HomeMy WebLinkAboutStaff Report 3009
City of Palo Alto (ID # 3009)
City Council Staff Report
Report Type: Consent Calendar Meeting Date: 7/23/2012
July 23, 2012 Page 1 of 3
(ID # 3009)
Summary Title: Establishing GO Bond Tax Levy
Title: Adoption of Resolution Establishing Fiscal Year 2012-13 Secured and
Unsecured Property Tax Levy for the City of Palo Alto’s General Obligation Bond
Indebtedness (Measure N)
From: City Manager
Lead Department: Administrative Services
Recommendation
Adopt a resolution (Attachment A) approving the establishment of the Fiscal Year
2012-13 property tax levy of $12.88 per $100,000 in Assessed Value (AV) for the
secured and utility tax roll and $15.51 per $100,000 in AV for the unsecured tax
roll for the City of Palo Alto's Measure N General Obligation Bond Library Bonds
(First Series).
Background
On November 4, 2008, City voters passed Measure N which gave the City
authority to issue a maximum amount of $76,000,000 million of General
Obligation bonds (the "Bonds") for capital improvements to the Mitchell Park,
Downtown, and Main libraries and to the Mitchell Park community center. The
City successfully sold the first of two series of Bonds to provide $55.1 million in
funds for Mitchell Park Library, Mitchell Park Community Center, and Downtown
Library construction costs as well as design costs for the Main Library. Both
Standard and Poor's (S &P) and Moody's awarded their highest credit ratings,
Triple A, to the Bonds.
Discussion
Debt service payments on these Bonds are paid through ad valorem taxes on all
taxable land and improvements (both secured and unsecured assessment roll)
within the City. Staff is seeking Council approval of the attached resolution
July 23, 2012 Page 2 of 3
(ID # 3009)
(Attachment A) which authorizes the placement of an ad valorem property tax
levy in the amount of $0.01288 per $100 or $12.88 per $100,000 in AV for the
secured tax roll; and $0.01551 per $100 or $15.51 per $100,000 in AV for the
unsecured tax roll. In comparison, prior years secured and unsecured tax levy was
$15.48 and $17.11, respectively, per $100,000 of AV.
The assessment rate for FY 2012-13 is dropping. Two factors are contributing to
this: the rise in the Assessed Valuation for properties throughout Palo Alto and
the application of a bond issuance premium that was realized at the time the first
series of Library Bonds were issued. The latter requires an explanation and how
staff intends to apply it to the annual assessment over the remaining life of the
bonds.
General Obligation Bonds are unique in that they must be issued, by Government
Code, at a par value that does not include an amount to pay the underwriting fee.
To generate this fee and to market the bonds, interest rates on the bonds to be
paid to investors were set slightly higher than the market rates. The par amount
of bonds issued in June 2010 was $55.305 million. Of this amount, $55.082
million was deposited into the Project Fund for the projects described above and
$0.223 million was paid for cost of issuances expenses (e.g., disclosure counsel,
rating agencies). As a consequence of the interest rates to be paid on the bonds
and investor demand, a premium of $3.766 million was generated. Of this,
$0.348 million went for the underwriter’s discount and $3.418 million in premium
remained. Based on initial information from the City’s Financial Advisor and Bond
Counsel, staff believed the remaining $3.418 was useable toward the project if
funds were needed. Several months ago staff learned, after additional inquiry,
that the remaining premium must be used to offset annual debt service. In effect,
use of the premium lowers the true interest cost to property owners to that cited
at the time of the bond issuance, 4.2 percent.
Based on the 30 year life of the bonds, staff will amortize the $3.418 million in
premiums over 30 years or offset the annual assessment by $113,933 per year.
Since FY 2012-13 represents the third year of bond payments, $341,800 will be
applied toward FY 2012-13 debt service and the remaining years will be offset by
$113,933.
July 23, 2012 Page 3 of 3
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It is important to note that the City still has $20.695 million in authority left for
the second series of bonds under Measure N. This is derived by the $76.000
million authorized by voters less the $55.305 million issued in the first series.
With the new assessment for FY 2012-13, a house with an assessed value of $1
million, for example, would see an annual assessment of $128.80 on their
property tax bill. It is important to note that the secured and unsecured tax levy
of $12.88 and $15.51 assessment, respectively, is for the first series of bonds and
that a second series of bonds will be issued for construction costs on the Main
Library.
Resource Impact
The first series bond issuance results in a 2013 calendar year debt service
expenditure of approximately $3.5 million and Council approval of the attached
resolution will result in ad valorem tax levy revenue of $3.1 million with the
difference attributable to available funds on hand being applied toward the 2013
calendar year debt service payments. Again, secured and unsecured property
owners will see a levy of $12.88 and $15.51 per $100,000 of AV on their 2012-13
property tax statement.
Environmental Review
There is no environmental review required for this report.
Attachments:
Attachment A: Resolution Establishing FY 2012-13 Property Tax Levy (PDF)
Exhibit A General Obligation Bonds, Election of 2008, Series 2010 Tax Rate Calculation
Based on 2012-13 AV (PDF)
Prepared By: Tarun Narayan, Senior Financial Analyst
Department Head: Lalo Perez, Chief Financial Officer
City Manager Approval: ____________________________________
James Keene, City Manager
Not Yet Approved
120713 jb 0130983 1
Resolution No. _______
Resolution of the Council of the City of Palo Alto Establishing the Fiscal Year
2012‐13 Property Tax Levy of $12.88 Per $100,000 of Secured and $15.51
Per $100,000 of Unsecured Assessed Valuations for the City’s General
Obligation Bond Indebtedness (Measure N Library Projects)
R E C I T A L S
A. The City of Palo Alto’s (“City”) general election held on November 4, 2008, more
than two thirds of voters approved Measure N, authorizing the issuance of general obligation
bonds in the amount not to exceed $76,000,000 (the “Authorization”) to fund construction of a
new Mitchell Park Library and Community center and renovation and improvements to
Downtown and Main libraries; and
B. Pursuant to the Authorization, the City issued one series (Series 2010A) of
general obligation bonds in June 2010 that yielded $55.1 million for project needs; and
C. The City is obligated to levy ad valorem taxes on all property within the City
subject to taxation by the City, without limitation on rate or amount (except with respect to
certain personal property which is taxed at limited rates), for the payment of the debt service
on the Bonds; and
D. The City is obligated to direct the County of Santa Clara to collect such ad
valorem taxes in such amounts and at such times as is necessary to ensure the timely payment
of debt service on the Bonds; and
E. The amount of the annual ad valorem tax levied by the City to repay the Bonds is
determined by the relationship between the assessed valuation of taxable property in the City
and the amount of debt service due on the bonds.
The Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. Pursuant to the Authorization, an ad valorem property tax is hereby
established to be levied on all land and improvements in the City of Palo Alto during fiscal year
2012‐13 in the amount of $0.01288 per $100 in assessed value for the secured and utility tax
roll and $0.01551 per $100 in assessed value for the unsecured tax roll based on the
calculations set forth in the attached Exhibit "A".
SECTION 2. The City’s Director of Administrative Services shall cause a certified
copy of this Resolution to be delivered to the Auditor of the County of Santa Clara for entry in
the assessment book of the respective sums in dollars and cents.
Not Yet Approved
120713 jb 0130983 2
SECTION 3. The Council finds that this is not a project under the California
Environmental Quality Act and, therefore, no environmental impact assessment is necessary.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
__________________________ ______________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
__________________________ ______________________________
Senior Asst. City Attorney City Manager
______________________________
Director of Administrative Services / CFO
A) Assessed Valuations (AV)
1 ) 2012-13 Taxable Secured Assessed Valuation (AV)22,337,036,861.00$
2 ) 2012-13 Taxable Unsecured AV 1,355,969,707.00$
3 ) Less: Estimated Delinquency 1.02% (13,830,891.01)
4 ) Net Taxable Unsecured AV 1,342,138,815.99
B) Tax Levy Requirement
2012-13 Debt Service Payments
5 ) February 1,2013 1,237,534.38$
6 ) August 1, 2013 2,257,534.38
7 ) Total Calendar Year 2013 Debt Service Payment 3,495,068.76
8 ) Excess Funds on Hand Applied Toward Debt Servce (416,819.79)
9 ) Sub-total 3,078,248.97
10 ) Santa Clara County Administration Fee (0.25% of Principal & Interest) 7,695.62
11 )Total 2012-13 Annual Debt Service Requirement 3,085,944.59
C) Secured and Unsecured Tax Rate
12 )2012-13 Unsecured Tax Rate per $100 of Unsecured AV (Prior Year's Secured Tax Rate) 0.015510$
13 )2012-13 Unsecured Tax Rate per $100,000 of Unsecured AV 15.51$
14 ) 2012-13 Estimated Revenue from Unsecured AV (line 4 divide by 100 times by line 12) 208,165.73$
15 ) 2012-13 Estimated Revenue from Secured AV (line 11 minus line 13) 2,877,778.86
16 ) Total 2012-13 Annual Debt Service Requirement 3,085,944.59$
17 )2012-13 Secured Tax Rate per $100 of Secured AV (line 14 divided by line 1*100) 0.01288$
18 )2012-13 Secured Tax Rate per $100,000 of Secured AV (line 14 divided by line 1 times 100,000) 12.88$
Exhibit A
City of Palo Alto
General Obligation Bonds, Election of 2008, Series 2010
Tax Rate Calculation Based on 2012-13 Assessed Values
S:\ASD\Treasury\T Narayan\Debt Service\2010 General Obligation (Library) Bonds\GO Tax Rate Calculation 2.xls 7/16/20123:40 PM