CITY OF HERCULES
M
unicipal Financial
Advisory Services
General Obligation Bonds vs. Lease Revenue Bonds
Credit Sectors
2 General Obligation Bonds
3 Overview
Annual tax levied on property tax roll in proportion to total assessed property values
2/3rds voter approval or 55% for certain school G.O. bonds (Proposition 39) Voters approve total bond amount and use of proceeds, not tax rate or annual payment
Advantages
Generates new revenue source to repay debt
Broad-based tax support for public improvements
Lowest interest cost due to ad valorem security and unlimited tax pledge Disadvantages
Time, expense and uncertain outcome of election
Property tax increase
When Used?
Typically for projects with broad political support – varies by community City Bond & Assessed Value History
City of Hercules Historical Assessed Value
Year Total Assessed Value % Change
2014 $2,432,594,373
2015 $2,864,065,832 17.74%
2016 $3,034,936,504 5.97%
2017 $3,279,462,767 8.06%
2018 $3,505,453,844 6.89%
2019 $3,654,869,380 4.26%
2020 $3,873,305,959 5.98%
2021 $4,113,845,828 6.21%
2022 $4,341,814,600 5.54%
2023 $4,506,106,654 3.78%
2024 $4,675,408,790 3.76%
Average 6.82%
Source: Urbics Analytics LLC
The City’s tax base has grown by 92% since 2014
The City’s 2023-24 assessed value is approximately $4.7 billion; the average annual AV growth rate is
6.8%
4 General Obligation Bond Proceeds
The City can generate between $27.9 million and $44.0 million With projected annual assessed value growth of 3.50%, the City of Hercules can generate up to $44.0 million
At more aggressive growth rates or a longer bond program, the City could generate up to $50.0 million
Depending on tax rate selected and assessed value assumptions, the City can generate significant proceeds
City of Hercules Bond Proceeds at Varying Tax Rates (1) Tax Rate per Series A Series B Series C Total Bond
$100,000 of A.V. 2025 2027 2029 Proceeds
$19.00 $9,200,000 $8,800,000 $9,900,000 $27,900,000
$25.00 $12,100,000 $11,600,000 $13,000,000 $36,700,000
$30.00 $14,400,000 $14,000,000 $15,600,000 $44,000,000
(1) Assumes AV growth of 3.50% and 30 year bond terms; Preliminary – Subject to change Source: Urban Futures, Inc.
5 Lease Revenue Bonds
6 Overview
Lease-leaseback structure with third-party entity
Issuer covenants to appropriate annual lease payments from general fund May be structured as lease revenue bonds or “certificates of participation” (“COPs”) Not subject to constitutional debt limits
Advantages
No voter approval required
Fairly quick financing process
Disadvantages
Requires leasable essential assets of value ≧ borrowing amount Competes with other general fund priorities
When Used?
For projects of general community benefit
To indirectly leverage a general fund revenue stream To provide “credit enhancement” for less credit-worthy borrowing or for desired “risk- sharing”
City General Fund Obligations
7 The City has two series of Lease Revenue Bonds outstanding 2009 Taxable Lease Revenue Bonds debt service is paid by Bio-Rad 2020 Lease Revenue Refunding Bonds
Encumbers Civic Center
Annual debt service approximately $562,000
Series Dated Date Outstanding Par Coupon Range Tax Status Final Maturity Call Date General Fund Obligations
2009 Taxable Lease Revenue Bonds (Bio-Rad)* Jul 2009 $7,930,000 7.00%-8.40% Taxable Jul 2038 Jul 2019 2020 Lease Revenue Refunding Bonds Aug 2020 $5,490,180 2.210% Tax-Exempt Dec 2033 Any Time H.E.L.P Loan Apr 2005 $1,363,521 1.500% * Apr 2027 *
R.D.L.P Loan Feb 2007 $3,750,000 1.500% * Aug 2026 *
Engie Energy Conservation Loan Aug 2020 $4,000,642 2.710% Tax-Exempt Sep 2040 * Total $22,534,343
*Lease Payments from Bio-Rad
Sales Tax Measure
8 The City of Hercules’ current sales tax rate is 9.25%, and the cap for Contra Costa County is currently 9.75%, which means that the City has remaining capacity of 0.50%. In 2022, the City received approximately $2 million in Measure B Sales Tax Revenue; using that as a proxy, the City could generate approximately $1 million per 0.25% of additional sales tax. If voters approve a 0.50% sales tax measure with no sunset, the City could issue 30-year Lease Revenue Bonds that could generate approximately $30.7 million in total bond proceeds. Alternatively, the City could allocate half the projected sales tax revenue for debt service (generating approximately $15.2 million in bond proceeds), and the other half (i.e., $1 million/year) could be used for other General Fund purposes.
City of Hercules Bond Proceeds at Varying Tax Rates (1) Additional 2025 2027 2029 Total Bond
Tax Rate Series Series Series Proceeds
0.25% $10,000,000 $5,230,000 -- $15,230,000
0.50% $10,680,000 $10,000,000 $10,000,000 $30,680,000
(1) Assumes sales of taxable goods remains consistent; Preliminary, subject to change.
Source: Urban Futures, Inc.
Comparison of Financing Options
9 Given the repayment of GO Bonds is based on the unlimited ad valorem tax, they are a lower cost of financing than Lease Revenue Bonds
The table below compares the cost of financing a $10 million project with GO Bonds versus Lease Revenue Bonds
Lease Revenue Bonds
General Obligation
Bonds
Par Sold $10,515,000 $10,200,000
Project Fund Deposit $10,000,000 $10,000,000
TIC 4.89% 4.79%
Net Payments $20,041,725 $19,188,542
Avg Ann Payment $679,381 $661,674
Repayment Ratio 1.9x 1.9x
Final Payment Aug 2053 Aug 2053
Notes: TIC = average interest rate for the term of the bonds; Assumes current market rates; A rated LRBs / A+ rated GOBs; 30-year terms
14 Regulatory Disclosure
Disclosure of Conflicts of Interest and Legal or Disciplinary Events. Pursuant to Municipal Securities Rulemaking Board (“MSRB”) Rule G-42, on Duties of Non-Solicitor Municipal Advisors, Municipal Advisors are required to make certain written disclosures to clients and potential clients which include, amongst other things, Conflicts of Interest and any Legal or Disciplinary events of Urban Futures, Inc. (“UFI”) and its associated persons.
Conflicts of Interest. Compensation. UFI represents that in connection with the issuance of municipal securities, UFI may receive compensation from an Issuer or Obligated Person for services rendered, which compensation is contingent upon the successful closing of a transaction and/or is based on the size of a transaction. Consistent with the requirements of MSRB Rule G-42, UFI hereby discloses that such contingent and/or transactional compensation may present a potential conflict of interest regarding UFI’s ability to provide unbiased advice to enter into such transaction. This conflict of interest will not impair UFI’s ability to render unbiased and competent advice or to fulfill its fiduciary duty to the Issuer.
It should be noted that other forms of compensation (i.e. hourly or fixed fee based) may also present a potential conflict of interest regarding UFI’s ability to provide advice regarding a municipal security transaction. These other potential conflicts of interest will not impair UFI’s ability to render unbiased and competent advice or to fulfill its fiduciary duty to the Issuer.
Other Municipal Advisor Relationships. UFI serves a wide variety of other clients that may from time to time have interests that could have a direct or indirect impact on the interests of another UFI client. These other clients may, from time to time and depending on the specific circumstances, have competing interests. In acting in the interests of its various clients, UFI could potentially face a conflict of interest arising from these competing client interests. UFI fulfills its regulatory duty and mitigates such conflicts through dealing honestly and with the utmost good faith with its clients.
If UFI becomes aware of any additional potential or actual conflict of interest after this disclosure, UFI will disclose the detailed information in writing to the issuer or obligated person in a timely manner.
Legal or Disciplinary Events. UFI does not have any legal events or disciplinary history on UFI’s Form MA and Form MA-I, which includes information about any criminal actions, regulatory actions, investigations, terminations, judgments, liens, civil judicial actions, customer complaints, arbitrations and civil litigation. The Issuer may electronically access UFI’s most recent Form MA and each most recent Form MA-I filed with the Commission at the following website: www.sec.gov/edgar/searchedgar/companysearch.html.
There have been no material changes to a legal or disciplinary event disclosure on any Form MA or Form MA-I filed with the SEC. If any material legal or regulatory action is brought against UFI, UFI will provide complete disclosure to the Issuer in detail allowing the Issuer to evaluate UFI, its management and personnel.