HomeMy WebLinkAboutMinutes - December 4, 2001 SSCITY OF LODI
INFORMAL INFORMATIONAL MEETING
"SHIRTSLEEVE" SESSION
CARNEGIE FORUM, 305 WEST PINE STREET
TUESDAY, DECEMBER 4, 2001
An Informal Informational Meeting ("Shirtsleeve" Session) of the Lodi City Council was held Tuesday,
December 4, 2001 commencing at 7:05 a.m.
A. ROLL CALL
Present: Council Members — Hitchcock (arrived at 7:07 a.m.), Howard, Land, Pennino and
Mayor Nakanishi
Absent: Council Members — None
Also Present: City Manager Flynn, City Attorney Hays, and City Clerk Blackston
B. CITY COUNCIL CALENDAR UPDATE
City Clerk Blackston reviewed the weekly calendar (filed).
C. TOPIC(S)
C-1 "City Project Financing"
City Manager Flynn explained that there are two components to the City financing
proposal: 1) a recommendation that Electric Utility be authorized to issue $10.2 million
worth of taxable Certificates of Participation (COP) to raise working capital, and 2) $23.5
million, which includes $12 million for a new public safety building, $5 million for a parking
structure, $3 million for refurbishing the current public safety building, $3.5 million set
aside for refurbishing Fire Station #2, and design work on Parks and Recreation projects
and the Animal Shelter.
Finance Director McAthie introduced George Wolf and Doug Auslander of Salomon Smith
Barney and Alex Burnett and Cameron Parks of Public Financial Management (PFM).
With the aid of overheads (filed) Alex Burnett reported that the current bond buyer
revenue bond index is 5.40. Rates have trended up recently and the volatility is expected
to continue. The objective of refunding the Electric Utility outstanding bond is to produce
interest rate savings and to take some of the nominal proceeds remaining from the 1999
issue and buy down the refunding. The net present value savings are estimated at
approximately $5.3 million. Issuing $10.2 million of COPs will bolster reserves for Electric
Utility and amortize some of the costs that have resulted in the draw down of those
reserves over an eight-year period.
Council Member Hitchcock disclosed that during a dinner meeting with Mr. Wolf and
Mr. Auslander last night she pointed out that a recent conference on bond financing
emphasized the importance of the present value of savings.
In reply, Mr. Burnett stated that taking out $47 million of bonds would generate $5.4 to
$4.5 million. $4.5 million is under 10% present value savings. He believed it to be an
efficient refunding and noted that the Council could provide direction on minimum savings
targets, below which, the transaction would not be executed.
Council Member Hitchcock asked what risks are involved.
Mr. Burnett stated that if an interest rate swap is used the City would be entering into a
third party contract whereby its contractual obligations would help mitigate and otherwise
hedge any variable rate exposure on the variable rate bonds that the City would issue.
The risk involved is whether the third party (Salomon Smith Barney) would meet its
Continued December 4, 2001
contractual obligation and pay the variable rate debt. Mr. Burnett reported that if the
highest marginal tax rate/bracket dropped to 20%, the variable rate bonds would be more
expensive, which would incrementally affect the debt service numbers.
Mr. Burnett stated that there is an option to either issue straight fixed-rate bonds, or issue
a variable rate and enter into a contract that would swap the payments to a fixed rate. He
proposed using straight fixed-rate bonds. PFM would fund an escrow of approximately
$13.3 million. There would be State grant money of $4 million and an equity contribution
from the City that would be accumulated out of the $1.5 million set aside from the annual
budget. There is approximately $23.5 million generated for projects. A debt service
reserve fund of $2.9 million would be held for the benefit of the City and would be returned
and used to make the final payment(s).
Mayor Pro Tempore Pennino stated that he was not in favor of moving forward with the
parking structure right away, as he preferred to allow time for downtown visitors to get
used to walking from the parking structure on Sacramento Street and through the recently
renovated area on Elm Street. He did agree with securing the $5 million funding,
however, and suggested that it be listed under "other projects."
Discussion ensued regarding the need for the parking structure and whether to borrow
funds for this purpose.
Mr. Burnett explained that under tax law there has to be a reasonable expectation to
spend 85% of the proceeds within three years. He reported that there is approximately
$14.8 million outstanding from the 1995-96 COP, which were used in part for Hutchins
Street Square and the downtown revitalization. The debt service on the proposed
financing is $1.27 million a year. The City has been setting aside $1.5 million, which
would mean that including this debt service, the City would be setting aside approximately
$2.7 to $2.8 million. He reviewed scenarios A through D (as indicated on page 9 of the
PFM report filed).
In response to Council Member Land, Mr. Burnett stated that financing fees would total
$800,000.
Mr. Flynn anticipated that by late spring or early summer staff would be prepared to bring
the Parks and Recreation projects back to Council for financing consideration. He stated
that the $3.5 million in the proposed financing is for contingency, design, and repairs to
Fire Station #2.
Discussion ensued regarding the various scenarios and whether to fund the $3.5 million.
Mr. Flynn stated that revenues are anticipated to increase and sales tax continues to
grow. Even factoring in possible losses from the Vehicle License Fee, the City's General
Fund is projected to increase through the year 2010.
PUBLIC COMMENTS:
• Bob Johnson pointed out that it is not clear in the staff report that the $3.5 million is
for design of all proposed Parks and Recreation projects.
Council Member Hitchcock and Mayor Pro Tempore Pennino expressed concern
regarding the Electric Utility refinancing.
Mr. Flynn explained that due to extraordinary unanticipated costs last year a large amount
of City cash was used to pay electric bills. The financing proposal would replenish cash
reserves and allow for the reduction of electric rates to customers.
Electric Utility Director Vallow felt that it would be unfair to continue the Market Rate
Adjustment for a longer period when there is an alternative and urged Council to support
the Electric Utility financing proposal.
2
Continued December 4, 2001
COMMENTS BY THE PUBLIC ON NON -AGENDA ITEMS
None.
E. ADJOURNMENT
No action was taken by the City Council. The meeting was adjourned at 8:43 a.m.
ATTEST:
Susan J. Blackston
City Clerk
Mayor's & Council Member's Weekly Calendar r
t
WEEK OF December 4, 2001
Tuesday, December 4, 2001
7:00 a.m. Shirtsleeve Session
1. City Project Financing
5,30 - 7:30 p.m. Ribbon Cutting and Grand Opening of Gold Coast Wireless, 1721 S.
Cherokee Lane #2.
Wednesday, December 5, 2001
5:00 - 7:30 p.m. Pennino. San Joaquin Partnership and Business Council Holiday Reception,
Brookside Country Club, Stockton.
5:30 - 7:00 p.m. Pennino. Reception welcoming and introducing Senator Charles Poochigian,
hosted by General Mills, Woodbridge Golf and Country Club.
7:00 p.m. City Council meeting
No Closed Session items
2 Presentations
10 Consent Calendar items
No Public Hearings
No Regular Calendar items
Reorganization of the City Council
—Reception to follow the meeting
Thursday, December 6, 2001
3:00 - 4:30 p.m. Lodi Conference and Visitors Bureau community meeting, Chamber of
Commerce office.
Friday, December 7, 2001
6:00 p.m. Lodi Association of Realtors Annual Installation Dinner and Christmas
Party, Woodbridge Golf b Country Club. Dinner at 7:00 p.m.
Saturday, December 8, 2001
1:00 P.M. Lodi VFW Post 1968 observance of Pearl Harbor, Lodi Public Library.
Sunday, December 9, 2001
5:00 - 7:00 p.m. Lodi Historical Society Christmas Open House, Hill House Museum.
Monday, December 10, 2001
7:00 a.m. Pennino. Breakfast hosted by Dean Andal to introduce key community
leaders to Steve Rankin, the Scout Executive for local Boy Scout
organization, the Greater Yosemite Council, Yosemite Club, Stockton.
Disclaimer. This calendar contains only information that was provided to the City Clerk's office
counci1\miscVm slndr.doc
CITY OF LODI COUNCIL COMMUNICATION
AGENDA TITLE: Discussion regarding the sale of (1) approximately $32,100,000
Certificates of Participation (COPs) to refund the current General
Fund COPs and to raise $15,000,000 net new proceeds through new
COP Financing for construction of General Fund Capital Projects,
and (2) approximately $57,300,000 Electric Revenue COPs to refund
the current Electric Revenue COPs and to raise $10,000,000 in
working capital for the Electric Utility
MEETING DATE: December 4, 2001
PREPARED BY: City Manager, Electric Utility Director and Finance Director
RECOMMENDED ACTION: That the City Council give staff direction on the sale of (1)
approximately $32,100,000 Certificates of Participation (COPs) to
refund the current General Fund COPs and to raise $15,000,000 net
new proceeds through new COP Financing for construction of
General Fund Capital Projects, and (2) approximately $57,300,000
Electric Revenue COPS to refund the current Electric Revenue COPs
and to raise $10,000,000 in working capital for the Electric Utility
BACKGROUND INFORMATION: The 2001-03 Financial Plan and Budget expressed the need to
finance a number of General Fund capital projects over the next several years including the Public Safety
Building Remodel/Expansion ($14.5m), a Parking Structure ($5.5m), DeBeneditti Park/G-Basin ($6.20m),
Indoor Sports Facility ($5.9m), an Aquatics Center ($3m), and an Animal Shelter Facility ($2.5m).
Past financing programs included the issuance of a $5 million Certificates of Participation (COP) in 1995,
and $10,120,000 COPs in 1996. The combined annual debt service on these COP's is approximately
$1,268,000. Given the current low interest rate environment, the City has an opportunity to issue new
COPS to legally defease the 1995 and 1996 COP's to their respective call dates and generate debt
service savings for the General Fund. At current rates, the size of a stand-alone refunding issue would
be approximately $14,800,000 and the resulting present value savings would be approximately $560,000.
Staff is recommending the sale of such refunding COPS and an additional $17,300,000 of General Fund
COPs to raise $15,000,000 in net new proceeds ($32,100,000 total issue size). The new COP funds
would be combined with the $4m State grant and the $4.5m budgeted set aside to finance the Public
Safety Building remodel/expansion, and the Parking Structure. Excess construction funds would be used
toward the DeBeneditti Park/G-Basin project. Using an overall level debt service structure, the annual
debt service on the total new COPS would be approximately $1,660,000. This represents an increase of
about $392,000 above the current annual debt service level. The new COPs (like the existing COPs)
would be secured by annual lease payments from the City's General Fund.
APPROVED:
ol H. Dixon ynn — City snager
�y OF L
COUNCILCITY OF LODI
! 1
The financing of the balance of the DeBeneditti Park/G-Basin, the Indoor Sports Facility, an Aquatics
Center, and the Animal Shelter Facility will be brought back to Council for discussion at a later date.
As with the General Fund, the current low interest rate environment, gives the City an opportunity to issue
new Electric Revenue Certificates of Participation (COPs) to legally defease the approximately
$43,900,000 1999 COP's to their call date and generate debt service savings. At current rates, the
present value savings from an optimally structured refunding issue would be in excess of $5 million. In
addition, the Electric Utility current believes that approximately $6 million in the existing construction fund
is no longer needed for its original purpose, and could be contributed to the refunding escrow. This
contribution would reduce the size of the refunding issue (to approximately $47,100,000), but would not
affect the savings. Annual debt service after 2010 would be reduced by approximately $1,160,000.
In addition, the Electric Utility proposes to issue approximately $10,200,000 of taxable Electric Revenue
COPs to raise working capital. This will provide additional flexibility to meet cashflow needs stemming
from the unusual power market conditions of the past 12 months. Debt service on this taxable issue
would be a level annual amount of approximately $1,600,000, with a final maturity in eight years.
The combined issue size would be $57,300,000. The COPs would be secured by net revenues from the
Electric Utility.
George Wolf from Salomon Smith Barney, Alex Burnett from Public Financial Management, and City staff
will be in attendance at the shirtsleeve meeting.
FUNDING: None required at this time.
APPROVED:
H. Dixon Flynn — City Manager
City of Lodi
Financing Opportunities__'_
December 4, 2001
presented by jj
Public Financial Management
505 Montgomery Street, Suite 800 City or i,odi
San Francisco, CA 94111
415 982-5544
415 982-4513 fax
Since we last met ...
City of Lodi di • Interest Rates have remained at historically low levels, but ...
L
160)
14.(X)
Revenue Bond Index (RBI) Since 1980
Percentage of Time Revenue Bond Index (RBI) has been below Current
Levels Since 1980
0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00%
plus 25 by
plus 20 by
plus 15 by
plus 10 by
plus 5 by
Current Rate
less 5 by
less 10 by
less 15 by
less 20 by
less 25 by
-per 2
City of Lodi
Since we last met ...
• But there has been significant volatility over the past month.
National AAA General Obligation 30 -Year Maturity
(As of November 27, 2001)
5.50
5.25
4.75
4.50 -1 1 + r r 1 1 1 1 1 r T
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Year
-National AAA GO MMD 2031 Maturity
1.00
b
0.50 0
0.00
NA AAA MMD
Maximum:
5.32
Minimum:
Average:
4.85
5.11
^� Current:
5.09
4.50 -1 1 + r r 1 1 1 1 1 r T
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Outline of Projects -Electric Utility
City ofLodi Refunding of Outstanding 1999 Electric Revenue Bonds
• Current market rates provide the opportunity to refund all of the outstanding
bonds to generate reduced debt service cost for the Utility.
— Par Amount: $47,095,000
— Average Outstanding Interest Rate: 5.73%
— Borrowing Rate (30 -year term): 4.67%
— Net Present Value Savings: approx. $5,382,000
Prepaid Power (Taxable)
• Taxable financing to increase short-term reserves to enhance liquidity.
— Par Amount: $10,185,000
— Borrowing Rate (8 -year term): 5.64%
— Annual Debt Service: approx. $1,600,000
Psi ' 4
%V"
City of Lodi
Summary of Electric Utility Alternatives
Outstanding Refunding of Total
Fiscal Year Electric Utility Net Outstanding Prepaid Power Electricl,
Endina Debt Service Bonds (Taxable) Debt Sen
6/30/2003
1,391,435
1,980,480
1,607,460
3,587,940
6/30/2004
1,391,435
1,980,480
1,607,392
3,587,872
6/30/2005
1,391,435
1,980,480
1,611,696
3,592,176
6/30/2006
1,391,435
1,980,480
1,606,706
3,587,186
6/30/2007
1,391,435
1,980,480
1,608,022
3,588,502
6/30/2008
1,391,435
1,980,480
1,607,989
3,588,469
6/30/2009
1,391,435
1,980,480
1,611,161
3,591,641
6/30/2010
1,391,435
1,980,480
1,611,352
3,591,832
6/30/2011
4,941,435
1,980,480
1,980,480
6/30/2012
4,945,185
1,980,480
1,980,480
6/30/2013
4,941,360
1,980,480
1,980,480
6/30/2014
4,945,135
1,980,480
1,980,480
6/30/2015
4,941,810
3,780,480
3,780,480
6/30/2016
4,942,315
3,779,785
3,779,785
6/30/2017
4,942,533
3,780,936
3,780,936
6/30/2018
4,939,454
3,778,723
3,778,723
6(30/2019
4,941,313
3,778,145
3,778,145
6/30/2020
4,946,716
3,783,993
3,783,993
6/30/2021
4,946,081
3,785,846
3,785,846
6/30/2022
4,944,212
3,783,704
3,783,704
6130/2023
4,947,457
3,787,566
3,787,566
6130/2024
4,940,638
3,782,014
3,782,014
6/30/2025
4,943,338
3,782,256
3,782,256
6/30/2026
4,944,334
3,762,872
3,782,872
6/30/2027
4,943,382
3,783,652
3,783,652
6/30/2028
4,945,139
3,784,386
3,784,386
6/30/2029
4,944,400
3,784,863
3,784,863
6/30/2030
4,946,386
3,784,873
3,784,873
6/30/2031
4,944,514
3,784,206
3,784,206
6/30/2032
4,945,325
3,782,652
3,782,652
Total
$121.285.376 1
$92.098.771
$12.936.242
$105.035.014
(1) Excludes NCPA and IANC debt service
=per 5
Summary of General Fund Past Events
i
City orLodi
: PFM has met with the City Council several times over the past two
years to review the General Fund and the potential to finance a new
Public Safety Building.
• Met with City Council on March 30, 2000 to evaluate the financing of
the public safety complex.
- Project Cost:
- Annual Debt Service:
- Borrowing Rate:
$18,350,000
approximately $1,580,000
6.13%
• Met with City Council on June 27, 2001, to review budget results.
• Met with City Council on October 22, 2001, to review Public Safety
Building financing structures.
_per
6
Outline of Projects - General Fund
The City has several potential projects it is considering; including the
City of Lodi Public Safety Building and Parks and Recreation.
Sources of Funds ($000):
Par Amount of Bonds 32,060
Cash Contribution 4,500
State Grants 4,000
Total Sources of Funds $40,560
Uses of Funds ($000):
New Public Safety Building $12,000
Parking Structure 5,000
Old Public Safety Building Remodel 3,000
Other Projects 3,500
Total Projects $23,500
Refunding Escrow Deposits $13,313
Debt Service Reserve Funds $2,936
Cost of Issuance $812
Total Uses of Funds: $40,560
wiFM 7
C=
General Fund Market Opportunities
Refunding of Outstanding 1995 and 1996 COPs
City of Lodi. Current market rates also provide the opportunity to refund all of the
outstanding COPs to generate reduced debt service costs for the General
Fund.
— Par Amount: $14,845,000
— Borrowing Rate (16 -year term): 4.04%
— Annual Debt Service Savings: approx. $60,000
— Net Present Value Savings: approx. $560,000
7.000
—.0
m
N
5.000
c
O
4.000
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v
a
3.000
c
R
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r
3 2.000
a+
fA
m
1.000
x
0.000
10/1/2015 10/1/2010
1995 COPS 2015 Term Bond 1996 COPS 2016 Tenn Bond
Public Safety Building TIC (4.87%)
ON Refunding TIC (4.04%)
=PFM 8
C=
Cloy of Lodi
Summary of General Fund Alternatives
(1) Debt Service net of Capitalized Interest and Debt Service Reserve Fund Receipts
(2) Refunded Prior Debt Service in 2002 equals 5353,489
s=
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7
Scenario A
Scenario B
Scenario C
Scenario D
Refunding Only
Level with PSB Only
Level Aggregate
Level New
Money
PSB + $3.5 mm Add. Proceeds
PSB + $3.5 mm Add. Proceeds
Outstanding
Fiscal Year
General Fund
Aggregate Net
Net Cost of
Aggregate Net
Net Cost of
Aggregate Net
Net Cost of
Aggregate Net
Net Cost of
Ending
Net Debt Service
Debt Service"'
Financing")
Debt Service"'
Financing'
Debt Service"'
Financin '2
Debt Service"'
Financing
6/30/2002
$1,275,208
$95,511
($257,978)
$262,056
($91,433)
$286,061
($67,428)
$311,503
($41,987)
6/30/2003
1,267,891
1,243,010
(24,882)
1,806,059
538,167
1,435,155
167,264
1,973,741
705,849
6/30/2004
1,268,679
1,241,519
(27,159)
1,804,569
535,890
1,434,841
166,162
1,972,250
703,572
6/30/2005
1,267,361
1,242,408
(24,953)
2,032,433
765,072
1,660,674
393,313
2,264,260
996,899
6/30/2006
1,268,691
1,240,831
(27,860)
2,029,506
760,815
1,657,429
388,738
2,264,488
995,797
6/30/2007
1,267,411
1,241,930
(25,481)
2,028,620
761,208
1,657,794
390,383
2,266,467
999,056
6/30/2008
1,268,239
1,240,111
(28,127)
2,028,954
760,715
1,661,299
393,060
2,264,401
996,162
6/30/2009
1,261,154
1,235,343
(25,811)
2,025,382
764,228
1,662,832
401,678
2,258,242
997,089
6/30/2010
1,265,914
1,237,749
(28,165)
2,033,017
767,103
1,662,564
396,650
2,268,046
1,002,132
6/30/2011
1,262,151
1,237,259
(24,892)
2,026,911
764,760
1,660,563
398,412
2,258,880
996,729
6/30/2012
1,254,479
1,229,331
(25,148)
2,017,724
763,244
1,661,955
407,476
2,251,432
996,953
6/30/2013
1,252,487
1,228,719
(23,767)
2,019,968
767,481
1,661,547
409,060
2.250,208
997,721
6/30/2014
1,256,394
1,229,658
(26,735)
2,017,743
761,349
1,659,050
402,657
2,254,159
997,765
6/30/2015
1,251,506
1,226,847
(24,659)
2,015,687
764,180
1,659,236
407,730
2,252,796
1,001,290
6/30/2016
1,247,824
1,220,534
(27,290)
2,009,014
761,190
1,662,036
414,212
2,241,573
993,749
6/30/2017
828,748
803,542
(25,205)
1,589,315
760,567
1,657,619
828,871
1,827,337
998,590
6/30/2018
796,880
796,880
1,660,796
1,660,796
1,030,026
1,030,026
6/30/2019
797,960
797,960
1,661,259
1,661,259
1,030,649
1,030,649
6/30/2020
797,765
797,765
1,664,021
1,664,021
1,029,666
1,029,666
6/30/2021
796,370
796,370
1,659,241
1,659,241
1,032,051
1,032,051
6/30/2022
793,755
793,755
1,656,875
1,656,875
1,032,651
1,032,651
6/30/2023
794,845
794,845
1,656,779
1,656,779
1,031,531
1,031,531
6/30/2024
794,571
794,571
1,658,817
1,658,817
1,033,636
1,033,636
6/30/2025
797,795
797,795
1,662,714
1,662,714
1,033,827
1,033,827
6/30/2026
794,534
794,534
1,658,506
1,658,506
1,032,126
1,032,126
6/30/2027
794,808
794,808
1,656,236
1,656,236
1,033,431
1,033,431
6/30/2028
798,387
798,387
1,660,572
1,660,572
1,032,648
1,032,648
6/30/2029
795,265
795,265
1,656,376
1,656,376
1,029,769
1,029,769
6/30/2030
795,442
795,442
1,658,517
1,658,517
1,029,666
1,029,666
6/30/2031
793,783
793,783
1,656,726
1,656,726
1,032,073
1,032,073
6/30/2032
796,787
796,787
1 1,664,452
1,664,452
1 1,031,639
1,031,639
Total
$19,764,137
$18,194,305
($648,114)1
$41,685,901
$22,843,483
1 $49,632,542
$30,790,123
1 $48,655,173
$29,812,755
(1) Debt Service net of Capitalized Interest and Debt Service Reserve Fund Receipts
(2) Refunded Prior Debt Service in 2002 equals 5353,489
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Q
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v
C
v
a