AgdaPkt 2003-11-03 - Laserfiche WebLink

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94 2 I i& Financing Under the California constitution, cities may not incur debt without voter approval. This constitutional limitation does not apply to special purpose financing authorities, such as the PFA. Pursuant to a Site Lease, the PFA will use the proceeds of the bond sale to make a one - time -only site lease payment to the City in which the PFA will become the lessee of certain r3al property owned by the City. The PFA will then lease these properties back to Me City for an annual lease payment that equals the principal and interest payments the PFA is obligated to make to the bond holders. This is the same arrangement the City used when issuing the 1986 and 1991 bonds, the proceeds of which were used to construct the main library, main fire station, and the police facility. Refinancing of 1991 Bonds In 1986 the City sold $14.1 million lease revenue bonds to fund construction of the library and the main fire station. The bonds were amortized over a 25 year period through FY 2011/12. In 1991 the City refinanced the 1986 bonds and issued additional lease revenue bonds to fund construction of the City's main police facility. In 1998 a portion of the 1991 bonds was refinanced to take advantage of lower interest rates and hence reduce debt service costs. Under federal tax law, the balance of the 1991 bonds could not be refinanced until 2003. As a rule -of- thumb, net percent value (NPV) savings from a refinancing should equal at least three percent of the par amount of refinancing bonds sold. At present interest rates, staff expects the City to achieve approximately six percent savings. New Money Loan to Agency The City Council and Agency Board approved a tax allocation bond sale of up to $34 million to finance Agency redevelopment projects. Debt service on Agency tax allocation bonds was set at the maximum that staff and its financing consultants determined the Agency could pay and still obtain a credit rating of "A -" which rating designation was deemed critical to the success of the financing. That plan included a loan from the City to be funded with PFA lease revenue bonds. Staff originally anticipated a need of up to $4.5 million for this loan. After the sale of the Redevelopment Agency bonds, it is now only necessary to loan the City $2.89 million. Payments by the Agency on the loan from the City will be subordinate to the Agency's tax allocation bond payments, a critical security feature that allowed the Agency to achieve its rating and successfully market its bonds as planned. A sources and uses of funds schedule for the proposed bond sale is attached for your review (Attachment II). The City loan to the Agency will be structured to give the City and Agency maximum flexibility regarding the use of tax increment dollars. On a year -by -year basis the City will be able to allow the Agency to defer all or a portion of the scheduled loan payments. "Scheduled" loan payments will be approximately $150,000 annually through FY 2010/11, and $500,000 thereafter through FY 2018/19. The City Council will make this determination as it deems appropriate. The Agency's ability to undertake redevelopment activities expires in 2028, ten years before its ability to collect tax increment to repay. loans expires in 2037. At the modest assessed valuation growth of two percent annually, the Agency is expected to be able to repay the City in full from tax increment revenues even if all debt repayments to the City are deferred until 2029. 2