public Financing Authority," a new
public entity created on May 8, 2000 by the City and the Redevelopment Agency.
It is staffs recommendations that the following actions be taken by the City Council and the Seal
Beach Public Financing Authority on May 22, 2000, in connection with the contemplated
financing for the sewer system improvements.
1
Mr. Keith Till May 22, 2000
Pagel
FOR CITY COUNCIL APPROVAL
U. Hold 2nd reading of Ordinance #1460, an Ordinance of the City of Seal Beach Amending
Section 19C-3 of the code of the City of Seal Beach Regarding Monthly Sewer Charges
Recommended Action: Council hold 2"d reading to adopt Ordinance #1460.
V. PROPOSED RESOLUTION NO. 4801 OF THE CITY COUNCIL OF THE CITY OF
SEAL BEACH APPROVING, AUTHORIZING AND DIRECTING EXECUTION OF
CERTAIN INSTALLMENT SALE FINANCING DOCUMENTS, APPROVING THE
FORM AND AUTHORIZING DISTRIBUTION OF A PRELIMINARY OFFICIAL
STATEMENT, IN CONNECTION WITH THE OFFERING AND SALE OF
CERTIFICATES OF PARTICIPATION RELATING THERETO AND AUTHORIZING
AND DIRECTING CERTAIN ACTIONS WITH RESPECT THERETO
This resolution provides authorization by the City Council of an installment sale,financing with
certificates of participation and authorizes execution by the City of the following documents
which are attached to the resolution:
(a) Installment Sale Agreement. This is the agreement pursuant to which the City
purchases the new sewer improvements from the Authority. This agreement requires
the City to make semi-annual installment payments and requires to the City to insure
and maintain the sewer enterprise throughout the term of the agreement. The City's
payment obligations under this agreement are limited solely to "net revenues" of the
City's sewer enterprise (gross revenues less operation and maintenance expenses) and
the City's general fund is not obligated to make such payments. This agreement also
requires the City to maintain a"debt service coverage ratio" of 1.25 to 1. This means
that the City must collect fees and charges from users of the sewer enterprise to insure
that net revenues are collected in an amount not less than 1.25 times the maximum
annual amount of installment payments payable under the agreement. Also, in order to
issue or incur future obligations payable from the sewer enterprise, the City will be
required to evidence that the maximum annual amount of installment payments payable
under the agreement and under the agreement relating to that future obligation will
meet the debt service coverage ratio for the existing payment obligations as well as the
proposed payment obligations.
(b) Trust Agreement. This is the agreement pursuant to which the trustee bank will hold,
invest and disburse certificate proceeds for the construction of the new sewer
improvements and will collect installment payments from the City for disbursement to
the investors.
(c) Notice of intention. State law requires that a notice of intention to publicly sell
municipal securities be published. This document satisfies that requirement.
Mr. Keith Till May 22,2000
Page 4
(d) Notice of Sale and Bid Form. This document is mailed to prospective purchasers of
the certificates, provides a summary of the issue and sets for the bid specifications.
(e) Continuing Disclosure Certificate. All municipal securities issued after July 3, 1995,
require that the issuer agree to provide certain annual and other information to the
marketplace since the securities may be traded in the secondary market (the certificates
are freely transferable by the investors). This document satisfies that requirement.
(f) Preliminary Official Statement. This is the offering document(similar to a prospectus)
which provides a detailed description of the City, the issue and the sources of
payment. This documents permits prospective investors to make an informed
investment decision regarding a purchase of the certificates.
Recommended Action: Adopt Resolution No. 4801 approving sewer financing documents -
Installment Agreement, Trust Agreement, Notice of Intention, Notice of Sale and Bid Form,
Continuing Disclosure Certificate and Preliminary Official Statement.
Council to recess the meeting and convene the meeting of the Seal Beach Public Financing
Authority
FOR FINANCING AUTHORITY APPROVAL
A. PROPOSED RESOLUTION NO. PFA-003 OF THE SEAL BEACH PUBLIC
FINANCING AUTHORITY APPROVING, AUTHORIZING AND DIRECTING
EXECUTION OF CERTAIN INSTALLMENT SALE FINANCING DOCUMENTS
AND AUTHORIZING AND DIRECTING CERTAIN ACTIONS WITH RESPECT
THERETO
This resolution provides authorization by the Authority of an installment sale financing with
certificates of participation and authorizes execution by the Authority of the following
documents which are attached to the resolution:
(a) Installment Sale Agreement. See description above.
(b) Assignment Agreement. Pursuant to this document, the Authority assigns its interests
in the installment sale agreement, including its right to receive installment payments
from the City and its rights to enforce remedies against the City for nonpayment, to
the Trustee. Following this assignment, the Authority's role in the transaction
effectively ends.
(c) Trust Agreement. See description above.
Recommended Action: Seal Beach Public Financing Authority adopt Resolution PFA-003
approving sewer financing documents, including the Installment Sale Agreement, the Assignment
Agreement and the Trust Agreement.
ORDINANCE NUMBER /5/6 0
•
AN ORDINANCE OF THE CITY OF SEAL BEACH
AMENDING SECTION 19C-3 OF THE CODE OF THE CITY
OF SEAL BEACH REGARDING MONTHLY SEWER
CHARGES
THE CITY COUNCIL OF THE CITY OF SEAL BEACH DOES ORDAIN AS FOLLOWS.
Section I Section 19C-3 (Service Charges)of Chapter 19C(Sewerage)of the Code of the City
• of Seal Beach is amended to read as follows
"Section 19C-3. Monthly Charges.
(a) Each residential unit or units,business,industrial enterprise or other entity which
has a connection to the City-owned sewage collection system for the use of said
sewage collection system,shall pay a monthly service charge in an amount equal
to twenty-two percent (22%)of the water billing to said user.
(b) In addition to the monthly service charge set forth in paragraph(a)above,each
residential unit or units,business,industrial enterprise or other entity which has a
connection to the City-owned sewage collection system for the use of said sewage
collection system, shall pay a monthly capital charge in the following amount
Residential Land Uses
Meter Size Monthly Capital Charge
3/4"or smaller $5 83 per month
1" $8 06 per month
1 5" $14.84 per month
2" $23.32 per month
3„ $165.36 per month
4" $276.66 per month
Commercial/industrial'Governmental Land Uses.
Meter Size Monthly Capital Charge
3/4" or smaller $6 36 per month
1" $13 78 per month
1 5" $18.02 per month
2" $72 08 per month
3" $199 28 per month
4" $359.34 per month
6" $507.74 per month
8" or larger $1060.00 per month
(c) Monthly charges for a particular property shall be billed on the same bill and to
the same ownership as the water bill for that particular property.
(d) In the event that any property in the City is unoccupied for thirty-two(32)
consecutive days during any two-month billing period,and no service is provided
or required,then a pro-rated charge shall be made on the basis of a sworn
statement by the owner or occupant of such vacancy for the billing period last
past
(e) The occupants of each place or premises shall be liable for payment of all fees
and charges as heretofore set forth in this ordinance Should any place or
premises be unoccupied or should the occupant thereof fail to pay all such fees
and charges before the sum becomes delinquent as provided in Section 26-11 of
the Seal Beach City Code,then,in either of such events,the owner of such places
or premises shall be liable for the payment of all such fees and charges
AGENDA ITEM U
(f) Should an account not be paid on or before the twentieth day of the month in
which it became due,it shall be deemed delinquent and a penalty of ten percent
(10%)shall be added thereto"
PASSED. APPROVED AND ADOPTED THIS DAY OF .2000
Mayor Paul Yost
ATTEST
City Clerk
STATE OF CALIFORNIA }
COUNTY OF ORANGE
CITY OF SEAL BEACH
I,Joanne M. Yeo,City Clerk of the City of Seal Beach,California,certify that the foregoing
ordinance is an original copy of Ordinance Number on file in the office of the
City Clerk,introduced at a meeting held on the day of
.2000 and passed, approved and adopted by the City Council of the City.of
Seal Beach at a meeting held on the day of
2000.by the following vote
AYES Councilmembers
NOES Councilmembers
ABSENT Councilmembers
ABSTAIN Councilmembers
and do further certify that Ordinance Number has been published pursuant to the
Seal Beach City Charter
City Clerk
000419 S7296-00002 rdw 1102391 0
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