EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: September 5, 2023
TO: Honorable Mayor and Members of the City Council
VIA: Melvin E. Gaines, City Manager
BY: Karen Camacho, Housing & Economic Development Manager Amy Chen, Community & Economic Development Director
SUBJECT: TEFRA Public Hearing Regarding Conduit Financing for the Colibri Commons Apartments
Recommendation
1. Conduct the public hearing under the requirements of the Tax Equity and Fiscal Responsibility Act (“TEFRA”) and the Internal Revenue Code of 1986, as amended (the “Code”); and
2. Adopt the resolution approving the issuance of the Bonds by the CMFA for the benefit of , MP CANDO Weeks Street, LLC, a California limited liability company (the “General Partner”), an affiliate of MidPen Housing Corporation, a California nonprofit benefit corporation, and East Palo Alto Community Alliance and Neighborhood Development Organization (collectively, the “Sponsor”), on behalf of MP 965 Weeks Street Associates, L.P., a California limited partnership, or another ownership entity to be formed by the General Partner or another affiliate of the Sponsor (such limited partnership or other ownership entity, the “Borrower”), to provide for the financing of the Project, such adoption is solely for the purposes of satisfying the requirements of TEFRA, the Code and the California Government Code Section 6500 et seq; and
3. Authorize the Mayor or designee to execute the Joint Exercise of Powers Agreement with the CMFA.
Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
· Promote Housing, Economic and Workforce Development
Background
Colibri Commons Affordable Housing Project
Colibri Commons is an affordable housing development project at the 2.52-acre property at 965 Weeks Street with 135 units ranging from 30% to 60% Area Median Income (AMI) and one manager unit that will be developed by the Borrower.
The Borrower, has requested that the California Municipal Finance Authority (CMFA) undertake a plan of finance, including the issuance of revenue bonds in the maximum principal amount of $75,000,000 (the “Bonds”), to finance and refinance (1) the costs of the acquisition, development, construction and equipping of a 136-unit qualified residential rental project (the “Project”) to be located at 965 Weeks Street, on a site generally situated east of Clarke Avenue, south of Bay Road and west of Pulgas Avenue, within the city of East Palo Alto, California, and to be owned and operated by the Borrower; and (2) pay certain expenses in connection with the issuance of the Bonds.
In order for all or a portion of the Bonds to qualify as tax-exempt bonds, the City of East Palo Alto (the “City”) must conduct a public hearing under the Tax and Equity Fiscal Responsibility Act (“TEFRA”) providing for the members of the community an opportunity to speak in favor of or against the use of tax-exempt bonds for the financing of the Project. Prior to such TEFRA Hearing, reasonable notice must be provided to the members of the community. Following the close of the TEFRA Hearing, an “applicable elected representative” of the governmental unit hosting the Project must provide its approval of the issuance of the Bonds for the financing of the Project.
Analysis
The City of East Palo Alto (“City”) must conduct a TEFRA Hearing in connection with the proposed issuance of a revenue note by the California Municipal Finance Authority (the “CMFA”), a joint exercise of powers authority and public entity of the State of California, in an amount not to exceed $75,000,000, (the “Bonds”), to finance and refinance the costs of the acquisition, development, construction and equipping of a 136-unit qualified residential rental project (the “Project”) to be located at 965 Weeks Street, on a site generally situated east of Clarke Avenue, south of Bay Road and west of Pulgas Avenue, within the city of East Palo Alto, California.
The City must also adopt a resolution to become a member of the CMFA and to approve the financing of the Project by the CMFA.
California Municipal Finance Authority
The CMFA was created on January 1, 2004 pursuant to a joint exercise of powers agreement to promote economic, cultural and community development, through the financing of economic development and charitable activities throughout California. To date, over 350 municipalities have become members of CMFA.
The CMFA was formed to assist local governments, non-profit organizations and businesses with the issuance of taxable and tax-exempt bonds aimed at improving the standard of living in California. The CMFA’s representatives and its Board of Directors have considerable experience in bond financings.
Execution Of The Joint Exercise Of Powers Agreement
In order for the CMFA to have the authority to serve as the issuer of the bonds for the Project, it is necessary for the City of East Palo Alto to become a member of the CMFA. Attached to this report is a copy of the Joint Exercise of Powers Agreement to be executed by a designated signatory of the City.
The Joint Exercise of Powers Agreement provides that the CMFA is a public entity, separate and apart from each member executing such agreement. The debts, liabilities and obligations of the CMFA do not constitute debts, liabilities or obligations of the members executing such agreement.
The Bonds to be issued by the CMFA for the Project will be the sole responsibility of the Borrower, and the City will have no financial, legal, moral obligation, liability or responsibility for the Project or the repayment of the Bonds for the financing of the Project. All financing documents with respect to the issuance of the Bonds will contain clear disclaimers that the Bonds are not obligations of the City or the State of California but are to be paid for solely from funds provided by the Borrower.
There are no costs associated with membership in the CMFA and the City will in no way become exposed to any financial liability by reason of its membership in the CMFA. In addition, participation by the City in the CMFA will not impact the City’s appropriations limits and will not constitute any type of indebtedness by the City. Outside of holding the TEFRA Hearing, adopting the required resolution and executing the Joint Exercise of Powers Agreement of the CMFA, no other participation or activity of the City or the City Council with respect to the issuance of the Bonds will be required.
The Joint Exercise of Powers Agreement expressly provides that any member may withdraw from such agreement upon written notice to the Board of Directors of the CMFA. In the case of the proposed bond financing for the Borrower, the City following its execution of the Joint Exercise of Powers Agreement, could, at any time following the issuance of the Bonds, withdraw from the CMFA by providing written notice to the Board of Directors of the CMFA.
Next Steps
At conclusion of the TEFRA Hearing, if staff recommendation is accepted, City staff will execute the Joint Exercise of Powers Agreement of the CMFA, and adopt the resolution in favor of the issuance of the Bonds by the CMFA.
Fiscal Impact
There is no negative fiscal impact to the City. The Board of Directors of the California Foundation for Stronger Communities, a California non-profit public benefit corporation (the “Foundation”), acts as the Board of Directors for the CMFA. Through its conduit issuance activities, the CMFA shares a portion of the issuance fees it receives with its member communities and donates a portion of these issuance fees to the Foundation for the support of local charities. With respect to the City of East Palo Alto, it is expected that that a portion of the issuance fee attributable to the City will be granted by the CMFA to the general fund of the City. Such grant may be used for any lawful purpose of the City.
Public Notice
The public was provided notice of this agenda item by posting the City Council agenda on the City’s official bulletin board outside City Hall and making the agenda and report available on the City’s website. Per 26 U.S.C § 147 (Internal Revenue Code of 1986), including its implementing regulations, reasonable public notice was also provided in the August 25, 2023 Palo Alto Daily News.
Environmental
In accordance with California Environmental Quality Act (CEQA), a Mitigated Negative Declaration has been prepared with an Initial Study. Prior to approving the DDLA the City Council approved the Mitigated Negative Declaration on December 16, 2019. There have been no changes to the project that would warrant conducting additional environmental review pursuant CEQA guidelines 15162. Accordingly, there were no significant CEQA issues that could not be mitigated to a less than significant level and staff has incorporated conditions of approval and mitigation measures accordingly.
Attachments
1. Resolution
2. CMFA JPA Agreement