HomeMy WebLinkAboutAgenda Report - April 17, 1985 (52)-__----r.... v.. a ...v... v_ ia..u.a-15f __ a ___ ...a.
maintenance and operation of the Hutchins Street Square
project, it was determined that it would be possible to
place an advisory proposition on the ballot pursuant to
Election Code §5353, which would ask the voters in the
City of Lodi to impose a fee to- pay for the capital
improvements and maintenance and operation of the
Hutchins Street Square project.
If the advisory measure received a majority vote, the
City Council would then authorize the fee by ordinance
and further would authorize the use of Certificates of
Participation for the completion and maintenance and
operation of the Hutchins Street Square project. It should
be noted for the Council's benefit that any revenues that
are received by the Hutchins Street Square project, could
then be used to offset any of the fee which the citizens are
asked to pay, pursuant to the voter -approved fee.
2. It is the recomnendat ion of the Mayor's Task Force that
Certificates of Participation represent the most
effective method for financing the Hutchins Street
Square project. Further, in order to provide for
adequate funding in the General Fund to pay for the
lease payments under the Certificates of Participation,
and for the maintenance and operation of the Hutchins
Street Square project, that the citizens of the City of
Lodi should be asked in an advisory measure pursuant to
Election Code §5353, whether the City should impose a
fee on the residential, commercial, and industrial
properties within the City of Lodi, to pay for the lease
payments under Certificates of Participation, and for
the maintenance and operation of the Hutchins Street
Square project.
Both Council Member Snider and City Attorney Stein addressed
the Council on the subject and responded to questions as
were posed by the Council on the matter.
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Council received the following report from the Hutchins
Street Square Long Term Financing Committee:
1) On March 6, 1985, Mayor Randy Snider appointed a Task
Force to discuss long term financing for the completion.
of the. Hutchins Street Square CaYrmmity Center project.
The members appointed or represented were Mayor Randy
Snider, City Attorney Ronald Stein, City Clerk Alice
Reimche, Old Lodi Union High School Site Foundation
Chairman Dermis Bennett, Staff Liaison Charlene Lange,
City Finance Director Bob Holm and John Talbot,
Representative of Wulff, Hansen and Campany.
On the following dates, the Committee met to discuss
long term financing tools for the Hutchins Street Square
project:
March 12, March 20, April 2, and April 9, 1985. It was
determined during said period of time to contact Steven
Casaleggio of Jones, Hall, Hill and White to ask him to
meet with the Committee to discuss specific
reconmendations for long-term financing of the Hutchins
Street Square project.
On April 2, 1985, Steven Casaleggio and Brian D. Quint,
attorneys for Jones, Hall, Hill and White, along with
City Manager Tom Peterson, met with the aforementioned
Task Force Camnittee to discuss long-term financing for
the project. At said time and place it was determined
by the Task Force, after looking at a number of
different methods of financing, that the most efficient
way to finance the Hutchins Street Square project, was
through Certificates of Participation.
The term "Certificates of Participation" is a term which
represents the participation in the lease payments. The
public entity is considered the lessee. The lessor can
be a private non-profit corporation. A bank or
financial institution or other investor will pay the
lessor cash for the present value of the future lease
payments and this money then would be used to build the
Hutchins Street Square project. You would then have
purchasers or investors who would purchase the
Certificates of Participation in the lease payments.
The lease can be structured for any period of time.
Normally, they are structured from 20 to 30 year
periods.
.,N
S"UNCIL COMMUNICATION.
TO: ' THE CITY COUNCIL
FROM: THE CITY !MANAGER'S OFFICE
SUBJECT:
HUTCHINS STREET SQUARE PROJECT FINANCING
RECOMMENDATION
DATEI NO.
APRIL. 10, 1985
It is the recommendation of the Mayor's Task Force that
Certificates of Participation represent the most effective
method for financing the Hutchins Street Square project.
Further, in order to provide for adequate funding; in the General
Fund to pay for the lease payments under the Certificates of
Participation, and for the maintenance and operation of the
Hutchins Street Square project, that the citizens of the City of
Lodi should be asked in an advisory measure pursuant to Election
Code §5353, whether the City should impose a fee on the
residential, commercial, and industrial properties within the
City of Lodi, to pay for the lease payments under Certificates
of Participation, and for the maintenance and operation of the
Hutchins Street Square project.
ANALYSIS
On March S, 1985, Mayor Randy Snider appointed a Task Force to
discuss long term financing for the completion of the Hutchins
Street Square Community Center project. The members appointed
or represented were Mayor Randy Snider, City Attorney Ronald
Stein, City Clerk Alice Reimche, Old Lodi Union High School Site
Foundation Chairman, Dennis Bennett, Staff Liaison Charlene
Lange, City Finance Director Bob Holm, and John Talbot,
representative of Wulff, Hansen & Co.
On the following dates the Committee met to discuss long term
financing tools for the Hutchins Street Square project:
March 12, MarcL 20, April 2 and April 9, 1985. It was
determined during said period of time to contact Steven
Casaleggio of Jones, Hall, Hill & White to ask him to meet with
the Committee to discuss specific recommendations for long-term
financlyig of the Hutchins Street Square project.
On April 2, 1985, Steven Casaleggio and Brian D. Quint,
attorneys for Jones, Hall, Bill & White, along with City Manager
Tom Peterson, met with the aforementioned Task Force Committee
to discuss long-term financing for the project. At said time
and place it was determined by the Task Force, after looking at
a number of different methods of financing, that the most
efficient way to finance the Hutchins Street Square project, was
through Certificates of Participation.
The term "Certificates of Participation" is a term which
represents the participation in the lease payments. The public
entity is considered the lessee. The lessor can be a private
non-profit corporation. A bank or financial institution or
other investor will pay the lessor cash for the present value of
the future lease payments and this money then would be used to
build the Hutchins Street Square project. You would then have
purchasers or investors who would purchase the Certificates of
Participation in the lease payments. The lease can be
structured for any period of time. Normally, they are
structured from 20 to 30 year periods. A very short sketch of
how Certificates of Participation work is attached hereto for
your review.
In order to have adequate funds in the General Fund to pay for
the lease payments under' the -Certificates of Participation
method of financing; and further for the maintenance and
operation of the Hutchins Street Square project, it was
determined that it would be possible to place an advisory
proposition on the ballot pursuant to Election Code §5353, which
would ask the voters in the City of Lodi to impose a fee to pay
for the capital improvements and maintenance and operation of
the Hutchins Street Square. project.
If the advisory measure received a majority vote, the City
Council would then authorize the fee by ordinance and further
would authorize the use of Certificates of Participation for the
completion and maintenance and operation of the Hutchins Street
Square project. It should be noted for the Council's benefit
that any revenues that are received by the Hutchins Street
Square project, could then be used to offset any of the fee
which the citizens are asked to pay, pursuant to the
voter -approved fee.
Respectfully submitted,
HUTCHINS STREET SQUARE
LONG TERM FINANCING COMMITTEE
(MAYOR'S TASK FORCE)
COUNCILMAN RANDY SNIDER
DENNIS BENNETT, CHAIRMAN, OLD
LODI UNION HIGH SCHOOL
FOUNDATION
JOHN TALBOT, WULFF, HANSEN & CO.
ALICE M. REIMCHE, CITY CLERK
ROBERT HOLM, FINANCE DIRECTOR
CIiARLENE LANGE, COMMUNITY
RELATIONS ASSISTANT
RONALD M. STEIN, CITY ATTORNEY
RMS:vc
attachment
Chart 10
3
s
CERTIFICATES OF PARTICIPATION
660 Public
0 0. Entity
0 ,
® ; (3)
R 0
® i
0 ; Lessor
0 (Financial
0 Institution)
0
0
0 '
0 �(�)
0
0
0
0 Vendor
0
0
0
(4) Trustee/
Fiscal Agent
0
0
0
Investors
0000000 0 Certificates
of
--------- M. w e•
Participation
0
;
0
'
0
°
0
0
Equipment or
0
Real
(2)
0
Property
0
,
0
;
0
'
0
0
0
Revenues
®®®®
or
Service
Charges
""' Financing Plan
000 Repayment Plan
(1) Financial institution pays vendor cash at present value of future lease payments.
(2) Ownership remains with financial institution until terms of lease are satisfied or may be sold to trustee
for SI.00.
(3) Equipment or property leased back to public entity.
(4) Lease rental payments which provide security for certificates of participation.
48
Certificates of Participation
This financing technique provides long-term financing through a lease (with an option to purchase or
a conditional sale agreement) that does not constitute indebtedness under the state constitutional debt limit
and does not require voter approval. This method is being used for long-term financing of major projects such
as administration buildings, public safety facilities, court houses, parking garages, and recreational facilities.
This method is also being used to finance the acquisition of motorized equipment, communications systems,
computers, and other major items of equipment having a life of 3-10 years.
When a public sale of a lease, or certificates of participation in a lease, is planned, the principal parties
include (1) the public entity (lessee), (2) the lessor, which may be a private leasing corporation, a non-profit
corporation or public agency, e.g., redevelopmen agen 'es, parking authorities or joint power authorities, (3)
it bank, financial institution or other investor (who may pay the lessor cash for the present value of future
ease payments), (4) purchasers or investors (who purchase certificates of participation in a lease), (5) a trustee
(who holds a;ay security for payment of the lease in trust under a trust indenture between the lessee, lessor
and the trustee), (6) and a paying agent or escrow agent (who collects lease payments and distributes them
to the holders of certificates of participation). The trustee may also be the paying agent or escrow agent.
Legal basis for this financing technique comes from the basic laws allowing public entities to enter into
lease agreements for one year at a time, on the grounds that the governing body of a public entity cannot
obligate future governing bodies to honor a lease agreement*. This may result in the certificates of participation
commanding a higher interest rate. The public entity must also comply with state public bidding laws, usury
and legal interest rate laws, laws authorizing the lease, and disclosure requirements.
When evaluating security, the following should be considered.
• A reserve fund should equal one year's debt service or an amount not to exceed 15%a of the issue.
• Since the lease is not indebtedness of the public entity, the vendor or investor has no recourse against
the public entity for future rental payments if there is a nonappropriation and the lease is cancelled.
(The public entity's only obligation is to return the leased property to the lessor.)
• Lessor may either retain security interest in the property and the lease or he may sell his equity interest
to the trustee for $1.00.
• A remarketing agreement should be provided by the lessor or trustee.
• The public entity's need for the facility or equipment is a form of security. If property is used in an
essential service, there is more likelihood that the lease payments will be made.
• Insurance or a third -party guarantee may provide security for rental payments.
• Project revenues may be used to make lease payments if the facility is revenue --producing.
Certain other considerations need to be adddressed to assess the credit quality and soundness of the
financing arrangements.
• Which party retains title during the term of the lease?
• Which party pays taxes, insurance, and operation and maintenance during the term of the lease?
• What kind of service or maintenance contract, if any, is sold by the manufacturer or vendor to the
lessee9
• What provision does the lease contain for upgrading with "state of the art" property during the lease
term?
• When does acceptance or delivery take place in relation to the lessee's obligation to make lease
payments?
• What right does the lessee have to cancel the lease and substitute other property?
• What obligation does the vendor have to the assignee or trustee to re -lease or sell the property should
the public entity cancel the lease (i.e., a remarketing agreement)?
• Is there a third guarantor of the lease payments or can the financing qualify for municipal bond
insurance?
Chart 10 illustrates lease purchase with certificates of participation.
° Some bond counsel have opined that if the lessee is an enterprise fund, the fund may be committed for
the full term of the lease on :he basis that the fund is exempt from the annual apFropriation required of
public entities by the state constitutio-..
47
Certificates of Participation
This financing technique provides long-term financing through a lease (with an option to purchase or
a conditional sale agreement) that does not constitute indebtedness under the state constitutional debt limit
and does not require voter approval. This method is being used for long-term financing of major projects such
as administration buildings, public safety facilities, court houses, parking garages, and recreational facilities.
This method is also being used to finance the acquisition of motorized equipment, communications systems,
computers, and other major items of equipment having a life of 3-10 years.
When a public sale of a lease, or certificates of participation in a lease, is planned, the principal parties
include (1) the public entity (lessee), (2) the lessor, which may be a private leasing corporation, a non-profit
corporation or public agency, e.g., redevelopmen agencies, parking authorities or joint power authorities, (3)
a bank, financial institution or other investor (who may pay the lessor cash for the present value of future
lease payments), (4) purchasers or investors (who purchase certificates of participation in a lease), (5) a trustee
(who holds any security for payment of the lease in trust under a trust indenture between the lessee, lessor
and the trustee), (6) and a paying agent or escrow agent (who collects lease payments and distributes them
to the holders of certificates of participation). The trustee may also be the paying agent or escrow agent.
Legal basis for this financing technique comes from the basic laws allowing public entities to enter into
lease agreements for one year at a time, on the grounds that the governing body of a public entity cannot
obligate future governing bodies to honor a lease agreement*. This may result in the certificates of participation
commanding a higher interest rate. The public entity must also comply with state public bidding laws, usury
and legal interest rate laws, laws authorizing the lease, and disclosure requirements.
When evaluating security, the following should be considered.
• A reserve fund should equal one year's debt service or an amount not to exceed 15% of the issue.
• Since the lease is not indebtedness of the public entity, the vendor or investor'has no recourse against
the public entity for future rental payments if there is a nonappropriation and the lease is cancelled.
(The public entity's only obligation is to return the leased property to the lessor.)
• Lessor may either retain security interest in the property and the lease or he may sell his equity interest
to the trustee for $1.00.
• A remarketing agreement should be provided by the lessor or trustee.
• The public entity's need for the facility or equipment is a form of security. If property is used in an
essential service, there is more likelihood that the lease payments will be made.
• Insurance or a third -party guarantee may provide security for rental payments.
• Proiect revenues may be used to make• lease payments if the facility is revenue-producing.
Certain other considerations need to be adddressed to assess the credit quality and soundness of the
financing arrangements.
• Which party retains title during the term of the lease?
Which party pays taxes, insurance, and operation and maintenance during the term of the lease?
• What kind of service or maintenance contract, if any, is sold by the manufacturer or vendoi to the
lessee?
• What provision does the lease contain for upgrading with "state of the art" property during the lease
term?
• When does acceptance or delivery take place in relation to the lessee's obligation to make lease
payments?
• What right does the lessee have to cancel the lease and substitute other property?
• What obligation does the vendor have to the assignee or trustee to re -lease or sell the property should
the public entity cancel the lease (i.e., a remarketing agreement)?
' Is there a third guarantor of the lease payments or can the financing qualify for municipal bond
insurance?
Chart 10 illustrates lease purchase with certificates of participation.
* Some bond counsel have opined that if the lessee is an enterprise fund, the fund may be committed for
the full term of the lease on the basis that the fund is exempt from the annual appropriation required of
Public entities by the state constitution.
47
Chart 1O
CERTIFICATES OF PARTICIPATION
000 Public (4)Trustee/
0
�- Entity Fiscal Agent
0
• ®(4) o
s
® (3) ' e s
,
o
0
0
0
m
Investors
1000000000 Certificates
of
----------MW ---
/Participation ----
Participation
0
0
o Vendor
0
0 ,
Financing Plan
900 Repayment Plan
E
(1) Financial institution pays vendor cash at present value of future Iease payments.
(2) Ownership remains with financial institution until terms of lease are satisfied or may be sold to trustee
for SLOG.
(3) Equipment or property leased back to public entity. _-
(4) Lease rental payments which provide security for certificates of participation.
48
,
,
0
'
0
®
Equipment or
®(2)
Real
0
®
Property
,
0
Revenues
O0C0
or
Service
Charges
Financing Plan
900 Repayment Plan
E
(1) Financial institution pays vendor cash at present value of future Iease payments.
(2) Ownership remains with financial institution until terms of lease are satisfied or may be sold to trustee
for SLOG.
(3) Equipment or property leased back to public entity. _-
(4) Lease rental payments which provide security for certificates of participation.
48