Title
Public Hearing to Consider Adoption of City of Alameda and City of Alameda Public Financing Authority Resolutions Authorizing the Issuance and Sale of City of Alameda Financing Authority 2023 Lease Revenue Bonds for the City Aquatic Center in an Amount Not-to-Exceed $16,000,000 and Approving Certain Documents in Connection with the Issuance and Sale of the Bonds and Authorizing the City Manager, Assistant City Manager and Finance Director to Execute the Documents and Take All Related Actions in Connection Therewith [City Council/APFA];
Adoption of Resolution of the Alameda Public Financing Authority Adopting Amended By-Laws [APFA];
Adoption of Uncodified Ordinance on Urgency Basis Authorizing the City Manager to Enter into Leases with the City of Alameda Financing Authority.
The actions involved are categorically exempt from environmental review under the California Environmental Quality Act (CEQA) under CEQA Guidelines, Section 15322 (in fill projects). (Finance 10024051)
Body
To: Honorable Mayor and Members of the City Council/Board of Directors of City of Alameda Financing Authority
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
On February 21, 2023, City Council approved staff recommendation to authorize the City Manager to provide funding for the City Aquatic Center (Center), estimated to cost $30 million, which will provide critical additional pool space to meet the increasing and unmet community needs for competitive and recreational aquatic programs. City Council approved funding up to 50% ($15 million) of the construction cost of the Center project from the Unassigned Residual General Fund Balance (GF Balance), and financing the remainder through the issuance of long-term debt. Consistent with that direction, staff is recommending the issuance of 2023 Lease Revenue Bonds (2023 Bonds), providing a project fund of $15 million, with an issuance amount not-to-exceed $16,000,000, which includes all costs required for issuance. The remaining funding for the Center will be provided from the GF Balance. Issuance of the 2023 Bonds will bring total aquatic center funding to $30 million.
The attached resolutions, ordinance, and related documents authorize the issuance and sale of the 2023 Bonds by the City of Alameda Financing Authority (Authority), the debt service on which 2023 Bonds will correspond to lease payments made by the City of Alameda (City) from the General Fund and approves related documents and actions. The resolutions and ordinance may be adopted following the holding of a public hearing on the matter. Exhibit 1 includes the Notice of Public Hearing.
On February 21, 2023, City Council also directed staff to include costs to increase to a 50-meter competitive pool when returning for financing approval. The current conceptual plan for the Center includes a 30-meter by 25-yard competitive pool. An Olympic length pool is 50-meter by 25-yards. Both options provide 25-yard USA Swimming course, diving well, and water polo course with floating goals. The 30-meter pool is 13-lanes, and the 50-meter pool is 21-lanes and also provides for USA Swimming long course. The financial analysis for these two pool sizes is further described under the Discussion Section.
BACKGROUND
In the Fiscal Year (FY) 2019-20 budget, City Council authorized funding for the Center conceptual design. An in-depth public process was completed and a conceptual design was recommended for approval by the Recreation and Parks Commission on August 13, 2020, however final project approval was paused due to the pandemic, shifting priorities, and lack of funding sources.
On February 15, 2022 (File no. 2022-1700), City Council heard options to fund aquatic facilities in Alameda, including the rebuild of the Emma Hood Swim Center at Alameda High School and construction of a Center on a City-owned site. City Council provided general direction to staff to further pursue possible funding mechanisms for both facilities.
As part of the FY 2022-23 budget, City Council allocated $7.5 million of the GF Balance to fund 50% equal cost sharing with the Alameda Unified School District (AUSD) and rebuild the Emma Hood Swim Center at Alameda High School. City Council approved Resolution No. 15966, formally appropriating these funds, on September 20, 2022. The project is underway and AUSD is currently completing the public input process, including both AUSD constituents and the broader Alameda aquatic community, and finalizing the design.
On October 18, 2022 (File no. 2022-2424), City Council approved the Center (separate and apart from Emma Hood Swim Center) to be constructed on the west side of Sweeney Park. At the same meeting, City Council also approved funding up to 50% of the Center costs, including design and construction, with the GF Balance and funding the balance of project costs with a financing mechanism to be determined.
On February 21, 2023 (File no. 2023-2776), City Council approved the City Manager’s recommendation to fund the Center through the issuance of bonds or other long-term debt providing a project fund of $15 million, with the GF Residual Balance providing the remaining funding for the Center. Staff is recommending City Council authorize the issuance of the 2023 Bonds at this time, consistent with that direction.
On July 18, 2023, the City Council approved the execution of an Agreement with Griffin Structures, Inc. for the Project Management of the Center.
Staff recommends the issuance and sale of the 2023 Bonds via a public offering via negotiation with Piper Sandler & Co. (Piper), as the designated underwriter, to fund the Center, as the financing team believes this structure will provide the lowest cost of borrowing in today’s market. By issuing the 2023 Bonds in this manner and at this time, the City will lock-in issuance costs and the related debt service over a 30-year period, with the remaining funds for the Center coming from the GF Balance. IRS guidelines require that the issuer of tax-exempt bonds (such as the 2023 Bonds) reasonably believes at the time of issuance that it will spend at least 85 percent of the bond proceeds within three (3) years. This timing for spending proceeds of the 2023 Bonds falls within the overall project guidelines contemplated by the Center’s Project Manager, Griffin Structures, Inc Design of the Aquatic Center is starting in winter 2023 and construction is anticipated to commence by summer 2025 and be completed by fall 2026.
DISCUSSION
Bond Financing Analysis - Staff is recommending City Council (which also serves as Board of Directors of the Authority) authorize the issuance and sale of the 2023 Bonds for the Center in an amount not-to-exceed $16,000,000. Proceeds of the 2023 Bonds will be used to provide critical additional pool space to meet the increasing and unmet community needs for competitive and recreational aquatic programs. The additional $1,000,000 of the 2023 Bond proceeds will be used to pay the cost of issuance of the 2023 Bonds (e.g., bond counsel fees, trustee fees, printing expenses, etc.).
The net proceeds of the sale of the 2023 Bonds of $15,000,000 will be available for use by the City to finance the construction of the Center. The financing will be structured as a lease-lease back financing, pursuant to which the City will lease the City’s police department site and facility (1555 Oak Street) to the Authority under the Site Lease, and the Authority will lease the site and facility back to the City under the Lease Agreement in return for semi-annual lease payments made by the City. The police department building is the only facility available for bond security that is worth the required amount and not currently bonded. The security of the 2023 Bonds will be the semi-annual lease payments made by the City’s General Fund and received by the Authority under the Lease Agreement. Pursuant to the Assignment Agreement (Exhibit 4), the Authority will assign its right to receive the lease payments to the trustee for payment of the 2023 Bonds under the Indenture. This is the same financing approach that was used to fund the rehabilitation of City Hall in the 1990s.
The City Charter (Section 3-10) requires that the lease of real property for a period longer than one year be approved by ordinance. Because the financing involves the City leasing the police department property to the Authority under the Site Lease for a term of 30 years, and the Authority leasing the property back to the City under the Lease Agreement for the same 30-year term, the Site Lease and Lease Agreement (Exhibit 2 and 3) must be approved by ordinance. Such Ordinance is attached, to be adopted as an urgency ordinance, so that the sale of the 2023 Bonds can proceed soon after approval.
The 2023 Bonds are expected to have a term of approximately 30 years, and certain financial estimates related to the 2023 Bonds are set forth below. The 2023 Bonds will be structured to produce a true interest cost that cannot exceed 5.75%. If this item is approved by the City Council in September, the 2023 Bonds are expected to be sold the week of September 25 of this year, with funding/closing in October.
Piper, the underwriter for the 2023 Bonds, has prepared a Bond Purchase Agreement (Exhibit 6) for the transaction. The Bond Purchase Agreement describes all the terms of the 2023 Bonds and conditions to the closing of the 2023 Bonds. The document represents an agreement between Piper and the City/Authority setting forth the final terms, prices and conditions upon which Piper will purchase the 2023 Bonds from the Authority.
The Indenture (Exhibit 5) sets forth the terms of the 2023 Bonds, and the obligations of the Authority with respect thereto. The Indenture provides for the pledge of the revenues to repay the 2023 Bonds and that all obligations of the Authority with respect to the 2023 Bonds are limited to lease payments and other amounts payable by the City to the Authority under the Lease Agreement.
The Preliminary Official Statement (Exhibit 7) is the document used to market the 2023 Bonds to potential bond investors. It sets forth information for investors to make decisions to invest in the 2023 Bonds. The Preliminary Official Statement contains information concerning the City and the Authority, including the purpose for which the 2023 Bonds are being issued and the terms of the 2023 Bonds.
The Continuing Disclosure Certificate (included as Appendix C to Exhibit 7, the Preliminary Official Statement) provides for the City to give 2023 Bond investors annual information regarding the City, Authority and the 2023 Bonds, as well as notices of certain events that could impact the investment quality of the 2023 Bonds.
Finally, as a clean-up item, the resolutions amend the By-laws of the Authority to reflect that the Director of Finance of the City (not the Controller of the City) shall serve as the Treasurer of the Authority, confirm the regular meeting dates of the Authority and make other clarifying updates to the By-laws.
Staff recommends that City Council, on behalf of the City and as Board of Directors of the Authority, authorize the issuance and sale of the 2023 Bonds to partially finance the construction of the Center.
Pool Costs Analysis - On February 21, 2023, City Council directed staff to include costs for a 50-meter competitive pool when returning for financing approval. The current Center conceptual plan includes a 30-meter by 25-yard competitive pool. An Olympic length pool is 50-meter by 25-yards. Both provide 25-yard USA Swimming course, diving well, and water polo course with floating goals. The 30-meter pool is 13-lanes and the 50-meter pool is 21-lanes and also provides for USA Swimming long course.
Increasing the competitive pool size from 30-meters to 50-meters not only increases construction costs for the pool but also for all associated facilities including the locker rooms, restrooms, furnishings and fixtures, and pump room. It also increases ongoing maintenance costs. Cost comparisons are shown below in Table 1 and speak only to the competitive pool portion of the Center. These costs are estimated and include all soft costs such as design, permits, contingency, soils and geotechnical consultants. There is potential for additional revenue with a 50-meter pool as well as expense for additional lifeguards for the associated pool size. This revenue component was not yet analyzed but could offset a significant portion of the ongoing annual maintenance costs.
Please note that this is informational only and a decision on pool size is not required at this time. Staff will solicit broad based community input on the aquatic center design, including the competitive pool size. During the design process, staff will bring options and associated costs to City Council that includes the competitive pool sizes and additional work at Sweeney Park. City Council will then have the opportunity to approve an option and staff will finalize the design and return to City Council one more time for final approval.
30-meter and 50-meter Cost Comparison (Table 1)
|
|
30-meter |
50-meter |
Cost Differential |
|
Design & Construction Costs |
|
|
|
|
Design |
207,784 |
287,316 |
79,532 |
|
Construction |
2,583,662 |
4,306,103 |
1,722,441 |
|
Soft Costs |
837,434 |
1,378,026 |
540,592 |
|
Pool Furnishings, Fixtures & Equipment |
384,680 |
482,500 |
97,820 |
|
Total Design & Construction Cost |
4,013,560 |
6,453,945 |
2,440,385 |
|
Annual Maintenance Costs |
|
|
|
|
Annual Maintenance |
120,000 |
140,000 |
20,000 |
|
Utilities (assumes gas) |
118,648 |
141,389 |
22,741 |
|
Chemicals (assumes chlorine) |
20,998 |
34,418 |
13,420 |
|
Maintenance Staffing |
335,150 |
421,900 |
86,750 |
|
Total Annual Maintenance Costs |
594,796 |
737,707 |
142,911 |
ALTERNATIVES
City Council could consider the following alternative actions:
• Approve the resolutions and urgency ordinance authorizing and concerning the issuance and sale of the 2023 Bonds.
• Amend the parameters of the 2023 Bond issue as reflected in the resolutions and urgency ordinance, as may be directed by City Council.
• Delay the issuance of the 2023 Bonds.
FINANCIAL IMPACT
Average annual debt service on the 2023 Bonds is currently estimated at approximately $920,300. The final maturity of the 2023 Bonds will be 2053. The lease payments securing the repayment of the proposed 2023 Bonds will be paid from the General Fund.
As part of the FYs 2023-25 Biennial Operating Budget, City Council authorized an appropriation of $900,000 General Fund funds in each fiscal year to pay the anticipated debt service on the 2023 Bonds. In January/February 2024, staff will request an additional appropriation as necessary to ensure there is appropriate funding to pay debt service on the 2023 Bonds as part of the mid-year FY 2023-24 budget adjustments.
In accordance with Government Code Section 5852.1, the City Council of the City/Board of Directors of the Authority has obtained and disclosed the following information, which consists of estimates that have been provided by the Underwriter which has been represented to have been provided in good faith:
(A) True Interest Cost of the 2023 Bonds: 4.37%
(B) Finance Charges: $388,260
(C) Net Proceeds to be Received: $15,000,000 (net of Finance Charges)
(D) Total Payment Amount through Maturity (sum of all 2023 Bond debt service): $27,202,456
The foregoing estimates constitute good faith estimates only and are based on market conditions prevailing at the time of preparation of such estimates on August 18, 2023. The principal amount of the 2023 Bonds, the true interest cost of the 2023 Bonds, the finance charges thereof, the amount of proceeds received therefrom and total payment amount with respect thereto may differ from such good faith estimates due to: (a) the actual date of the sale of the 2023 Bonds being different than the date used for purposes of such estimates, (b) the actual principal amount of 2023 Bonds sold being different from the estimated amount used for purposes of such estimates, (c) the actual principal amortization of the 2023 Bonds being different than the amortization assumed for purposes of such estimates, (d) the actual market interest rates on the 2023 Bonds at the time of sale of the 2023 Bonds being different than those estimated for purposes of such estimates, (e) other market conditions, or (f) alterations in the financing plan, or a combination of such factors. The actual date of sale of the 2023 Bonds and the actual principal amount of the 2023 Bonds sold will be determined based on the timing of the need for proceeds of the 2023 Bonds and other factors. The actual interest rates on the 2023 Bonds will depend on market interest rates at the time of sale thereof. The actual amortization of the principal of the 2023 Bonds will also depend, in part, on market interest rates at the time of sale thereof. Market interest rates are affected by economic and other factors beyond the control of the City and the Authority.
Based on current cost estimates of the conceptual design, the total overall budget for the Center is still currently at $30,000,000, including issuance cost for the 2023 Bonds. As the designs for the Center are finalized through the community, Commission, and Council review process, staff will update cost estimates and present any potential budget changes to the Council for review, discussion, and approval.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is consistent with the Alameda Municipal Code.
SURPLUS LANDS ACT
Generally, leases of City property that are longer than five years are subject to the State Surplus Lands Act. When, however, the lease is between one local agency and another, as here, the City’s disposition of the property is exempt from the provisions of the Act.
ENVIRONMENTAL REVIEW
The actions involved in this item are exempt from environmental review pursuant to CEQA because they are categorically exempt as an infill project under CEQA Guidelines, section 15332 (the project is consistent with the applicable General Plan designation and all applicable General Plan policies, as well as with applicable zoning designation and regulations; the proposed development occurs within the city limits on a project site of no more than five acres substantially surrounded by urban uses; the project site has no value as habitat for endangered, rare of threatened species; approval of the project would not result in any significant effects relating to traffic, noise, air quality, or water quality; and the site can be adequately served by all required utilities and public services). Moreover, none of the exceptions to the exemption apply.
CLIMATE IMPACT
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
RECOMMENDATION
Hold a Public Hearing to consider adoption of City of Alameda and City of Alameda Public Financing Authority resolutions authorizing the issuance and sale of City of Alameda Financing Authority 2023 Lease Revenue Bonds for the City Aquatic Center in an amount not-to-exceed $16,000,000 and approving certain documents in connection with the issuance and sale of the Bonds and authorizing the City Manager, Assistant City Manager and Finance Director to execute the documents and take all related actions in connection therewith [City Council/APFA];
Adopt a resolution of the Alameda Public Financing Authority adopting amended By-Laws [APFA];
Adopt an Uncodified Ordinance on Urgency Basis authorizing the City Manager to enter into leases with the City of Alameda Financing Authority.
Respectfully submitted,
Margaret L. O’Brien, Finance Director
Exhibits:
1. Notice of Public Hearing
2. Site Lease
3. Lease Agreement
4. Assignment Agreement
5. Indenture
6. Bond Purchase Agreement
7. Alameda FA - POS 2023 LRGs (Aquatic Center)