HomeMy WebLinkAboutItem 7.2 EarlyCallOutstand1993COP (2)
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CITY CLERK
File # D[j][f]~..[ZJ~
AGENDA STATEMENT
CITY COUNCIL MEETING DATE: (December 15,1998)
SUBJECT:
Authorization To Provide Trustee With Notice Regarding The Early Call of
All Outstanding 1993 Civic Center Certificates of Participation (COP)
f'tI'(Report Prepared by: Paul Rankin, Assistant City Manager)
ATTACHMENTS:
1.
Resolution No.80-93 Establishing A Policy For Management and
Use of General Fund Assets
2. Calculation of Net Present Value Savings From Early Retirement of
the Certificates of Participation Prepared By Vavrinek, Trine, & Day
3. Resolution Electing To Initiate Optional Prepayment of All
Outstanding 1993 Civic Center Certificates of Participation
RECOMMENDATION:~ive Staff Report and Adopt Resolution
FINANCIAL STATEMENT: This transaction was anticipated with the adoption of the 1998/99
Budget. The City Council previously adopted a Resolution Authorizing the transfer of $12, 132,78 I from
General Fund Reserves. See report for further analysis and detail, which demonstrates that the City will
have an economic advantage with the early payoff of the Civic Center debt.
· DESCRIPTION: On June 29, 1998 the City Council adopted Resolution No_ 94-98, which adopted
the Fiscal Year 1998-99 Budget. The language of the Resolution also authorized an operating transfer in
the amount of $12, 132,781, for the purpose of providing for an early retirement of all outstanding debt
related to the Dublin Civic Center project. In order to implement this action the Trustee (Bank of New
York Western Trust) must be provided with adequate notice of prepayment of the Certificates of
Participation. The TIJJ.~tee is responsible for making payments to the investors and will need to provide
notice of the prepayment to the Certificate Holders. The next regular payment date is February 1, 1999.
BACKGROUND
The City originally financed the acqulSltlOn and development of the Civic Center complex using
- Certificates of Participation (COP's) in a lease financing. This results in the sale of tax-exempt certificates
to investors. The Civic Center is owned by Dublin Information Inc. (DIl), which is a non-profit
corporation capable of entering into the tax exempt fmancing. The City makes annual lease payments to a
Trustee. The "lease payments" are then used to make principal and interest payments to the investors
holding the COP's. Once all of the principal is repaid, the title will automatically revert to the City.
STATUS OF CERTIFICATES OF PARTICIPATION ISSUED
Since 1985, DIl has issued COP's three times related to this project. The City originally issued
$11,968,000 in COP's in 1985-86. These Certificates were refinanced in Fiscal Year 1987-1988 with an
issue of $17,230,000. The second issuance achieved two important goals: 1) a reduction in the interest
.ate on the original issue; and 2) the issue provided additional funds needed for the construction of the
COPIES TO:
G:\COP\AGDASTMTCall Outstanding Certificates revised.DOC
ITEM NO.
'7.. cA
Civic Center project. A portion of the proceeds were set aside in an irrevocable escrow account, .which
has subsequently fully repaid all of the 1985 Certificate holders. ·
In June of 1993, the City issued COP's which refinanced the 1988 issue with a $18,525,000 COP issue.
The 1993 transaction was undertaken to reduce the interest cost. As a result of the refinancing, the City .
realized a savings of over $600,000 in the five year period from 1993-1998. The transaction also included
setting aside a portion of the proceeds to fully retire the outstanding 1988 COP's. The full amount of the
1988 COP issue was repaid in February 1998. Therefore, the 1993 COP's are the only outstanding Civic
Center debt.
PROPOSED EARLY RETIREMENT OF 1993 COP's
The tenns of the 1993 COP issue provide for payments to be made each year until 2010, with a provision
for an optional prepayment without a premium or penalty beginning February 1, 1999. The City Council
has a policy related to the use of General Fund Reserves, which identifies a number of possible uses. One
of the highest priorities is the reduction or avoidance of City obligated debt (See Attachment 1).
The prepayment may be exercised in whole or in part in increments of $5,000. The Lease Agreement
requires that a minimum of $20,000 in Certificates must be redeemed with any election to prepay only
part of the outstanding "Certificates". Section 4.04 of the Trust Agreement provides that if less than
100% of the "Certificates" are redeemed, the selection of maturities to be redeemed is made by the City.
In the event that only a portion of a specific maturity were being redeemed, the Trustee must select by lot
those "Certificates" to be redeemed. For example, if the City has $1,380,000 maturing in the Year 2007
and only $ I ,000,000 were to be redeemed, the Trustee would select the redeemed "Certificates" by lot.
The proposed retirement does not affect the regularly scheduled payment which ,viII occur on February I,
1999. On that date, the City is obligated to make a payment of $920,000 in principal plus accrued interest .
totaling $398,247. This results in a regularly scheduled gross debt service payment of $1,318,247. The
adopted Fiscal Year 1998/99 Operating Budget includes an appropriation sufficient to make this payment.
CERTIFICATES WITH REGULAR MATURITY DATES AFTER FEBRUARY 1.1999
As shown below the total principal related to Certificates with maturities after February 1, 1999, is
$13,850,000.
PRINCIPAL
PAYMENT DUE
FEB 1 st
2000 $ 960,000
2001 $ 1,005,000
2002 $ 1,060,000
2003 $ 1,115,000
2004 $ 1,175,000
2005 $ 1,235,000
2006 $ 1,305,000
2007 $ 1,380,000
2008 * $ 1,455,000
2009 * $ 1,535,000
2010 * $ 1.625.000
TOTAL $13,850,000
* Represents a combined total of $4,615,000 all with stated maturities of 2010, subject to
mandatory prepayment by lot.
AMOUNT
COUPON RATE
4.88%
5.10%
5.20%
5.30%
5.40%
5.50%
5.60%
5.63%
5.63%
5.63%
5.63%
.
.- J..-
. If the City pre-pays all of the remaining outstanding certificates, it can also apply the Reserve Fund held
by the Trustee towards the amount owed. The Reserve Fund is approximately $1,717,219, leaving a'
balance of $12,132,781, which would need to be funded from the City General Fund. Resolution 94-98
. previously adopted by the City Council in June of 1998 authorized an operating transfer in this amount to
finance this transaction.
1998 ANALYSIS COMPARING EARLY PAYOFF TO CONTINUING PAYMENTS TO 2010
Staff worked with representatives from Dain Rauscher (the original underwriter) as well as Vavrinek
Trine & Day (City Auditors), to compare the impact of an early payoff to continuing with the scheduled
payments through the year 20 10. The following were key assumptions taken into consideration in the
analysis:
· Consistent with the analysis conducted in 1993 it was assumed that in the event that the early
payoff was selected, that the City would continue to allocate all of the savings each year to
rebuild reserves. In comparing this scenario to a scenario where there is no early payoff, it was
assumed that the Reserves remain intact and are not used for other operating and/or capital
project costs.
· Interest rates earned on City investments have fluctuated over time ranging from
approximately 4.94% in Fiscal Year 1993/94 to approximately 5.66% in Fiscal Year 1997/98.
· Investment rates are currently declining and the City portfolio is anticipated to earn lower rates
based upon input from investment brokers and recent rate reductions by the Federal Treasury.
. In the near term rates are expected to be declining from the most recent three years.
· The analysis evaluated a range of interest rates between 5.0%, and 5.50%.
· The average interest rate paid on the remaining COP's (i.e. average rate paid for borrowing the
funds) is approximately 5.55%.
· Adopted City Council policy related to the appropriate use of General Fund Reserves.
Vavrinek Trine & Day (VTD) calculated the "net present value" savings generated from the early call of
the COP's. A "net present value" calculation applies a discount rate to a future stream of payments and
jncome, to identifY any net savings realized by spending 1998 dollars rather than a stream of payments
between 1998 - 2010. This takes into consideration the fact that $1 million dollars in 1998 will have a
different buying power than $1 million in 2010.
The analysis as shown in Attachment 2 demonstrates, that a net present value savings of between $75,890
and $375,272, can be achieved through an early payoff.. The range is based upon assuming different
interest rates (5.5%, 5.2%, and 5.0%). The smallest savings assumed a 5.5% interest rate and the largest
net present value savings was based on a 5.0% rate. Attached to the Net Present Value Savings is a
worksheet which demonstrates the actual cash equivalent of the Net Present Value figures. This takes the
savings amount and applies an assumed interest rate. The actual cash savings calculated range from
.$137,843 to $646,058.
-~-
In addition to these savings the City will also experience expenditure savings by eliminating the need for.
Trustee Services and the preparation of an Annual Arbitrage calculation report. The next report is
scheduled to be prepared as of March 31, 1999. A February payoff of the entire issue will allow the 1999
report to be a Final Report. In Fiscal Year 1998/99 Trustee and Arbitrage Calculation Services are
estimated to be approximately $3,435. An early payoff will eliminate these costs which would otherwise.
be recurring costs for the next 11 Fiscal Years. This results in an additional $37,785 in avoided costs.
From an economic perspective current conditions support an early pay-off of the COP's, which is also
consistent with the City Council policy establishing the highest priority for the use of General Fund
Reserves.
SEQUENCE OF ACTIONS REQUIRED
In accordance with the tenns in Section 10.3 of the Lease Agreement, the City must provide adequate
notice to the Trustee, prior to the date of prepayment. In accordance with Section 4.05(b) of the Trust
Agreement, Bank of New York must then notify the owners of the Certificates at least 30 days prior to the
date of prepayment. The COP's regularly pay interest on February 1st and August 1st. Therefore, the next
regular interest payment date is February 1, 1999. Staff would recommend that this date be selected as
the date of prepayment. This eliminates the need for calculation of accrued interest for a partial period.
Attachment 1 contains a Draft Resolution which authorizes Staff to proceed with providing the
appropriate notice to the Trustee. In accordance with Section 4.4(a) of the lease document, the regular
payment would need to be submitted to the Trustee by January 25, 1999. The Trustee has indicated that
they will work with the City to assure the transfer of funds in a timely manner. As previously noted the
actual payment to the owners of the COP's is February 1, 1999.
It should also be noted that Section 7 .2(b) of the Lease Agreement provides that upon the payment of all .
outstanding Certificates; all rights, title, and interest held by Dublin Infonnation Inc., shall be transferred
to and vest in the City of Dublin without the necessity of any additional document of transfer. Staff will
work with the City Attorney to prepare the appropriate deed, which can record the change of Ownership
with the Alameda County Assessor.
RECOMMENDATION
Staff recommends that the City Council receive the Staff Report; obtain from Staff any clarification ofthe
proposal; and adopt the Resolution (Attachment 3).
.
-'1-
RESOLUTION NO. 80 - 93
.
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF DUBLIN
****************
ESTABLISHING A POLICY FOR MANAGEMENT AND USE OF GENERAL FUND ASSETS
WHEREAS, the City Council of the City of Dublin recognizes the.
importance of General Fund Reserves; and
WHEREAS, General Fund Reserves are an important asset of the City
and it is prudent to have an established policy to guide their use; and
WHEREAS, typically, General Fund monies are a discretionary funding
source which can be appropriated as enacted through- the annual budget
process; and
WHEREAS, interest earnings from City General Fund Reserves can
provide an independent local revenue source; and
WHEREAS, it is not possible to exactly predict over time how
economic conditions may impact either the interest earnings (income) or
the need to utilize reserves to provide the level of municipal services
deemed adequate by City Council policy; and
. WHEREAS, prudent management would dictate that. the City have a
neral policy for the management of its assets, including the
ticipated purpose of General Fund Reserves.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of
Dublin does hereby establish the attached POlicy for the Management and
Use of General Fund Reserves (Exhibit A), attached hereto and by
reference made aeart hereof.
BE IT FURTHER RESOLVED that City Staff are hereby authorized and
directed to undertake all administrative steps necessary to implement
said "Policy" and present periodic reports to the City Council.
PASSED, APPROVED AND ADOPTED this 14th day of June, 1993.
AYES:
Councilmembers Burton, Houston, Howard, and Mayor Snyder
NOES:
None
ABSENT: Councilmember
Moffatt
~k
--
ABSTAIN: None
.SC1 (1
tltt- l;Z c.L.
'pi~ Clerk
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PSR/lss a:Res080.agenoa#12:
ATTACHMENT 1
EXHIBIT A
CITY OF DUBLIN
GENERAL FUND RESERVE POLICY
.
PURPOSE
The purpose of this document is to formally outline the city council
policy of maintaining General Fund Reserves and designating the
potential types of uses for such reserves. General Fund Reserves
shall not be considered as being readily available for appropriations
towards operating expenses, except as allowed for in this policy and
through explicit action by the City council.
AMOUNT OF RESERVES
The amount of General Fund Reserves will fluctuate over time. The
city council recognizes that there are numerous events which could
place a legitimate demand on the reserves.
INTEREST EARNINGS
All interest earnings on the General Fund Reserves shall accrue to the
city's General Fund Unreserved Fund Balance, for appropriation by the
city council in accordance with local and state laws; regulations and
pOlicies.
ABILITY TO ACCOMMODATE CITY NEEDS
.
The city Council recognizes the importance of maintaining flexibility
at this time as well as in the future. Proper maintenance of the
city's General Fund Reserves will accommodate a response to economic
conditions affecting earnings on said funds as well as unanticipated
events which require an appropriation.
POTENTIAL USE OF RESERVES
Any appropriation of General Fund Reserves is subject to action by the
city Council. The following events are the basis for a policy to
protect and carefully plan for any expenditure from General Fund
Reserves:
. city Indebtedness: Reserves may be utilized to reduce or
eliminate the need for current or future debt service payments.
The limitation of debt service as an annual operating expense
allows for available monies to be expended for other public
purposes. This shall be considered the highest priority for the
use of General Fund Reserves.
_r
. Economic Uncertainty: A prudent reserve can be used to finance
municipal services in the event that economic conditions have
deteriorated to the extent that traditional revenue sources can .
no longer support the services.
.
.
.
..
.
Response to Reductions in Revenues: In recent years, State
Government has taken revenues which were previously considered to
be local revenues. Development of a locally controlled revenue
source can be important.
· Catastrophic Loss: The City currently 'participates in a pooled
self-insured liability and property program. A catastrophic
event may require additional appropriations in order to attain a
full recovery.
· Preservation of Funds as Revenue Generator: The preservation of
General Fund Reserves provides revenue as a result of investment
income. This is an important discretionary income source.
· Economic Development stimulus: A locally controlled funding
source could become one component of an investment plan, which
would provide a positive return to the city and a public benefit.
This listing is not intended to be' all inclusive; however, ~t is
generally reflective of the types of considerations to, be made when
proposing the use of such funds. Proposed uses which are inconsistent
with this policy should demonstrate a public benefit and a finding
that it is in the best interest of the city.
REVISIONS
Revisions to this policy shall be approved by the city Council in the
form of a Resolution.
PSR/Lss a:FundExbA.agenda#12
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ATTACHMENT 2
~
. STAFF CALCULA TION OF CASH EQUlVELENT OF NET PRESENT VALUE SAVINGS
.
NET PRESENT VALUE $75,890
ASSUMED INTEREST RA TE I 5.5%1
Six Months Mid.Year Six Months
Earnings Adjusted Earnings New
On Balance Balance On Balance Balance
1999 . 2000 $75,890 $2,087 $77,977 $2, I 44 $80,121
2000 - 2001 $80,121 $2,203 $82,325 $2,264 $84,589
2001 . 2002 $84,589 $2,326 $86,915 $2,390 $89,305
2002 - 2003 $89,305 $2,456 $91,761 $2,523 $94,284
2003 - 2004 $94,284 $2,593 $96,877 $2,664 $99,541
2004 - 2005 $99,541 $2,737 $102,279 $2,813 $105,091
2005 - 2006 $105,091 $2,890 $107,981 $2,969 $110,951
2006 - 2007 $110,951 $3,051 $114,002 $3,135 $117,137
2007 - 2008 $117,137 $3,22 I $120,358 $3,310 $123,668
2008 - 2009 $123,668 $3,401 $127,069 $3,494 $130,563
2009 - 2010 $130,563 $3,590 $134, I 54 $3,689 I $137,843
. NET PRESENT VALUE $375,272
Reserve Fund Balance Held By Trustee
ASSUMED INTEREST RATE J 5.0%~
Six Months Mid-Year Six Months
Earnings Adjusted Earnings New
--- On Balance Balance On Balance Balance
1999 - 2000 $375,272 $10,320 $385,592 $10,604 $396,196
2000 . 2001 $396,196 $10,895 $407,091 $11,195 $418,286
2001 - 2002 $418,286 $11,503 $429,789 $11,819 $441,608
2002 . 2003 $441,608 $12,144 $453,752 $12,478 $466,23 I
2003 . 2004 $466,231 $12,821 $479,052 $13,174 $492,226
2004 - 2005 $492,226 $13,536 $505,762 $13,908 $519,671
2005 - 2006 $519,671 $14,291 $533,962 $14,684 $548,645
2006 - 2007 $548,645 $15,088 $563,733 $15,503 $579,236
2007 . 2008 $579,236 $ I 5,929 $595,165 $16,367 $611,532
2008 - 2009 $611,532 $16,817 $628,349 $17,280 $645,629
2009 . 2010 $645,629 $17,755 $663,383 $18,243 I $681,626
printed: 12/1 0/98 16:27
.
RESOLUTION NO. - 98
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DUBLIN
*********
<"
ELECTING TO ISSUE A PREP A YMENT OF ALL 1993 DUBLIN CIVIC CENTER
CERTIFICATES OF P ARTICIP A TION AND AUTHORIZING THE PROVISION OF PROPER
NOTICE TO THE TRUSTEE
.
WHEREAS, the City of Dublin issued Certificates of Participation ("Certificates") dated June 1, 1993 related
to the construction ofthe Dublin Civic Center; and
WHEREAS, the "Certificates" provided a tax exempt financing mechanism which allowed for the ovmership
of the Civic Center project and site to be held by Dublin Infonnation, Inc. and leased to the City; and
WHEREAS, the terms of the arrangement are specified in a Lease Agreement dated June 1, 1993 between
Dublin Infonnation, Inc., as Lessor and the City of Dublin, as Lessee; and
WHEREAS, annual lease payments by the City are distributed by the Trustee to the owners of the
"Certificates" as principal and interest payments in accordance with the financing documents; and
WHEREAS, as of December 15, 1998 the principal amount of Certificates which have a stated maturity after
February I, 1999 total $13,850,000; and
WHEREAS, under section 10.3 of the Lease Agreement the City may prepay in whole the principal amount
of outstanding Lease Payments, provided the Trustee shall be given adequate written notice; and
WHEREAS, the City Council has determined that it has adequate resources to make a prepayment of all
outstanding Certificates and that it would be beneficial to the City to take this action at this time.
.
NOW, THEREFORE, BE IT RESOLVED that the City Manager and/or his designee, is hereby authorized to
provide the required notice to the Trustee, in order to effectuate the prepayment on February 1, 1999 of all
1993 Certificates of PCl!!icipation which have a stated maturity date subsequent to February 1, 1999.
BE IT FURTHER RESOLVED, that the Staff are authorized to initiate any necessary legal documents
required to complete the transaction, including but not limited to the transfer of the Title for the property.
-'~
PASSED, APPROVED AND ADOPTED this 15th day of December, 1998.
AYES:
NOES:
ABSENT:
ABSTAIN:
Mayor
ATTEST:
.
City Clerk
ATTACHMENT 3