AUTHORIZING THE CITY MANAGER TO ISSUE A PURCHASE ORDER
TO WILLDAN FINANCIAL SERVICES FOR CDIAC, CONTINUING
DISCLOSURE, & ARBITRAGE SERVICES FOR SALES TAX REVENUE
BONDS, SERIES 2021 ($8,850)
SUMMARY
Adoption of this resolution will authorize the City Manager to issue a purchase order to Willdan Financial Services (“Willdan”) to provide CDIAC, Continuing Disclosure and Arbitrage Services for the City of Compton’s Sales Tax Revenue Bonds, Series 2021 for Fiscal Year 2022-2023.
BACKGROUND
The City needs technical expertise in several disciplines to advance the goals and policies of the Mayor and Council in order to actively respond and implement bond disclosure requirements applicable to the City of Compton. In March of 2021 the City issued Tax Revenue Bonds, Series 2021. As part of the agreements reached in the bond transaction, including the Continuing Disclosure Agreement, it was required that the City perform certain disclosures activities. One of the required activities is to disseminate and post the required disclosures in a pre-determined and designated location, also known as a municipal bond disclosure platform. The City does not have the technical knowledge to efficiently perform these required postings. Therefore, the City is in need of an agent to disseminate and to post onto municipal bond platforms certain required disclosures related to its bond-related activity on an on-going basis.
A description of the City’s Bond issuance for which Wildan was assisting with posting disclosures is as follows:
Tax Revenue Bonds Series 2021
On March 23, 2021, the City issued $37,120,000 of Lease Revenue Bonds with an interest rate of 4.00% and to finance various capital projects amounting to $37,782,295.45.
The Independent Cities Finance Authority (the “Authority”) is a joint powers authority created pursuant to a joint exercise of powers agreement, dated May 5, 1988, as amended, and the joint exercise of powers law of the State of California. The Authority has 7 members and 71 associate members. The Bonds are being issued to finance the design, acquisition, and construction of certain local roadway and street improvement projects (collectively, the “Projects”) in the
9. Staff Report
Willdan Financial Services
May 18, 2023
2 City, fund a debt service reserve fund for the Bonds and to pay the costs of issuing the Bonds.
The Bonds are payable from the Revenues pledged under the Trust Agreement.
The Revenues consist primarily of Installment Sale Payments (the “Installment Sale Payments”) to be made by the City to the Authority and of certain funds held under the Trust Agreement and investment earnings thereon (collectively with the Installment Sale Payments, the “Revenues”). The Authority will sell the improvements to the City pursuant to an Installment Sale Agreement, dated as of March 1, 2021 (the “Installment Sale Agreement”), by and between the Authority and the City.
Under the Installment Sale Agreement, the Installment Sale Payments are payable from and secured by a first lien on:
all Measure M Receipts (as such term is defined herein), which consist of certain amounts received by the City from a 0.5% retail transactions and use tax that is collected by the County; and
all Measure R Receipts (as such term is defined herein), which consist of certain amounts received by the City from a 0.5% retail transactions and use tax that is collected by the County through June 30, 2039; and all Proposition C Receipts (as such term is defined herein), which consist of certain amounts received by the City from a 0.5% retail transaction and use tax that is collected by the County.
The Measure M Receipts will only be available to pay Installment Sale Payments to the extent such Installment Sale Payments are attributable to a Measure M Project, the Measure R Receipts will only be available to pay Installment Sale Payments to the extent such Installment Sale Payments are attributable to a Measure R Project, and the Proposition C Receipts will only be available to pay Installment Sale Payments to the extent such Installment Sale Payments are attributable to a Proposition C Project, as reflected in a certificate of an Authorized City Representative delivered to the Depository Bank and the Trustee. All of the Projects financed using proceeds of the Bonds constitute a Measure M Project and a Measure R Project.
Per the Official Statement of the Tax Revenue Bonds Series 2021, “The City will covenant for the benefit of the Owners and beneficial owners of the Bonds to provide certain financial information and operating data relating to the City and to provide notices of the occurrences of certain enumerated events.
Pursuant to a Continuing Disclosure Agreement, dated as of March 1, 2021 (the “Continuing Disclosure Agreement”) by and between the City and Willdan Financial Services, as dissemination agent, the City has covenanted for the benefit of the holders and beneficial owners of the Bonds to provide certain financial information and operating data relating to the City (the “Annual Report”) no later than March Staff Report
Willdan Financial Services
May 18, 2023
3 31 of each year, commencing March 21, 2022, and to provide notices of the occurrence of certain enumerated events. Notwithstanding the foregoing, the City will file its fiscal year 2019-20 audited financial statements on the Municipal Securities Rulemaking Board through the Electronic Municipal Marketplace Access (“EMMA”) website as soon as it is available. The Annual Report and the notices of enumerated events will be filed by the City or its dissemination agent on EMMA. …
Prior Undertakings. During the past five years, the City has failed to timely file certain annual reports, notices of failure to file annual reports, and ntoices of rating changes required to be filed pursuant to several continuing disclosure agreements entered into by the City (the “Undertakings”).
The Undertakings require the City to file annually its audited financial statements and operating data (the “Annual Reports”), and certain listed material events.” Further, Resolution No. 25,387 which was approved by Council on December 8, 2020, adopted a Debt Management Policy and a policy for disclosure procedures. In this policy, in Section 6, “Debt Management and Administration”, it states, “The City Manager, or City Treasurer, and/or the City Controller, or his/her designee (the “Designated City Representative”), is hereby appointed as the City official responsible for the following:
Ensuring that the City’s debt is administered in accordance with its terms, federal and State law and regulations, and best industry practices.
Debt issuance including reviewing and recommending appropriate structures for new debt issuances
Debt management, including assigning staff with certain day-to-day responsibilities.
Working with the City Manager, City Controller and other staff deemed appropriate in formulating the City’s debt management plans, executing these plans, and ensuring appropriate debt management.
Keeping the City Council informed of the City’s debt-related activities through informational reports, briefings, or workshops. Select service providers as necessary to assist meet legal requirements, assist with the debt issuance, and minimize debt costs. Such providers may include bond and disclosure counsel, financial advisors, underwriters, trustees, verification agents, escrow agents, arbitrage consulting, special tax consulting, and other consultants as needed.
Staff Report
Willdan Financial Services
May 18, 2023
4 Communicating with rating agencies, investors, and other debt related service provides about the City’s financial condition
Review outstanding debt for refunding opportunities
Maintain compliance with the Investment Policy and disclosure requirements in the City’s Disclosure Policy”
STATEMENT OF THE ISSUE
In November 2021, the City entered into an agreement with Willdan to perform these bond disclosure and dissemination services for the Tax Revenue Bonds, Series 2021, however the agreement was later deemed invalid. Staff that was unaware of the invalidity of the agreement with Willdan continued to use Willdan’s disclosure services, until the discovery of the invalidity of the agreement.
At this time, City staff have deemed that the services performed by Willdan were satisfactory and consistent with the City achieving its goals for compliance with the continuing disclosure agreement.
Resolution No. 25,001, adopted by the City Council on April 23, 2019, the City Manager is authorized to expend up to $25,000.00 to any one single vendor in a fiscal year; however, Willdan Financial Services has reached the $25,000 expenditure threshold for Fiscal Year 2022-2023. In order for the City Manager to issue a purchase order to this vendor for prior professional services rendered, City Council’s approval is requested.
Additionally, staff has issued a Request for Proposal (RFP) to search for a firm to provide these bond-related-disclosure dissemination and posting services, which was closed on May 10th, 2023. This RFP received no responses, and therefore another RFP will be issued. Once the lowest responsible bidder is identified, staff will work to ensure that the agreement that gets signed will be reviewed and approved by the proper channels to avoid this situation in the future.
FISCAL IMPACT
A Purchase Order payable to Willdan Financial Services will be issued in the amount of Eight Thousand Eight-Hundred-Fifty Dollars ($8,850.00) Funds are available in the MTA Tax Bond Fund Account 3031-710-000-4262 as adopted in the Fiscal Year 2022-2023 Budget.
RECOMMENDATION
Staff recommends the adoption of the attached Resolution.
THOMAS THOMAS
CITY MANAGER
RESOLUTION NO. ________________
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF COMPTON
AUTHORIZING THE CITY MANAGER TO ISSUE A PURCHASE ORDER
TO WILLDAN FINANCIAL SERVICES FOR CDIAC, CONTINUING
DISCLOSURE, & ARBITRAGE SERVICES FOR SALES TAX REVENUE
BONDS, SERIES 2021 ($8,850)
WHEREAS, The City needs technical expertise in several disciplines to advance the goals and policies of the Mayor and Council in order to actively respond and implement bond disclosure requirements applicable to the City of Compton; and WHEREAS, In March of 2021 the City issued Tax Revenue Bonds, Series 2021.
As part of the agreements reached in the bond transaction, including the Continuing Disclosure Agreement, it was required that the City perform certain disclosures activities.
One of the required activities is to disseminate and post the required disclosures in a predetermined and designated location, also known as a municipal bond disclosure platform.
The City does not have the technical knowledge to efficiently perform these required postings. Therefore, the City is in need of an agent to disseminate and to post onto municipal bond platforms certain required disclosures related to its bond-related activity on an on-going basis.
WHEREAS, Per the Official Statement of the Tax Revenue Bonds Series 2021, “The City will covenant for the benefit of the Owners and beneficial owners of the Bonds to provide certain financial information and operating data relating to the City and to provide notices of the occurrences of certain enumerated events.
Pursuant to a Continuing Disclosure Agreement, dated as of March 1, 2021 (the “Continuing Disclosure Agreement”) by and between the City and Willdan Financial Services, as dissemination agent, the City has covenanted for the benefit of the holders and beneficial owners of the Bonds to provide certain financial information and operating data relating to the City (the “Annual Report”) no later than March 31 of each year, commencing March 21, 2022, and to provide notices of the occurrence of certain enumerated events. Notwithstanding the foregoing, the City will file its fiscal year 2019-20 audited financial statements on the Municipal Securities Rulemaking Board through the Electronic Municipal Marketplace Access (“EMMA”) website as soon as it is available. The Annual Report and the notices of enumerated events will be filed by the City or its dissemination agent on EMMA. …
Prior Undertakings. During the past five years, the City has failed to timely file certain annual reports, notices of failure to file annual reports, and notices of rating changes required to be filed pursuant to several continuing disclosure agreements entered into by the City (the “Undertakings”).
The Undertakings require the City to file annually its audited financial statements and operating data (the “Annual Reports”), and certain listed material events.” WHEREAS, Resolution No. 25,387 which was approved by Council on December 8, 2020, adopted a Debt Management Policy and a policy for disclosure procedures. In this policy, in Section 6, “Debt Management and Administration”, it states, “The City Manager, or City Treasurer, and/or the City Controller, or his/her designee (the “Designated City Representative”), is hereby appointed as the City official responsible for the following:
Resolution No. __________
Ensuring that the City’s debt is administered in accordance with its terms, federal and State law and regulations, and best industry practices.
Debt issuance including reviewing and recommending appropriate structures for new debt issuances
Debt management, including assigning staff with certain day-to-day responsibilities.
Working with the City Manager, City Controller and other staff deemed appropriate in formulating the City’s debt management plans, executing these plans, and ensuring appropriate debt management.
Keeping the City Council informed of the City’s debt-related activities through informational reports, briefings, or workshops. Select service providers as necessary to assist meet legal requirements, assist with the debt issuance, and minimize debt costs. Such providers may include bond and disclosure counsel, financial advisors, underwriters, trustees, verification agents, escrow agents, arbitrage consulting, special tax consulting, and other consultants as needed. Communicating with rating agencies, investors, and other debt related service provides about the City’s financial condition
Review outstanding debt for refunding opportunities
Maintain compliance with the Investment Policy and disclosure requirements in the City’s Disclosure Policy”
WHEREAS, In November 2021, the City entered into an agreement with Willdan to perform these bond disclosure and dissemination services for the Tax Revenue Bonds, Series 2021, however the agreement was later deemed invalid. Staff that was unaware of the invalidity of the agreement with Willdan continued to use Willdan’s disclosure services, until the discovery of the invalidity of the agreement. City staff have deemed that the services performed by Willdan were satisfactory and consistent with the City achieving its goals for compliance with the continuing disclosure agreement; and WHEREAS, pursuant to Resolution No. 25,001, adopted by the City Council on April 23, 2019, the City Manager is authorized to expend up to $25,000.00 to any one single vendor in a fiscal year; however
WHEREAS, Willdan Financial Services has reached the $25,000 expenditure threshold authorized for Fiscal Year 2022-2023; and
WHEREAS, in order for the City Manager to issue a purchase order to this vendor for services rendered City Council’s approval is requested; and WHEREAS, funds for this expenditure are available in the MTA Tax Bond Fund Account 3031-710-000-4262 adopted Fiscal Year 2022-2023 Budget.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF COMPTON DOES HEREBY RESOLVE AS FOLLOWS:
Section 1. That the City Manager is hereby authorized to issue a purchase order to Willdan Financial Services.
Section 2. That a purchase order payable to Willdan Financial Services will be issued in the amount of Eight Thousand Eight-Hundred-Fifty Dollars ($8,850.00). Funds Resolution No. __________
are available in the MTA Tax Bond Fund Account 3031-710-000-4262 as adopted in the Fiscal Year 2022-2023 Budget.
Section 3. That a copy of this Resolution shall be filed in the offices of the City Clerk, City Manager, City Attorney and City Controller.
Section 4. That the Mayor shall sign and the City Clerk shall attest to the adoption of this Resolution.
ADOPTED this ________ day of _________________, 2023.
MAYOR OF THE CITY OF COMPTON
ATTEST:
____________________________________
CITY CLERK OF THE CITY OF COMPTON
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES ) ss
CITY OF COMPTON )
I, Vernell McDaniel, City Clerk of the City of Compton, hereby certify that the foregoing Resolution was adopted by the City Council of the City of Compton, signed by the Mayor and attested by the City Clerk at a regular meeting thereof held on this ________ day of ___________________, 2023.
That said Resolution was adopted by the following vote, to wit:
AYES: COUNCILMEMBERSNOES: COUNCILMEMBERSABSTAIN: COUNCILMEMBERSABSENT: COUNCILMEMBERS- ___________ ___
CITY CLERK OF THE CITY OF COMPTON
CITY OF COMPTON
DEBT MANAGEMENT POLICY
INTRODUCTION
A properly managed debt program can promote economic growth and enhance a City by maximizing limited resources for quality public services. The purpose of the City of Compton (the “City”) Debt Management Policy (the “Policy”) is to establish guidelines for issuing and managing bonds and other forms of indebtedness associated with capital markets (including private placement and bank loans) and for the selection and management of financial services and products; to provide guidance regarding the appropriate use of debt and other repayment obligations of the City; and to comply with Government Code section 8855(i), which became effective January 1, 2017.
This Policy confirms the commitment of the Council, staff, management, and other decision makers to adhere to sound financial management practices, including full and timely repayment of borrowing and achieving the lowest possible cost of capital with prudent risk parameters.
This Policy will also apply to debt issued by the Compton Public Finance Authority, Compton Local Housing Authority, and any other public agency for which the City Council acts as the legislative body.
SECTION 1- POLICY OBJECTIVES
The Policy objectives are as follows:
1. To achieve lowest cost of capital and encourage prudent decision-making regarding debt issuance so that long-term financing commitments are affordable;
2. To ensure that all debt is structured to protect both current and future taxpayers, ratepayers, and City constituents;
3. To restore and protect the City’s credit rating, minimize the City’s borrowing costs, and avoid undue risk or burden;
4. To establish conditions of debt and to incorporate best practices into the City’s issuance and administration of its indebtedness while meeting the requirements of state and federal law and regulation, including federal requirements regarding disclosure and compliance with tax-exemption rules;
5. To ensure that the City’s debt is consistent with the City’s planning goals and objectives and capital improvement program or budget, as applicable;
6. To maintain good relations with investors in City debt; 93890239.2 2
SECTION 2- USES AND LIMITS ON INDEBTEDNESS
Debt is useful for financing capital projects too large for the annual budget. Debt allows the ability to share the cost of major improvements between current and future taxpayers and/or ratepayers. It also accelerates the delivery of a project compared to funding on a pay-as-yougo-basis. However, annual debt service represents a fixed cost that will compete with other expenditures in the City’s budget and cannot be deferred in any given year. In order to achieve the proper balance in its use of debt, the City will follow the following policy goals:
The City will not use debt to finance operating expenses, except to alleviate cash-flow timing issues within a fiscal year
The City may consider use of debt in the event of an extraordinary expense, such as the financing of a major judgment
The City may consider debt if an opportunity to restructure existing liabilities arises, such as with pension obligation bonds.
The City will plan for capital improvements and maintenance as part of its budgeting process, seeking to set funds aside in advance of need so that most capital projects can be financed on a “pay-as-you-go” basis, if funds are available and the projects can be completed over multiple years. In general, debt financing will be reserved for very large capital expenditures.
The City shall not incur obligations paid out of the General Fund where annual debt service exceeds Thirty percent (30%) of annual (fiscal year) General Fund appropriations. Debt that is backed by the General Fund but expected to be paid out of other revenues may be deducted from this calculation, provided that the City can identify a reliable record of collecting such revenues, net revenues after operating expenses provide reasonable coverage over debt service and the City expects that the available revenues will be at least sufficient to cover debt service for the remaining life of the obligations. This calculation of lease debt burden will be contained in any staff report recommending the approval of any such new obligations.
SECTION 3- TYPES AND SCOPE OF DEBT AND OTHER OBLIGATIONS This Policy governs the issuance and management of all debt and lease financing activity by the City, including bonds issued through the City’s financing authorities (the “Authorities”).
In order to maximize financial options to benefit the public, the City shall consider all generally accepted types of debt, including, but not limited:
Voter-approved indebtedness: The City can issue general obligation (GO) bonds with approval of 2/3 of those voting at an election, per the California law (the State Constitutional Debt Limit, which imposes certain requirements for debt specifically secured by property taxes) General obligation bonds are appropriate for constructing or improving property that benefit the public at large, such as libraries, parks and public safety facilities, if 2/3 voter approval is obtained at an election. The City could also 93890239.2 3
seek 2/3 approval of a parcel or other special taxes (levied on a basis other than assessed valuation) that could be used to secure debt service on bonds. Such bonds would be repaid out of a supplemental property tax, levied based on the value of property. Lease-Backed Debt/ General Fund lease obligations: Lease- Backed Debt allows a City to finance projects using a lease agreement with budgeted payments from the City’s general fund to secure the debt service. This type of debt obligation does not require voter-approval nor is there a legal limitation on the amount. Common examples of lease obligations are publicly offered lease revenue bonds, certificates of participations, or private placements (financing leases that are privately placed with a bank Although there is no legal debt limitation, there are practical budget limitations of debt affordability. The structures of these obligations are subject to various conditions articulated in the case law that established this exception to voter approval.
In addition, a City can incur other long-term obligations payable from general revenues that do not involve leases, including installment purchase agreements, judgment obligation bonds and pension obligations.
Cashflow borrowings: The City can issue Tax and Revenue Anticipation Notes that are repaid out of current fiscal year revenues to smooth any temporary cash shortages. Revenue Bonds/Enterprise revenue debt: Revenue Bonds are limited-liability obligations tied to a revenue stream from the financed project. Examples of projects that would be financed by a Revenue Bond would be water or wastewater improvements; these projects’ revenues from rates and charges fund the debt service.
These obligations come in the form of revenue bonds, certificates of participation, or State loans. The market requires that, if enterprise revenue debt is issued, the City maintain rates sufficient to pay operations and maintenance of the system and provide a measure of coverage of debt service. Generally, no voter approval is required to issue this type of obligation; however, the City might have to comply with Proposition 218 in regards to rate adjustment.
Special Assessment/ Special District Debt/Mello-Roos Special Tax bonds: The City can form assessment districts, with majority property-owner approval, to finance projects that provide special benefit to the property. Similarly, property-owners of undeveloped land can approve Mello-Roos special taxes or assessments to finance public improvements, generally referred to as land-secured debt. At the time any such debt is considered in the future, specific land-secured policies should be drafted for Council consideration, consistent with State law (for Mello-Roos districts) and best practices in order to protect bondholders and the City’s credit rating. Tax allocation bonds: Tax allocation bonds are special obligations that are secured by the allocation of tax increment revenues that are generated by increased property taxes in the designated redevelopment area. Tax allocations bonds are not debt of the City. 93890239.2 4
Conduit debt: Cities can also issue tax-exempt bonds to lend the proceeds to certain non-profit corporations and other activities. There are also various statewide authorities to facilitate such tax-exempt financing.
SECTION 4- METHOD OF SALE
Debt can be sold at a “public offering” through the sale of bonds, either through a competitive or negotiated sale, or through a private placement with a bank or other institution. Competitive bidding process- interested underwriters submit proposals to purchase an issue of bonds. Award is based on lowest offered true interest cost, among other things
Negotiated sale process- a selected underwriter, or team of underwriters, negotiate terms of an issue and sell bonds in municipal market. A negotiated sale is subject to approval by City to ensure that interest costs are in accordance with comparable market interest rates.
Private (or direct) placement sale- occurs when financing can or must be structured for a single or limited number of purchasers or where terms of private placement are more beneficial to the City than either negotiated or competitive sale.
The best method of sale depends on the type of security, credit factors, and market conditions.
The basis for the recommendation for the method of sale will be included in any staff report recommending the approval of any such new debt obligations. The City Manager or his/her designee shall determine the appropriate method of sale.
The City will consider a limited public offering or privately placing its debt for small and/or short-term borrowings or in instances where difficult credit or disclosure considerations or other special circumstances so warrant.
The City will consider the issuance of debt thru conduit issuers when the conduit issuer offers a financing program beneficial to the City which is cost effective or reduces associated administrative burdens.
SECTION 5- DEBT FINANCING TERMS AND STRUCTURE
The City Council acknowledges that any new debt obligation will have an impact on longterm affordability of all future planned debt and any existing debt. New debt obligation might also have budgetary impact regarding operating and maintenance costs of debt-financed facilities.
Long-term debt financing of capital projects will be amortized over a period no longer than the useful life of the assets being financed, and should not exceed thirty (30) years.
Debt service will generally be structured to be level over the length of the bonds. Alternate debt structures that wrap new debt around existing debt to achieve overall level debt service or other financial planning goals appropriate to the specific project may also be considered.
The dates for which debt service is scheduled (typically semi-annually) will take into account the revenues cashflows revenues that funds the debt.
93890239.2 5
Debt Service Reserve Fund- A debt service reserve fund provides an added measure of security to bond holders and may improve credit rating and lower borrowing costs.
Some transactions require a debt service fund, or the City may create one if determined to be beneficial. the City may fund a debt service fund out of bond proceeds no greater than the amount allowed under federal tax law or required by the market. The City may consider the ues of surety bonds, lines of credit, or similar instruments to satisfy reserve requirements.
Credit enhancement- The City will consider the use of credit enhancements such as bond insurance, surety bonds, letters of credit, if proven to be cost effective. Andon a case-by-case basis. The cost-benefit of insurance will be evaluated through the final maturity and through the first optional call date, recognizing that municipal bonds are commonly refunded prior to maturity. The City will consider the use of a surety policy in lieu of a cash funded reserve, but in doing so will consider estimated earnings on a cash funded reserve and the cost of replacing that surety at the time of a potential refunding, if applicable.
Capitalized Interest- In cases where funding interest payments out of bond proceeds during construction is required, such as lease revenue obligation. the City will consider leasing an existing municipal asset (an “asset transfer”) in order to reduce or eliminate the need to capitalize interest. In other occasions, the City will consider capitalizing interest after project completion when payment of debt service begins. Variable Rate Debt- To maintain a predictable debt service burden, the City will give preference to debt that carries a fixed interest rate. An alternative, variable rate debt, may pay interest rates that vary based on a pre-determined formula or results from a periodic remarketing of securities. It may be appropriate to issue variable rate debt to diversify the City’s debt portfolio, provide greater prepayment flexibility or improve the match of variable-rate assets (investments in the City’s treasury) to liabilities. The City's cost for administering variable rate debt, including the renewal or replacement of bank facilities, should be considered when comparing fixed and variable rate debt.
Other factors to consider are the life of the project or facility being financed, market conditions, credit risk, third party risk analysis, and overall debt portfolio structure. The City acknowledges variable rate debt may pass an unknown obligation onto future budget cycles. Prior to issuing variable rate bonds, the City shall amend or supplement this Policy to further address variable rate considerations. Disclosure- For all public sales of debt, the City will retain the services of disclosure counsel (who may also serve as bond counsel) to prepare the Official Statement to be used in connection with the offering and sale of debt. Appropriate staff will be asked to review this document for accuracy and completeness of material investor information. r. The City will make every effort to ensure the fullest disclosure possible in the City’s disclosure documents, including, seeking staff training in disclosure matters. A Preliminary Official Statement will be released to the market only after the completion of the "due diligence" meetings with appropriate staff and approval in form by the Council. Use of disclosure counsel may also be appropriate in private placements 93890239.2 6
in some circumstances. The City will comply with policies adopted from time to time by the City Council or the City Manager relating to compliance with federal securities laws and disclosure requirements.
Credit Ratings- The City seeks to acquire and maintain the highest possible credit rating when issuing debt. In addition, The City will work to increase ratings when the opportunity to do so exists. The Designated City Representative, in consultation with the Municipal Advisor and other members of the financing team, will seek credit ratings from at least one major credit rating agency on any given bond issue. The Designated City Representative will periodically communicate with the agencies rating the City’s debt so that they will remain well-informed. Derivatives- The City will not use interest rate swaps for its debt program unless a separate swap policy is approved by the City Council. The City may use derivative-like investment products to invest bond funds, but only upon staff’s analysis of the investment. This will be presented as part of the staff report that details financing and requires specific approval as part of the Council action. Refunding Bonds- The City will periodically review its outstanding debt portfolio to identify opportunities to achieve net economic benefits from refunding its bonds.
Recognizing that the City’s ability to refund its debt maybe limited, because of federal tax law constraints on advance refundings and the market practice of making most fixed-rate bond issues non-callable for their first ten years, the City will seek to deploy its refunding options prudently. The City will consider a refunding if there is a net economic benefit of at least three percent (3%) of net present value (“NPV”) savings.
A higher threshold may be warranted if the City does not receive 100% of the savings benefit (such as when refunding tax allocation bonds) and/or if it must incur significant non-contingent costs relative to the potential savings. The City may also consider a refunding for a non-economic purpose, including the change in covenant, call provisions, retirement of an indenture for more desirable covenants, operational flexibility, a change in tax status, or to change the type of debt instrument, or other noneconomic factors related to the debt
Partial Refunding- When it is practical to consider a partial refunding, the analysis will be performed on a maturity-by-maturity basis. Some factors to consider in this case would be: the length of the period before the call date (the longer the period the savings target would be higher the longer the period), the length of time after the call date (the target could be lower, due to savings being more difficult to attain with a shorter maturity), and any other factors that assist in considering the value of a call option.
When structuring its bond issues, the City will take into consideration the coupon structure of its debt (i.e., discount bonds or premium bonds that mature after the call date) and its impact on its option to execute a refunding. The City will also structure its bond issues with an optional call no longer than ten years from the date of issuance in order to accommodate the future potential for refunding An exception to this policy 93890239.2 7
would be a taxable bond issue, where the additional interest cost required for an optional call might outweigh the benefits.
Tax Exemption- The bond proceeds of tax-exempt bond issues are subject to various IRS rules and regulations. The IRS Tax Code Section 141 sets requirements of private activity tests regarding security and payment, private use, and private loan financing.
The City will take necessary actions to comply with tax law requirements applicable to each of the City’s tax-exempt issues, and will periodically review the specific post issuance compliance procedures identified in the tax documents for its tax-exempt financings.
The City will monitor and control the receipt, investment, expenditure, and use of all bond proceeds and will take action as necessary to cause interest on tax-exempt bonds to remain excludable from gross income of bond holders. Continuing Disclosure- Under the Securities and Exchange Commission Rule 15c2- 12, the City is required on an ongoing basis to provide certain financial and operating data to those who own or are interested in purchasing the City’s bonds and other securities. The City has entered into various continuing disclosure agreements and will be required to enter into them with new bond issues. The agreements require the filing of certain annual reports and certain notices of material events. The City will comply with policies adopted from time to time by the City Council or the City Manager relating to compliance with federal securities laws and disclosure requirements. Investment of Bond Proceeds- The City’s Investment Policy will govern the investments of bond proceeds. The Investment Policy hall be reviewed from time to time, with the requirements contained in the governing bond documents. The City will consult with legal counsel whenever investment agreements are used in connection with a tax-exempt bond issue to ensure that these investments comply with the requirements of Federal tax law.
Interfund Loans- In lieu of issuing bonds or otherwise borrowing from third-parties, there will be situations that the most appropriate means for the City to borrow money will be through a loan from a well-capitalized City fund. Such Interfund Loans can be seen as an alternative investment of temporarily surplus City funds, which normally would be invested at a short-term rate as part of the City’s pooled investment program.
In approving any new Interfund Loan, the City Council will adopt a resolution that sets forth the terms of the loan, which will include:
a. The interest rate that the loan will bear until repayment. Appropriate interest rates may be a rate that is reasonable for the City to meet the terms and conditions of the loan repayment.
b. The terms under which the loan will be repaid such as frequency of payment (monthly, semiannually, annually), interest calculation method (360/365, monthly, annually), date of repayment (first of the month, last day of the month, 93890239.2 8
etc.), no prepayment penalty, and allows for prepayment/early repayment/accelerated payment options and other payment terms. c. Periodic payment amount and the maturity date of the loan. d. A statement of such expectations so as to satisfy the federal tax law requirements for reimbursement bonds, if the loan will be repaid from the proceeds of tax-exempt bonds.
SECTION 6- DEBT MANAGEMET AND ADMINISTRATION
The City’s debt program shall conform with applicable state, federal, and other legal requirements. Debt obligations shall be presented to the City Council for their authorization with recommendations from the City Manager and/or other Designated City Representatives.
Departments involved in debt-financed capital programs shall work closely with the City Manager and/or other appropriate staff to provide information and assist in facilitating the issuance and on-going administration of debt.
The City Manager, or City Treasurer, and/or the City Controller, or his/her designee (the “Designated City Representative”), is hereby appointed as the City official responsible for the following:
Ensuring that the City’s debt is administered in accordance with its terms, federal and State law and regulations, and best industry practices. Debt issuance including reviewing and recommending appropriate structures for new debt issuances
Debt management, including assigning staff with certain day-to-day responsibilities.
Working with the City Manager, City Controller and other staff deemed appropriate in formulating the City’s debt management plans, executing these plans, and ensuring appropriate debt management.
Keeping the City Council informed of the City’s debt-related activities through informational reports, briefings, or workshops.
Select service providers as necessary to assist meet legal requirements, assist with the debt issuance, and minimize debt costs. Such providers may include bond and disclosure counsel, financial advisors, underwriters, trustees, verification agents, escrow agents, arbitrage consulting, special tax consulting, and other consultants as needed.
Communicating with rating agencies, investors, and other debt related service provides about the City’s financial condition
Review outstanding debt for refunding opportunities
Maintain compliance with the Investment Policy and disclosure requirements in the City’s Disclosure Policy
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SECTION 7- FINANCING PROFESSIONALS
The Designated City Representative, in consultation with the City Manager, will recommend to the City Council the various members of the financing team, based on prior experience, recommendations or a request for proposal process.
Bond and Disclosure Counsel- Bond counsel is a specialized legal practice responsible for drafting legal documents and providing necessary opinions and will be appointed for any financings. For all public sales of debt, the City will use the services of counsel to prepare the official statement. The Designated City Representative will recommend for City Council approval whether to select another law firm to provide the services of disclosure counsel or to assign such duties to bond counsel. In the case of limited public offerings, the Designated City Representative may authorize the underwriter’s counsel to draft the offering memorandum. Municipal Advisor- The municipal advisor is a consultant hired to assist the City in evaluating financing options, structuring of its debt offerings, making recommendations as to the method of sale, conducting competitive bond sales, and assisting with bringing negotiated bond sales to market, including making recommendations to the City on proposed interest rates, prices and yields in light of market conditions and the characteristics of the bonds. The City will retain the services of a municipal advisor on all private or publicly offered debt issues, unless the City Manager determines that retention of a Municipal Advisor is not necessary or appropriate for a particular debt issuance.
Underwriter- If the City decides to use a competitive sale method, the underwriter will be selected based on the best interest of the City. At those times that the City decides to issue its debt through a negotiated sale, it will select one or more underwriters. Trustee- The Designated City Representative shall recommend to the City Council the selection of a commercial banking firm as trustee in connection with any given financing.
Other financial professionals or firms may be required for particular bond issues. For example, a verification agent is typically necessary for refundings, while tax increment financings commonly require an independent fiscal consultant’s report.
SECTION 8- RELATIONSHIP OF DEBT TO CAPITAL IMPROVEMENT
PROGRAM
Because the City is committed to long-term capital planning, the debt the City issues will align with the standards of this Debt Policy as it implements the policy decisions incorporated in the City’s capital budget component of its annual budget. The City shall integrate its debt issuances with the goals of its capital improvement program by considering when projects are needed in furtherance of the City’s public purposes in determining the timing of debt issuance.
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The City shall seek to avoid the use of debt to fund recurring infrastructure and facilities improvements in circumstances when the primary purpose of such debt financing is to reduce annual budgetary expenditures, such as normal wear and tear.
The City believes that prudent amounts of debt can be an equitable and cost-effective means of financing major infrastructure and capital project needs of the City. The City will evaluate the benefit and risks of each proposed issue of new debt on a case by case basis, considering such factors as the City’s overall fiscal health, the potential impact of increased debt service on then current service levels and other long-term considerations such as funding requirements for pensions and other post-employment retirement benefits. The City will review debt limits in conjunction with any proposed financing. In general, debt may be considered to finance such projects if it meets the following minimum criteria:
It meets the City’s goal of distributing the payments for the asset over a substantial portion of its useful life so that benefits more closely match costs for both current and future residents.
The need for the project is compelling in terms of on-going cost savings or the needs for public safety or services, and the size of the project makes funding out of existing resources or near-term revenues impractical.
SECTION 9- INTERNAL CONTROL PROCEDURES
In addition to complying with the terms of this Debt Policy, the City shall comply with other applicable policies regarding bond disclosure, continuing disclosure, post-issuance compliance, and investment of bond proceeds. The City will periodically review the requirements of and will remain in compliance with SEC Rule 15c2-12 continuing disclosure undertakings, and federal tax compliance requirements, including arbitrage and rebate compliance, relating to prior bond issues. The City will use bond proceeds in accordance with stated purpose at time debt was issued.
The proceeds of debt will be held by a third-party trustee and the City will submit written requisitions for such proceeds. The City will submit a requisition only after obtaining the signature of the Designated City Representative. In those cases where the proceeds of debt are not to be held by a third-party trustee, the Designated City Representative shall be responsible for approving expenditures in the same manner as the approval for the expenditures for City revenues.
CONCLUSION
This Policy is intended to guide and regulate the City's issuance and administration of debt.
Due to changes in capital markets, the City’s needs, identification of other best practices, other unforeseen circumstances, the Policy should be reviewed and updated periodically in order to best achieve the City’s overall goals.
Any deviations from this Policy that is recommended by staff should be presented in a staff report transmitting the resolution for approval of the financing.
OFFERED ONLY TO QUALIFIED INSTITUTIONAL BUYERS
NEW ISSUE - BOOK-ENTRY ONLY INSURED RATING S&P: “AA”
UNDERLYING RATING: NOT RATED
See “CONCLUDING INFORMATION—Rating” herein
In the opinion of Co-Bond Counsel, under existing laws, regulations, rulings, and judicial decisions and assuming the accuracy of certain representations and continuous compliance with certain covenants described herein, interest on the Bonds is excludable from gross income under federal income tax laws pursuant to Section 103 of the Internal Revenue Code of 1986, as amended to the date of delivery of the Bonds, and such interest is excludable from federal alternative minimum taxable income as defined in Section 55(b)(2) of the Code. Co-Bond Counsel is further of the opinion that, under existing law, interest on the Bonds is exempt from State of California personal income tax. For a more complete description, see “TAX MATTERS” herein. $37,120,000
INDEPENDENT CITIES FINANCE AUTHORITY
(CITY OF COMPTON, CALIFORNIA)
SALES TAX REVENUE BONDS, SERIES 2021
Dated: Date of Delivery Due: June 1 as shown on the inside front cover page The Independent Cities Finance Authority (City of Compton, California) Sales Tax Revenue Bonds, Series 2021 (the “Bonds”), are being issued to (i) finance the design, acquisition, and construction of certain local roadway and street improvement projects (each a “Project” and collectively, the “Projects”) in the City of Compton (the “City”), (ii) fund a debt service reserve fund for the Bonds and (iii) pay the costs incurred in connection with the issuance of the Bonds.
The Bonds are payable from the Revenues, as defined herein, pledged under the Trust Agreement, as defined herein, consisting primarily of installment payments (the “Installment Sale Payments”) to be made by the City to the Independent Cities Finance Authority (the “Authority”) from Measure M Receipts, Measure R Receipts and Proposition C Receipts (collectively, the “Tax Revenues”), as defined herein, pursuant to an Installment Sale Agreement, as defined herein, and from certain funds held under the Trust Agreement. The City is required under the Installment Sale Agreement to make Installment Sale Payments in each fiscal year in an amount sufficient to pay the annual principal and interest due with respect to the Bonds, as described herein. See “SOURCES OF PAYMENT FOR THE BONDS” and “RISK FACTORS” herein. The Tax Revenues are the only source of payment of the Installment Sale Payments, and the City has covenanted to use the net proceeds of the Bonds to fund only Projects that constitute a Measure M Project, Measure R Project or Proposition C Project, as applicable, as described herein. Neither the general fund of the City nor any other moneys of the City are available to pay or secure the Installment Sale Payments or the Bonds.
Interest on the Bonds is payable semiannually on June 1 and December 1 of each year, commencing June 1, 2021, until maturity or earlier redemption. See “THE BONDS - General Provisions” and “THE BONDS - Redemption” herein.
Bond Insurance. The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Bonds by Assured Guaranty Municipal Corp. (the “Insurer”). See “BOND INSURANCE” herein.
THE BONDS ARE PAYABLE EXCLUSIVELY FROM THE REVENUES AND OTHER FUNDS AS IS PROVIDED IN THE TRUST AGREEMENT. THE GENERAL FUND OF THE AUTHORITY IS NOT LIABLE, AND THE CREDIT OF THE AUTHORITY IS NOT PLEDGED, FOR THE PAYMENT OF THE INTEREST AND PREMIUM (IF ANY) ON OR PRINCIPAL OF THE BONDS. THE PRINCIPAL
OF AND INTEREST ON THE BONDS, AND ANY PREMIUM UPON THE REDEMPTION OF ANY THEREOF, SHALL NOT BE A LEGAL
OR EQUITABLE PLEDGE, CHARGE, LIEN OR ENCUMBRANCE UPON ANY PROPERTY OF THE AUTHORITY OR UPON ANY OF ITS
INCOME, RECEIPTS OR REVENUES EXCEPT THE REVENUES AND OTHER FUNDS PLEDGED TO THE PAYMENT THEREOF AS PROVIDED IN THE TRUST AGREEMENT. THE AUTHORITY HAS NO TAXING POWER.
THE OBLIGATION OF THE CITY TO MAKE INSTALLMENT SALE PAYMENTS DOES NOT CONSTITUTE AN OBLIGATION OF THE
CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. NEITHER THE BONDS NOR THE OBLIGATION OF THE CITY TO MAKE INSTALLMENT
SALE PAYMENTS CONSTITUTES AN INDEBTEDNESS OF THE CITY, THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS OTHER THAN THE AUTHORITY WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.
THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY AND IS NOT A SUMMARY OF THE TRANSACTION. INVESTORS MUST READ THE ENTIRE LIMITED OFFERING MEMORANDUM TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION.
THE BONDS WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THE BONDS ARE BEING OFFERED ONLY TO QUALIFIED INSTITUTIONAL BUYERS.
The Bonds are being offered when, as and if issued, subject to the approval as to their legality by Butler Snow LLP, Atlanta, Georgia, and Stradling Yocca Carlson & Rauth, A Professional Corporation, Newport Beach, California, as Co-Bond Counsel. Certain legal matters will also be passed on for the City and the Authority by Butler Snow LLP, Atlanta, Georgia, and Stradling Yocca Carlson & Rauth, A Professional Corporation, as Co-Disclosure Counsel, and by the City Attorney. Certain legal matters will be passed on for the Authority by Best Best & Krieger LLP, Riverside, California. Certain legal matters will be passed on for the Underwriter by its counsel, Nixon Peabody LLP, Los Angeles, California. It is anticipated that the Bonds will be available for delivery through the book-entry facilities of The Depository Trust Company on or about March 25, 2021 (see “APPENDIX E - THE BOOK-ENTRY SYSTEM” herein).
The date of the Limited Offering Memorandum: March 11, 2021 63 The Municipal Advisor
Willdan Financial Services, Temecula California, has served as municipal advisor (the “Municipal Advisor”) to the Authority in connection with the Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness or fairness of the information contained in this Limited Offering Memorandum.
The Municipal Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities.
Continuing Disclosure
The Authority has determined that no financial or operating data concerning the Authority is material to any decision to purchase, hold or sell the Bonds and the Authority will not provide any such information.
The City will covenant for the benefit of the Owners and beneficial owners of the Bonds to provide certain financial information and operating data relating to the City and to provide notices of the occurrence of certain enumerated events.
Pursuant to a Continuing Disclosure Agreement, dated as of March 1, 2021 (the “Continuing Disclosure Agreement”), by and between the City and Willdan Financial Services, as dissemination agent, the City has covenanted for the benefit of the holders and beneficial owners of the Bonds to provide certain financial information and operating data relating to the City (the “Annual Report”) no later than March 31 of each year, commencing March 31, 2022, and to provide notices of the occurrence of certain enumerated events.
Notwithstanding the foregoing, the City will file its fiscal year 2019-20 audited financial statements on the Municipal Securities Rulemaking Board through the Electronic Municipal Marketplace Access (“EMMA”) website as soon as it is available. The Annual Report and the notices of enumerated events will be filed by the City or its dissemination agent on EMMA. The specific nature of the information to be contained in the Annual Report and the notice of material events is set forth in “APPENDIX C – FORM OF CONTINUING DISCLOSURE AGREEMENT” herein.
Prior Undertakings. During the past five years, the City has failed to timely file certain annual reports, notices of failure to file annual reports, and notices of rating changes required to be filed pursuant to several continuing disclosure agreements entered into by the City (the “Undertakings”).
The Undertakings require the City to file annually its audited financial statements and operating data (the “Annual Reports”), and certain listed material events. The Undertakings allow for the filing of unaudited financial reports, followed by the filing of audited financials, if the audited financial report is not available on the date of the filing deadline. As discussed under “CITY OF COMPTON—City Financial Statements and Internal Controls,” the City has not produced audited financial statements for Fiscal Years 2014-15 through 2016-17 and has no plans to produce audited financial statements for those years. As a result, the City filed only unaudited financial statements for Fiscal Years 2014-15, 2015-16 and 2016-17, on February 29, 2016, December 26, 2019 and December 26, 2019, respectively. Audited financial statements for Fiscal Years 2017-18 and 2018-19 were filed late on EMMA on January 9, 2020 and January 28, 2021, respectively. The City did not file any operating data as required by the respective Undertakings for its 16 (b) The City will prepare and file with the Trustee annually within six months after the close of each Fiscal Year or, if not then available, as soon thereafter as possible, audited financial statements of the City for the preceding Fiscal Year.
Section 5.08 Protection of Security and Rights of the Authority and the Trustee; Insurer. The City will preserve and protect the security hereof and the rights of the Authority and the Trustee to the 2021 Installment Sale Payments hereunder and will warrant and defend such rights against all claims and demands of all persons. The City further agrees to comply with the provisions of the Indenture applicable to it, including any provisions for the benefit of the Insurer.
Section 5.09 Further Assurances. The City will adopt, deliver, execute, and make any and all further assurances, instruments, and resolutions as may be reasonably necessary or proper to carry out the intention or to facilitate the performance hereof and for the better assuring and confirming unto the Authority of the rights and benefits provided to it herein.
Section 5.10 Continuing Disclosure. The City hereby covenants and agrees that it will enter into and comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of this 2021 Installment Sale Agreement, failure of the City to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default hereunder; however, the Trustee shall, at the written request of any Participating Underwriter (as defined in the Continuing Disclosure Agreement) or the Owner of at least 25% aggregate principal amount in Outstanding Bonds, or any Owner or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the City to comply with its obligations under this Section.
For purposes of this Section, “Beneficial Owner” means any person which has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries).
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
Section 6.01 Events of Default and Acceleration of Principal. If one or more of the following “Events of Default” shall happen, that is to say -- (1) if default shall be made in the due and punctual payment of any 2021 Installment Sale Payment when and as the same shall become due and payable; (2) if default shall be made by the City in the performance of any of the agreements or covenants contained herein required to be performed by it, and such default shall have continued for a period of 30 days after the City shall have been given notice in writing of such default by the Authority or the Trustee; (3) if the City shall file a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction shall approve a petition filed with or without the consent of the City seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the