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HomeMy WebLinkAbout1997-03-06 City CouncilCity of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE:MARCH 6, 1997 CMR:161:97 SUBJECT:USE OF SMART STATION DEBT RESERVETO FUND NEEDED CAPITAL IMPROVEMENTS REOUEST This is an information report, and no Council action is requested. POLICY IMPLICATIONS This staff report suggests no policy changes. EXECUTIVE SUMMARY The City of Palo Alto participates with Sunnyvale in the Sunnyvale Materials Recovery Transfer (SMART) station. Palo Alto is charged based on the tonnage of materials delivered to the SMART station. In December 1992, Sunnyvale issued revenue bonds totaling $24 million for the purpose of constructing the SMART station. A municipal bond issuer is required to provide either a debt service reserve to protect bondholders in the event that a debt service payment cannot be made, or post a surety bond, which can be obtained through a bond insurance company for a fee. Attached is a copy of a report from the City of Sunnyvale staff to its Council, which serves as the SMART Station Financing Authority’s Board of Directors. The report recommends that the Board (Council) authorize Sunnyvale staff to Obtain insurance in the form of a surety bond, in order to eliminate the need for a debt service reserve on outstanding SMART station debt. Freeing up the existing debt service reserve will allow the use of that cash to pay for all capital improvements to make the station fully operational, including expanding recycling equipment to allow the participating cities to deliver curbside recyclables to the SMART station. The debt service reserve is $1.9 million. When the debt for the project was issued, an insufficient amount of bonds were sold by Sunnyvale to cover all budgeted SMART station capital improvements as identified in the project budget. Now that the project is nearing completion, funds are needed to pay for all budgeted improvements. CMR:161:97 Page 1 of 2 The Sunnyvale staff report and the, accompanying resolution were approved by the Sunnyvale City Council on February 25, 1997. Staff has discussed the need for these improvements extensively with Sunnyvale staff, and supports its recommendation. Staff believes a surety bond is a relatively inexpensive way to comply with debt service requirements, and will release the necessary cash for these improvements. FISCAL IMPACT The cost of obtaining a surety bond from a bond insurance company will be a one-time cost of approximately $40,000. This cost will be passed .on to all participants in the SMART station, including Palo Alto. Because Palo Alto pays Sunnyvale about $4.2 million per year for the transfer of Palo Alto refuse, this amount will not materially affect Palo Alto’s billings. In addition, the debt service reserve will be eliminated and the interest that would have been earned on it will no longer defray the annual debt service payments charged to participants. That will cause a marginal increase in Palo Alto’s annual charges over the remaining life of the bonds, that is, through 2017. Again, both of these impacts are minimal to Palo Alto’s total billings. ENVIRONMENTAL ASSESSMENT This program is not a project as def’med by the California Environmental Quality Act and is not subject to CEQA requirements. ATTACHMENTS Report from the City of Sunnyvale Financing Authority PREPARED BY:Jim Steele Manager of Investments and Debt DEPARTMENT HEAD APPROVAL: ~ ~ Emil~F~arrison Deputy City CITY MANAGER APPROVAL: Manager CC: n/a CMR:161:97 Page 2 of 2 SUNNYVALE FINANCING AUTHORITY NO. CHAIRPERSON AND MEMBERS OF,THE AUTHORITY February 25, 1997 DATE: SUBJECT: RESOLUTION APPROVING USE OF REVENUE BOND DEBT SERVICE RESERVE (1992 SERIES B)-TO FUND SMART STATION IMPROVEMENTS Report in Brief In December of 1992, the Sunnyvale Financing Authority ("The Authority" - consisting of the City of Sunnyvale and the Redevelopment Agency of the City of Sunnyvale undeP a joint powers agreement) issued revenue bonds of $24,160,00 for the purpose of financing the construction of the Sunnyvale Materials Recovery and Transfer Station ("SMART Station"). A requirement of debt issues is that certain monies must be identified for the purpose of funding debt service payments’in case of default by the issuer. This can be accomplished a number of ways, one of which isto establish a debt service reserve which sets aside an amount equal to one year’s debt service in cash with a trustee. Out of the proceeds of the 1992 issue, the Authority funded a debt service reserve in the amount of approximately $1,879,430. It is recommended that a debt service surety be secured in place of the reserve, thereby allowing the City to make use of monies held in reserve for capital improvements, Discussion At this time, staff is beginning vadous SMART Station related capital projects already approved in the Budget. As an alternative to financing these projects with unreserved Enterprise funds and cash contributions made by cities participating in SMART Station activities, staff is seeking Authority approval to make use of the monies held in reserve. It is still necessary that there be a secure funding source for debt service payments to be made on an emergency basis. However, by insuring debt service payments through obtaining a surety bond, the debt service reserve reqdirement would be relieved and the cash would become available. By utilizing these funds, the Authority and the partners in the SMART Station will be able to take advantage of the favorable interest rate of the original bond issue. The Board of Directors ,will recall that the cities of Mountain View and Palo Alto share in SMART related revenues and expenses (including debt service). The use of the debt service reserve for capital improvements has been approved in concept by representatives of the two cities. For a one-time upfront premium of $40,407.75, AMBAC Indemnity Corporation will insure the debt service related to the 1992/inancing (through agreeing to lend the Authority money to Issued by the City Manager pay debt service if there is ever insufficient money from utilities revenues). This allows the Authority to withdraw the $1,879,430 now in the SMART Station Revenue Bonds Debt Service Reserve Fund (DSRF) and apply the monies for the budgeted capital projects. Fiscal_Impact The one-time upfront cost of the insurance is $40,407.75. In the future, the Authority will not receive interest earnings from investment of the money in the DSRF and will not have the DSRF to help pay debt service in 2017 when the bonds mature. However, it will gain immediate access to the monies held in reserve through its securing of debt service insurance. Public Contact ¯ Publication of the Agenda. Recommendation It is recommended that the Board of Directors adopt the attached Resolution authorizing the securing of debt service insurance related to the 1992 Revenue Bonds from AMBAC Indemnity Corporation. Prepared by: D~vid Gour~~ Revenue Systems Supervisor Approved by: Mary Bradley Treasurer Marvin A. Rose Director of Public Works Thomas F. Lewcock Executive Director RESOLUTION NO. A Iq~..SOLUTION OF THE SUNNYVALE FINAN(~ING AUTHOIqlTY AUTHOIq~ING THE F-,X~CUTION AND DELIVERY OF A SUR~I~ BOND AND APPROVING OTHER A~I’IONS IN CONNF.~TION THEREWITH WHEREAS, pursuant to the provisions of Chapter 5 of Division 7 of Title i of the Government Code of the State of California, the City of Sunnyvale and the Redevelopment Agency of the City of Sunnyvale executed and er~tered into the Joint Exercise of Powers Agreement, dated September 29, 1992, pursuant to which the Sunnyvale Financing Authority was created and established; WHEREAS, pursuant to the Joint Exercise of Powers Agreement and pursuant to the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California, the Authority has the power to issue its obligations to finance the construction of Public Capital Improvements (as defined in the Act); WHEREAS, pursuant to the terms of that certain Trust Indenture, dated as of October 1, 1992, as amended and supplemented by the First Supplemental Trust Indenture (~First SupplementS), dated as of December 1, 1992 (collectively "Trust Indenture"), the Authority previously has issued $24,160,000 of its Utilities Revenue Bonds 1992 Series B (Solid Waste Materials Recovery and Transfer Station) for the purpose of financing the costs of acquisition, construction and equipping of a facility which recovers recyclable materials and separates unprocessed refuse for transfer to a landfill; WHEREAS, in connection with the issuance of the Bonds, the Authority caused $1,879,430 to be deposited in the Series B Reserve Account of the Reserve Fund ("Reserve Account~) established under the Indenture to satisfy th~ Reserve Requirement for the Bonds; WHEREAS, pursuant to Smction 3.03(b) of the First Supplement, the Authority may substitute a Surety Bond to satisfy the Reserve Requirement for the Bonds; and WHEREAS, the Authority has determined that it would be financially advantageous to obtain a Surety Bond to satisfy the Reserve Requirement for the Bonds and to use th~ funds released from flae Reserve Account to provide ikmds to complete const.ructi6n of the Project, NOW, THEREFORE, BE IT RESOLVED BY THE DIRECTORS OF THE SUNNYVALE FINANCING AUTHORITY THAT: I. The Board of Directors¯ of the Authority hereby authorizes and directs the Executive Director or the Treasurer of the Authority .to cause the delivery of the Surety Bond through the execution and delivery of that certain Guaranty Agreement, dated as of February I, 1997, by and between the Authority and Ambac Indemnity Corporation, the form of which has bee.n presented to this meeting and is on t’de with the Secretary, with such. changes therein eund modifications thereto as such officers deem necessary and appropriate. The Board of Directors of the Authority hereby further authorizes and direct~ the Executive Director or the Treasurer of the Authority to cause the funds released from the Reserve Account as a result of the substitution of the SureW bond (i) to be applied to the completion of the Project and (ii) to pay costs related to the execution and delivery of such Surety Bond. 2. The Executive Director, the Treasurer and such other proper officers of the Authority be and the3~ hereby are authorized to take all actions and to execute any and all documents and agreement which they may deem necessary or advisable in order to obtain a SureW Bond and to otherwise to carry out, give’ effect to a~nd comply with the terms and intent of fl~is Resolution. Such actions heretofore taken by such officers or their de$ignees are hereby ratified, confirmed and approved. 3. This resolution shall take effect upon its adoption. on Adopted by the Sunnyvale Refinancing Authority at a regular meeting held ., 1997, by the folIowi~g vote: AYES: NOES; ABSENT: APPROVBD: ATTEST: Chairperson Secretary