HomeMy WebLinkAboutStaff Report 13999
City of Palo Alto (ID # 13999)
City Council Staff Report
Meeting Date: 8/8/2022 Report Type: Consent Calendar
City of Palo Alto Page 1
Title: Adoption of a Resolution Establishing FY 2023 Property Tax Levy for
General Obligation Bonds (Measure N Libraries)
From: City Manager
Lead Department: Administrative Services
Recommendation
Adopt a resolution (Attachment A) approving the establishment of the Fiscal Year (FY) 2023
property tax levy of $8.16 per $100,000 in Assessed Value (AV) for the secured and utility tax
roll and $9.26 per $100,000 in AV for the unsecured tax roll for the City of Palo Alto's Measure
N General Obligation (GO) 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 million of General Obligation bonds (the "Bonds") for capital
improvements to the Mitchell Park, Downtown, and Rinconada (formerly Main) libraries and to
construct 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
which was affirmed by Standard and Poor’s and Moody’s in March 2021.
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). In addition, bond premium of $3.1 million could be used to redeem
and/or defease bonds. On June 6, 2016, Council authorized the use of $6.1 million of the Series
2010A & 2013A GO Bonds to defease and/or retire a portion of outstanding bonds and to pay
associated redemption costs (CMR: 6993). To maximize savings to property owners the longest
bonds were paid off; total savings of $11 million were realized which includes $4.9 million in
interest savings over time. 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.
On March 2, 2022, Council approved the refinancing of the Series 2010A and 2013A
outstanding principal of $40.6 million and $13.6 million respectively (CMR: 13438) on page 12
of link). The Series 2010A was refinanced as a tax-exempt bonds and Series 2013A was partially
refinanced as taxable bonds. The tax reform bill passed by Congress and signed into law on
City of Palo Alto Page 2
December 22, 2017 prohibits the issuance of tax-exempt advance refunding bonds during the
(ten-year) call protection period. The call protection period has passed on the Series 2010A
Bonds, but it has not passed for the Series 2013A Bonds. The portions of the Series 2013A
bonds or $2.1 million in principal, that had realized savings were refinanced. In total, a net
present value savings of $4.5 million or 10.6 percent was realized. The cash savings is $6.4
million and average annual debt service savings over 18 years is $356 thousand. In the Council
refinancing approval CMR the total cash savings was estimated at $7.5 million, however, the
interest rate rose before the refinancing occurred due to the Federal Open Market Committee
(FOMC) raising the federal funds rate by 0.25 percent on March 16, 2022. This was the first
FOMC rate increase after 17 consecutive meetings, since March 2020. There are three GO
Bonds outstanding, the portion of the tax-exempt Series 2013A bonds that were not
refinanced, the tax-exempt Series 2022A bonds that refinanced the Series 2010A bonds, and
the taxable Series 2022B bonds that partially refinanced the Series 2013A bonds. Standard and
Poor's (S&P) affirmed their highest credit ratings, Triple A, to both the issuer or City of Palo
Alto’s General Fund credit rating and the long-term rating on the City’s GO Bonds outstanding
in May 2022.
As of July 1, 2022, principal amount of $48.7 million is outstanding on the GO 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. An ad
valorem tax is a tax based on the assessed value of real estate (land, buildings and other
structures) or personal property (e.g. airplane, business machinery, etc.). 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 $0.00816 per $100 or $8.16 per $100,000 in
AV for the secured tax roll; and $0.00926 per $100 or $9.26 per $100,000 in AV for the
unsecured tax roll. In comparison, prior year’s secured and unsecured tax levy was $9.26 and
$9.56 respectively, per $100,000 of AV.
The assessment rate for FY 2023 is decreasing for both the secured and unsecured property
taxes. The rate decreases are attributable to the rise in the Secured AV for properties
throughout Palo Alto by 6.4 percent, an increase of $2.7 billion and the decrease in the annual
debt service payments due to the lower interest rate realized due to the June 2022 refinancing.
In addition, the rise in AV during FY 2023, due to property sales and new construction, resulted
in excess collections which further reduced the FY 2023 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 this rate won’t benefit
from the coming year’s AV increase and prior fiscal year’s refinancing until FY 2024. However, it
did benefit from the Secured AV increase that occurred in FY 2022.
City of Palo Alto Page 3
With the new assessment for FY 2023, a house with an assessed value of $1.0 million, for
example, would see an annual assessment of $81.60 on their property tax bill. In comparison,
in FY 2022, a $1.0 million home had an assessment of $92.60.
Resource Impact
The bond issuances result in a 2023 calendar year debt service expenditure of approximately
$4.11 million and Council approval of the attached resolution will result in ad valorem tax levy
revenue of $3.82 million with the $0.30 million difference attributable to available funds on
hand. As outlined in the Discussion section of this report, the secured and unsecured property
owners will see a levy of $8.16 and $9.26, respectively, per $100,000 of AV on their FY 2023
property tax statement.
Stakeholder Engagement
This levy was reviewed and approved the voters in Palo Alto as part of the November 2008
election.
Environmental Review
There is no environmental review required for this report.
Attachments:
• Attachment A: Resolution Establishing FY 2022-23 Property Tax Levy
1
Attachment A
Not Yet Approved
Resolution No.
Resolution of the Council of the City of Palo Alto Establishing Fiscal Year
2023 Property Tax Levy of $8.16 Per $100,000 of Secured and $9.26 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. At 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. In June 2022, the Series 2010A was refinanced with a tax-exempt Series
2022A and the Series 2013A was partially refinanced with a taxable Series 2022B. As a
result, there are three general obligation bonds series outstanding, the Series 2013A
portion that wasn’t refinanced and the refinanced Series 2022A and 2022B bonds.
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 2023 in the amount of $0.00816 per $100 in assessed value for the secured and
utility tax roll and $0.00926 per $100 in assessed value for the unsecured tax roll based
2
Attachment A
Not Yet Approved
on the calculations set forth in the attached Exhibit "A".
SECTION 2. The City’s Director of Administrative Services shall cause a certified
copy of this Resolution to be delivered to the Auditor of the County of Santa Clara for entry
in the assessment book of the respective sums in dollars and cents, to be paid as
established by this Resolution.
SECTION 3. The Council finds that this is not a project under the California
Environmental Quality Act and, therefore, no environmental impact assessment is
necessary.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Assistant City Attorney City Manager
Director of Administrative Services
A) Assessed Valuations (AV)
1 ) 2022-23 Taxable Secured Assessed Valuation (AV) 44,434,380,962$
2 ) 2022-23 Taxable Unsecured AV 2,088,552,009$
3 ) Less: Estimated Delinquency 0.00% -$
4 ) Net Taxable Unsecured AV 2,088,552,009$
5 ) Total Assessed Valuation (AV)46,522,932,971$
B) Tax Levy Requirement
5 ) 2023 Calendar Year Debt Service Payments
2013 (Tax-Exempt) GO Bonds - February 1,2023 234,650.00$
2013 (Tax-Exempt) GO Bonds - August 1, 2023 739,650.00 974,300.00
6 ) 2022A (Tax-Exempt) GO Bonds - February 1,2023 1,076,093.75$
7 ) 2022A (Tax-Exempt) GO Bonds - August 1, 2023 1,965,875.00 3,041,968.75
8 ) 2022B (Taxable) GO Bonds - February 1,2023 52,750.00$
9 ) 2022B (Taxable) GO Bonds - August 1, 2023 42,200.00 94,950.00
10 ) Total Calendar Year 2023 Debt Service Payments 4,111,218.75
11 ) Excess Funds on Hand Applied Toward Debt Service (300,000.00)
12 ) Sub-total 3,811,218.75
13 ) Santa Clara County Administration Fee (0.25% of Principal & Interest) 9,528.05
14 )Total 2022-23 Annual Debt Service Requirement 3,820,746.80
C)Secured and Unsecured Tax Rate
15 )2022-23 Unsecured Tax Rate per $100 of Unsecured AV (Prior Year's Secured Tax Rate) 0.00926$
16 )2022-23 Unsecured Tax Rate per $100,000 of Unsecured AV 9.26$
17 ) 2022-23 Estimated Revenue from Unsecured AV (line 4 divide by 100 times by line 12) 193,399.92$
18 ) 2022-23 Estimated Revenue from Secured AV (line 11 minus line 13) 3,627,346.88
19 ) Total 2022-23 Annual Debt Service Requirement 3,820,746.80$
20 )2022-23 Secured Tax Rate per $100 of Secured AV (line 14 divided by line 1*100) 0.00816$
21 )2022-23 Secured Tax Rate per $100,000 of Secured AV (line 14 divided by line 1 times 100,000) 8.16$
Exhibit A
City of Palo Alto
General Obligation (GO) Bonds, Election of 2008, Series 2013, 2022A and 2022B
Tax Rate Calculation Based on 2022-23 Assessed Values