TO: Honorable City Council
FROM: City Manager
SUBJECT: Award of Professional Service Agreement to KNN Public Finance, LLC; for Municipal Financial Advisory Services and Authorize Staff to take the Necessary Steps to advance the Procurement of a TIFIA Loan with the United States Department of Transportation (US DOT) Build America Bureau (BAB).
MEETING DATE: August 8, 2023
RECOMMENDATION
Award a professional services agreement to KNN Public Finance, LLC; for municipal financial advisory services and authorize staff to take the necessary steps to advance the procurement of a TIFIA Loan with the United States Department of Transportation (US DOT) Build America Bureau (BAB).
BACKGROUND
In March 2023, staff submitted information to the US DOT regarding the City of Commerce (City) eligibility to participate in the Transportation Infrastructure Finance and Innovation Act (TIFIA) program for the City's Zero-Emission Bus Operations, Maintenance, and Administration Facility Project (Project).
On May 18, 2023, US DOT determined that:
The City of Commerce is an incorporated municipality in the State of California and is a government entity; thus, the City is an eligible "obligor" for TIFIA credit assistance under 23 USC § 601 (a)(11)(B).
The "Zero-Emission" Project, a facility for use in public transportation, is a surface transportation project that is eligible for Federal assistance under Chapter 53 of Title 49, U.S. Code; thus, the Project is eligible for TIFIA credit assistance under 23 U.S.C. § 601(a)(12)(A).
On June 21, 2023, the City issued a Request for Qualifications (RFQ) for financial advisor services in connection with the delivery of planning and financing services for the Zero-Emission Bus Operations, Maintenance, and Administrative Facility Project.
At this stage in the project planning process, it is appropriate for the City to begin working with a municipal financial advisor to assist with developing a finance plan, evaluating the security structure, and analyzing borrowing alternatives. The selected consultant will be expected to be familiar with borrowing programs most utilized by California cities and transportation/transit agencies (including TIFIA) and have extensive experience in the plan of finance development, cash flow model analysis, and credit/rating agency strategy for both California cities and transit agencies with various revenue structures and borrowing securities. Additionally, the consultant will provide City Council with a detailed presentation on potential financing options for review and consideration regarding the new Zero-Emission Bus Operations, Maintenance, and Administrative Facility project.
ANALYSIS
The City advertised the municipal financial advisor services RFQ on Planetbids and the opening of the proposals was conducted on July 10, 2023. Two (2) firms submitted proposals. The City evaluated the technical narrative section of the proposals using the following criteria and corresponding weight:
Criterion
Value
Organizational Management and Business Plan
30%
Past Performance and Quality of Services
30%
Quality Assurance
20%
Qualification of Crucial Personnel
10%
Reference Checks
10%
Total
100%
All proposals received were first evaluated and ranked on the technical evaluation responses. Proposals that were determined technically acceptable were reevaluated with cost as a consideration. After using both technical and cost evaluations, the proposals were ranked to establish a competitive range.
The final ranking results are as follows:
Proposal Rankings
Consultant Firm
1 KNN Public Finance, LLC
2 Fieldman, Rolapp & Associates, Inc.
KNN Cost Estimate
Based on the scope of work, KNN Public Finance proposes to be compensated hourly with a not to exceed fee of $22,000.
Title
Rate (Per Hour)
Managing Director
$355
Director
$335
Vice President
$315
Associate
$295
KNN Public Finance proposes a fixed transaction fee range of $45,000 - $70,000 for services rendered in connection with the Municipal Bond Borrowing scope of services; and $70,000 - $95,000 for TIFIA loan execution. Such fixed transaction fees are paid from bond proceeds (i.e., issuance cost), and payment is contingent on successfully closing of bonds or when the TIFIA loan is completed.
Fieldman, Rolapp & Associates Cost Estimate
Based on the scope of work, Fieldman, Rolapp & Associates proposes to be compensated hourly at the rate below.
Title
Rate (Per Hour)
Executive Officer
$395
Principal
$385
Senior Vice President
$375
Vice President
$320
Assistant Vice President
$295
Senior Associate
$265
Associate
$235
Analyst
$130
Administrative Assistant
$95
Fieldman, Rolapp & Associates proposes a fixed transaction fee of $70,000 - $110,000 for services rendered in connection with the Municipal Bond Borrowing scope of services. Such fixed transaction fees are paid from bond proceeds (i.e., issuance cost), and payment is contingent on successfully closing the bonds.
TIFIA PROGRAM PURPOSE
The Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) provides Federal credit assistance to major transportation investments of critical national importance, such as highway, transit, passenger rail, certain freight facilities, and certain port projects with regional and national benefits. The TIFIA credit program is designed to fill market gaps and leverage substantial private co-investment by providing supplemental and subordinate capital. The TIFIA credit program offers three distinct types of financial assistance designed to address projects' varying requirements throughout their life cycles:
Direct Federal loans to project sponsors offer flexible repayment terms and provide combined construction and permanent financing of capital costs.
Loan guarantees provide full-faith-and-credit guarantees by the Federal government to institutional investors such as pension funds, which make project loans.
Standby lines of credit represent secondary funding sources in the form of contingent Federal loans that may be drawn upon to supplement project revenues, if needed, during the first ten years of project operations. Federal credit assistance may not exceed 33 percent of total project costs.
PROGRAM ADMINISTRATION
Implementation of the TIFIA program is the responsibility of the Secretary of Transportation. The DOT administers the TIFIA program through the Bureau's Credit Programs Office under the Office of the Under Secretary for Policy. The Secretary of Transportation established the Bureau on July 20, 2016, in accordance with the FAST Act.
The Bureau is the single point of contact and coordination for states, municipalities, and project sponsors looking to utilize federal transportation expertise, apply for federal transportation credit programs, and explore ways to access private capital in public-private partnerships. The Bureau is responsible for administering the TIFIA application process, providing assistance, and communicating best practices for financing and funding opportunities to sponsors of eligible projects. The Bureau's Credit Programs Office is organized into three key program areas: loan underwriting, portfolio management, and risk management.
Under the Bureau, the DOT anticipates reducing uncertainty and delays related to environmental reviews, permitting, project delivery, and procurement. The Bureau is managed by an Executive Director reporting to the Under Secretary of Transportation for Policy. The FAST Act also established the DOT Council on Credit and Finance (CCF) to provide policy direction and make recommendations to the Secretary regarding selecting projects for credit assistance. The DOT CCF members include five representatives from the Office of the Secretary of Transportation (OST): the Deputy Secretary of Transportation (Chair), the Chief Financial Officer and Assistant Secretary for Budget and Programs (Vice-Chair), the Under Secretary of Transportation for Policy, the General Counsel, and the Assistant Secretary for Transportation Policy.
HOW COMMERCE BENEFITS
Financing the City's Zero-Emission Bus Operations, Maintenance, and Administrative Facility project, instead of relying on pay-as-you-go funding from taxes and other existing revenues, means the above project may be constructed years earlier. TIFIA, therefore, is a means to accelerate project delivery and the benefits that flow from new infrastructure. As a result, accelerating the new Zero-Emission Bus Operations, Maintenance, and Administrative Facility project will serve as an opportunity to transform the existing transit facility site into residential housing, allowing the City to proceed with the next phase of the Rosewood Village residential housing development project. The residential development project would satisfy a vital need for housing in the City of Commerce. The Rosewood housing construction project consists of 133 residential units constructed in three (3) phases. Phase I is completed and located at 5625 Jillson St (adjacent parcel to existing transit facility).
The TIFIA program is a relatively low-cost way for the federal government to support surface transportation projects because it relies on loans, not grants. TIFIA assistance is typically one-third or less of project costs. Another advantage from the federal point of view is that a relatively small amount of budget authority can be leveraged into a large amount of loan capacity. Because the government expects its loans to be repaid, an appropriation need only cover administrative costs and the subsidy cost of credit assistance. The TIFIA Loan borrowing program will help mitigate upfront cash flow needs, given anticipated construction costs associated with the new Zero-Emission, Bus Operations, Maintenance, and Administration Facility Project over the next several years.
Loan guarantees provide full-faith-and-credit guarantees by the Federal Government for a portion of project loans made by institutional investors. Standby lines of credit represent secondary funding sources in the form of contingent Federal loans that can supplement project revenues during the first ten years of project operations. With long maturities and more flexible terms than typical capital market investors, the TIFIA program can enable cities to meet their capital investment goals.
FISCAL IMPACT
Bid Amount – Financial Advisor Services $ 22,000
Contingencies (20%) $ 4,400
Project Total $ 26,400
Based on the proposal results, KNN Public Finance LLC. is the most qualified professional consultant providing the most efficient and cost-effective approach. Additionally, they provided several references and the required Federal certification documentation. The project's financial advisor services shall be covered 100% with Federal 5307 Grant Funds (CA-2020-191-01) and have no impact on the City's operating budget.
RELATIONSHIP TO STRATEGIC GOALS
This agenda item relates to the 2016 Strategic Plan - Goal #6: "Enhance Quality of Life Goal,"; this project helps the City move one step closer to building affordable homes in the community, improving the quality of life in Commerce.
ALTERNATIVES:
Approve staff's recommendation.
Reject staff's recommendation.
Provide staff with alternate or further direction.
Prepared and recommended by: Claude McFerguson, Director of Transportation Fiscal impact reviewed by: Vilko Domic, Assistant City Manager Approved as to form: Noel Tapia, City Attorney
Respectfully submitted: Edgar P. Cisneros, City Manager Attachments:
Resolution
Agreement
TIFIA Preliminary Eligibility Determination Letter
KNN Public Finance LLC Qualifications
CITY OF COMMERCE
AGENDA REPORT
Item No.