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HomeMy WebLinkAboutStaff Report 2404-2846CITY OF PALO ALTO CITY COUNCIL Regular Meeting Monday, August 05, 2024 Council Chambers & Hybrid 5:30 PM     Agenda Item     6.Adoption of a Resolution Establishing Fiscal Year 2025 Property Tax Levy for General Obligation Bonds (Measure N Libraries); CEQA Status: Not a Project Consent Questions City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: Administrative Services Meeting Date: August 5, 2024 Report #:2404-2846 TITLE Adoption of a Resolution Establishing Fiscal Year 2025 Property Tax Levy for General Obligation Bonds (Measure N Libraries); CEQA Status: Not a Project RECOMMENDATION Staff recommends that the City Council approve a resolution approving the establishment of the Fiscal Year 2025 property tax levy of $7.61 per $100,000 in Assessed Value for the secured and utility tax roll and $8.07 per $100,000 in Assessed Value (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 March 2024. 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 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 had passed on the Series 2010A Bonds, but it had 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% 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, 2024, principal amount of $46.6 million is outstanding on the General Obligation Bonds. 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 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 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. The total debt service in FY 2025 is $4 million. 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 $0.00761 per $100 or $7.61 per $100,000 in Assessed Value (AV) for the secured tax roll; and $0.00807 per $100 or $8.07 per $100,000 in AV for the unsecured tax roll. In comparison, prior year’s secured and unsecured tax levy was $8.07 and $8.16 respectively, per $100,000 of AV. The assessment rate for FY 2025 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 4.8%, an increase of $2.3 billion. The total AV is $51.8 billion. 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 2025 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 current year’s AV increase until FY 2026. However, it did benefit from the Secured AV increase that occurred in FY 2024. With the new assessment for FY 2025, a house with an assessed value of $1.0 million, for example, would see an annual assessment of $76.10 on their property tax bill. In comparison, in FY 2024, a $1.0 million home had an assessment of $80.70. FISCAL/RESOURCE IMPACT The bond issuances result in a 2025 calendar year debt service expenditure of approximately $4.04 million and Council approval of the attached resolution will result in ad valorem tax levy revenue of $3.94 million with the $0.10 million difference attributable to available funds on hand. Secured and unsecured property owners will see a levy of $7.61 and $8.07, respectively, per $100,000 of AV on their FY 2025 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 mechanism 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 2024-25 Property Tax Levy Attachment B: Exhibit A - General Obligation Bonds, Election of 2008, Series 2013 2022A, & 2022B Tax Rate Calculation Based on 2024-25 Assessed Values APPROVED BY: Lauren Lai, Administrative Services Director Attachment A Not Yet Approved 1 20240716 th 0140225 Resolution No. Resolution of the Council of the City of Palo Alto Establishing Fiscal Year 2025 Property Tax Levy of $7.61 Per $100,000 of Secured and $8.07 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 2025 in the amount of $0.00761 per $100 in assessed value for the secured and Attachment A Not Yet Approved 2 20240716 th 0140225 utility tax roll and $0.00807 per $100 in assessed value for the unsecured tax roll based on the calculations set forth in the attached Exhibit "A". SECTION 2. The City’s Director of Administrative Services shall cause a certified copy of this Resolution to be delivered to the Auditor of the County of Santa Clara for entry in the assessment book of the respective sums in dollars and cents, to be paid as established by this Resolution. SECTION 3. The Council finds that this is not a project under the California Environmental Quality Act and, therefore, no environmental impact assessment is necessary. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED: Assistant City Attorney City Manager Director of Administrative Services A) Assessed Valuations (AV) 1 ) 2024-25 Taxable Secured Assessed Valuation (AV) 49,343,195,499$ 2 ) 2024-25 Taxable Unsecured AV 2,461,561,907$ 3 ) Less: Estimated Delinquency 0.00% -$ 4 ) Net Taxable Unsecured AV 2,461,561,907$ 5 ) Total Assessed Valuation (AV)51,804,757,406$ B) Tax Levy Requirement 5 ) 2025 Calendar Year Debt Service Payments 2013 (Tax-Exempt) GO Bonds - February 1,2025 211,425.00$ 2013 (Tax-Exempt) GO Bonds - August 1, 2025 211,425.00 422,850.00 6 ) 2022A (Tax-Exempt) GO Bonds - February 1,2025 798,750.00$ 7 ) 2022A (Tax-Exempt) GO Bonds - August 1, 2025 2,243,750.00 3,042,500.00 8 ) 2022B (Taxable) GO Bonds - February 1,2025 42,200.00$ 9 ) 2022B (Taxable) GO Bonds - August 1, 2025 537,200.00 579,400.00 10 ) Total Calendar Year 2025 Debt Service Payments 4,044,750.00 11 ) Excess Funds on Hand Applied Toward Debt Service (100,000.00) 12 ) Sub-total 3,944,750.00 13 ) Santa Clara County Administration Fee (0.25% of Principal & Interest) 9,861.88 14 )Total 2024-25 Annual Debt Service Requirement 3,954,611.88 C)Secured and Unsecured Tax Rate 15 )2024-25 Unsecured Tax Rate per $100 of Unsecured AV (Prior Year's Secured Tax Rate) 0.00807$ 16 )2024-25 Unsecured Tax Rate per $100,000 of Unsecured AV 8.07$ 17 ) 2024-25 Estimated Revenue from Unsecured AV (line 4 divide by 100 times by line 15) 198,648.05$ 18 ) 2024-25 Estimated Revenue from Secured AV (line 14 minus line 17)3,755,963.83 19 ) Total 2024-25 Annual Debt Service Requirement 3,954,611.88$ 20 )2024-25 Secured Tax Rate per $100 of Secured AV (line 18 divided by line 1*100) 0.00761$ 21 )2024-25 Secured Tax Rate per $100,000 of Secured AV (line 18 divided by line 1 times 100,000) 7.61$ Exhibit A City of Palo Alto General Obligation (GO) Bonds, Election of 2008, Series 2013, 2022A and 2022B Tax Rate Calculation Based on 2024-25 Assessed Values Dear Mayor and Council Members, On behalf of City Manager Ed Shikada, please see staff responses below for questions from Council Member Tanaka on the Monday, August 5 Council Meeting. Item 4: Authorization to Execute an Amendment to Legal Services Contract S22183520 with Liebert Cassidy Whitmore to Increase Amount by $150,000 for Total Not-to-Exceed Amount of $320,000 and to Extend the Term; CEQA Status – Not a Project. 1. Given the request for an additional $150,000, provide a detailed justification for this amount, including specific tasks and unforeseen complexities that have arisen in the case? Additionally, how do these new costs align with the original scope of the contract and previous amendments? What performance metrics or evaluations have been conducted to assess the effectiveness of Liebert Cassidy Whitmore’s work on this case so far? Share any specific data or outcomes that justify the increased budget. Why were these metrics not included in the staff report? Has the city considered alternative legal strategies or solicited competitive bids from other law firms to ensure we are getting the best value for our money? If so, what were the findings, and if not, why was this not explored as part of the staff report? Are we at risk of becoming overly dependent on Liebert Cassidy Whitmore by continually increasing their budget? What measures are in place to mitigate this risk and ensure we have flexibility in our legal representation, and why was this not addressed in the staff report? Staff response: These questions seek information covered by Attorney-Client privilege and therefore cannot be disclosed in a public forum. Councilmembers have been briefed in Closed Session. Item 6: Adoption of a Resolution Establishing Fiscal Year 2025 Property Tax Levy for General Obligation Bonds (Measure N Libraries); CEQA Status: Not a Project 1. With the General Obligation Bonds extending until 2044, what are the detailed long-term financial strategies to maintain fiscal flexibility and address other critical financial needs that may arise? Specifically, how will the city manage potential economic downturns or declines in property values that could impact its ability to meet debt obligations? Staff response: The City’s GO Bonds are paid through levying additional property taxes and are guaranteed by general government revenue. To ensure that the property tax levy equals the debt service payment, the tax rates are annually adjusted based on the current assessed valuation. This levy is based upon assessed valuation, not market value of properties. 2. Provide a comprehensive analysis of alternative funding mechanisms that were considered for repaying the Measure N bonds, such as public-private partnerships or grants? Specifically, what were the pros and cons of these alternatives, and why were they ultimately not pursued in favor of the property tax levy? Staff response: Prior to voter approval of Measure N, funding analysis was presented to the Council. Donations by the Palo Alto Library Foundation and Friends of the Palo Alto Library were also received. 3. What specific assessments have been conducted to evaluate the impact of the proposed property tax levy on overall housing costs and affordability in Palo Alto? What mitigation strategies are being considered to ensure that the levy does not exacerbate the existing housing affordability crisis for current and potential homeowners? Staff response: Special assessment fiscal impacts are disclosed to the public through the annual GO Bonds levy report to Council, property tax billings, and in the original ballot measure.