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HomeMy WebLinkAboutStaff Report 325-10TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE: AUGUST 2,2010 REPORT TYPE: PUBLIC HEARING CMR: 325:10 SUBJECT: TEFRA Hearing Regarding Conduit Financing for the Keys Family Day School Project Located at 3981 El Camino Real and 2890 Middlefield Road, Palo Alto, and Approving the Issuance of Revenue Bonds by the California Municipal Finance Authority for the Purpose of Financing and/or Refinancing the Acquisition, Construction, Improvement and Equipping of Educational Facilities and Certain Other Matters Relating Thereto for the Benefit of Keys Family Day School, Inc. RECOMMENDATION 1) Conduct a public hearing under the requirements of the Tax Equity and Fiscal Responsibility Act of 1983 (TEFRA) and the Internal Revenue Code of 1986, as amended (Code); and 2) Adopt a resolution (Attachment A) approving the issuance of the bonds by the California Municipal Finance Authority (CMFA) for the benefit of Keys Fnmily Day School, Inc. (BolTower) in financing Keys Family Day School. BACKGROUND Keys Fnmily Day School, Inc. (Keys) requested that the CMFA serve as the municipal iSl.'Uer of bonds for the Keys Family Day School project in an aggregate principal nmount not to exceed $20,000,000 of tax exempt revenue bonds. Proceeds from the issuance of the bonds will be used to: (i) fund the demolition of an existing facility and the construction and equipping of one or more new buildings to be used as educational facilities on the Corporation's property located at 3981 El Camino Real, Palo Alto, California (the "EI Cnmino Cnmpus"), including furniture, fixtures and equipment and design, architectural, engineering, project management, project consultants and other similar expenses relating thereto, (ii) fund cCltain other capital expenditures, renovations, equipment and relocation expenditures at the EI Cnmino Cnmpus and the Corporation's property located at 2890 Middlefield Road, Palo Alto, California (the "Middlefield Cnmpus"); (iii) refmance an existing bank loan used to acquire and improve the EI CMR:325:1O Page I of4 Camino Campus; and (iv) pay other expenses related to the issuance of the Bonds, including but not limited to funding a de bt service reserve fund, costs of issuance, and capitalized interest (collectively, the "Project"). The Project will be owned and operated by the Corporation. In order for all or a portion of the bonds to qualify as tax-exempt bonds, the City of Palo Alto must conduct a public hearing (TEFRA Hearing), providing the members of the community an opportunity to speak in favor of or against the use of tax-exempt bonds for the financing of the project. Prior to the hearing, reasonable notice must be provided to the members of the community. Following the close ofthe TEFRA hearing, an "applicable elected representative" of the governmental unit hosting the proposed project must provide its approval of the issuance of the bonds for the financing of the project. DISCUSSION Since the facilities to be financed with the proceeds of the CMFA's debt are located within the jurisdiction of the City of Palo Alto, the City has been asked to conduct a TEFRA hearing and adopt a resolution (Attachment A) that approves both the issuance of bonds by the CMFA for the benefit of Keys. A TEFRA hearing was held August 8, 2010 and a resolution was approved by the Council, however the TEFRA approval is only valid for one year, which is why the Council is being asked to reapprove the financing. The previous TEFRA authorized issuance was for sale of unrated tax-exempt bonds to investors. In the fall of 2008 the unrated school bond market collapsed, which left the school unable to complete a bond offering. Despite the bad economic conditions, Keys was able to secure additional capital campaign funds and a construction bank loan that allowed it to proceed with construction of the new campus. Now that the construction risk is over, and given the favorable bank-qualified-bond stimulus incentives for financial institutions to support such community development projects, Keys has received multiple term sheets. from financial institutions interested in a direct placement of such bonds. Keys is therefore highly confident that it will be able to complete the issuance well within the one-year deadline. As cited in the published notice of July 19,2010, the public hearing is simply an opportunity for all interested persons to speak or to submit written comments concerning the proposal to issue the debt and the nature or location of the facility to be financed; however there is no formal obligation on the part of the borrower or the Council to respond to any specific comments made during the hearing or submitted in writing. The financing includes, but is not limited to finance the acquisition, construction, improvement and equipping of educational facilities and certain other matters relating thereto located at 3981 EI Camino Real And 2890 Middlefield Road, Palo Alto. The CMF A is a joint exercise of powers authority that the City became a member of on April 14, 2008. The Joint Exercise of Powers Agreement provides that the CMFA is a public entity, separate and apart from each member executing such agreement. The debts, liabilities and obligations of the CMFA do not constitute debts, liabilities or obligations of the members executing such agreement. The bonds to be issued by the CMFA for the project will be the sole responsibility of the borrower, and the City of Palo Alto will have no financial, legal, moral CMR:325:10 Page2of4 obligation, liability or responsibility for the projeet or the repayment of the bonds for the financing of the projeet. All finaneing documents with respect to the issuance of the bonds will contain dcar diselaimcrs that the bonds are not obligations of the City of Palo Alto or the State of California but are to be paid for solely from funds provided by the borrower. The City in no way will become exposed to any financial liability by reason of its membership in the CMFA. In addition, participation by the City in the CMFA does not impact the City's appropriations limits and will not constitute any type of indebtedness by the City. Outside of holding the TEFRA hearing, adopting the required resolution, no other participation or activity of the City or the City Council with respeet to the issuance ofthe bonds will be required. Based on the benefits of the project to the Palo Alto community and the lack of any financial obligations on the part of the City, staff recommends that Council approve the attached resolution. RESOURCE IMPACT As stated, the City will incur no financial obligation from approval of the recommendations. Keys Family Day School, Inc. is requesting authority to issue up to $20 million in bonds through the CMF A. The City will receive a fee for its services when the bonds are issued. The City would receive approximately $8,300 ifthe par amount of the bonds issued is $20 million. POLICY IMPLICATIONS Actions recommended in this report are consistent with Council's prior actions in supporting non-profit financings under the TEFRA (e.g., approving tax-exempt financing through the California Municipal Finance Authority for the Gideon Hausner Jewish Day School projects, CMR: 184:08). ENVIRONMENTAL REVIEW Action on this item does not constitute a project under Section 21065 of the Public Resources Code. PREPARED BY: y Director, dministrative Services DEPARTMENT HEAD APPROVAL:_-L1lli~~~t-._=:::::===--­ LAL . \1"\. :ir~tor, ;dmirove. Services CITY MANAGER APPROV AL: _'-:---t1~-=---::-~-:-::c-:=-==:=::-:=-_---''---=--_-'-_ JAMES KEENE Y City Manager CMR:325:10 Page 3 of4 ATTACHMENTS Attachment A: Resolution of the Council of the City of Palo Alto Approving the Issuance of the California Municipal Finance Authority Revenue Bonds, Series 2010 in an Aggregate Principal Amount Not to Exceed $20,000,000 for the Purpose of Financing and/or Refinancing thc Acquisition, Construction, Improvement and Equipping of Educational Facilities For the Keys Family Day School CMR:325:1O Page 4 of 4 AITACHMENT A Not Yet Approved Resolution No. Resolution of the Council of the City of Palo Alto Approving the Issuance of the California Municipal Finance Authority Revenue Bonds, Series 2010 in an Aggregate Principal Amount Not to Exceed $20,000,000 for the Purpose of Financing and/or Refinancing the Acquisition, Construction, Improvement and Equipping of Educational Facilities For the Keys Family Day School WHEREAS, Keys Family Day School, Inc. (the "Corporation"), a nonprofit public benefit corporation and an organization described in Section 501 (c)(3) of the Internal Revenue Code of 1986 (the "Corporation"), has requested that the California Municipal Finance Authority (the "Authority") participate in the issuance of one or more series of revenue bonds in an aggregate principal amount not to exceed $20,000,000 (the "Bonds") for the Purpose of Financing and/or Refinancing the Acquisition, Construction, Improvement and Equipping of Educational Facilities and Certain Other Matters Relating Thereto (the "Project") to be owned and operated by the Corporation and located within the City of Palo Alto (the "City"); and WHEREAS, pursuant to Section l47(f) of the Internal Revenue Code of 1986 (the "Code"), the issuance of the Bonds by the Authority must be approved by the City because the Project is located within the territorial limits of the City; and WHEREAS, the City Council of the City (the "City Council") is the elected legislative body of the City and is one of the "applicable elected representatives" required to approve the issuance of the Bonds under Section 147(f) of the Code; and WHEREAS, the Authority has requested that the City Council approve the issuance of the Bonds by the Authority in order to satisfy the public approval requirement of Section 147(f) of the Code and the requirements of Section 4 of the Joint Exercise of Powers Agreement Relating to the California Municipal Finance Authority, dated as of January I, 2004 (the "Agreement"), among certain local agencies, including the City; and WHEREAS, pursuant to Section 147(f) of the Code, the City Council has, following notice duly given, held a public hearing regarding the issuance of the Bonds, and now desires to approve the issuance of the Bonds by the Authority; NOW, THEREFORE, BE IT RESOLVED, by the City Council of the City of Palo Alto as follows: SECTION 1. The City Council hereby approves the issuance of the Bonds by the Authority. It is the purpose and intent of the City Council that this resolution constitute approval of the issuance of the Bonds by the Authority, for the purposes of (a) Section 147(f) of the Code by the applicable elected representative of the governmental unit having jurisdiction over the area in which the Project is located, in accordance with said Section 147(f) and (b) Section 4 of the Agreement. 100715 jb 0130611 Not Yet Approved SECTION 2. The officers of the City are hereby authorized and directed, jointly and severally, to do any and all things and t6 execute and deliver any and all documents which they deem necessary or advisable in order to carry out, give effect to and comply with the terms and intent of this resolution and the financing transaction approved hereby. SECTION 3. The adoption of this Resolution shall not obligate the City or any department thereof to (i) provide any financing to construct the Project; (ii) approve any application or request for or take any other action in connection with any planning approval, permit or other action necessary for the construction or operation of the Project; (iii) make any contribution or advance any funds whatsoever to the Authority; or (iv) take any further action with respect to the Authority or its membership therein. SECTION 4. This resolution shall take effect immediately upon its adoption. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED: Senior Assistant City Attorney City Manager or Designee Director of Administrative Services 100715jb 0130611 2