Title
Adoption of Resolution Approving the Form and Authorizing Distribution of a Preliminary Official Statement in Connection with the Offering and Sale of Tax Allocation Bonds to Refund Outstanding Bonds of the Former Community Improvement Commission of the City of Alameda, and Approving Related Documents and Actions. (Finance 207)
Body
To: Honorable Mayor and Members of the City Council
From: Jill Keimach, City Manager
Re: Adoption of Resolution Approving the Form and Authorizing Distribution of a Preliminary Official Statement in Connection with the Offering and Sale of Tax Allocation Bonds to Refund Outstanding Bonds of the former Community Improvement Commission of the City of Alameda and Approving Related Documents and Actions
BACKGROUND
At its February 7, 2017 meeting, the Successor Agency to the Community Improvement Commission (CIC) of the City of Alameda (Successor Agency) adopted a resolution approving various documents required to issue Taxable Tax Allocation Refunding Bonds, Series 2017 (2017 Bonds) to refund existing tax allocation bonds to achieve interest rate savings to benefit taxing entities including the City of Alameda, and authorized the issuance of the 2017 Bonds.
The Successor Agency Oversight Board, at its February 15, 2017 meeting, adopted a resolution approving the issuance of the 2017 Bonds by the Successor Agency and directing several actions including filing notice of its approval with the California Department of Finance (DOF). The notice was received by DOF on February 22, 2017, and the DOF is now reviewing the proposed refunding transaction.
The final action required of the Successor Agency in connection with issuance of the 2017 Bonds is approval of the Preliminary Official Statement (POS) for the 2017 Bonds, which is the offering document that will be provided to potential purchasers of the 2017 Bonds. The POS contains information material to an investment in the 2017 Bonds and is a key due diligence document for prospective bond purchasers. The POS is attached as Exhibit 1.
DISCUSSION
The proposed 2017 Bonds will be issued to refund the $9,745,000 of CIC 2011 Tax Allocation Housing Bonds, Subordinate Series A -Taxable (2011 Taxable TABs), and $995,000 of CIC 2011 Tax Allocation Housing Bonds, Subordinate Series B -Tax-Exempt, (2011 Tax-Exempt TABs). Together they are referred to as the 2011 Bonds. The principal amount of the 2017 Bonds will not exceed $16 million. Because this is an advanced refunding (i.e., the earliest the 2011 Bonds can be redeemed is 2021), the 2017 Bond proceeds must include approximately $4 million in funded interest and associated costs. Therefore, the bond principal amount will not exceed $16 million ($10.7M in outstanding principal owed + $4M in advanced interest due + $300,000 for miscellaneous costs). Annual debt service on the 2017 Bonds will not exceed the annual debt service currently payable on the outstanding 2011 Bonds, and the final maturity of the 2017 Bonds will be the same as the final maturity of the 2011 Bonds.
The 2011 Bonds were issued on May 19, 2011, immediately preceding the dissolution of the former Community Improvement Commission. The 2011 Bonds were issued in a high interest rate environment. The project funds were used to purchase the former Islander Motel and to redevelop it into permanent affordable housing, now the Park Alameda. Since the dissolution of the former CIC, the bond market has become more stable. As a result staff has done the analysis and determined that a refunding of the 2011 Bonds will generate substantial debt service savings.
Based on market interest rates as of April 4, 2017, plus a cushion of 25 basis points, the bond refunding would result in a total cash flow savings estimated at $3.9 million, with Net Present Value (NPV) savings at $1.2 million. This represents estimated savings of 10.1%, substantially higher than the industry standard threshold of 3% to undertake a bond refunding. The use of a 25 basis point cushion is intended to be conservative, given that the bonds will not be priced until mid-May. Average annual debt service savings are estimated at $161,000 through 2041.
The final maturity of the 2017 Bonds is expected to be in September 1, 2041, the same as that of the 2011 Bonds. The total projected debt service on the 2017 Bonds over the life of the bond issue is projected to be approximately $21 million, including future interest payments through 2041. The debt service on the proposed 2017 Bonds will be repaid from Successor Agency Redevelopment Property Tax Trust Fund (RPTTF) revenues, the same as with the existing 2011 Bonds.
FINANCIAL IMPACT
As stated above, based on market interest rates as of April 4, 2017, plus a cushion of 25 basis points, the bond refunding would result in a total cash flow savings estimated at $3.9 million, with NPV savings at $1.2 million. This represents estimated savings of 10.1%, substantially higher than the industry standard threshold of 3% to undertake a bond refunding. Annual debt service savings are estimated at $161,000 through 2041.
There is no direct impact to the City’s General Fund as a result of the refunding of the 2011 Bonds. Debt service will be repaid from RPTTF revenue. Debt service payments will be included on the annual Recognized Obligation Payment Schedule. However, indirectly, the refunding will result in an increase in property tax distribution to the City of Alameda and other taxing entities.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is in conformance with the Alameda Municipal Code.
ENVIRONMENTAL REVIEW
This activity is not a project and is exempt from the California Environmental Quality Act (CEQA) pursuant to section 15378 (b)(4) of the CEQA Guidelines, because it involves governmental fiscal activities (issuance of bonds), which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
RECOMMENDATION
Adopt a Resolution approving the form and authorizing distribution of a Preliminary Official Statement in connection with the offering and sale of Tax Allocation Bonds to refund outstanding bonds of the former Community Improvement Commission of the City of Alameda and approving related documents and actions.
Respectfully submitted,
Debbie Potter, Community Development Director
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibit:
1. Preliminary Official Statement