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HomeMy WebLinkAboutStaff Report 6993 City of Palo Alto (ID # 6993) City Council Staff Report Report Type: Consent Calendar Meeting Date: 6/6/2016 City of Palo Alto Page 1 Summary Title: Defeasing GO and Univ. Ave. P'king Assessment Bonds Title: Adoption of a Resolution Approving Two Escrow Deposit and Deposit Agreements, Authorizing the Deposit of $6.1 Million into Escrow Funds Related to Two Series of Library and Community Center General Obligation Bonds and $2 Million for the University Avenue Parking Assessment District Bonds for the Purpose of Early Redemption of such Bonds, and Authorizing Related Actions From: City Manager Lead Department: Administrative Services Recommendation Staff recommends that City Council use project surplus and bond premium monies to redeem outstanding bonds by approving the following: 1. Adopting a Resolution “Approving two escrow deposit and deposit agreements, authorizing the deposit of funds into escrow funds related to two series of (Library and Community Center) General Obligation Bonds (Election of 2008) and the University Avenue Off-Street Parking Assessment District Bonds for the payment and early redemption of such bonds, and authorizing related actions” (Attachment A) a. Use $6,094,467 of the Series 2010A & 2013A General Obligation (Measure N) Bonds ($3,007,702 from project savings and $3,086,765 from bond premiums) to retire or defease a portion of outstanding bonds and to pay associated redemption costs. These funds will be placed in an Escrow Deposit governed by a Trust Agreement (Attachment B). b. Use $2,030,697 of the 2012 University Avenue Off-Street Parking Assessment District Bonds project savings to retire or defease a portion of outstanding bonds and to pay associated redemption costs. These funds will be placed in an Escrow Deposit governed by a Trust Agreement (Attachment C). City of Palo Alto Page 2 Background General Obligation (Measure N) Bonds On November 4, 2008, City voters passed Measure N, which gave the City the 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. Bonds were issued in two phases based on construction schedules for the downtown library and Mitchell Park facilities and then for rehabilitation of the Main Library. Of the bond proceeds generated for Measure N projects, there remains $3.09 million that can be used to redeem outstanding bonds. In addition, there is $3.1 million in remaining bond “premium” monies that also can be used to redeem bonds. The premium was used to pay bond issuance costs and was generated as a consequence of a legal requirement that GO bonds must be sold competitively and that bids be for not less than the par amount of the bonds. Staff has been using the premium to offset annual debt service payments and Bond Counsel has opined that they can now be used to redeem bonds. University Avenue Assessment District Bonds On March 19, 2001, the City Council adopted a Resolution that established a University Avenue Parking Assessment District. The District was formed to finance the design and construction of two new downtown parking garages. The City then issued two series of bonds for a total of $44.6 million to construct the R Garage on High and Alma streets and the S/L Garage on Bryant and Lytton streets and to refinance prior University Avenue Assessment debt. Of these proceeds, there is now $2.03 million available to redeem bonds. In 2012 and due to the historically low interest environment, the City refinanced the Assessment District bonds resulting in net present value cash savings of $7.5 million for Downtown Assessment District property owners. Discussion General Obligation (Library and Community Center) Bonds On March 1, 2016, Council approved the decommissioning of the Library Bond Oversight Committee and accepted a financial report showing approximately $3.0 million in project savings (CMR: 6632). An update of that report and savings is provided below. City of Palo Alto Page 3 The $3.0 million in savings can be used to either offset annual debt service resulting in reduced annual property tax assessments or to redeem outstanding bonds thereby reducing principal and interest costs. After analysis conducted by the City’s Financial Advisor staff recommends redeeming or defeasing bonds. This course of action will result in maximum savings to residential and commercial property owners primarily because principal will be repaid to bond holders and interest payments will not be incurred (similar to making higher or additional monthly principal payments on a mortgage). Likewise, staff is recommending that the bond premium (discussed above) of $3.1 million be used to redeem or defease bonds. Per the City’s Bond Counsel, both State and Federal tax law allow the premium to be used for bond redemptions. Between project savings and the premium usage the City has $6.1 million to defease existing bonds and pay associated redemption costs With GO Bonds and the available funds, the City has two options. The first is to call or pay off the longest bonds to maximum interest savings and the second is to redeem bonds on a pro- rata basis whereby saving are evenly and annually realized over the life of the bonds. Analysis performed by the City’s Financial Advisor shows that calling the longest bonds results in $1.8 million in higher savings compared to redeeming bonds on a pro-rata basis. Total savings using this method are $11 million which includes $4.9 million in interest savings over time. Staff recommends redeeming long-term bonds since it results in higher savings to property owners over the remaining life of the bonds. It should be noted, however, that redeeming the long bonds versus a pro-rata redemption results in uneven savings over the remaining life of the bonds. Of the $11 million, $5.4 million will be saved through FY 2040 while $5.6 million will be saved from FY 2041 through FY 2044. Based on FY 2016 assessed values, a property with an assessed value of $1 million will realize $12.80 in annual savings during the period of FY 2017 through FY 2040 and triple this amount from FY 2041 through FY 2044. The costs associated with redeeming the General Obligation bonds such as for Financial Advisor, Bond Counsel, and Escrow Agent are $37,333. City of Palo Alto Page 4 University Avenue Area Off-Street Parking Assessment District The City Auditors’ March 14, 2016 Audit of Parking Funds report reflected oversights whereby garage construction costs that were paid with fees transferred from the Parking In-lieu fund were also drawn down from the bond proceeds. The total for this was $1,790,295. In addition, there was a double counting of garage expenditures of $240,402. Based on the Auditor’s findings, these funds totaling $2,030,697 have been returned to the University Avenue Area Off-Street Parking Assessment District debt service fund. These monies can be used to offset annual debt service or to redeem outstanding bonds. As with the GO Bond analysis, redeeming bonds will maximize savings to property owners within the Assessment District since interest payments will be foregone. For these bonds, the only methodology allowed for redemption is on a pro-rata basis. This will result in total savings of $2.5 million of which $0.5 million is attributable to interest. The costs associated with redeeming the Assessment District bonds such as for Financial Advisor, Bond Counsel, and Escrow Agent are $34,917. Resource Impact There is a surplus of $6.1 million in Measure N General Obligation Bond proceeds. By using these funds to redeem outstanding bonds, $11 million in total savings ($4.9 million in interest) will be realized by Palo Alto property owners during the remaining amortization period. With available funds of $2.03 million to redeem bonds, the University Avenue Area Parking Assessment District will realize $2.5 million in total savings ($0.5 million in interest) for the remaining amortization period. Costs associated with redeeming the GO bonds are $37,333 and costs for the Assessment District are $34,917. Policy Implication Through prior reports from the City Manager and the City Auditor, Council has been apprised of the availability of excess General Obligation and Assessment District Bond funds. Council has given direction to staff to redeem current outstanding bonds. Staff has worked with the City Attorney’s Office and the City’s Bond Counsel to determine the methods permitted by the original bond documents and by State and Federal law to redeem bonds. Time Line With approval of the resolution and staff’s recommendations, staff will have adequate time to complete bond redemptions by June 30, 2016 and reflect consequent savings in the County’s 2016-17 tax notice to Palo Alto property owners. Environmental Review This information report is not a project under the California Environmental Quality Act; therefore, an environmental review is not required. Attachments: City of Palo Alto Page 5  Attachment A: Resolution Approving GO Bonds & University Ave Assessment Bonds (PDF)  Attachment B: General Obligation Bonds Escrow Deposit and Trust Agreement (PDF)  Attachment C: University Ave Area Off-Street Parking Assessment District Bonds Escrow Deposit and Trust Agreement (PDF) Not Yet Approved 160523 jb 0131510 Resolution No. ______ Resolution of the City Council of the City of Palo Alto Approving Two Escrow Deposit and Trust Agreements, Authorizing the Deposit of Funds into Escrow Funds Related To Two Series of General Obligation Bonds (Election of 2008) and the University Avenue Off-Street Parking Assessment District Bonds for the Payment and Early Redemption of Such Bonds, and Authorizing Related Actions R E C I T A L S A. The City previously entered into a Paying Agent Agreement, dated as of June 1, 2010 (the “2010 Paying Agent Agreement”), with U.S. Bank National Association (the “Paying Agent”), and issued the $55,305,000 City of Palo Alto General Obligation Bonds Election of 2008, Series 2010A (the “2010 Bonds”). B. The City previously entered into a Paying Agent Agreement, dated as of June 1, 2013 (the “2013 Paying Agent Agreement”), with the Paying Agent, and issued the $20,695,000 City of Palo Alto General Obligation Bonds Election of 2008, Series 2013A (the “2013 Bonds”). C. The City previously entered into a Paying Agent Agreement, dated as of February 1, 2012 (the “2012 Paying Agent Agreement”), with the Paying Agent, and issued the $31,130,000 Limited Obligation Refunding Improvement Bonds, City of Palo Alto, University Avenue Area Off-Street Parking Assessment District (Reassessment and Refunding of 2012) (the “2012 Bonds”; together with the 2010 Bonds and the 2013 Bonds, the “Outstanding Bonds”). D. The City wishes to provide for a mechanism to pay debt service on and redeem a portion of the Outstanding Bonds with (a) certain proceeds of the Outstanding Bonds and (b) other available monies. E. There has been presented to the Council the form of two Escrow Deposit and Trust Agreements (each, an “Escrow Agreement”), one related to the 2010 Bonds and the 2013 Bonds and the other related to the 2012 Bonds. F. Under the Escrow Agreements, proceeds of the Outstanding Bonds and other available monies will be used to pay debt service on and redeem a portion of the related Outstanding Bonds. G. The Council has had the opportunity to review the Escrow Agreements and the other related information presented to this Council and wishes to approve the Escrow Attachment A Not Yet Approved 160523 jb 0131510 Agreements and to authorize and direct the establishment of one or more escrow funds and the use of the monies in the escrow funds to pay debt service on and purchase or redeem a portion of the Outstanding Bonds in the manner described in the Escrow Agreements, when executed and delivered by the City. NOW, THEREFORE, the Council of the City of Palo Alto hereby RESOLVES, as follows: 1. Approval of Escrow Agreements. The Successor Agency hereby approves the form of the Escrow Agreements on file with the City Clerk. Each of the Mayor, the City Manager, the Director of Administrative Services, the City Attorney, and the written designee of any such officer (each, an “Authorized Officer”), is hereby authorized and directed to execute and deliver, and the City Clerk is hereby authorized and directed to attest to, the Escrow Agreements for and in the name and on behalf of the City, in substantially the form on file with the City Clerk, with such changes therein, deletions therefrom and additions thereto as the Authorized Officer executing the same shall approve, such approval to be conclusively evidenced by the execution and delivery of the Escrow Agreements. The City Council hereby authorizes the delivery and performance of the Escrow Agreements. 2. Authorization related to Escrow Agreements. The City Council hereby authorizes each Authorized Officer to implement on behalf of the City (i) the funding of the escrow funds described in the Escrow Agreements, (ii) the purchase of securities for investment in the escrow funds and (iii) the application of monies in the Escrow Funds to pay a portion of the debt service on the Outstanding Bonds and the redemption price for a portion of the Outstanding Bonds and/or the purchase of the Outstanding Bonds for cancellation. 3. Further Actions. The City Manager and the Finance Director are hereby authorized and directed, for and in the name and on behalf of the City, to do any and all things and take any and all actions, including execution and delivery of any and all certificates, agreements, notices, consents and other documents, which they, or any of them, may deem necessary or advisable in order to consummate the actions approved by the City Council pursuant to this Resolution. Whenever in this resolution any officer of the City is authorized to execute any document or take any action, such execution or action may be taken on behalf of such officer by any person designated by such officer to act on his or her behalf in case such officer is absent or unavailable. Not Yet Approved 160523 jb 0131510 4. Effective Date. This resolution shall take effect immediately upon its adoption. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: APPROVED: Beth Minor Pat Burt City Clerk Mayor APPROVED AS TO FORM: Jones Hall, James Keene A Professional Law Corporation City Manager By: Mike Sartor Christopher K. Lynch Director of Public Works Bond Counsel Lalo Perez Director of Administrative Services Cara Silver Senior Asst. City Attorney 1 ESCROW DEPOSIT AND TRUST AGREEMENT Relating to $55,305,000 City of Palo Alto General Obligation Bonds Election of 2008, Series 2010A $20,695,000 City of Palo Alto General Obligation Bonds Election of 2008, Series 2013A This ESCROW DEPOSIT AND TRUST AGREEMENT (this “Agreement”), dated as of ____ 1, 2016, is between the CITY OF PALO ALTO, a chartered city and municipal corporation organized and existing under the Constitution and laws of the State of California (the “City”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, acting as escrow agent for the Outstanding Bonds described below (the “Escrow Bank”) and as paying agent (the “Paying Agent”) for the Outstanding Bonds. BACKGROUND: 1. The City previously entered into a Paying Agent Agreement, dated as of June 1, 2010 (the “2010 Paying Agent Agreement”), with the Paying Agent, and the City issued the $55,305,000 City of Palo Alto General Obligation Bonds Election of 2008, Series 2010A (the “2010 Bonds”). 2. The City previously entered into a Paying Agent Agreement, dated as of June 1, 2013 (the “2013 Paying Agent Agreement”), with the Paying Agent, and the City issued the $20,695,000 City of Palo Alto General Obligation Bonds Election of 2008, Series 2013A (the “2013 Bonds”; together with the 2010 Bonds, the “Outstanding Bonds”). 3. The City wishes to provide for a mechanism to pay debt service on and redeem a portion of the 2010 Bonds with certain proceeds of the 2010 Bonds currently on deposit in the Project Fund and the Debt Service Fund established under the 2010 Paying Agent Agreement. 4. The City wishes to provide for a mechanism to pay debt service on and redeem a portion of the 2013 Bonds with certain proceeds of the 2013 Bonds currently on deposit in the Project Fund and the Debt Service Fund established under the 2013 Paying Agent Agreement. 5. The City wishes to appoint the Escrow Bank for the purpose of establishing an escrow fund to be funded, invested, held and administered for the purpose of providing for the payment of the debt service on and redeem a portion of each of the 2010 Bonds and the 2013 Bonds, respectively, as described in this Agreement. 2 AGREEMENT: In consideration of the premises and the material covenants contained herein, the City and U.S. Bank National Association, as Escrow Bank and Paying Agent, hereby agree as follows: SECTION 1. Appointment of Escrow Bank; Establishment of Escrow Funds. The City hereby appoints the Escrow Bank for purposes of administering the two escrow funds described in this Agreement. The Escrow Bank is directed to establish the following escrow funds (collectively, the “Escrow Funds”) to be held by the Escrow Bank in escrow as irrevocable escrows securing the payment of the 2010 Bonds and the 2013 Bonds, respectively: (a) The Escrow Bank is directed to establish a “2010 Escrow Fund” to be held by the Escrow Bank in escrow as an irrevocable escrow securing the payment of the 2010 Bonds as set forth below. All cash and securities in the 2010 Escrow Fund are hereby irrevocably pledged as a special fund for the payment of the principal of and interest and premium (if any) on the 2010 Bonds in accordance with the 2010 Paying Agent Agreement. (b) The Escrow Bank is directed to establish a “2013 Escrow Fund” to be held by the Escrow Bank in escrow as an irrevocable escrow securing the payment of the 2013 Bonds as set forth below. All cash and securities in the 2013 Escrow Fund are hereby irrevocably pledged as a special fund for the payment of the principal of and interest and premium (if any) on the 2013 Bonds in accordance with the 2013 Paying Agent Agreement. SECTION 2. Deposit and Investment of Amounts in Escrow Funds. (a) 2010 Escrow Fund. On _____, 2016 (the “Closing Date”), the City will cause to be transferred to the Escrow Bank for deposit into the 2010 Escrow Fund the amount of $__________ in immediately available funds. On the Closing Date, the Escrow Bank shall invest all of the amounts deposited in the 2010 Escrow Fund in the investments listed on Exhibit A. The investments listed on Exhibit A and the fund listed in the previous sentence constitute authorized investments for the City under applicable provisions of California law and the City’s investment policy and they are Permitted Investments as defined in the 2010 Paying Agent Agreement. The Escrow Bank shall hold all investments in the 2010 Escrow Fund in the name of the Escrow Bank in its capacity as Escrow Bank and Paying Agent with respect to the 2010 Bonds, and will retain any earnings received on such investments and any reinvestment thereof in the 2010 Escrow Fund and disburse such amounts as provided in Section 3. The Escrow Bank shall invest any cash held uninvested in the 2010 Escrow Fund upon receipt of written investment directions from the City. The City shall establish a tracking system to ensure that the aggregate yield of investments held in the 2010 Escrow Fund will not, on the date on which the final expenditure of moneys in the 2010 Escrow Fund is made, exceed the arbitrage yield on the 2010 Bonds. If the City determines that the aggregate yield of investments held in the 2010 Escrow Fund will, on the date on which the final expenditure of moneys in the 2010 Escrow Fund is made, 3 exceed the arbitrage yield on the 2010 Bonds, it shall immediately consult with an independent certified public accountant with expertise in federal tax exempt bonds and its bond counsel and take appropriate remedial action so that the aggregate yield of investments held in the 2010 Escrow Fund will not, on the date on which the final expenditure of moneys in the 2010 Escrow Fund is made, exceed the arbitrage yield on the 2010 Bonds. To the extent that the 2010 Paying Agent Agreement requires any of the funds described in paragraph (a) to be deposited into the 2010 Debt Service Fund, such provisions are hereby amended as set forth herein. (b) 2013 Escrow Fund. On the Closing Date, the City will cause to be transferred to the Escrow Bank for deposit into the 2013 Escrow Fund the amount of $__________ in immediately available funds. On the Closing Date, the Escrow Bank shall invest all of the amounts deposited in the 2013 Escrow Fund in the investments listed on Exhibit A. The investments listed on Exhibit A and the fund listed in the previous sentence constitute authorized investments for the City under applicable provisions of California law and the City’s investment policy and they are Permitted Investments as defined in the 2013 Paying Agent Agreement. The Escrow Bank shall hold all investments in the 2013 Escrow Fund in the name of the Escrow Bank in its capacity as Escrow Bank and Paying Agent with respect to the 2013 Bonds, and will retain any earnings received on such investments and any reinvestment thereof in the 2013 Escrow Fund and disburse such amounts as provided in Section 3. The Escrow Bank shall invest any cash held uninvested in the 2013 Escrow Fund upon receipt of written investment directions from the City. The City shall establish a tracking system to ensure that the aggregate yield of investments held in the 2013 Escrow Fund will not, on the date on which the final expenditure of moneys in the 2013 Escrow Fund is made, exceed the arbitrage yield on the 2013 Bonds. If the City determines that the aggregate yield of investments held in the 2013 Escrow Fund will, on the date on which the final expenditure of moneys in the 2013 Escrow Fund is made, exceed the arbitrage yield on the 2013 Bonds, it shall immediately consult with an independent certified public accountant with expertise in federal tax exempt bonds and its bond counsel and take appropriate remedial action so that the aggregate yield of investments held in the 2013 Escrow Fund will not, on the date on which the final expenditure of moneys in the 2013 Escrow Fund is made, exceed the arbitrage yield on the 2013 Bonds. To the extent that the 2013 Paying Agent Agreement requires any of the funds described in paragraph (a) to be deposited into the 2013 Debt Service Fund, such provisions are hereby amended as set forth herein. 4 SECTION 3. Application of Amounts in Escrow Funds. (a) 2010 Escrow Fund. The Escrow Bank is hereby instructed to withdraw from the 2010 Escrow Fund and transfer to the Paying Agent for deposit in the Debt Service Fund established under the 2010 Paying Agent Agreement (the “2010 Debt Service Fund”) an amount required to pay the principal of and interest and redemption premium (if any) on the 2010 Bonds, in accordance with the schedule attached as Exhibit B hereto. Following the payment and redemption of the 2010 Bonds in accordance with Exhibit B, the Escrow Bank, after payment of all fees and expenses of the Escrow Bank, shall transfer any amounts remaining on deposit in the 2010 Escrow Fund to the Paying Agent for deposit in the 2010 Debt Service Fund. (b) 2013 Escrow Fund. The Escrow Bank is hereby instructed to withdraw from the 2013 Escrow Fund and transfer to the Paying Agent for deposit in the Debt Service Fund established under the 2013 Paying Agent Agreement (the “2013 Debt Service Fund”) an amount required to pay the principal of and interest and redemption premium (if any) on the 2013 Bonds, in accordance with the schedule attached as Exhibit B hereto. Following the payment and redemption of the 2013 Bonds in accordance with Exhibit B, the Escrow Bank, after payment of all fees and expenses of the Escrow Bank, shall transfer any amounts remaining on deposit in the 2013 Escrow Fund to the Paying Agent for deposit in the 2013 Debt Service Fund. SECTION 4. Redemption Notice. (a) 2010 Bonds. The City has irrevocably elected to pay and redeem a portion of the outstanding 2010 Bonds on the date(s) set forth in Exhibit B, in accordance with the provisions of the 2010 Paying Agent Agreement. The City hereby directs the Paying Agent to give notice of the redemption of the 2010 Bonds in accordance with the requirements of the 2010 Paying Agent Agreement, at the expense of the City. (b) 2013 Bonds. The City has irrevocably elected to pay and redeem all of the outstanding 2013 Bonds on the date(s) set forth in Exhibit B, in accordance with the provisions of the 2013 Paying Agent Agreement. The City hereby directs the Paying Agent to give notice of the redemption of the 2013 Bonds in accordance with the requirements of the 2013 Paying Agent Agreement, at the expense of the City. SECTION 5. Compensation to Escrow Bank. The City shall pay the Escrow Bank full compensation for its services under this Agreement, including out-of-pocket costs such as publication costs, redemption expenses, legal fees and other costs and expenses relating hereto and, in addition, all fees, costs and expenses relating to the purchase, substitution or withdrawal of any securities after the date hereof. Under no circumstances shall amounts deposited in or credited to the Escrow Funds be deemed to be available for said purposes. The Escrow Bank has no lien upon or right of set off against the cash and securities at any time on deposit in the Escrow Funds. SECTION 6. Immunities and Liability of Escrow Bank. The Escrow Bank undertakes to perform only such duties as are expressly set forth in this Agreement and 5 no implied duties, covenants or obligations shall be read into this Agreement against the Escrow Bank. The Escrow Bank shall not have any liability hereunder except to the extent of its negligence or willful misconduct. In no event shall the Escrow Bank be liable for any special, indirect or consequential damages. The Escrow Bank shall not be liable for any loss from any investment made by it in accordance with the terms of this Agreement. The Escrow Bank may consult with legal counsel of its own choice and the Escrow Bank shall not be liable for any action taken or not taken by it in good faith in reliance upon the opinion or advice of such counsel. The Escrow Bank shall not be liable for the recitals or representations contained in this Agreement and shall not be responsible for the validity of this Agreement, the sufficiency of the Escrow Fund or the moneys and securities to pay the principal of and interest and redemption premium on the Outstanding Bonds. Whenever in the administration of this Agreement the Escrow Bank deems it necessary or desirable that a matter be proved or established prior to taking or not taking any action, such matter may be deemed to be conclusively proved and established by a certificate of an authorized representative of the City and shall be full protection for any action taken or not taken by the Escrow Bank in good faith reliance thereon. The Escrow Bank may conclusively rely as to the truth and accuracy of the statements and correctness of any opinions or calculations provided to it in connection with this Agreement and shall be protected in acting, or refraining from acting, upon any notice, instruction, request, certificate, document, opinion or other writing furnished to the Escrow Bank in connection with this Agreement and believed by the Escrow Bank to be signed by the proper party, and it need not investigate any fact or matter stated therein. None of the provisions of this Agreement shall require the Escrow Bank to expend or risk its own funds or otherwise to incur any liability, financial or otherwise, in the performance of any of its duties hereunder. The Escrow Bank may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys, custodians or nominees appointed with due care. The Escrow Bank may at any time resign by giving 30 days written notice of resignation to the City. Upon receiving such notice of resignation, the City shall promptly appoint a successor and, upon the acceptance by the successor of such appointment, release the resigning Escrow Bank from its obligations hereunder by written instrument, a copy of which instrument shall be delivered to the resigning Escrow Bank and the successor. If no successor shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Escrow Bank may petition any court of competent jurisdiction for the appointment of a successor. Any bank, corporation or association into which the Escrow Bank may be merged or converted or with which it may be consolidated, or any bank, corporation or association resulting from any merger, conversion or consolidation to which the Escrow Bank shall be a party, or any bank, corporation or association succeeding to all or substantially all of the corporate trust business of the Escrow Bank shall be the successor of the Escrow Bank hereunder without the execution or filing of any paper with any party hereto or any further act on the part of any of the parties hereto except on the part of any of the parties hereto where an instrument of transfer or assignment is 6 required by law to effect such succession, anything herein to the contrary notwithstanding. The City shall indemnify, defend and hold harmless the Escrow Bank and its officers, directors, employees, representatives and agents, from and against and reimburse the Escrow Bank for any and all claims, obligations, liabilities, losses, damages, actions, suits, judgments, reasonable costs and expenses (including reasonable attorneys’ and agents’ fees and expenses) of whatever kind or nature regardless of their merit, demanded, asserted or claimed against the Escrow Bank directly or indirectly relating to, or arising from, claims against the Escrow Bank by reason of its participation in the transactions contemplated hereby except to the extent caused by the Escrow Bank’s negligence or willful misconduct. The provisions of the foregoing sentence shall survive the termination of this Agreement or the earlier resignation or removal of the Escrow Bank. The Escrow Bank agrees to accept and act upon instructions or directions pursuant to this Agreement sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Escrow Bank shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the City elects to give the Escrow Bank e-mail or facsimile instructions (or instructions by a similar electronic method) and the Escrow Bank in its discretion elects to act upon such instructions, the Escrow Bank’s understanding of such instructions shall be deemed controlling. The Escrow Bank shall not be liable for any losses, costs or expenses arising directly or indirectly from the Escrow Bank’s reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The City agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Escrow Bank, including without limitation the risk of the Escrow Bank acting on unauthorized instructions, and the risk of interception and misuse by third parties. SECTION 7. Termination of Agreement. Upon application of the moneys in the Escrow Funds as set forth in this Agreement and the payment by the City of all fees, expense and charges of the Escrow Bank as described above, this Agreement shall terminate and the Escrow Bank shall be discharged from any further obligation or responsibility hereunder. SECTION 8. Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. SECTION 9. Notices. Any notice, request, demand, communication or other paper shall be sufficiently given and shall be deemed given when delivered or upon receipt when mailed by first class, registered or certified mail, postage prepaid, or sent by telegram, addressed as follows: If to the City: City of Palo Alto 250 Hamilton Avenue Palo Alto, CA 94301 Attention: Administrative Services Director 7 If to the Escrow Agent: U.S. Bank National Association One California Street, Suite 1000 San Francisco, CA 94111 Attention: Global Corporate Trust Services SECTION 10. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. CITY OF PALO ALTO By: City Manager APPROVED AS TO FORM: By City Attorney U.S. BANK NATIONAL ASSOCIATION, as Escrow Bank and as Paying Agent By Authorized Officer A-1 EXHIBIT A ESCROW SECURITIES 2010 Bonds Type of Security CUSIP or ID Purchase Date Maturity Date First IPD Par Amount Yield Purchase Price Interest Class 2013 Bonds Type of Security CUSIP or ID Purchase Date Maturity Date First IPD Par Amount Yield Purchase Price Interest Class B-1 EXHIBIT B ESCROW REQUIREMENTS 2010 Bonds Payment Date Interest Payment Redeemed Principal Redemption Premium Total Payment 2013 Bonds Payment Date Interest Payment Redeemed Principal Redemption Premium Total Payment 1 ESCROW DEPOSIT AND TRUST AGREEMENT Relating to $31,130,000 Limited Obligation Refunding Improvement Bonds, City of Palo Alto, University Avenue Area Off-Street Parking Assessment District (Reassessment and Refunding of 2012) This ESCROW DEPOSIT AND TRUST AGREEMENT (this “Agreement”), dated as of ____ 1, 2016, is between the CITY OF PALO ALTO, a chartered city and municipal corporation organized and existing under the Constitution and laws of the State of California (the “City”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, acting as escrow agent for the Outstanding Bonds described below (the “Escrow Bank”) and as paying agent (the “Paying Agent”) for the Outstanding Bonds. BACKGROUND: 1. The City previously entered into a Paying Agent Agreement, dated as of February 1, 2012 (the “2012 Paying Agent Agreement”), with the Paying Agent, and the City issued the $31,130,000 Limited Obligation Refunding Improvement Bonds, City of Palo Alto, University Avenue Area Off-Street Parking Assessment District (Reassessment and Refunding of 2012) (the “2012 Bonds”). 2. The City wishes to provide for a mechanism to pay debt service on and redeem a portion of the 2012 Bonds with (a) certain proceeds of the 2012 Bonds in the funds and accounts established under the 2012 Paying Agent Agreement and (b) other available moneys. 3. The City wishes to appoint the Escrow Bank for the purpose of establishing an escrow fund to be funded, invested, held and administered for the purpose of providing for the payment of the debt service on and redeem a portion of each of the 2012 Bonds as described in this Agreement. AGREEMENT: In consideration of the premises and the material covenants contained herein, the City and U.S. Bank National Association, as Escrow Bank and Paying Agent, hereby agree as follows: SECTION 1. Appointment of Escrow Bank; Establishment of 2012 Escrow Fund. The City hereby appoints the Escrow Bank for purposes of administering the 2012 Escrow Fund described in this Agreement. The Escrow Bank is directed to establish a “2012 Escrow Fund” to be held by the Escrow Bank in escrow as an irrevocable escrow securing the payment of the 2012 Bonds as set forth below. All cash and securities in the 2012 Escrow Fund are hereby 2 irrevocably pledged as a special fund for the payment of the principal of and interest and premium (if any) on the 2012 Bonds in accordance with the 2012 Paying Agent Agreement. SECTION 2. Deposit and Investment of Amounts in 2012 Escrow Fund. On _____, 2016 (the “Closing Date”), the City will cause to be transferred to the Escrow Bank for deposit into the 2012 Escrow Fund the amount of $__________ in immediately available funds. On the Closing Date, the Escrow Bank shall invest all of the amounts deposited in the 2012 Escrow Fund in the investments listed on Exhibit A. The investments listed on Exhibit A and the fund listed in the previous sentence constitute authorized investments for the City under applicable provisions of California law and the City’s investment policy and they are Permitted Investments as defined in the 2012 Paying Agent Agreement. The Escrow Bank shall hold all investments in the 2012 Escrow Fund in the name of the Escrow Bank in its capacity as Escrow Bank and Paying Agent with respect to the 2012 Bonds, and will retain any earnings received on such investments and any reinvestment thereof in the 2012 Escrow Fund and disburse such amounts as provided in Section 3. The Escrow Bank shall invest any cash held uninvested in the 2012 Escrow Fund upon receipt of written investment directions from the City. The City shall establish a tracking system to ensure that the aggregate yield of investments held in the 2012 Escrow Fund will not, on the date on which the final expenditure of moneys in the 2012 Escrow Fund is made, exceed the arbitrage yield on the 2012 Bonds. If the City determines that the aggregate yield of investments held in the 2012 Escrow Fund will, on the date on which the final expenditure of moneys in the 2012 Escrow Fund is made, exceed the arbitrage yield on the 2012 Bonds, it shall immediately consult with an independent certified public accountant with expertise in federal tax exempt bonds and its bond counsel and take appropriate remedial action so that the aggregate yield of investments held in the 2012 Escrow Fund will not, on the date on which the final expenditure of moneys in the 2012 Escrow Fund is made, exceed the arbitrage yield on the 2012 Bonds. To the extent that the 2012 Paying Agent Agreement requires any of the funds described in paragraph (a) to be deposited into the 2012 Redemption Fund, such provisions are hereby amended as set forth herein. SECTION 3. Application of Amounts in 2012 Escrow Fund. The Escrow Bank is hereby instructed to withdraw from the 2012 Escrow Fund and transfer to the Paying Agent for deposit in the Redemption Fund established under the 2012 Paying Agent Agreement (the “2012 Redemption Fund”) an amount required to pay the principal of and interest and redemption premium (if any) on the 2012 Bonds, in accordance with the schedule attached as Exhibit B hereto. Following the payment and redemption of the 2012 Bonds in accordance with Exhibit B, the Escrow Bank, after payment of all fees and expenses of the Escrow Bank, shall transfer any amounts remaining on deposit in the 2012 Escrow Fund to the Paying Agent for deposit in the 2012 Redemption Fund. 3 SECTION 4. Redemption Notice. The City has irrevocably elected to pay and redeem a portion of the outstanding 2012 Bonds on the date(s) set forth in Exhibit B, in accordance with the provisions of the 2012 Paying Agent Agreement. The City hereby directs the Paying Agent to give notice of the redemption of the 2012 Bonds in accordance with the requirements of the 2012 Paying Agent Agreement, at the expense of the City. SECTION 5. Compensation to Escrow Bank. The City shall pay the Escrow Bank full compensation for its services under this Agreement, including out-of-pocket costs such as publication costs, redemption expenses, legal fees and other costs and expenses relating hereto and, in addition, all fees, costs and expenses relating to the purchase, substitution or withdrawal of any securities after the date hereof. Under no circumstances shall amounts deposited in or credited to the 2012 Escrow Fund be deemed to be available for said purposes. The Escrow Bank has no lien upon or right of set off against the cash and securities at any time on deposit in the 2012 Escrow Fund. SECTION 6. Immunities and Liability of Escrow Bank. The Escrow Bank undertakes to perform only such duties as are expressly set forth in this Agreement and no implied duties, covenants or obligations shall be read into this Agreement against the Escrow Bank. The Escrow Bank shall not have any liability hereunder except to the extent of its negligence or willful misconduct. In no event shall the Escrow Bank be liable for any special, indirect or consequential damages. The Escrow Bank shall not be liable for any loss from any investment made by it in accordance with the terms of this Agreement. The Escrow Bank may consult with legal counsel of its own choice and the Escrow Bank shall not be liable for any action taken or not taken by it in good faith in reliance upon the opinion or advice of such counsel. The Escrow Bank shall not be liable for the recitals or representations contained in this Agreement and shall not be responsible for the validity of this Agreement, the sufficiency of the Escrow Fund or the moneys and securities to pay the principal of and interest and redemption premium on the Outstanding Bonds. Whenever in the administration of this Agreement the Escrow Bank deems it necessary or desirable that a matter be proved or established prior to taking or not taking any action, such matter may be deemed to be conclusively proved and established by a certificate of an authorized representative of the City and shall be full protection for any action taken or not taken by the Escrow Bank in good faith reliance thereon. The Escrow Bank may conclusively rely as to the truth and accuracy of the statements and correctness of any opinions or calculations provided to it in connection with this Agreement and shall be protected in acting, or refraining from acting, upon any notice, instruction, request, certificate, document, opinion or other writing furnished to the Escrow Bank in connection with this Agreement and believed by the Escrow Bank to be signed by the proper party, and it need not investigate any fact or matter stated therein. None of the provisions of this Agreement shall require the Escrow Bank to expend or risk its own funds or otherwise to incur any liability, financial or otherwise, in the performance of any of its duties hereunder. The Escrow Bank may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys, custodians or nominees appointed with due care. 4 The Escrow Bank may at any time resign by giving 30 days written notice of resignation to the City. Upon receiving such notice of resignation, the City shall promptly appoint a successor and, upon the acceptance by the successor of such appointment, release the resigning Escrow Bank from its obligations hereunder by written instrument, a copy of which instrument shall be delivered to the resigning Escrow Bank and the successor. If no successor shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Escrow Bank may petition any court of competent jurisdiction for the appointment of a successor. Any bank, corporation or association into which the Escrow Bank may be merged or converted or with which it may be consolidated, or any bank, corporation or association resulting from any merger, conversion or consolidation to which the Escrow Bank shall be a party, or any bank, corporation or association succeeding to all or substantially all of the corporate trust business of the Escrow Bank shall be the successor of the Escrow Bank hereunder without the execution or filing of any paper with any party hereto or any further act on the part of any of the parties hereto except on the part of any of the parties hereto where an instrument of transfer or assignment is required by law to effect such succession, anything herein to the contrary notwithstanding. The City shall indemnify, defend and hold harmless the Escrow Bank and its officers, directors, employees, representatives and agents, from and against and reimburse the Escrow Bank for any and all claims, obligations, liabilities, losses, damages, actions, suits, judgments, reasonable costs and expenses (including reasonable attorneys’ and agents’ fees and expenses) of whatever kind or nature regardless of their merit, demanded, asserted or claimed against the Escrow Bank directly or indirectly relating to, or arising from, claims against the Escrow Bank by reason of its participation in the transactions contemplated hereby except to the extent caused by the Escrow Bank’s negligence or willful misconduct. The provisions of the foregoing sentence shall survive the termination of this Agreement or the earlier resignation or removal of the Escrow Bank. The Escrow Bank agrees to accept and act upon instructions or directions pursuant to this Agreement sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Escrow Bank shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the City elects to give the Escrow Bank e-mail or facsimile instructions (or instructions by a similar electronic method) and the Escrow Bank in its discretion elects to act upon such instructions, the Escrow Bank’s understanding of such instructions shall be deemed controlling. The Escrow Bank shall not be liable for any losses, costs or expenses arising directly or indirectly from the Escrow Bank’s reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The City agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Escrow Bank, including without limitation the risk of the Escrow Bank acting on unauthorized instructions, and the risk of interception and misuse by third parties. 5 SECTION 7. Termination of Agreement. Upon application of the moneys in the 2012 Escrow Fund as set forth in this Agreement and the payment by the City of all fees, expense and charges of the Escrow Bank as described above, this Agreement shall terminate and the Escrow Bank shall be discharged from any further obligation or responsibility hereunder. SECTION 8. Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. SECTION 9. Notices. Any notice, request, demand, communication or other paper shall be sufficiently given and shall be deemed given when delivered or upon receipt when mailed by first class, registered or certified mail, postage prepaid, or sent by telegram, addressed as follows: If to the City: City of Palo Alto 250 Hamilton Avenue Palo Alto, CA 94301 Attention: Administrative Services Director If to the Escrow Agent: U.S. Bank National Association One California Street, Suite 1000 San Francisco, CA 94111 Attention: Global Corporate Trust Services SECTION 10. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. CITY OF PALO ALTO By: City Manager APPROVED AS TO FORM: By City Attorney U.S. BANK NATIONAL ASSOCIATION, as Escrow Bank and as Paying Agent 6 By Authorized Officer A-1 EXHIBIT A ESCROW SECURITIES Type of Security CUSIP or ID Purchase Date Maturity Date First IPD Par Amount Yield Purchase Price Interest Class B-1 EXHIBIT B ESCROW REQUIREMENTS Payment Date Interest Payment Redeemed Principal Redemption Premium Total Payment