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HomeMy WebLinkAbout2004-06-07 City Council (2)City of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: PUBLIC WORKS DATE:JUNE 7, 2004 CMR:282:04 SUBJECT:REQUEST FOR APPROVAL OF "A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALO ALTO DETERMINING IMPROVEMENT FUND SURPLUS AND ORDERING ITS DISPOSITION - UNIVERSITY AVENUE AREA OFF-STREET PARKING ASSESSMENT DISTRICT" RECOMMENDATION Staffrecommends that Council approve the attached Resolution "Determining Improvement Fund Surplus and Ordering Its Disposition - University Avenue Area Off-Street Parking Assessment District" (Attachment A). Staff recommends disposing of the University Avenue garage project surplus of $4,041,756 in the following manner: Use $3,541,756 of the surplus to redeem a portion of outstanding bonds and to pay associated redemption costs Retain $500,000 of the surplus in a new maintenance fund to pay for long-term capital improvements to the Lot R (High/Alma South) and Lot S/L (Bryant/Lytton) garages BACKGROUND On Mai:ch 19, 2001, the City Council adopted a Resolution Adopting Engineer’s Report, Confirming the Assessment, Ordering the Work and Directing Actions with Respect Thereto for the new University Avenue Area Off-Street Par ~king Assessment District (Assessment District). The Assessment District was formed to finance the design and construction of two parking garages downtown. The Lot R (High!Alma South) garage was opened September 23, 2003 and the Lot S and L garage (Bryant/Lytton) was opened on November 26, 2003, both ahead of schedule. The new garages provide over 900 parking spaces, an increase of 700 spaces over what was previously available on these sites. DISCUSSION This item was previously presented to the Finance Committee on March 16, 2004 (CMR:118:04, Attachment A).At that time the staff recommendation was to: CMR:282:04 Page 1 of 4 1. Retire approximately $3.0 million of bonds as soon as feasible; 2. Offset debt service by approximately $1.0 million over the next 2 years ($0.62 million in 2004-05 and $0.38 million in 2005-06); 3. Retain $0.5 million in a new maintenance fund to finance long-term capital improvements to the Lot R (Higfla/Alma South) and Lot S/L (Bryant/Lytton) garages. Prior to making the above recommendation to the Finance Committee, staff had met with major downtown property owners to discuss use of surplus options. There was not a unanimous view of how to use the funds. One property owner recommended using all funds to retire bonds, while two others were in favor of offsetting the annual assessment over the next 3 years. A fourth favored funding a maintenance fund given experience with deterioration of garages and the need for substantial repairs over time. Staff has since met a second time with the same property owners who have had continued discussions amongst themselves. They now feel that it would be more beneficial in the long- term to retire the long-term debt, given that the economy is showing increasing signs of a recovery. Staff understands the rationale for this position since additional bond retirement results in additional interest cost savings. The property owners were also in ageement over the need to establish a $0.5 million to fund any future capital improvements that might be needed at the new garages. The combined effects of these revised recommendations would be to mitigate assessments and interest costs over the next 27 years. In addition to the $3.5 million in surplus funds, approximately $0.39 million of the Debt Service Reserve (DSR) for the Assessment Bonds will be used to retire bonds. The DSR is required to match the maximum annual debt service payment and since annual debt service payments are being lowered through the redemption, the level of the DSR is lowered as well. Staff estimates that nearly $3.8 million in bonds will be retired with a consequent savings of $3.5 million in interest costs. The current 2003-04 assessment is $1.16 per square foot (one-time, capitalized interest funds were available in 2003-04 to reduce the expected assessment from $1.35 per square foot to $1.16 per square foot). Based on the revised recommendations above, it is estimated that the annual per square foot assessment will be approximately $1.01 per square foot until the assessment bonds are retired: As Recommended in CMR: 118:04 2004-2005 $ 0.97 per square foot 2005-2006 $1.08 per square foot 2006-2007 $1.24 per square foot Current Recommendation 2004-2005 $1.01 per square foot 2005-2006 $1.01 per square foot 2006-2007 $1.01 per square foot Finally, by creating a maintenance fund, property owners and merchants are ensured that adequate funds will be available for furore capital repairs. CMR:282:04 Page 2 of 4 RESOURCE IMPACT The University Avenue Assessment District Improvemem Fund has a surplus of $4.04 million. This surplus will be used to retire approximately $3.5 million in bonds ($3.8 million including debt service reserve funds), pay expenses related to the bond retirement,, and fund a $0.5 million maintenance fund. It is expected that the retirement will save approximately $3.5 million in interest costs over the life of the remaining bonds. After retiring bonds, the resulting assessmem per square foot is estimated at $1.01 per square foot. POLICY IMPLICATIONS There are no established Council policies regarding the distribution of surplus funds for an Assessment District. Staffhas discussed use of the surplus funds with Bond Counsel and the uses described in this report are permitted by the bond documems. T1MELINE With approval of the resolution and staff’s recommendation at this time, staff will have adequate time to place assessment changes on the County’s 2004-05 bill to property owners. ENVIRONMENTAL ASSESSMENT No environmental clearance is required for financial actions. An Environmental Impact Report was prepared for the garages as part of the PC zoning application and was certified by Council on December 20, 1999. ATTACHMENTS Attachment A: Resolution Determining Improvement Fund Surplus and Ordering Its Disposition - University Avenue Area Off-Street Parking Assessment District Attachment B: CMR: 181:04 PREPARED BY: KAREN BENGARD Senior Engineer DEPARTMENT HEAD: JOE S:ACCIO Dep Director of Administrative Services GLENN S. ROBERTS Director of Public Worki CMR:282:04 Page 3 of 4 CITY MANAGER APPROVAL: CARL YEATS Director ;trative Services EMmY HARRISON Assistant City Manager CMR:282:04 Page 4 of 4 NOT YET APPROVED Attachment A RESOLUTION NO. RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO DETERMINING IMPROVEMENT FUND SURPLUS AND ORDERING ITS DISPOSITION -UNIVERSITY AVENUE AREA OFF-STREET PARKING ASSESSMENT DISTRICT WHEREAS, this Council pursuant to the Municipal Improvement Act of 1913, Division 12 of the California Streets and Highways Code (the "Act") and Resolution No. 8034, a Resolution of the City Council of the City of Palo Alto of Intention to Make Acquisitions and Improvements, adopted on January 22, 2001, has conducted proceedings for the levy of assessments-and the issuance and delivery of improvement bonds to pay for the costs of certain public parking improvements (the "Improvements") in and for the City’s University Avenue Area Off-Street Parking Assessment District; and WHEREAS, in the proceedings, the City, pursuant to the Improvement Bond Act of 1915, Division i0 of the California Streets and Highways Code (the "Bond LawH) and Resolution No. 8131 adopted by this Counci! March 4, 2002 (the "Bond Resolution") caused to be issued its $35,460,000 Limited Obligation Improvement Bonds, City of Palo Alto, University Avenue Area Off-Street Parking Assessment District, Series 2002, dated as of April ii, 2002 (the "Bonds"), a portion of the proceeds of which were deposited in an improvement fund (the "Improvement Fund") and reserve fund (the "Reserve Fund")for the Bonds to pay for al! or a portion of the costs of the Improvements; and WHEREAS, all the Improvements have been made and all costs thereof, together with the expenses incidental thereto, have been paid except the sum of $1,235,249; and WHEREAS, after the allowance for payment of said $1,235,249 and the reduction of the Reserve Fund for the Bonds as hereinafter provided, an unencumbered amount of funds held by the City for the Assessment District may now be declared as surplus under the Act; and NOW, THEREFORE, the Council of the City of Palo Alto does RESOLVE as fol!ows: SECTION i. Of the funds held for the Bonds of the Assessment District, the amount of $4,041,756 is hereby declared to be surplus within the meaning of Sections 10427 and 10427.1 of the Act. 040526 sm 0100248 1 NOT YET APPROVED SECTION 2. From funds available for distribution of surplus the sum of $500,000 shall be transferred as soon as practicable, to a special maintenance fund to be held by the City for the maintenance and operation of the Improvements. SECTION 3. The amount of $3,541,756 shall be applied to redeem a portion of the outstanding Bonds prior to maturity, thereby reducing the outstanding assessments and the subsequent assessment installments. To accomplish such redemption, the Finance Director (as defined in the Bond Resolution) is hereby authorized and directed to: a. Cause the costs of redemption incurred by the City and the Paying Agent (as defined in the Bond Resolution) to be paid from the remaining Surplus Amount and cause the Reserve Fund for the Bonds to be reduced as may be required to assure that the interest on the Bonds remains exempt from federal income taxation. b. Communicate with the Paying Agent to assure that the timely and correct notices of redemption for the Bonds to be redeemed on September 2, 2004 be given in accordance with the Bond Law and the Bond Resolution. c. On or before September 2, 2004, the Finance Director shal! transfer the amount required for such redemption to the Bond Fund for use in the redemption of the Bonds and shal! then cause the required amount to be transferred to the Paying Agent to complete the redemption of Bonds. d. For any assessment previously and completely paid in cash, the Finance Director shall cause a credit to be made by check to the person or persons owning the property for which the assessment has been paid upon their furnishing satisfactory evidence of payment (which may include official City records). Such credit shall be made in the proportion which the individual assessment bears to the to the tota! of al! assessments levied for the Bonds prior to any cash payments. Such credit shall be made by check of the City mailed by first class mail not later than September 2, 2004. e. The Finance Director shall cause the Auditor’s Records for the Bonds to be corrected to reflect the redemption~ of Bonds for the Fiscal Year 2004-2005. 040526 sm 0100248 2 NOT YET APPROVED SECTION 4. The Council finds that this is not a project under the California Environmental Quality Act and, therefore, no environmenta! impact assessment is necessary. SECTION 5. This resolution shall take effect upon its adoption. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST:APPROVED: City Clerk Mayor APPROVED AS TO FORM: Jones Hall, A Professional Law Corporation By: Stephen R. Casaleggio Bond Counsel City Manager Director of Public Works Director, Administrative Services Sr. Assistant City Attorney 040526 sm 0100248 3 TO: Attachment B CiD" of £alo ARe City Manager’s Report HONORABLE CITY COUNCIL ATTN:FINANCE CO~TTEE FROM:CITY MANAGER DEPARTMENT: PUBLIC WORKS DATE:~L&RCH 16, 2004 CMR:181:04 SUBYECT:USE OF DO’WNTOWN PAl~NG STRUCTURE SURPLUS CONSTRUCTION FUNDS RECOMM-ENTDATION Pending the final determination of available surplus funds from the construction of the downto~ parking structures, staff recommends that the Finance Committee recommend that the City Cotmcil approve the i%11owing Naidelines for use of the funds: Retire approxflnately $3.0 million of bonds as soon as feasible; Offset debt service by approxirnately $1 million over the next 2 years ($0.62 million in 2004-05 and $0.38 million in 2005-06); Retain $0.5 _million in a new Maintenance Fumd to f!,.md !ong-tenm capital improvements to the Lot R (Higja/Alrna South) and Lot S/L (Bryant/Lytton) garages. BACKGROUND On_March. _ 19, 9001 the City. C~umcil ~&,D+e,~ a "Resolution Adov~ ~’-’-~’--’"-"---’ Confirming the Assessment, Ordering the Work and Directing Actions w-it_h Respect Thereto" for the new Universi~ Avenue Area Off-Street Par’king Assessment District (Assessment ~u~t). ~ue ~ssessment District was formed to finance the desi~ma and construction of two par-king garages downtown. The Lot R (Higla!Alma South) garage was opened September 23, 00~ and the Lot S and L garage (Bryant~L3~ton) was opened on November 26. _00:, both ahead of scheduie. The new garages pro-ride over 900 parking spaces, an increase of 700 spaces over what were previously available on these sites. DISCUSSION The Assessment District issued $44.6 million in bonds which were budgeted in Capital Improvement Project (CIP) 19530/PE95030. With construction of the garages completed, staff estimates, at this time, that there will be approximately $4.0 - $4.5 million of unspent funds. Because of the weak economy, the City. received favorable bids from contractors resulting in lower construction costs than anticipated. Althougzh minor construction items on C~,[R:181:04 Page ! of 5 the garages are still in progress and will affect the final amount of surplus funds, staff is seeking Counci! direction on the final use of these funds. There are several options available in disbursing the surplus including: 1.Retiring outstanding bonds 2.Offsetting annual debt service 3.Funding a ’~Maintenance Fund" improvements which can be used for Fature capital These options can be used in combination or alone. For example, the entire surplus can be used to retire bonds or to offset annual debt service. Another example would be to distribute the surplus using all three options as discussed below in staffs recommendation. Since funding for the garages came from property owners within the Assessment District,. the surplus must be used to benefit the District. Given the weak local economy, staff recommends using most of the surplus to pro’,dde retiefto property o~vners and merchants in the dow~tov,~n area in the form of lower assessments. There are two vehicles to accomplish Retire outstanding bonds, thereby reducing principal and interest payments over the remaining life of the bonds. Legally, the CiU is required to evenly retire bonds over the next 27 years. The CiU cannot chooses to retire bonds selectively at the beginning or end of the amortization period. If the City. chooses to retire $4.0 miNon in bonds, staff estimates that the originally anticipated annual assessment 0f$1.35 per square foot (i.e. the assessment if there "were no surplus funds) would be reduced to approximately ~ !..u per square foot. it is iw_portant to note t_h_at by retiring bonds, interest costs to property, owners are permanently reduced over the next 27 years. Staff estimates that $3.1 million in interest cost would be eliminated. Use the sin’-plus to offset annual debt service payments and, therefore, the annual assessment to property, owners over the next 2-3 years, if the City. chose to use $4.0 million to pay dow~ debt service during the next 3 years, the annual assessment per square foot is estimated to drop sharply to $0.77. After the three-year period, however, the assessment would rise to $1.35 per square foot. Use of this option would not el~m-Linate interest costs as in the case of bond re~ement, but would lessen the assessmem during this period and pro~-ide considerable shod-term relief to property- ow-ners and merchants. This scenario may cause property owners and merchants "sticker-shock" in t1~e fom-~da year when assessments rise to the final level. l_n addition to !owering assessments there is a need to place some oft_he surplus fi_mds in a maintenance fund to be used for capital repairs that will likely be necessary in the future. The type of materials used in the construction of the garages (e.g., stone cladding, glass elevators) will be more expensive than more basic construction materials to replace or repair when they are damaged or reach the end of their life cycle. A reserve fund will enable CMR: 181:04 Page 2 of 5 substantial repairs to be done without imposing another parking assessment in the future. These fimds would not be used for typical maintenance work such as re-striping, painting, cleaning, replacing ligNts, and other daily functions that are currently funded with par ~king permit fees. Ci~° staffmet with major downtown proper~y ov~mers to discuss the above options. There was not a unammous view- of how to use the funds. One property owner recommended using all funds to retire bonds, while two others were in favor of offsetting the annual assessment over the next 3 years. A fourth favored funding a maintenance fund given experience with deterioration of garages and the need for substantial repairs over time. Based on the feedback from these downtown property owners and from merchants, as well as the ostensible need to provide significant fir, ancial relief,, staff has developed the recommendations below for use of the surplus. These recommendations represent g~idelines that must be fme-ttmed pending determination of the final amount of the surplus: 1. Retire approximately $3.0 million of bonds as soon as feasible 2. Offset debt se_rvice by approxd_mately $1 mi~on over the ne~ 2 yeas ($0.62 million in 2004-05 and $0.38 million in 2005-06) 3.Place $500,000 in a maintenance fund for future capital improvements to the two garages The combined effects of these recommendations would be to provide considerable financial relief in Ne next few years while mitigating assessments and interest costs over the next 27 c~e~u~ a maintenance ~’-- ~.~,.o~0. ~ ~,~,~,,,~, ,xmm. property owners and mercnan~s are ensured that adequate funds are available for furore capital repairs. The current 2003-04 assessment is $1.16 per square foot. Based on the recommendations above, it is estimated tlnat the annum per square foot assessment in the future wouid be as foilows: 2004-05 2005-06 2006-07 $0.97 ""=" o~,,o’~ +"-’,"+ $t.08 per square foot $1.24 per square foot These recom~.endafions provide a reasonable mixv~e of hrumediate and long-te**’Tn relief from the expected annual assessment to construct t_he garages. Naturai!y, a variety of scenarios can be constructed for use of the surplus funds and staffis see’king Council Finance Cow~A~ee dh-ection to either move fop, yard with its recowm~endaOons or pursue different scenarios. It should be noted that to provide relief to merchants, it is the responsibili~ of landlords to pass t~-ouDh the sa’,~,_ngs identified above. Since assessments are paid via the property tax bill, it is through the landowner’s ageement with the tenant that savings would be passed through. Finally, in addition to the garage construction surplus funds, the CiW has surplus funds from constructing the non-parking or commerciaL/retail area adjacent to the S/L garage. CMR:181:04 Page 3 of 5 At this time, a smvplus of $1.0 million is anticipated. Staff wiAll re,turn to the Finance Committee with a recommendation on the use of these fhnds as the budget issues for 2004-05 become clearer. RESOURCE IMPACT Funding for the design and construction was provided through the issuance of $44.6 million by the University Avenue Off-Street Assessment DisWict. As a consequence of lower than expected construction bids, surplus funds estimated at between $4.0 to $4.5 million will be available. Based on the recommendations in this report, it is estimated that the avmual, $1.35 per square foot assessment originally anticipated can be reduced to $0.97 per square foot in 2004-05, $1.08 in 2005-06, and $1.24 from 2006 throu~a 2030. In addition, a maintenance fund of $500,000 would be established for furore capita! repairs to the garages. POLICY IMPLICATIONS There are no established Council policies regarding the distribution of surpius funds for an Assessment District. Staff has discussed use of the surplus funds with Bond Counsel and the uses described in *&is report me permitted by the bond documents. TIMELINE In order to reduce the 2004-05 assessment to downtown property owners, it is necessary" to finalize a plan on the surplus funds by June 1, 2004. ENVIRONMENTAL ASSESSM-ENT o environmental clearance is reqmrea for ~r~manclat actions. ’An ErMronmentai Lmpact Report was prepared for the garages as part of the PC zoning application and was certified by Council on December 20, 1999. ~one PREP?~,ZID BY: DEPARTMENT HEM): KAP, EN BENGA_RD Senior EngLneer JOE SACCIO irectm;o.,t" Administrative Se~,ices GLENN S. ROBERTS Director of Public Works CMR: 181:04 Page 4 of 5 DEPARTMENT Direct~ of Administrative Servic,.s CITY tVIANAGER APPROVAL: Assistant City Manager C2vfR: 181:04 Page 5 of 5