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February 20, 2024
ITEM TITLE
Bond Issuance: Board of Directors of the Chula Vista Municipal Financing Authority Approve the Issuance of Refunding Revenue Bonds and the Legislative Body of CFD Nos. 06-I, 07-I, 08-I, and 2001-2 and Approve the Issuance of Special Tax Refunding Bonds
Report Number: 24-0034
Location: Community Facilities District No. 06-I, Community Facilities District No. 07-I, Community Facilities District No. 08-I and Community Facilities District No. 2001-2 Department: Finance
G.C. § 84308: No
Environmental Notice: The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act (“CEQA”) State Guidelines. Therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
Recommended Action
A) City Council, acting as the legislative body for City of Chula Vista Community Facilities District No. 06-I (Eastlake – Woods, Vistas and Land Swap) , adopt a resolution authorizing the issuance of its Improvement Area A 2024 Special Tax Refunding Bonds in a principal amount not to exceed twelve million four hundred twenty-five thousand dollars ($12,425,000) and approving certain documents and taking certain other actions in connection therewith.
B) City Council, acting as the legislative body for City of Chula Vista Community Facilities District No. 06-I (Eastlake – Woods, Vistas and Land Swap) , adopt a resolution authorizing the issuance of its Improvement Area B 2024 Special Tax Refunding Bonds in a principal amount not to exceed three million one hundred forty thousand dolla rs ($3,140,000) and approving certain documents and taking certain other actions in connection therewith.
C) City Council, acting as the legislative body for City of Chula Vista Community Facilities District No. 07-I (Otay Ranch Village Eleven), adopt a resolution authorizing the issuance of its 2024 Special Tax Refunding Bonds in a principal amount not to exceed eleven million nine hundred eighty thousand dollars ($11,980,000) and approving certain documents and taking certain other actions in connection therewith.
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D) City Council, acting as the legislative body for City of Chula Vista Community Facilities District No. 08-I (Otay Ranch Village Six), adopt a resolution authorizing the issuance of its 2024 Special Tax Refunding Bonds in a principal amount not to ex ceed eight million one hundred ninety thousand dollars ($8,190,000) and approving certain documents and taking certain other actions in connection therewith.
E) City Council, acting as the legislative body for City of Chula Vista Community Facilities District No. 2001-2 (McMillin - Otay Ranch - Village Six), adopt a resolution authorizing the issuance of its 2024 Special Tax Refunding Bonds in a principal amount not to exceed four million two hundred sixty-five thousand dollars ($4,265,000) and approving certain documents and taking certain other actions in connection therewith.
F) Acting as the Board of Directors of the Chula Vista Municipal Financing Authority, adopt a resolution authorizing the issuance of its Local Agency Revenue Refunding Bonds in a principal amount not to exceed forty million dollars ($40,000,000) and approving certain documents and taking certain other actions in connection therewith.
SUMMARY
The Chula Vista Municipal Financing Authority (Authority) issued bonds in 2013 (2013 Authority Bonds) to refinance special tax obligations of four of the City’s Community Facilities Districts. The Authority has the opportunity to refinance the 2013 Authority Bonds and reduce the special tax levies on homes within the subject Community Facilities Districts for the remaining 10 years that the 2013 Authority Bonds would be outstanding.
ENVIRONMENTAL REVIEW
The Director of Development Services has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity is not a “Project” as defined under Section 15378 of the State CEQA Guidelines because the proposed activity consists of a governmental fiscal/administrative activity which does not result in a physical change in the environment. Therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines, the activity is not subject to CEQA.
BOARD/COMMISSION/COMMITTEE RECOMMENDATION
Not applicable.
DISCUSSION
Background
Between 2002 and 2004, the City issued five series of Special Tax Bonds relating to four of the City’s Community Facilities Districts (CFDs) to provide a portion of the funding for new development infrastructure. In 2013, the City issued five series of Special Tax Refunding Bonds (2013 CFD Bonds) relating to the four CFDs, to refinance the original obligations. The 2013 CFD Bonds were acquired by the Authority and used to secure repayment of the 2013 Authority Bonds. Using this financing structure allowed the City to pool the CFDs and market them as one bond issue rather than each separate CFD’s Special Tax Bonds being sold to the public.
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At this time, interest rates make a refinancing of the 2013 Authority Bonds cost effective. Currently, the 2013 CFD Bonds are outstanding as shown below:
CFD No. 06-I Improvement Area A Bonds $ 13,410,000
CFD No. 06-I Improvement Area B Bonds 3,440,000
CFD No. 07-I Bonds 12,730,000
CFD No. 08-I Bonds 10,220,000
CFD No. 2001-2 Bonds 4,625,000
$44,425,000
The refinancing structure mirrors the structure of the 2013 Authority Bonds. Each CFD will issue a series of Special Tax Refunding Bonds (2024 CFD Bonds) and the Authority will issue one series of Bonds (2024 Authority Bonds) and use the proceeds to acquire the 2024 CFD Bonds.
Refinancing Analysis
The average interest rate on the 2013 Authority Bonds is 5.20% and they mature by 2034. Based on an expected effective interest rate of approximately 2.7 5% on the 2024 Authority Bonds, there is a projected savings of $6. 3 million (or a 12% reduction) in debt service payments over the life of the 2013 Authority Bonds as a result of the refinancing and early redemption. In addition, there are funds available held under the 2013 Authority Bonds indenture that will be applied to the refinancing, increasing the projected savings to $10.3 million, for a total 20% reduction in payments. These savings will accrue to the CFDs and reduce the special taxes to be levied within each CFD for the final 10 years.
It is estimated based on current interest rates that homeowners in the four CFDs will see reductions in their special tax bill totaling between $80-130 per year for attached units and $155 -190 per year for detached units, depending on the size of the residence (approximately 20%). These estimates can change based on the final market conditions at the time the 2024 Authority Bonds are sold.
In order to refinance $44.4 million of the 2013 Authority Bonds that are outstanding, the City will need to raise approximately $35.3 million from the sale of the 2024 Authority Bonds. Based on current market conditions, the par amount of the 2024 Authority Bonds is estimated to be $31,845,000, issued with an original issue premium of $3,431,000, an d will provide total funding of $35,276,000. The following table provides the anticipated size of the bond issue, including funding of the costs of issuance, use of funds on hand and application of the reserve fund held for the 2013 Authority Bonds to the cost to redeem the 2013 Authority Bonds.
Cost of Issuance $ 419,000
Prepay 2013 Authority Bonds 44,621,000
Total Refunding Requirement 45,040,000
Less 2013 Authority Bonds Reserve Fund (5,673,000)
Less Special Taxes Available (4,091,000)
Total Net Bond Proceeds 35,276,000
Original Issue Premium (3,431,000)
Par Amount of Bonds Issued $ 31,845,000
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The estimated par amount will be subject to prevailing market conditions at the time of sale. Therefore, a par amount of $31,845,000 is being estimated but the actual issue size may be higher if the 2024 Authority Bonds are priced with a lower original iss ue premium or with an original issue discount based on investor preference at the time of sale.
Professional Services
The City Council has previously approved agreements with the Bond Counsel, the Municipal Advisor and the Underwriter for the 2024 Authority Bonds.
Authorization Process
In order to authorize the issuance of the 2024 Authority Bonds, the City Council and the Authority Board have been presented with resolutions for their consideration. The City Council will act as the legislative body of each CFD. The CFD resolutions each approve the form of the following documents in connection with the financing:
A Local Obligation Indenture of Trust;
A Local Obligation Purchase Agreement;
A Preliminary Official Statement.
These documents are attached hereto, in draft form, and may be modified to reflect the terms of the actual sale of the 2024 Authority Bonds.
The CFD resolutions each authorize the sale of the 2024 CFD Bonds by the City Manager or Finance Director or other authorized officers , within certain parameters. The par amount of the 2024 CFD Bonds cannot exceed the following amounts:
CFD/Improvement Area Par Amount
CFD No, 06-I Improvement Area A $12,425,000
CFD No, 06-I Improvement Area B 3,140,000
CFD No, 07-I 11,980,000
CFD No, 08-I 8,190,000
CFD No, 2001-2 4,265,000
In addition, the individual CFD resolutions require that net present value savings resulting from the refunding of each of the 2013 CFD Bonds is not less than 5%, and that the principal and total net interest cost to maturity on the 2024 CFD Bonds is less than principal and total net interest cost to maturity on the 2013 CFD Bonds.
The CFD resolutions also approve the distribution of the Preliminary Official Statement relating to the 2024 Authority Bonds.
A companion resolution is presented to the Authority Board of Directors for their consideration. The Authority resolution authorizes the sale of the 2024 Authority Bonds by the Authority Executive Director or Chief Financial Officer, or other authorized officers, within certain parameters. These parameters are: (1) the par amount of the bonds cannot exceed $40,000,000, (2) the net present value savings resulting from the P a g e | 5
refunding of the 2013 Authority Bonds is not less than 5%, and (3) the underwriters’ discount cannot exceed
0.3% of the par amount of the 2024 Authority Bonds.
The Authority resolution approves the form of the following documents in connection with the financing:
An Indenture of Trust;
A Bond Purchase Agreement;
A Local Obligation Purchase Agreement;
An Escrow Agreement;
A Continuing Disclosure Agreement; and
A Preliminary Official Statement.
These documents are attached hereto, in draft form, and may be modified to reflect the terms of the actual sale of the 2024 Authority Bonds.
It is anticipated that the 2024 Authority Bonds will be issued on March 19, 2024 and the 2013 Authority Bonds will be redeemed on April 1, 2024, the first optional redemption date for which notice can be given.
Good Faith Estimates
In connection with the approval of bonds , California Government Code Section 5852.1 requires that good faith estimates be provided of the principal amount of the bonds to be issued, the true interest cost of the bonds, the finance charge of the bonds, the amount of proceeds to be received and the total payment amount of the bonds. Set forth in the table on the following page are the good faith estimates provided by the Municipal Advisor with respect to the 2024 Authority Bonds and each of the 2024 CFD Bonds. The estimates constitute good faith estimates only and are based on market conditions prevailing at the time of preparation of such estimates on January 31, 2024.
For the purpose of the estimates:
Principal Amount of the Bonds means the aggregate principal amount of the bonds to be sold.
True Interest Cost of the Bonds means the rate necessary to discount the amounts payable on t he respective principal and interest payment dates to the purchase price received for the bonds.
Finance Charge of the Bonds means the sum of all fees and charges paid to third parties (or costs associated with the Bonds).
Amount of Proceeds to be Received means the amount of proceeds expected to be received from the sale of the bonds, including original issue premium, less the finance charge of the bonds as described above, paid or funded with proceeds of the bonds.
Total Payment Amount means the sum total of all payments the Authority or a CFD will make to pay debt service on the bonds, plus the finance charge for the bonds, as described above, not paid with the respective proceeds of the bonds, calculated to the final maturity of the bonds, together with the sum of annual ongoing costs to administer the bonds not paid with proceeds of the bonds (such as trustee fees).
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2024 Bonds
Issued By
Estimated
Principal
Amount of the
Bonds
Estimated
True Interest
Cost of the
Bonds
Estimated
Finance
Charge of the
Bonds
Estimated
Amount of
Proceeds to be
Received
Estimated
Total Payment
Amount
CFD 06-I
Improvement
Area A
$ 9,885,000 2.71% $130,000 $10,784,000 $12,193,000
CFD 06-I
Improvement
Area A
2,495,000 2.71% 33,000 2,749,000 3,159,000
CFD 07-I 9,525,000 2.71% 126,000 10,496,000 12,024,000 CFD 08-I 6,545,000 2.71% 86,000 7,125,000 8,046,000 CFD 2001-2 3,395,000 2.71% 44,000 3,703,000 4,199,000 Authority $31,845,000 2.71% $419,000 $34,857,000 $39,621,000
The payments on the 2024 CFD Bonds will be paid through Special Taxes levied in each CFD and remitted to the Authority, who will in turn pay principal and interest on the 2024 Authority Bonds. Therefore, only the amounts shown for the 2024 Authority Bonds will be paid to third parties.
DECISION-MAKER CONFLICT
Staff has reviewed the property holdings of the City Council and has found that Mayor McCann has real property holdings within 500 feet of the boundaries of CFD 06 -I, which is the subject of this action.
Consequently, pursuant to California Code of Regulations Title 2, sections 18700 and 18702.2 (a) (7), this item presents a disqualifying real property-related financial conflict of interest under the Political Reform Act (Cal. Gov't Code § 87100, et seq.) for the above-identified member.
Staff is not independently aware, and has not been informed by City Council members, of any other fact that may constitute a basis for a decision-maker conflict of interest in this matter.
CURRENT-YEAR FISCAL IMPACT
All costs associated with this refinancing are paid from bond proceeds , resulting in no current year fiscal impacts to the General Fund as a result of this action.
ONGOING FISCAL IMPACT
There are no ongoing fiscal impacts to the General Fund as a result of this action.
ATTACHMENTS
1. Authority Indenture of Trust
2. CFD 06-I Improvement Area A Bond Indenture
3. CFD 06-I Improvement Area B Bond Indenture
4. CFD 07-I Bond Indenture
5. CFD 08-I Bond Indenture
6. CFD 2001-2 Bond Indenture
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7. Bond Purchase Agreement
8. Local Obligations Bond Purchase Agreement
9. Preliminary Official Statement
10. Escrow Agreement
11. Continuing Disclosure Agreement
Staff Contact: Sarah Schoen, Director of Finance/Treasurer