HomeMy WebLinkAboutStaff Report 3972
City of Palo Alto (ID # 3972)
City Council Staff Report
Report Type: Consent Calendar Meeting Date: 8/5/2013
City of Palo Alto Page 1
Summary Title: Establishing GO Bond Tax Levy
Title: Adoption of Resolution Establishing Fiscal Year 2013-14 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 2013-14
property tax levy of $17.72 per $100,000 in Assessed Value (AV) for the secured and utility tax
roll and $12.88 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 and Second 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 Bonds in two series to provide $76 million in
funds for the design and construction costs. Both Standard and Poor's (S&P) and Moody's
awarded their highest credit ratings, Triple A, to both series of 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 (Attachment A) which authorizes the
placement of an ad valorem property tax levy in the amount of $0.01772 per $100 or $17.72
per $100,000 in AV for the secured tax roll; and $0.01288 per $100 or $12.88 per $100,000 in
AV for the unsecured tax roll. In comparison, prior years secured and unsecured tax levy was
$12.88 and $15.51, respectively, per $100,000 of AV.
City of Palo Alto Page 2
The assessment rate for FY 2013-14 is increasing for the secured and dropping for the
unsecured property taxes. For the secured property taxes, the second Bond series issuance
done in June 2013 resulted in total annual debt service payment of $4.8 million, an increase of
$1.3 million. There were several factors that moderated the rate increase: 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 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 and June 2013 was $55.3
million and 20.7 million, respectively. Of this amount, $75.8 million was deposited into the
Project Fund for the projects described above and $0.2 million paid for cost of issuances
expenses on the first series bonds (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 $4.8 million
was generated. Of this, $0.8 million went for the underwriter’s discount and $0.2 million for
cost of issuance expenses on the second series bonds leaving $3.8 million in remaining
premiums. 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 issuances, 4.2 percent for the 2010 (first series) and 3.85 percent for the 2013 (second
series) Bonds. Based on the 30 year life of the bonds, staff will amortize the $3.8 million in
premiums over 30 years or offset the annual assessment by $126,985 per year.
In addition, the rise in Assessed Valuation resulted in $0.2 million in excess collection which is
being used to further offset the FY 2014 annual assessment.
As for the unsecured property taxes, per the County of Santa Clara’s methodology, the prior
year’s secured tax rate becomes this year’s unsecured tax rate. As a result, the unsecured tax
rate for FY 2014 doesn’t include the 2013 Bonds issuance’s annual debt service payment and is
also benefiting by the lower secured tax rate from last year due to offsetting impacts of using
premiums and excess assessment collection due to (again) rising Assessed Valuation during the
fiscal year.
With the new assessment for FY 2013-14, a house with an assessed value of $1 million, for
example, would see an annual assessment of $177.20 on their property tax bill.
City of Palo Alto Page 3
A summary of the 2013 Bonds issuance funding and application of funds are as follows:
The $180,000 applied towards the Costs of Issuance breakdown as follows:
Resource Impact
The bond issuances result in a 2014 calendar year debt service expenditure of approximately
$4.8 million and Council approval of the attached resolution will result in ad valorem tax levy
revenue of $4.5 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 $17.72 and $12.88 per $100,000 of AV on their 2013-14
property tax statement.
Environmental Review
There is no environmental review required for this report.
Attachments:
Attachment A: Resolution Establishing FY 2013-14 Property Tax Levy (PDF)
City of Palo Alto Page 4
Exhibit 1: General Obligation Bonds, Election of 2008, Series 2010 and 2013 Tax Rate
Calculation Based on 2013-14 AV (PDF)
NOT YET APPROVED
130722 jb 0131117 1
Resolution No. ______
Resolution of the Council of the City of Palo Alto Establishing the Fiscal Year
2013-14 Property Tax Levy of $17.72 Per $100,000 of Secured and $12.88
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.
B. Pursuant to the Authorization, the City issued two series (Series 2010A and
2013A) of general obligation bonds in June 2010 and June 2013 that yielded $75.8 million for
project needs.
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.
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.
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
2013-14 in the amount of $0.01772 per $100 in assessed value for the secured and utility tax
roll and $0.01288 per $100 in assessed value for the unsecured tax roll based on the
calculations set forth in the attached Exhibit "A".
SECTION 2. The City’s Director of Administrative Services shall cause a certified
copy of this Resolution to be delivered to the Auditor of the County of Santa Clara for entry in
the assessment book of the respective sums in dollars and cents.
NOT YET APPROVED
130722 jb 0131117 2
SECTION 3. The Council finds that this is not a project under the California
Environmental Quality Act and, therefore, no environmental impact assessment is necessary.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
__________________________ ______________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
__________________________ ______________________________
Senior Asst. City Attorney City Manager
______________________________
Director of Administrative Services / CFO
A) Assessed Valuations (AV)
1 )2013-14 Taxable Secured Assessed Valuation (AV)24,042,136,429.00$
2 )2013-14 Taxable Unsecured AV 1,499,187,999.00$
3 ) Less: Estimated Delinquency 1.02%(15,291,717.59)
4 ) Net Taxable Unsecured AV 1,483,896,281.41
B) Tax Levy Requirement
5 )2013-14 Debt Service Payments
6 )2010 Bonds February 1,2014 1,222,234.38$
7 )2010 Bonds August 1, 2014 2,272,234.38 3,494,468.76
8 )2013 Bonds February 1,2014 497,904.17$
9 )2013 Bonds August 1, 2014 786,850.00 1,284,754.17
10 )Total Calendar Year 2013 Debt Service Payment 4,779,222.93
11 ) Excess Funds on Hand Applied Toward Debt Servce (338,984.64)
12 ) Sub-total 4,440,238.29
13 ) Santa Clara County Administration Fee (0.25% of Principal & Interest)11,100.60
14 )Total 2013-14 Annual Debt Service Requirement 4,451,338.89
C)Secured and Unsecured Tax Rate
15 )2013-14 Unsecured Tax Rate per $100 of Unsecured AV (Prior Year's Secured Tax Rate)0.01288$
16 )2013-14 Unsecured Tax Rate per $100,000 of Unsecured AV 12.88$
17 )2013-14 Estimated Revenue from Unsecured AV (line 4 divide by 100 times by line 12) 191,125.84$
18 )2013-14 Estimated Revenue from Secured AV (line 11 minus line 13) 4,260,213.04
19 )Total 2013-14 Annual Debt Service Requirement 4,451,338.89$
20 )2013-14 Secured Tax Rate per $100 of Secured AV (line 14 divided by line 1*100) 0.01772$
21 )2013-14 Secured Tax Rate per $100,000 of Secured AV (line 14 divided by line 1 times 100,000) 17.72$
Exhibit A
City of Palo Alto
General Obligation Bonds, Election of 2008, Series 2010 and 2013
Tax Rate Calculation Based on 2013-14 Assessed Values