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HomeMy WebLinkAboutStaff Report 14048 City of Palo Alto (ID # 14048) City Council Staff Report Meeting Date: 4/11/2022 Report Type: Action Items City of Palo Alto Page 1 Title: TEFRA HEARING: Regarding Conduit Financing for the Silicon Valley International School Project Located at 151 Laura Lane and 1066 East Meadow Circle, Palo Alto, and Approving the Issuance of a Tax Exempt Loan by the California Municipal Finance Authority for the Purpose of Financing and Refinancing the Acquisition, Construction, Improvement, Equipping and Maintenance of Educational, Support and Administrative Facilities Owned and Operated Within the City by Silicon Valley International School From: City Manager Lead Department: Administrative Services Recommendation Staff recommends that Council: 1) Conduct a public hearing under the requirements of the Tax Equity and Fiscal Responsibility Act of 1983 (TEFRA) and the Internal Revenue Code of 1986, as amended; and 2) Adopt a resolution (Attachment A) approving the issuance of the bonds by the California Municipal Finance Authority (CMFA) for the benefit of Silicon Valley International School. Background Silicon Valley International School (formerly known as International School of the Peninsula), a California nonprofit public benefit corporation (the “Borrower”) and an organization described in, and exempt from tax under, Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”), has requested that the California Municipal Finance Authority (the “Authority” or “CMFA”) obtain a tax-exempt loan or loans in an aggregate principal amount not to exceed $50,000,000 (the “Loan”) in one or more series and make one or more loans to the Borrower. This is pursuant to a plan of financing to, among other things: (i) refinance all or a portion of certain outstanding debt obligations of the Borrower, being that certain California Municipal Finance Authority 2021 Tax Exempt Loan (International School of the Peninsula) (as executed in one or more series, the City of Palo Alto Page 2 “Prior Loan”), which Prior Loan, among other things, financed and refinanced certain costs of acquiring, improving, renovating, remodeling, furnishing and equipping various portions of the educational facilities of the Borrower located at 151 Laura Lane within the City of Palo Alto, California (the “City”), zip code 94303, which facilities are owned and operated by the Borrower, in connection with the provision of educational and other services in the City, (ii) finance and refinance certain costs of acquiring, constructing, improving, renovating, remodeling, furnishing and equipping educational facilities to be owned, occupied and operated by the Borrower and located at 1066 East Meadow Circle, Palo Alto, California 94303 in the City, all in connection with the provision of educational and other services in the City, (iii) pay capitalized interest on the Borrower Loan, and (iv) pay certain expenses incurred in connection with the issuance of the Borrower Loan (items (i) through (iv), collectively, the “Borrower Project”). In order for all or a portion of the Loan to qualify as a tax-exempt loan, the City of Palo Alto must conduct a public hearing (TEFRA Hearing), providing the members of the community an opportunity to speak in favor of or against the use of tax-exempt loans for the financing of the project. Prior to the hearing, reasonable notice must be provided to the members of the community. Following the close of the TEFRA hearing, an “applicable elected representative” of the governmental unit hosting the proposed project must provide its approval of the issuance of the bonds for the financing of the project. Discussion Since the facilities to be financed with the proceeds of the CMFA’s debt are located within the jurisdiction of the City of Palo Alto, the City has been asked to conduct a TEFRA hearing and adopt a resolution (Attachment A) that approves the issuance of the Loan by the CMFA for the benefit of the Borrower. As cited in the published notice of April 1, 2022, the public hearing is simply an opportunity for all interested persons to speak or to submit written comments concerning the proposal to issue the debt and the nature or location of the facility to be financed; however there is no formal obligation on the part of the borrower or the Council to respond to any specific comments made during the hearing or submitted in writing. The bonds are intended to finance the Project described herein for the acquisition, construction, improvement, equipping and maintenance of certain educational, support and administrative facilities owned and operated within the City by the Borrower. The CMFA is a joint exercise of powers authority that the City became a member of on April 14, 2008. The Joint Exercise of Powers Agreement provides that the CMFA is a City of Palo Alto Page 3 public entity, separate and apart from each member executing such agreement. The debts, liabilities and obligations of the CMFA do not constitute debts, liabilities or obligations of the members executing such agreement. The Loan to be issued by the CMFA for the project will be the sole responsibility of the borrower, and the City of Palo Alto will have no financial, legal, moral obligation, liability or responsibility for the project or the repayment of the Loan for the financing of the project. All financing documents with respect to the issuance of the bonds will contain clear disclaimers that the Loan is not an obligation of the City of Palo Alto or the State of California but is to be paid for solely from funds provided by the borrower. The City is in no way exposed to any financial liability by reason of its membership in the CMFA. In addition, participation by the City in the CMFA does not impact the City’s appropriations limits and will not constitute any type of indebtedness by the City. Outside of holding the TEFRA hearing, adopting the required resolution, no other participation or activity of the City or the City Council with respect to the issuance of the loan will be required. Based on the benefits of the project to the Palo Alto community and the lack of any financial obligations on the part of the City, staff recommends that Council approve the attached resolution. Resource Impact As stated, the City will incur no financial obligation from approval of the recommendations. The Borrower is requesting the CMFA to issue up to $50 million in bonds through the CMFA. The City will receive a fee for its services when the loan is issued. Policy Implications Actions recommended in this report are consistent with Council’s prior actions in supporting non-profit financings under the TEFRA (e.g., recently approving tax-exempt financing through the California Municipal Finance Authority for Wilton Court on February 10, 2020 and Silicon Valley International School on September 13, 2021). Stakeholder Engagement City staff coordinated with representatives of CMFA to prepare for the TEFRA hearing. Environmental Review Action on this item does not constitute a project under Section 21065 of the Public Resources Code. Attachments: • Attachment A: Silicon Valley International School TEFRA Resolution Attachment A 010-9323-2275/3/AMERICAS Resolution No. ___ Resolution of the City Council of the City of Palo Alto, California, Approving the Execution of a Tax-Exempt Loan or Loans by the California Municipal Finance Authority for the Benefit of Silicon Valley International School, in an Aggregate Principal Amount not to Exceed $50,000,000 in one or More Series for the Purpose of Financing and Refinancing the Acquisition, Construction, Improvement, Equipping and Maintenance of Certain Educational, Support and Administrative Facilities Owned and Operated Within the City by Silicon Valley International School R E C I T A L S A. Silicon Valley International School (formerly known as International School of the Peninsula), a California nonprofit public benefit corporation (the “Borrower”) and an organization described in, and exempt from tax under, Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”), has requested that the California Municipal Finance Authority (the “Authority”) obtain a tax-exempt loan or loans in an aggregate principal amount not to exceed $50,000,000 (the “Authority Loan”) in one or more series and make one or more loans to the Borrower pursuant to a plan of financing (the “Borrower Loan”) to, among other things: (i) refinance the outstanding debt obligations of the Borrower, being the Authority’s 2021A Tax Exempt Loan (Silicon Valley International School) (as executed in one or more series, the “Prior Loan”), which Prior Loan, among other things, the proceeds of which were used to refinance the Authority’s 2017 Tax Exempt Loan (International School of the Peninsula), the proceeds of which were used to finance and refinance certain costs of acquiring, improving, renovating, remodeling, furnishing and equipping various portions of the educational facilities of the Borrower located at 151 Laura Lane within the City of Palo Alto, California (the “City”), zip code 94303, which facilities are owned and operated by the Borrower, in connection with the provision of educational and other services in the City (the “Cohn School Project”), (ii) finance and refinance certain costs of acquiring, constructing, improving, renovating, remodeling, furnishing and equipping educational facilities to be owned, occupied and operated by the Borrower and located at 1066 East Meadow Circle, Palo Alto, California 94303 in the City, all in connection with the provision of educational and other services in the City (the “East Meadow Circle Project”), (iii) pay capitalized interest on the Borrower Loan, and (iv) pay certain expenses incurred in connection with the issuance of the Borrower Loan (items (i) through (iv), collectively, the “Borrower Project”); and B. The facilities comprising the Borrower Project are, or will be when acquired by the Borrower, owned and operated by the Borrower and are located within the territorial limits of the City, a member of the Authority; and C. Pursuant to Section 147(f) of the Code, the execution of the Authority Loan by the Authority relating to the Borrower Project and the related plan of financing with the Borrower, including the Borrower Loan relating to the Borrower Project, must be approved by the City 010-9323-2275/3/AMERICAS because the facilities comprising the Borrower Project are located within the territorial limits of the City; and D. The City Council of the City (the “City Council”) is the elected legislative body of the City and is an “applicable elected representative” required to approve the execution of the Authority Loan by the Authority relating to the Borrower Project under Section 147(f) of the Code; and E. The Authority has requested that the City Council approve the execution of the Authority Loan by the Authority relating to the Borrower Project and the related overall plan of financing for the Borrower Project with the Borrower, including the Borrower Loan, in order to satisfy the public approval requirement of Section 147(f) of the Code and the requirements of Section 4 of the Joint Exercise of Powers Agreement Relating to the Authority, dated as of January 1, 2004 (as amended, the “Agreement”), among certain program participants, including the City; and F. The aggregate principal amount of the Authority Loan to be issued for the Cohn School Project will not exceed $5,400,000 the aggregate principal amount of the Authority Loan to be issued for the East Meadow Circle Project will not exceed $44,600,000, and the aggregate principal amount of the Authority Loan to be issued for the Borrower Project will not exceed $50,000,000; and G. On April 1, 2022, the Authority’s bond counsel caused a notice to appear in The Daily Post, which is a newspaper of general circulation in the City, stating that a public hearing with respect to the execution of the Authority Loan by the Authority and the Borrower Project would be held by the City Council on April 11, 2022; and H. Pursuant to Section 147(f) of the Code, the City has, following notice duly given, held a public hearing on April 11, 2022 regarding the execution of the Authority Loan by the Authority, and an opportunity was provided for persons to comment on the matter of the Authority Loan and of the Borrower Project; and The Council of the City of Palo Alto RESOLVES as follows: Section 1. The foregoing recitals are true and correct. Section 2. The City Council hereby approves the execution of the Authority Loan by the Authority relating to the Borrower Project and the related plan of financing with the Borrower with respect to the Borrower Loan relating to the Borrower Project. It is the purpose and intent of the City Council that this resolution constitutes approval of the execution of the Authority Loan by the Authority relating to the Borrower Project and the related plan of financing with the Borrower, including the Borrower Loan relating to the Borrower Project, for the purposes of: (a) Section 147(f) of the Code, by the applicable elected representative of the governmental unit having jurisdiction over the area in which the Borrower Project is located, in accordance with said Section 147(f); and (b) Section 4 of the Agreement. 010-9323-2275/3/AMERICAS Section 3. The approval by the City of the execution of the Authority Loan by the Authority relating to the Borrower Project is neither an approval of the underlying credit issues of the proposed Borrower Project nor an approval of the financial structure of the Authority Loan. Neither the City nor any department, official or officer thereof shall have any responsibility or liability whatsoever with respect to the Authority Loan, the Borrower Loan, or the Borrower Project. Section 4. The execution of the Authority Loan shall be subject to approval of the Authority of all financing documents relating thereto to which the Authority is a party. Neither the Authority Loan nor the Borrower Loan shall constitute a debt or obligation of the City, and the City shall have no responsibility or liability whatsoever with respect to repayment or administration of the Authority Loan or the Borrower Loan. Section 5. The adoption of this resolution shall not obligate the City or any department thereof to (i) provide any financing with respect to the Borrower Project; (ii) approve any application or request for or take any other action in connection with any planning approval, permit or other action necessary with respect to the Borrower Project; (iii) make any contribution or advance any funds whatsoever to the Authority or the Borrower; or (iv) take any further action with respect to the Authority or the City’s membership therein. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED: City Attorney City Manager