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<br />Attachment 3 <br />Analysis of Proposition lA "Securitization" Program <br /> <br />8A <br />Page 28 <br /> <br />Under Proposition lA, that was approved by the voters in 2004, the State must repay, with <br />interest, any property taxes shifted from cities, counties, and special districts no later than <br />three fiscal years folloWing the shifting of such taxes. Accordingly, the $2.9 million of property <br />taxes that will be taken from the City's general fund this year must be repaid with interest no <br />later than June 30, 2013. <br /> <br />The State, however, is providing an opportunity for any agency that will be having their <br />property taxes shifted this year to "securitize" the amount that the State is obligated to pay <br />back. In simple terms this means that agencies may sell this "receivable" (the State's promise <br />to repay) to the California Communities joint powers authority, which will then issue bonds and <br />pay the agency an amount equal to the property taxes being taken in FY 2009-10. The costs of <br />issuing these bonds and the interest paid to the bondholders are expected to be paid by the <br />State. <br /> <br />In analyzing the attractiveness of this opportunity for Redwood City two threshold questions <br />arise: <br /> <br />1) Is this a non-recourse transaction? In other words, if the State fails to repay the <br />bondholders do the bondholders have any way to recover these payments from the <br />participating agencies? <br />2) Will the amounts paid this year through the securitization program equal the property <br />taxes being shifted or will the amount paid to the agencies be less than the amount of <br />property taxes shifted? <br /> <br />In further analyzing whether to participate in the securitization program we offer the following <br />pros and cons: <br /> <br />Arguments in favor of participating: <br /> <br />1) If the City has doubts about the State's ability or willingness to make the required <br />payment before June 30,2013, <br />2) The City is able to receive substantially all of the $2.9 million that will be taken this year, <br />and <br />3) The City needs the liquidity (needs to have cash versus a receivable). <br /> <br />Arguments against participating: <br /> <br />1) The City has no reservations about the State's willingness or ability to repay the City <br />before June 30, 2013, <br />2) The City does not need the liquidity, and <br />