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CONSIDERATION OF APPROVAL TO PURSUE THE REFINANCING OF CERTAIN COMMUNITY FACILITIES DISTRICT BONDS
A. RESOLUTION NO. 2015-151 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA MAKING PRELIMINARY DETERMINATIONS AND DECLARING INTENTION TO ISSUE REFUNDING BONDS FOR PROPOSED REASSESSMENT DISTRICT NO. 2015-1, AND ORDERING A REPORT THEREON
B. RESOLUTION NO. 2015-152 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA APPROVING THE REASSESSMENT REPORT AND CONFIRMING REASSESSMENTS WITHIN REASSESSMENT DISTRICT NO. 2015-1
C. RESOLUTION NO. 2015-153 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA AUTHORIZING AND DIRECTING COMPLIANCE WITH THE “REFUNDING ACT OF 1984 FOR 1915 IMPROVEMENT ACT BONDS,” AS MODIFIED, IN CONNECTION WITH THE ISSUANCE OF LIMITED OBLIGATION REFUNDING BONDS FOR THE PURPOSE OF REFUNDING CERTAIN REASSESSMENT DISTRICT BONDS
D. RESOLUTION NO. 2015-154 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA AUTHORIZING AND PROVIDING FOR THE ISSUANCE OF LIMITED OBLIGATION REFUNDING BONDS FOR REASSESSMENT DISTRICT NO. 2015-1, APPROVING THE FORM OF FISCAL AGENT AGREEMENT, FIRST SUPPLEMENTAL BOND INDENTURE AND BOND PURCHASE CONTRACT AND AUTHORIZING OTHER ACTIONS IN CONNECTION THEREWITH
E. RESOLUTION NO. 2015-002 OF THE BOARD OF DIRECTORS OF THE CHULA VISTA PUBLIC FINANCING AUTHORITY APPROVING THE FORM OF AN ESCROW DEPOSIT AND TRUST AGREEMENT AND THE TERMINATION OF AN INVESTMENT AGREEMENT BOTH PERTAINING TO THE DEFEASANCE AND REDEMPTION OF THE CHULA VISTA PUBLIC FINANCING AUTHORITY REVENUE REFUNDING BONDS, SERIES 2005A
F. RESOLUTION NO. 2015-155 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA ACTING FOR ITSELF AND AS THE LEGISLATIVE BODY OF CERTAIN COMMUNITY FACILITIES DISTRICTS, AUTHORIZING AND PROVIDING FOR THE ISSUANCE OF SEPARATE SERIES OF REFUNDING BONDS OR SPECIAL TAX REFUNDING BONDS, AS APPLICABLE, FOR EACH SUCH COMMUNITY FACILITIES DISTRICT, APPROVING THE FORM OF A FISCAL AGENT AGREEMENT, A BOND PURCHASE CONTRACT FOR EACH SERIES OF AUTHORITY BONDS, AN ESCROW DEPOSIT AND TRUST AGREEMENT, A PRELIMINARY OFFICIAL STATEMENT, AND A FIRST SUPPLEMENTAL BOND INDENTURE FOR EACH SERIES OF PRIOR REFUNDING BONDS AND AUTHORIZING OTHER ACTIONS IN CONNECTION THEREWITH
G. RESOLUTION NO. 2015-001 OF THE BOARD OF DIRECTORS OF THE CHULA VISTA MUNICIPAL FINANCING AUTHORITY AUTHORIZING THE ISSUANCE OF SPECIAL TAX REVENUE REFUNDING BONDS, SERIES 2015A AND REVENUE REFUNDING BONDS, SERIES 2015B, APPROVING THE FORM OF A SEPARATE INDENTURE OF TRUST, BOND PURCHASE CONTRACT, PRELIMINARY OFFICIAL STATEMENT AND CONTINUING DISCLOSURE AGREEMENT FOR EACH SERIES OF SUCH BONDS, AND AUTHORIZING OTHER ACTIONS IN CONNECTION THEREWITH
H. RESOLUTION NO. 2015-156 OF THE CITY COUNCIL, NO. 2015-003 THE PUBLIC FINANCING AUTHORITY, NO. 2015-002 THE MUNICIPAL FINANCING AUTHORITY, NO. 2015-005 THE HOUSING AUTHORITY, AND NO. 2015-001 THE INDUSTRIAL DEVELOPMENT AUTHORITY OF THE CITY OF CHULA VISTA, WAIVING THE FORMAL CONSULTANT SELECTION PROCESS AS IMPRACTICAL AND APPROVING AN AGREEMENT WITH STRADLING, YOCCA, CARLSON & RAUTH FOR BOND AND DISCLOSURE COUNSEL SERVICES
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RECOMMENDED ACTION
Recommended Action
Council adopt Resolutions A through D and F, Public Financing Authority adopt Resolution E, Municipal Financing Authority adopt Resolution G, and City Council/Public Financing Authority/Municipal Financing Authority/Housing Authority/Industrial Development Authority adopt Resolution H.
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SUMMARY
Due to lower interest rates, improved development status, and savings derived from refunding existing debt for these districts. There are two refinancings contemplated, the 2015 A and 2015B bonds. The 2015A and 2015B bonds using a pooled concept will benefit approximately 3,337 and 6,696 parcels respectively from this refinancing. The criteria for the refinancing were set at a minimum savings of 5%. Based on a preliminary analysis, the estimated savings varies by district and ranges from an average net present value of 10.8% for the 2015A bonds and 6.3% for the 2015B bonds based on the current interest rate environment. It should be noted that if the savings threshold of 5% are not met for any of the proposed individual Community Facility District refinancings the financing will not proceed until the market conditions improve.
The law firm of Stradling, Yocca, Carlson and Rauth (“SYCR”) has served as the City’s bond counsel for the City’s Certificates of Participation and Tax Allocation Bond refinancings and restructurings, the City’s Housing Authority and Industrial Development Authority since 1997. This agreement serves to update the terms, conditions, pricing of Bond Disclosure and Counsel Services and the pricing of additional as-needed services. The agreement shall expire on December 31, 2018 with the ability to extend the agreement with three one-year options. The consultant selection process is being waived for this agreement, pursuant to CVMC §2.56.110.F, due to SYCR’s unique qualifications, background and experience.
ENVIRONMENTAL REVIEW
The Development Services Director has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that project, refunding of bonds is not a “Project” as defined under Section 15378(b)(5) of the State CEQA Guidelines because it is a fiscal activity that will not result in a physical change to the environment; therefore, pursuant to Section 15060(b)(4) of the State CEQA Guidelines the actions proposed are not subject to CEQA
BOARD/COMMISSION RECOMMENDATION
Not applicable.
DISCUSSION
The City has determined with the assistance of the City’s Financial Advisor, Fieldman Rolapp & Associates and Investment Banking Firm, Stifel, Nicolaus & Company that there are several Community Facility District (CFD) bonds (more commonly known as Mello-Roos bonds) that would benefit from a refunding during this low interest rate environment.
The proposed refunding contemplates issuing two new bonds that will be named Special Tax Refunding Bonds 2015A and 2015B with not-to-exceed amounts of $36 million and $55 million respectively.
Special Tax Refunding Bonds 2015A (2015A)
The 2015A bonds propose to refinance currently outstanding Community Facilities Districts bonds known as:
• City of Chula Vista Community Facilities District 2001-1 (San Miguel Ranch) 2005 Improvement Area B Special Tax Bonds;
• City of Chula Vista Community Facilities District 07-I (Otay Ranch Village Eleven) 2006 Special Tax Bonds;
• City of Chula Vista Community Facilities District 12-I (McMillin Otay Ranch Village Seven) 2005 Special Tax Bonds;
• City of Chula Vista Community Facilities District 13-I (Otay Ranch Village Seven) 2006 Special Tax Bonds
Based on a preliminary analysis, the estimated savings varies by district and the average net present value is 10.8% for the 2015A bonds based on the current interest rate environment. The projected average annual savings is $1,086,239 with a per parcel annual savings of approximately $325.51, and the projected net present value savings over the life of the existing debt is approximately $4.9 million.
Special Tax Refunding Bonds 2015B (2015B)
The 2015B bonds propose to refund currently outstanding bonds known as Chula Vista Public Financing Authority Revenue Refunding Bonds, Series 2005A (2005A): The Public Financing Authority issued its $93,930,000 2005A series to provide funds that had previously refinanced the following limited obligation refunding bonds and special tax refunding bonds know as:
• City of Chula Vista Community Facilities District No. 97-3 (Otay Ranch McMillin Spa One) 2005 Special Tax Refunding Bonds;
• City of Chula Vista Community Facilities District No. 99-1(Otay Ranch Spa One - Portions of Village One, Village Five and Village One West) 2005 Special Tax Refunding Bonds;
• City of Chula Vista Community Facilities District No. 2000-1 (Sunbow II - Villages 5 through 10) 2005 Special Tax Refunding Bonds;
• City of Chula Vista Community Facilities District No. 2001-1 (San Miguel Ranch) 2005 Improvement Area A Special Tax Refunding Bonds; and
• City of Chula Vista Reassessment District No. 2005-2 2005 Limited Obligation Refunding Bonds (the “Prior RAD No. 2005-2 Limited Obligation Refunding Bonds”);
Based on a preliminary analysis, the estimated savings varies by district and the average net present value is 6.3% for the 2015B bonds based on the current interest rate environment. The projected average annual savings is $1,405,573 with a per parcel annual savings of approximately $209.91, and the projected net present value savings over the life of the existing debt is approximately $4.4 million.
Approval of the resolutions provides the authorization necessary for proceeding with the refunding bond issuances and approval of the bond documents.
The financing will not proceed if interest rates have risen to a level that the refunding would not meet the minimum savings threshold of 5% for any of the proposed individual Community Facility District refinancings. If that were to occur, the refinancings will be brought back for Council consideration at a later date when the market allows for the minimum 5% savings to be achieved.
Stradling Yocca Carlson and Rauth Legal Services Agreement
The law firm of Stradling, Yocca, Carlson and Rauth has served as the City’s bond counsel for the City’s Certificates of Participation and Tax Allocation Bond refundings and restructurings since 1997. Bond counsel has also served as disclosure counsel to the City assisting in the preparation of the Official Statements for the financings.
Bond counsel has also provided various post-issuance services at the request of the City. Bond counsel represented the City before the Internal Revenue Service for the audit of the bond proceeds from the 2004 Certificates of Participation - Civic Center Phase 1. The audit concluded favorably to the City in all respects. Additionally, SYCR has provided training to City staff and the City Council in December 2013 on the disclosure responsibilities under Federal securities laws.
SYCR’s prior work with the City, its expertise in the highly-specialized field of public finance, and its experience with refunding bond issues, certificates of participation and tax and revenue anticipation notes, makes SYCR uniquely qualified to serve as the City’s bond counsel. Waiving the consultant selection process for bond counsel makes sense for the following reasons. First, due to the current low interest environment, the City wants to act quickly to refund the CFDs that are the subject of this report and to also refund the 2004 Certificates of Participation and certain maturities of the 2006 Certificates of Participation. SYCR has intimate knowledge of how the original financings were structured and this historical information puts them in a unique position to advise the City on the most optimal restructuring alternatives. Second, retaining SYCR to serve as bond counsel and disclosure counsel will provide continuity for the City in legal advice for the preparation of its Official Statements and other financing documents. In recent years, the Securities and Exchange Commission has emphasized the importance of municipal disclosure. Bond counsel is a very experienced firm on disclosure matters. In 2013, SYCR was recognized for doing more bond and disclosure counsel deals in California than any other law firm in the country earning top-ranking by The Bond Buyer (bond industry periodical). Third, Bond counsel has provided excellent service to the City throughout the term of its contract always meeting deadlines and supporting staff throughout the financing process.
DECISION-MAKER CONFLICT
Staff has reviewed the property holdings of the City Council and has found no property holdings within 500 feet of the boundaries of the property which is the subject of this action. Staff is not independently aware, and has not been informed by any Council member, of any other fact that may constitute a basis for a decision maker conflict of interest in this matter.
LINK TO STRATEGIC GOALS
The City’s Strategic Plan has five major goals: Operational Excellence, Economic Vitality, Healthy Community, Strong and Secure Neighborhoods and a Connected Community. The refunding supports the Economic Vitality goal by lowering interest rates and therefore the cost of borrowing for the owners of the properties located in the districts.
CURRENT YEAR FISCAL IMPACT
There is no net impact to City operating funds. The refunding will save property owners in the Community Facility Districts on a net present value basis approximately $4.9 million and $4.4 million over the life of the 2015A and 2015B bonds respectively.
The costs of issuance associated with this refunding include costs for the underwriting, bond counsel and financial advisor firms are contingent upon actually selling the bonds and are payable from the bond proceeds. Costs of issuance are estimated to be approximately $270,000 for the 2015A bonds and $300,000 for the 2015B bonds.
ONGOING FISCAL IMPACT
The total annual savings for all property owners are estimated at approximately $372,749 and $485,143 per year for the 2015A and 2015B bonds respectively.
ATTACHMENTS
1. Fiscal Agent Agreements
2. Bond Purchase Agreements
3. Escrow Deposit and Trust Agreements
4. Preliminary Official Statements
5. Continuing Disclosure Agreements
6. Indenture of Trusts
7. Legal Services Agreement for Stradling, Yocca, Carlson and Rauth
Staff Contact: Phillip Davis, Assistant Director, Finance Department