CITY COUNCIL STUDY
SESSION - POLICE
FACILITY
AGENDA
5:00 PM - Tuesday, February 22, 2022
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AGENDA
MEETING CALLED TO ORDER
CONFIRM QUORUM
PUBLIC COMMENT ON AGENDA ITEM(S)
1 2/22/2022 CITY COUNCIL STUDY SESSION - POLICE FACILITY AGENDA Page 2 of 2
DISCUSSION ITEM(S)
1. Los Altos Police Facility: Receive update from Subcommittee and discuss potential improvements and funding sources
ADJOURNMENT
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On occasion the City COuncil may consider agenda items out of order. 2 Reviewed By:
City Manager City Attorney Finance Director
__GE__ __JH__ __JF__
AGENDA REPORT SUMMARY
Meeting Date: February 22, 2022
Subject To advise the Council and the public of the Police Facility Subcommittee’s work to date.
Prepared by: Police Facility Subcommittee, Vice Mayor Meadows and Councilmember Weinberg
Attachment(s):
1. Police Facility Subcommittee Report
Initiated by:
City Council
Previous Council Consideration:
None
Fiscal Impact:
There is no fiscal impact. This is a report and discussion item only.
Environmental Review:
N/A
Policy Questions for Council Consideration:
Please see the attached report from the Subcommittee.
Summary
SUBCOMMITTEE’S RECOMMENDATION: The Subcommittee recommends that the Council direct staff to prepare a ballot measure for the November, 2022 general election proposing a public facilities bond in the form of a property tax. 3 Agenda Item 1.
Attachment 1
1 PURPOSE OF TODAY’S MEETING: To advise the Council and the public of the Police Facility Subcommittee’s work to date.
SUBCOMMITTEE’S ASK: (1) Determine whether the City should place a Public Facilities Improvement tax on the
November, 2022 ballot.
(2) Determine the source to support the tax.
(3) Authorize staff to:
(a) engage the services of professional advisors;
and
(b) allocate $200,000 from the general fund to
retain those advisors (a municipal advisor,
bond counsel, a ballot measure consultant, and
a pollster).
SUBCOMMITTEE’S RECOMMENDATION: The Subcommittee recommends that the Council direct staff to prepare a ballot measure for the November, 2022 general election proposing a public facilities bond in the form of an ad valorem property tax.
The Subcommittee also believes that a parcel tax is a viable, second choice.
SUBCOMMITTEE’S PROCEDURAL ADVICE: Council should consider and discuss the questions presented and then make its determinations and authorizations at its next regularly scheduled meeting (March 8, 2022).
Subcommittee’s Meetings to Date:
December 6, 2022: Meeting with staff
December 9, 2022: Meeting with staff and investment bankers December 17, 2022: Meeting with staff
4 Agenda Item 1.
Attachment 1
2 January 28, 2022: Meeting with staff and investment bankers February 3, 2022: Meeting with staff
February 15, 2022: Meeting with staff and City Attorney February XX, 2022: The Subcommittee anticipates meeting with staff at least once or twice more after the submission of
this report but prior to the Council’s study session
on February 22.
The Subcommittee has also met informally as needed.
I. OVERVIEW
To raise money for a capital project, Los Altos has the option to issue municipal bonds. A municipal bond is a security investment issued by the City and purchased by investors. Municipal bonds are often considered very low risk, and therefore deliver a relatively low return to investors. However, the gain realized by the investors has favorable income tax treatment, making municipal bonds an attractive investment.
One of the advantages to the City to raise capital through a bond as opposed to a commercial loan is that a commercial lender will charge a higher rate of interest. In other words, it is more expensive to borrow money from a commercial lender than to issue bonds.
Bonds must be issued and marketed through the services of an investment banker.
The investment banker handles the process on behalf of the City, from issuance through sale. Based on the City Manager’s prior dealings with them, the City Manager and the City Attorney recommend that Los Altos use the services of Stifel Public Finance (“Stifel”). The Subcommittee and staff have met twice with Stifel and have confidence in their ability and expertise to serve the City.
To issue municipal bonds, the City must have a reliable source of income to ensure that the bonds will be appropriately serviced. Typically, a municipality either (1) 5 Agenda Item 1.
Attachment 1
3 increases an existing tax; or (2) establishes a new tax to create the new stream of revenue needed to support the bond.1
II. GENERAL VS. SPECIAL TAX
Assuming the Council desires to proceed with a bond measure, we must determine whether to seek a general tax (money is raised for the general fund) or a special tax (money is earmarked for a project). Either tax must be approved by the voters; they cannot be imposed by the Council.
A. Election Timing:
Absent an emergency declaration by the City Council, a general tax may only appear on a ballot that is also an election for council seats.
A special tax may appear on any ballot.
B. Advisory Measure:
Some municipalities have placed a tax measure and an advisory measure side-by-side. The advisory measure is used as a referendum by the City Council to obtain voter direction as to how tax revenue should be used. Assuming both measures pass, the Council is not earmarking general funds for a specific project; but, the Council has advice from the voters as established by the advisory measure.
III. SOURCES OF TAX REVENUE
Stifel identified five (5) sources of tax revenue Los Altos could use to generate funds to support a bond:
• Property tax
• Special tax
1 While the new tax must be structured so as to generate enough revenue to pay the bond, Los Altos has several options with respect to the new tax. A new tax could (1) be limited to generating a fixed amount of revenue; (2) sunset after a period of time; or (3) last in perpetuity. 6 Agenda Item 1.
Attachment 1
4 • Sales tax
• Parcel tax
• Utility user tax
While there are other sources of tax revenue available (such as a transient occupancy tax, etc.), Stifel does not anticipate that they will generate enough revenue annually.
The following chart is reproduced from Stifel’s presentation to the Council Subcommittee:
Property Tax Special Tax Sales Tax Parcel Tax Utility User Tax
Description Ad valorem
property tax
based on a
percentage of
assessed value
(NOT fair
market value)
Special Tax
Levied on
Property
Tax Bill
Tax on
Goods and
Services at
the Point of
Purchase
Tax can be flat
(regressive) or
based on
characteristics
of a parcel
(e.g., square
footage, etc.)
Tax on
consumption
of utility
services (e.g.,
water, sewer,
trash, gas,
cable, etc.)
Voter
Approval
2/3 2/3 50%+1 2/3 50%+1
Argument
in Favor
Lowest annual
cost; least
impact for
residents on
fixed income
Can be
tailored
equitably;
annual
payments
typically
consistent
over life
Simple
majority
needed to
pass;
unrestricted
revenue
source
Potentially
more
equitable than
other taxes
Simple
majority; city
has relatively
low UUT rates
of about 2.5%
- 3.5% (CA
average is 4%
- 6%)
Argument
Against
Requires 2/3
threshold;
penalizes new
residents
Requires
2/3
threshold;
relatively
lengthy
process;
more
expensive
than GO
bonds
Los Altos’
modest
sales tax
base might
not generate
meaningful
revenue
Requires 2/3
threshold;
penalizes
older
residents; and
those on fixed
incomes
(though
exemptions
are possible)
Regressive;
hardest on
those with
fixed incomes
(though
exemptions
are possible)
7 Agenda Item 1.
Attachment 1
5 Who Votes Registered
Voters
Property
Owners
Registered
Voters
Registered
Voters
Registered
Voters
General or
Special Tax
Special Tax
Only
Special Tax
Only
Either Either Either
Collection
Method
County
Property Tax
Bill
County
Property
Tax Bill
Point of Sale County
Property Tax
Bill
Utility Tax Bill
Council
Approval
Majority Majority 2/3 2/3 2/3
Bond
Approval
Included in
Tax Vote?
Yes No No No No
Type of
Bond
General
Obligation
(GO) Bonds
Special Tax
Bonds *
Lease
Revenue
Bonds **
Lease Revenue
Bonds **
Lease
Revenue
Bonds **
* Secured solely by special tax revenues paid by property owners. No general fund banking. ** Secured by general fund (city) backing. To avoid additional voter approval, city-owned assets must be leased. (This is the same structure as our existing loan for the community center.) City staff has not made a recommendation as to which tax the Council should select to support a bond measure.
IV. AMOUNT THE CITY WILL NEED TO BORROW
City staff is working on a rough cost estimate to build a new police facility. Recently, the City of Campbell built a new police station at their civic center. Campbell’s facility cost about $30 million. The two-story facility appears to be simple in design but functional. The total amount to be raised will depend on Council’s ambitions with respect to the scope of what we want to accomplish with the bond.
V. SCOPE OF BOND
After careful deliberation, the Subcommittee urges the Council to consider the City’s public safety needs beyond replacing the police station. The Santa Clara 8 Agenda Item 1.
Attachment 1
6 County Fire Department estimates that within about five years, the roof on the Almond Avenue Fire House must be replaced. Within five years after that, the Department estimates that the Fremont Avenue Fire House will also need a new roof.
Funds are needed for other capital projects for which the Council has expressed interest. The library, city hall, the MSC and parts of the Grant Park community center are all in various states of disrepair; funds can be used to upgrade our amenities and make them more ADA compliant and accessible. The City’s IT division is in a portable. For public safety and the safety of our first responders and staff, seismic upgrades are needed in our older facilities.
Increasing the scope of the bond means that the City is borrowing more money, thereby increasing the amount of the tax or extending the tax for a longer period of time. See Appendix A.
A possible benefit to increasing the scope of the bond is that it has the potential to appeal to a broader segment of the electorate. A plan to raise funds to expand the library will appeal to supporters of the library. But as the proposed tax increase grows, so will the motivation of those opposed to increased taxes.
VI. CEQA
Depending on the type and/or purpose of the proposed tax, a ballot measure may be subject to CEQA. Bond counsel will advise whether a companion advisory measure affects that assessment.
Even if CEQA is not required for the ballot measure, a new capital project is subject to the normal CEQA requirements prior to construction.
VII. OTHER ISSUES TO CONSIDER
A. Cost to Borrow.
Stifel and city staff informed the Subcommittee that Los Altos is expected to have the best or second-to-best credit worthiness rating available to 9 Agenda Item 1.
Attachment 1
7 municipal agencies (AAA or AA). This would make our bonds attractive to investors and allow us to issue them at interest rates favorable to the City.
However, as interest rates continue to rise, so will the rate of interest Los Altos attaches to its bond. In other words, as interest rates rise, so does the cost of borrowing money (whether through a bond or a commercial loan). If the Council anticipates that interest rates will continue to rise over the foreseeable future, then it behooves the Council to obtain voter approval as quickly as possible. See Appendix A.
B. Cost to Bring a Measure to Ballot.
The Council should expect that the cost to bring a measure to the ballot will be at least $200,000 - $300,000. These are up-front costs that will have to be paid by the City prior to the election regardless of the outcome of the election. They include (but are not limited to):
• Bond counsel;
• Administrative fees to the County to place the measure on the ballot and administer the election process; and
• Consultant fees.
In accordance with industry standards, Stifel will charge the City a fee for its services, but those fees are contingent on the measure passing.
VIII. NEXT STEPS
The City needs to engage the services of the following professionals to move forward with a ballot measure:
Pre-Passage of Ballot Measure After Passage of Ballot Measure Investment Banker • Team management • Team management
10 Agenda Item 1.
Attachment 1
8 • Provides strategy and input
on ballot measure
• Bond feasibility based on
revenue measure
• Structure and sell the bonds
Bond Counsel • Provides legal guidance on
ballot measure qualification
and approval thresholds
• Drafts resolutions and
council actions to place the
measure on the ballot
• Provide draft documents
and legal opinions
necessary to issue bonds
Campaign Consultant • Develops public
information campaign
• Provides strategy and input
on the ballot measure
Polling Company • Develops polling survey
• Conducts polls and
provides analysis / report
for polling results
• Provides data used by the
City and its consultants to
determine the best strategy
to achieve ballot measure
success
Financial Advisor • Provides strategy and input
on the ballot measure
• Helps determine ballot
measure suitability
• Helps determine bond
suitability for the City
• Reviews and certifies bond
terms and rates
The information for this table was provided by Stifel.
IX. CALENDAR
Feb. / March, 2022 Council Direction on Tax Measure
April – June, 2022 Community Engagement and Public Outreach • Workshops
11 Agenda Item 1.
Attachment 1
9 • Polling and surveys
June 28, 2022 Council Resolution to Place Measure on Ballot August 12, 2022 Ballot Submission Deadline
• Ballot Measure Text (75 Word Limit)
• Resolution
• Ordinance
• Tax Rate Statement (if applicable)
November 8, 2022 Ballot Measure Election Day
February, 2023 Issue Bonds
Summer, 2023 Begin Construction
X. SUMMARY
Based on the foregoing, the Police Facility Subcommittee recommends that the Council move forward with a Public Facilities Bond supported by an ad valorem property tax on the November, 2022 ballot. Passage will require a two-thirds majority vote of the electorate. In the alternative, the Subcommittee recommends that the Council move forward with a parcel tax.
The Subcommittee recognizes that this report is dense and anticipates that the Council will engage in a robust discussion. Scheduling a vote in two weeks allows Council Members and the public an opportunity to carefully consider the information presented in this report and the Subcommittee’s recommendations.
Finally, while none of the proposed taxes discussed herein require a unanimous decision from the Council to move forward, the Subcommittee strongly recommends that the City proceed with a ballot measure only if there is unanimous consent to do so. Members of the Subcommittee believe that the success of a ballot measure depends upon unanimous and unequivocal Council support and leadership.
12 Agenda Item 1.
Attachment 1
10 APPENDICES
The following appendices are attached to this report:
Appendix A............. Estimated Annual Payments based on Various Funding Amounts Appendix B......................How Revenue Requirements Inform the Ballot Measure Ask Appendix C................................Summary of 2021 Ballot Measure Results in California [All appendices are based on data provided by Stifel.]
13 Agenda Item 1.
Attachment 1
11 Appendix A – Estimated Annual Payments Based on Various Funding Amounts The following charts show the annual amounts Los Altos needs to raise from a new tax based on market conditions, the term of the bond and the amount borrowed.
For example, if we anticipate needing $50 million for the project under current market conditions plus 1%, we need to raise $2.97 million annually over 30 years to achieve that (as shown in the blue circle). Appendix B then illustrates three different tax methods to achieve this same scenario.
CURRENT MARKET CONDITIONS
Project Fund $25 Million $50 Million $100 Million
20-year term $1.73 Million $3.45 Million $6.90 Million
30-year term $1.36 Million $2.73 Million $5.46 Million
40-year term $1.99 Million $2.40 Million $4.80 Million
CURRENT MARKET CONDITIONS
PLUS 1.00% INTEREST RATE
Project Fund $25 Million $50 Million $100 Million
20-year term $1.85 Million $3.70 Million $7.40 Million
30-year term $1.48 Million $2.97 Million $5.95 Million
40-year term $1.33 Million $2.66 Million $5.31 Million
* These charts are reproduced from charts provided to the Subcommittee from Stifel. 14 Agenda Item 1.
Attachment 1
12 Appendix B - How Revenue Requirements Inform the Ballot Measure Ask City of Los Altos (2021-22 Tax Year)
Number of Parcels 11,270
Assessed Value $18,778,581,858
Number of Registered Voters ~ 22,100 (based on Nov. 2020 election) Voter Participated ~ 20,000 (87%)
CURRENT MARKET CONDITIONS PLUS 1.00%
Project Fund $50 Million
20-year Term $3.70 Million
30-year Term $2.97 Million
40-year Term $2.66 Million
G. O. Bond Levy (Property Tax)
$3.07 Million raised annually
$15.82 per $100,000 assessed value
$272.8- annual tax per average single family residence assessed value ($1.72 Million average SFR assessed value)
or
Parcel Tax
$2.96 Million raised annually
$263 annual tax per parcel ($21.96 per month)
or
User Utility Tax
$2.8 Million raised annually
Based on +3% increase from the City’s current UUT rates of 2.5% - 3.5% * These charts are reproduced from charts provided to the Subcommittee from Stifel. 15 Agenda Item 1.
Attachment 1
13 Appendix C - Summary of 2021 Ballot Measure Results
• A Total of 26 Different Ballot Measures Were Voted on in the 2021 Election Cycles
• 65% of the Ballot Measures for November 2021 were for Parcel Taxes - Sales Tax Represented the Next Largest Ballot Measure Category at 11% • Nearly 75% of All Measures were Approved
- Four of the Seven Measures Not Approved were Parcel Taxes * These charts are reproduced from charts provided to the Subcommittee from Stifel. 65% 11%
12%
8%4%
2021 TaxBallot Measure Breakdown
Parcel Tax Sales tax UUT Tax Hotel Tax Property Tax
73%
27%
2021 Tax Ballot Measure Results
Measure Passed Measure Not Passed
16 Agenda Item 1.