DATE: May 15, 2024
TO: Council Budget and Finance Committee
FROM: Director of Finance
SUBJECT: Annual Review of City Issued Debt
RECOMMENDATION
That the Committee accepts this report on the status of City Issued Debt.
SUMMARY
This report provides an update of the City’s issued debt and includes the City’s most recent credit rating issued by Standard & Poor’s (S&P) Global in September 2023.
BACKGROUND
The City of Hayward, like most cities and municipal agencies, incurs and manages debt as part of the normal course of business, leveraging different financing instruments to provide immediate access to funding for significant capital projects, equipment, and other specific projects. City staff prepares informational sections included in the City’s annual budget document and the annual financial statements that include sections summarizing the City’s debt. Throughout the year, this information comes in various forms to the Council and the Committee; however, this report is meant to provide a comprehensive summary of the entire portfolio.
DISCUSSION
The City uses debt to finance the cost of capital improvements through various debt instruments (see list below). Debt service payments are generally made on an installment basis, typically annually or semiannually. This document contains debt service information for the General Fund and all other funds, including anticipated debt issuances that will be issued prior to the end of the fiscal year as have been approved by Council during the FY 2024 budget process or separate resolution. Debt service payments of previously issued debt, as well as planned issuances, are budgeted and approved annually by the Council – these obligations are funded through identified tax and/or fee supported revenues that include the General Fund, Enterprise Funds, and Internal Service Funds.
Debt Instruments – The City and Successor Agency of the Hayward Redevelopment Agency currently maintain the following types of debt:
Certificates of Participation
Private Placement Bonds
California Energy Commission (CEC) Loan
Lease-Purchase Agreements
State Water Resources Control Board (SWRCB) Loan
Special Tax Bonds (CFD only) & Limited Obligation Improvement Bonds (LID only) Tax Allocation Bonds (Successor Agency only)
Loans Payable (Energy Efficient Loan)
City-Issued Long-Term Debt
Debt as of 6/30/2024
Certificate of Participation
$42,747,856
Private Placement Bonds
$2,290,923
Lease-Purchase Agreements
$144,423
Special Tax Bonds (CFDs only) & Limited Obligation Improvement Bonds (LID only) $3,880,064
Internal Fund to Fund Loans
$2,778,361
Tax Allocation Bonds (Successor Agency Only)
$23,694,267
Total Government Activity Debt
$75,535,894
State Water Resources Control Board (SWRCB) Loan
$27,579,220
Loans Payable (Energy Efficient Loan)
$1,923,891
Total Business-Type Activity Debt
$29,503,111
Total City-Issued Long-Term Debt
$105,039,005
City-Issued Debt
Attachment II provides a basic summary of the debt the City currently maintains. The City’s Annual Comprehensive Financial Report (ACFR) and annual budget document both contain further detail on the various debt issuances with explanations of uses and sources of funds. Hayward is a charter city and, as such, legally does not have a debt limit. A useful tool for comparison to peer agencies, who are subject to this limit, is to calculate what the legal debt limit and margin would be if Hayward were a general law city. This calculation and information are described below.
Debt Limit & Margin
The legal bonded debt limit for the City is $4.4 billion. The City does not have any bonded debt that is subject to this limitation – resulting in a legal bonded debt margin of the entire $4.4 billion. However, if the City’s debts were subject to this limit, the City’s debt that would have been subject to the limit would be $61.9 million of outstanding debt, which is approximately $4.3 billion below the limit.
The City’s projected General Bonded Debt Outstanding as of June 30, 2024 will total $61.9 million and represents 0.21% of taxable property value or $382 per capita.
Debt Limit Computation (projected June 30, 2024) –
Total FY 2024 projected assessed valuation (less exemptions) $29,180,687,400
Debt limit (15% of assessed value)
$4,377,103,110
Amount of legal debt applicable to the debt limit
$61,933,279
Legal debt margin (if Hayward were a general law city)
$4,377,103,110
Amount above or (below) Legal Debt Margin
($ 4,315,169,831)
New Debt / Refunded Debt
In FY 2024, the City engaged with NHA Advisors, the City’s financial advisors on the refunding of the 2023 Refunding Certificate of Participation (2015 Certificates of Participation). Under market conditions at the time of analysis, NHA Advisors estimate net present value savings from a potential refunding of the 2015 Certificates of Participation (“2015 COPs”) to be approximately $1.7 million and the aggregate cash flow savings is estimated to be in excess of $10 million.
Credit Ratings
Credit ratings are opinions about credit risk; they are published by a rating agency that has analyzed the City’s ability and willingness to meet its financial obligations in accordance with the terms of the debt obligations. Credit ratings have a significant impact on the interest rate the City will pay when issuing debt. In August 2023, Fitch Ratings issued a rating of AA+ assigning a positive outlook primarily attributed to the City’s strong revenue growth prospects, moderate long-term liability burden, moderately-elevated fixed costs, and consistently strong reserves relative to expected revenue volatility and budget flexibility. A critical component of the rating agency review is the City’s financial management status - i.e., appropriate reserve levels, plans to reduce liabilities, fiscal policies, etc. If the City fails to maintain these areas of fiscal control, the City could see a reduction in future ratings.
In September 2023, as part of the City’s 2023 Refunding COPs, Standard & Poor’s (S&P) Global issued a rating of AA with a stable outlook. concluded that there should be no change to the existing rating or rating outlook.
ECONOMIC IMPACT
There is no economic impact associated with this report as it is informational only.
FISCAL IMPACT
The debt mentioned in this report was issued previously. This item is informational only so there is no direct fiscal impact related to its transmission to the Committee.
STRATEGIC INITIATIVES
This agenda item is a routine operational item and does not relate to any Council’s Strategic Initiatives.
SUSTAINABILITY FEATURES
There are no sustainability features associated with this report as it is informational only.
PUBLIC CONTACT
The agenda for this item was posted in compliance with the California Brown Act.
NEXT STEPS
Staff will continue to actively monitor the City’s debt levels and report annually to the Committee and City Council the funding status.
Prepared by: Nicholas Mullins, Sr. Management Analyst
Recommended by: Nicole Gonzales, Director of Finance
Approved by:
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Dustin Claussen, Interim City Manager