HomeMy WebLinkAboutStaff Report 2305-1449CITY OF PALO ALTO
CITY COUNCIL
Special Meeting
Monday, August 07, 2023
Council Chambers & Hybrid
5:30 PM
Agenda Item
7.Adoption of a Resolution Establishing Fiscal Year 2024 Property Tax Levy for General
Obligation Bonds (Measure N Libraries)
City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Administrative Services
Meeting Date: August 7, 2023
Report #:2305-1449
TITLE
Adoption of a Resolution Establishing Fiscal Year 2024 Property Tax Levy for General Obligation
Bonds (Measure N Libraries)
RECOMMENDATION
Staff recommends that the City Council approve a resolution approving the establishment of the
Fiscal Year 2024 property tax levy of $8.07 per $100,000 in Assessed Value for the secured and
utility tax roll and $8.16 per $100,000 in AV for the unsecured tax roll for the City of Palo Alto's
Measure N General Obligation Bond Library Bonds.
EXECUTIVE SUMMARY
In 2008, Palo Alto 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
(libraries). Annually, a property tax levy sufficient to pay debt service on the Bonds must be
approved by the City Council and submitted to the County of Santa Clara for collection with the
property taxes.
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
and Moody's awarded their highest credit ratings, Triple A, to both series of Bonds which was
affirmed by Standard and Poor’s in May 2022 and Moody’s in November 2022.
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)1. In addition, bond premium of $3.1 million could be used to redeem and/or defease
1 City Council, March 21, 2016, CMR 6632: https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-
reports/reports/city-manager-reports-cmrs/year-archive/2016/6632-mini-packet.pdf
bonds. On June 6, 2016, Council authorized the use of $6.1 million of the Series 2010A & 2013A
General Obligation (Measure N) Bonds to defease and/or retire a portion of outstanding bonds
and to pay associated redemption costs (CMR: 6993)2. 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)3. 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 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 refinance. 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. There are three General Obligation 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 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 General Obligation Bonds outstanding in May 2022.
As of July 1, 2023, principal amount of $47.1 million is outstanding on the General Obligation
Bonds.
ANALYSIS
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 $0.00807 per $100 or $8.07 per $100,000 in
Assessed Value (AV) for the secured tax roll; and $0.00816 per $100 or $8.16 per $100,000 in AV
for the unsecured tax roll. In comparison, prior year’s secured and unsecured tax levy was $8.16
and $9.26 respectively, per $100,000 of AV.
The assessment rate for FY 2024 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 6.0 percent, an increase of $2.7 billion and the decrease in the annual debt service
2 City Council, June 6, 2016, CMR 6993: https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-
reports/reports/city-manager-reports-cmrs/year-archive/2016/6993.pdf
3 City Council, May 2, 2022, CMR 13438: https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-
reports/agendas-minutes/city-council-agendas-minutes/2022/20220502/20220502pccsmamended-linked.pdf
payments due to the lower interest rate realized due to the June 2022 refinancing. In addition,
the rise in AV during FY 2024, due to property sales and new construction, resulted in excess
collections which further reduced the FY 2024 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 2025. However, it
did benefit from the Secured AV increase that occurred in FY 2023.
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 $80.70 on their property tax bill. In comparison, in
FY 2023, a $1.0 million home had an assessment of $81.60
FISCAL/RESOURCE IMPACT
The bond issuances result in a 2024 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 $3.99 million with the $0.12 million difference attributable to available funds on hand.
Secured and unsecured property owners will see a levy of $8.07 and $8.16, respectively, per
$100,000 of AV on their FY 2024 property tax statement.
STAKEHOLDER ENGAGEMENT
Staff works with the County of Santa Clara who provide the property assessed valuation for the
coming fiscal year which this then used by staff to calculate the property tax levy tax rates.
ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by the California Environmental Quality Act
because approval of the Measure N property tax levy is a government funding mechanisms or
fiscal activity which does not involve any commitment to any specific project which may result in
a potentially significant physical impact on the environment. CEQA Guidelines section
15378(b)(4).
ATTACHMENTS
Attachment A: Resolution Establishing FY 2022-23 Property Tax Levy
Attachment B: Exhibit A - General Obligation Bonds, Election of 2008, Series 2013 2022A, &
2022B Tax Rate Calculation Based on 2023-24 AV
APPROVED BY:
Kiely Nose, Assistant City Manager
Attachment A
Not Yet Approved
1
Resolution No.
Resolution of the Council of the City of Palo Alto Establishing Fiscal Year
2024 Property Tax Levy of $8.07 Per $100,000 of Secured and $8.16 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 2024 in the amount of $0.00807 per $100 in assessed value for the secured and
utility tax roll and $0.00816 per $100 in assessed value for the unsecured tax roll based
Attachment A
Not Yet Approved
2
on the calculations set forth in the attached Exhibit "A".
SECTION 2. The City’s Director of Administrative Services shall cause a certified
copy of this Resolution to be delivered to the Auditor of the County of Santa Clara for entry
in the assessment book of the respective sums in dollars and cents, to be paid as
established by this Resolution.
SECTION 3. The Council finds that this is not a project under the California
Environmental Quality Act and, therefore, no environmental impact assessment is
necessary.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Assistant City Attorney City Manager
Director of Administrative Services
A) Assessed Valuations (AV)
1 ) 2023-24 Taxable Secured Assessed Valuation (AV) 47,091,331,443$
2 ) 2023-24 Taxable Unsecured AV 2,331,457,644$
3 ) Less: Estimated Delinquency 0.00% -$
4 ) Net Taxable Unsecured AV 2,331,457,644$
5 ) Total Assessed Valuation (AV)49,422,789,087$
B) Tax Levy Requirement
5 ) 2024 Calendar Year Debt Service Payments
2013 (Tax-Exempt) GO Bonds - February 1,2024 224,550.00$
2013 (Tax-Exempt) GO Bonds - August 1, 2024 749,550.00 974,100.00
6 ) 2022A (Tax-Exempt) GO Bonds - February 1,2024 833,250.00$
7 ) 2022A (Tax-Exempt) GO Bonds - August 1, 2024 2,213,250.00 3,046,500.00
8 ) 2022B (Taxable) GO Bonds - February 1,2024 42,200.00$
9 ) 2022B (Taxable) GO Bonds - August 1, 2024 42,200.00 84,400.00
10 ) Total Calendar Year 2024 Debt Service Payments 4,105,000.00
11 ) Excess Funds on Hand Applied Toward Debt Service (125,000.00)
12 ) Sub-total 3,980,000.00
13 ) Santa Clara County Administration Fee (0.25% of Principal & Interest) 9,950.00
14 )Total 2023-24 Annual Debt Service Requirement 3,989,950.00
C)Secured and Unsecured Tax Rate
15 )2023-24 Unsecured Tax Rate per $100 of Unsecured AV (Prior Year's Secured Tax Rate) 0.00816$
16 )2023-24 Unsecured Tax Rate per $100,000 of Unsecured AV 8.16$
17 ) 2023-24 Estimated Revenue from Unsecured AV (line 4 divide by 100 times by line 12) 190,246.94$
18 ) 2023-24 Estimated Revenue from Secured AV (line 11 minus line 13) 3,799,703.06
19 ) Total 2023-24 Annual Debt Service Requirement 3,989,950.00$
20 )2023-24 Secured Tax Rate per $100 of Secured AV (line 14 divided by line 1*100) 0.00807$
21 )2023-24 Secured Tax Rate per $100,000 of Secured AV (line 14 divided by line 1 times 100,000) 8.07$
Exhibit A
City of Palo Alto
General Obligation (GO) Bonds, Election of 2008, Series 2013, 2022A and 2022B
Tax Rate Calculation Based on 2023-24 Assessed Values