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HomeMy WebLinkAbout1996-02-13 City Council (6)City of Palo Alto Manager’ Report TO:HONORABLE CITY COUNCIL ATTENTION: FINANCE COMMITTEE FROM:CITY M~NAGER DEPARTMENT:ADMINISTRATIVE SERVICES AGENDA DATE: FEBRUARY 13, 1996 CMR:140:96 SUBJECT:REQUEST FOR FINANCE COMMITTEE DRAFT SCOPE OF SERVICES FOR A FINANCIAL ADVISOR APPROVAL OF GOLF COURSE REQUEST Staff requests Finance Committee review of the attached draft scope of services for a Golf Course Financial Advisor ffA). The FA will make recommendations on a fmancing package for the Golf Course improvements, and will provide staff with expert advice on options for qualifying for tax exempt debt financing. It is expected that development of a financing package will take nine to twelve months to complete. POLICY IMPLICATIONS Selection of a Financial Advisor is consistent with Council approval of the Golf Course Master Plan on May 15, 1995 (CMR:248:95). RECOMMENDATION Staff recommends the Finance Committee approve the attached scope of services for a Golf Course Financial Advisor. DISCUSSION After each budget is adopted by Council, staff returns with a list of consultant agreements estimated to cost over $25,000, in accordance with Policy and Procedure 1-10. In that process, each standing committee is requested to select those consultant agreements in which CMR:140:96 Page 1 of 3 they desire to participate, in the review of the scope of consultant services. Staff did not anticipate last July that the Golf Course improvements project would be far enough along during this fiscal year to warrant hiring a FA. Therefore, staff did not submit this FA as a project for the Finance Committee to review. In order to begin to put a financing package in place, staffnow needs the assistance ofa FA. Therefore, staff is requesting that the Finance Committee either approve the attached draft scope of services, or provide comments to staff. Staff intends to send out an RFP as soon as this scope of services is approved by the Finance Committee. In that way, an FA can be brought on board by early April, and assist staff in resolving some of the financing issues that need to be worked on in order to put a financing package together. Of immediate concern is how to structure the financing to qualify as tax exempt, given the profit making activities of the Golf Pro, and the City’s current agreement with him. If the project can be financed with tax exempt debt, the debt service costs will be less costly, and the Golf Course’s projected revenues can be spent on fimding more capital improvements at the Golf Course rather than on more financing costs. It is expected that a financing plan, given the complexity of the tax questions involved, will take nine to twelve months to develop. Staff would bring back the plan to Council next spring, as part of the 1997-98 Interim Budget. It is not expected that a project budget or the corresponding debt financing would need to occur until fiscal year 1997-98, to coincide with the expected start of the construction of Golf Course improvements. FISCAL IMPACT There is no fiscal impact related to this report. It is estimated that a FA will cost between $15,000-30,000. If the selected FA costs more than $25,000, staff will return to Council with the contract for approval in about April. It is typical for FA’s to be paid out of the eventual sale of bonds, in the same way that closing costs are paid out of the close of escrow for home purchases. If that is the case, no budget amendment (BAO) will be needed for this FA. If the selected FA does not wish to be paid out oft~he proceeds from the eventual Golf Course bond sale, staff will return to Council with a BAO in late March or early April. ATTACHMENT Draft Scope of Services CMR:140:96 Page 2 of 3 PREPARED BY: DEPARTMENT HEAD APPROVAL: Jim Steele, Finance Manager Emi~at:n~so~"-- Deputy City Manager, CITY MANAGER APPROVAL: er CC:N/A CMR:140:96 Page 3 of 3 SCOPE OF WORK OR SERVICES City of Palo Alto DRAFT FINANCIAL ADVISOR for Golf Course Financing REQUEST FOR PROPOSAL CITY OF PALO ALTO: RFP PART !i SCOPE OF WORK OR SERVICES CITY OF PALO ALTO PART I1- SCOPE OF WORK ,,,OR S,ERMICES PROPOSAL REQUIREMENTS FINANCIAL ADVISOR City of Palo......AItQ .. 1.CITY The City of Paio Alto is located approximately 35 miles south of San Francisco in Santa Clara County, and has a population of 57,000. It is a part of the San Francisco Bay metropolitan area, which has a population of five million. The high technology industry within Santa Clara County has its roots in Palo Alto, partly because of the presence of Stanford University adjacent to the City. The City is a major employment center with approximately 75,000 jobs, in addition to being a unique residential community with about 25,000 housing units. The City has a diverse revenue base, and provides a full range of municipal services, in addition to operating its own municipal electric, water, gas, wastewater, refuse and storm drainage utilities. The City’s utilities are financed and operated in a manner similar to private business enterprises, where the costs (expenses, including capital) are recovered primarily through user charges. Its schools, parks and recreation facilities are outstanding. The City owns 34 parks totalling more than 4,000 acres, two community centers, a municipal swimming pool, Cultural Center, Community Theater, Children’s Theater, and Junior Museum. The City owns and operates its own 18 hole golf course as part of the General Fund, funded from user fees. 2.DESCRIPTION OF PROJECT The City’s 18 hole golf course is about 180 acres and is located near the bay on Embarcadero Rd. in Palo Alto. The last major course improvements were financed in 1978, funded through lease revenue bonds. Since that time, a reclaimed water project has been completed which allows the course to receive a blend of recycled water from the city’s sewage treatment plant with potable water. That project has resulted in a 40-50% reduction in water charges to the course. The course is now about 40 years old, and is in a deteriorating condition. It is built on a former marshland area. Since its inception, the Course has therefore been plagued by poor turf and landscape quality; accumulations of salt and other substances natural to the area have made the growing of suitable turf virtually impossible. The problems with inherent soil conditions have led to CITY of PALO ALTO: RFP (6/94) PART II- SCOPE OF WORK OR SERVICES City of Palo Alto substantially increased maintenance costs, poor quality turf and trees, and the majority of customer complaints. In addition, the existing irrigation system is aged and not reliable, does not adequately irrigate the course in a consistent fashion, and requires a large amount of maintenance to keep it operating. In May 1991, an outside consulting firm (Bartle Wells Associates) completed a Golf Course Capital Project Feasibility Study. The firm recommended a course renovation at a cost of $5-6 million, supported by increased user fees. In current dollars, that project now totals about $7.5 million, including an additional project element for parking lot improvements, and including a contract contingency and funding for a construction project manager, but excluding any issuance costs. In October 1994, a Master Improvement Plan was completed for the Golf Course by Amphion Environmental, Inc., and Halsay Daray Golf. A goal of the Community Services Department is to keep golf fees within the midrange of Bay Area municipal course fees. Staff has therefore redefined the project to defer some of the original project elements. The project, as it is now defined, including a contract contingency, a project manager, and exclusive of costs of issuance now totals about $4.9 million. Golf staff have proposed to do some of the work originally proposed for the capital project, particularly fairways and greens improvements, by utilizing maintenance staff over a number of years in order to reduce capital costs. Project elements now include: o Drainage $536,000 o Roughs $949,000 o Irrigation $925,000 o Fairways $381,000 o Traps $ 16,000 o Greens $ 180,000 o Driving Range $365,000 o Tees $ 7,000 CITY of PALO ALTO: RFP (6/94)3 PART II- SCOPE OF WORK OR SERVICES City of Palo Alto o Parking Lot $300,000 o Design $366,000 o Project Manager $160,000 o Contingency $732,000 (2O%) Total Costs:$4,917,000 (excluding issuance and capitalized interest costs) Finance and Community Services staff have developed various preliminary financial projections on the cost of the new debt service for the improvements, and the potential fee increases needed to cover those increased costs. Staff estimates that an acceptable level of fees can support a new issuance of about $5.5 million. Refunding of outstanding debt (see section 4-b below) could be added to that total. To the extent that the financial advisor can recommend cost saving measures for the debt package, staff might consider adding other, deferred project elements back to the total. Additional improvements to the pro shop, operated by a private vendor, is not included in the estimate above pending the outcome of vendor contract negotiations, and resulting tax implications of funding those improvements. (See section 4-b below for more information). 3.PREVIOUS DEBT ISSUANCE In 1978, the City of Palo Alto Golf Course Corporation, which was formed for the sole purpose of owning the improvements under a lease-leaseback arrangement with the City, sold $1.8 million in tax exempt Lease Revenue Bonds to finance improvements at the golf course. The debt is secured by a lien on the revenues derived by the Corporation from the golf course facilities, and is not a debt of the City of Palo Alto. That debt wil! be retired in 2003, and is callable prior to that time. Interest is paid semi-annually in March and September. The interest rates on the outstanding debt are as follows: 5.6% through March 1998, 5.7% from March 1998 through March 2000, and 5.75 from March 2000 until maturity in 2003. Debt service for fiscal year 1995-96 totals $152,787. Depending on the advice of the Financial Advisor and bond counsel, the City may choose to issue the new debt within or excluding the CITY of PALO ALTO: RFP (6/94)4 PART II- SCOPE OF WORK OR SERVICES legal structure of the Golf Course Corporation. 4.SCOPE OF WORK City of Palo Alto Review staff’s estimates of costs and timing for the revised project. Suggest alternative financing arrangements and/or other cost saving ideas to bring the project within overall annual budget constraints ’for the Golf Course. If financing costs can be reduced or other cost savings realized, staff would consider adding additional project elements. In addition, review options for structuring the financial relationship between the Golf Course and the General Fund. Provide advice on the timing, structure and method of financing the proposed new issue. A critical and early role of the consultant will be to recommend alternative options for financing the needed improvements, given the applicable laws regarding tax exempt debt. The City would prefer to achieve savings by maximizing the portion of debt that is issued as tax exempt. Tax Implications The City’s existing contractual relationship with an independent Golf pro creates certain legal (tax) barriers to the issuance of tax exempt debt. The golf pro operates a pro shop and also is responsible for scheduling and collecting fees for all golf rounds played. Under the current contract, the pro receives a certain percentage of the various revenues collected. The current contract is in effect through June 30, 1997, plus an additional 5 year option in favor of the golf pro. Another vendor on the site operates a restaurant. Except for a share of the parking lot improvements, however, no debt financing is projected to be required for any restaurant improvements. The tax implications related to the golf pro contract will require consultant’s discussions with the City’s Real Estate Manager, Finance and Community Services staff, the City Attorney’s Office, the bond counsel retained by the City, and perhaps the vendor. With regards to the outstanding 1978 Lease Revenue bonds, depending on the tax advice of the consultant in cooperation with the City Attorney’s Office and bond counsel, it may be appropriate to increase the size of this new financing to refinance or retire the outstanding debt. As of July 1, 1996, $825,000 in. principal will still be outstanding from that issuance. CITY of PALO ALTO: RFP (6/94)5 PART II- SCOPE OF WORK OR SERVICES City of Pal0 Alto Prepare the preliminary official statement and other necessary financing documents. Coordinate and direct the printing of official statements. Develop the official statement with a goal of minimizing future disclosure reporting requirements with regards to SEC rule 1 5c2-1 2. If appropriate, assist the City of Palo Alto in preparing a request for proposal for paying agent/registrar or fiscal agent/trustee services and assist in developing the contract. e.Recommend a list of prospective underwriters and institutional investors. Verify and evaluate the underwriters’ bids and recommend the selection of an underwriter. ho Assist bond counsel in proposing indentures, leases, amendments, and contracts which best meet the needs of the City. If appropriate, assist the City in applying for ratings from rating agencies. Prepare the required submissions and develop supplementary materials, as needed. Assist the City in developing the bond sale presentation to the rating agencies, if required. Provide advice to the City during the bond sale call. Assist the City of Palo Alto in arranging for investment of bond proceeds in compliance with California law regarding investment of public funds, the City’s investment policies, and federal arbitrage regulations. The City may select a fiscal agent/trustee to handle these responsibilities, or may act as fiscal agent/trustee itself. Provide the calculation of bond yield for the issue to be used for arbitrage tracking purposes. The City of Palo Alto is interested in minimizing the requirements for calculating arbitrage rebate over the life of the debt, if possible. For example, the City has used a surety bond rather than a reserve with previous debt issues. The proposer is requested to provide a written discussion on methods to avoid arbitrage exposure, the consequences and cost of these methods, and the proposer’s willingness to include any of these methods in this bond sale. CITY of PALO ALTO: RFP (6/94)6 PART !1- SCOPE OF WORK OR SERVICES City of Palo Alto Make oral and written presentations to and/or attend meetings with the City Council, Council Committees, Bond Counsel, and/or staff as needed. It is anticipated that the consultant will need to attend a Council committee meeting in the Fall and present the recommended financing package. Provide other services normally provided to public agency clients which relate to bond sales. o no Selected consultant may be requested to provide advice for other financing arrangements such as, for example, utility fund improvements on a vacant land site, equipment leasing, revenue bonds, or certificates of participation for improvements at existing city facilities. Compensation for this additional work would be negotiated separately from this agreement. o.Provide insurance coverage as required (see attachment). TIMING OF THE PROJECT = Design work will begin shortly, and the General Fund has sufficient reserves to advance the funding for design, to be reimbursed out of bond proceeds later. It is projected that construction will begin in fiscal year 1997-98. PROPOSAL SUBMITTAL INFORMATION The City expects all firms submitting proposals to thoroughly understand the current laws of their field. It is currently the intent of the City of Palo Alto to select an underwriter for the proposed debt through a competitive bidding process. The selected Financial Advisor will be precluded from bidding on underwriter services. b= Given the information in this RFP, please advise on how your firm could best assist the City. A discussion of the experience and depth of your firm as it relates to this project along with similar information regarding the individuals who would be assigned to this account, both the project manager and backup personnel. Also include the allocation of time in percentages for each member of your group. CITY of PALO ALTO: RFP (6/94)7 PART II- SCOPE OF WORK OR SERVICES City of Palo Alto c.Specific experiences with competitive sales of bonds for similar bond issues. fo References on similar bond financings which your firm has participated as financial advisor with an indication of the success achieved in arranging financing programs. Examples of cost saving financing techniques that your firm would consider for this project, and specific examples of your firm’s prior experience with those types of financings. A list of the services which you would propose to provide as a financial advisor. g.A standard contract form for services. h=A statement of fees to be charged and the timing of the payment for the services listed in this request for proposal along with any factors which would modify those fees if greater or lesser services were required. A statement of the hourly charges that would apply if additional services were required. Also propose when and how the firm would expect to be compensated. Please indicate if your firm will charge separately for any travel or lodging expenses, including other incidental expenses or if these will be covered in the overall price. Information on the location of offices and personnel that would be assigned to this contract and the availability of those resources. If your firm is interested in providing this service, please submit a proposal not later than March 13, 1996 3:00 p.m. Pacific Standard Time. Proposals and five additional copies must be submitted to the Purchasing Division located on the first floor of the Civic Center at 250 Hamilton Avenue, Palo Alto, California 94301. Your proposal should be sealed in a package or envelope showing your firm’s name and address, "Financial Advisor" and the proposal due date. Proposals received after the specified date and time shall be deemed late and will be rejected. CITY of PALO ALTO: RFP (6/94)8 PART I1- SCOPE OF WORK OR SERVICES 7.SELECTION CRITERIA City of Palo Alto The selection of the financial advisor will be subject to review and approval by the City Council and it will be based on the following criteria: am Indication of firm’s innovative financing experiences, including specific examples of cost saving techniques the firm would consider for this project. b.Organization, size, structure, and financial stability of firm. Agreement to points and compliance with the information requested within the RFP. eo Qualifications and availability of staff to be assigned, with emphasis on persons with primary and secondary responsibility. Quality of work previously performed by the firm for the City, if applicable. f.The proposed fee relative to the services to be provided. INTERVIEW A selection panel consisting of representatives from several Departments including Administrative Services, Community Services, and Public Works may conduct oral interviews to better understand the best proposals. Finalists will be notified of the date, time and place of the interviews. CITY of PALO ALTO: RFP (6/94)9