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HomeMy WebLinkAboutItem P & Q h ga 01 May 8, 2000 AGENDA REPORT prh 23 TO: MAYOR YOST AND o,04 MEMBERS OF THE CITY COUNCIL ' FROM: KEITH TILL, CITY MANAGER SUBJECT: Sewer Rate Charges and Certificates of Participation (2000 Sewer System Improvement Project) - - SUMMARY OF REQUEST: City Council to complete the public hearing and receive testimony re sewer rate adjustments, approve resolutions creating the Seal Beach Public Financing Authority, 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 introduced Ordinance #1460 re sewer rate adjustments. The public hearing was continued to May 8, 2000 for additional public input. As previously reported to City Council, the aging sewer system is in immediate need of critical repairs and replacement. The only available 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. 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 AGENDA ITEM P & 0 Mr. Keith Till May 8,2000 Page 2 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 formation by the City and the City's redevelopment agency of a new entity, the"Seal Beach Public Financing Authority." The sitting City Council of the City will sit as the board of directors of the Authority. It is staffs recommendations that the following actions be taken by the Seal Beach Redevelopment Agency, Seal Beach Public Financing Authority and City Council, on May 8, 2000, in connection with the creation of the Seal Beach Public Financing Authority and the contemplated financing. Mr. Keith Till May 8, 2000 Page 3 FOR CITY COUNCIL APPROVAL P. The Council will continue the public hearing on the sewer rate adjustments and hold god 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 FOR REDEVELOPMENT AGENCY APPROVAL Item Q1 in the Joint Redevelopment Agency/City Council Meeting /E D The Agency will consider: /too P I 5/g Q1. PROPOSED RESOLUTION NO. 00-2 OF THE REDEVELOPMENT AGENCY ,/, OF THE CITY OF SEAL BEACH AUTHORIZING THE EXECUTION OF A �t JOINT EXERCISE OF POWERS AGREEMENT CREATING THE SEAL BEACH PUBLIC FINANCING AUTHORITY This resolution provides authorization by the Agency for the creation of the Authority (the members being the City and the Agency) and authorizes execution by the Agency of the following document: (a) The Joint Exercise of Powers Agreement is attached to the resolution.) The Agency will adjourn the meeting and the City Council will consider the following items. FOR CITY COUNCIL APPROVAL Item Q2. Council will then consider the sewer system financing which includes a resolution creating the Seal Beach Public Financing Authority and the resolution adopting the sewer financing documents. �n it D Q2. PROPOSED RESOLUTION NO. 4800 OF THE CITY COUNCIL OF THE CITY " OF SEAL BEACH AUTHORIZING THE EXECUTION OF A JOINT EXERCISE 4- OF POWERS AGREEMENT CREATING THE SEAL BEACH PUBLIC FINANCING AUTHORITY (Joint Powers Agreement attached-same agreement that was considered by Redevelopment Agency) Q3. 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 Mr. Keith Till May 8, 2000 Page 4 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 and charges from users of the sewer that the City must collect fees enterprise to insure g 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. (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. Council to recess the meeting and convene the meeting of the Seal Beach Public Financing Authority Mr. Keith Till May 8,2000 Page 5 C. FINANCING AUTHORITY APPROVAL ftvO ' P A. PROPOSED RESOLUTION NO. PFA-001 OF THE SEAL BEACH PUBLIC ll FINANCING AUTHORITY ADOPTING BYLAWS, ESTABLISHING A SEAL �Y FOR THE AUTHORITY AND DIRECTING THE FILING OF A NOTICE OF FORMATION WITH THE SECRETARY OF STATE This resolution provides for some procedural items relating to the creation of the Authority and approves the following documents which are attached to the resolution: (b) Authority By-Laws. P Dof 1 B. PROPOSED RESOLUTION NO. PFA-002, A RESOLUTION OF THE BOARD a OF DIRECTORS OF THE SEAL BEACH PUBLIC FINANCING AUTHORITY 1,1.1 ADOPTING A CONFLICT OF INTEREST CODE WHICH INCORPORATES BY REFERENCE THE STANDARD CONFLICT OF INTEREST CODE PREPARED BY THE FAIR POLITICAL PRACTICES COMMISSION This resolution adopts Conflict of Interest Code C. 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.