Q �EwPpRT
CITY OF
O
m s NEWPORT BEACH
`q</Fo'P PUBLIC FACILITIES CORPORATION STAFF REPORT
August 23, 2022
Agenda Item No. 2
TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE BOARD
OF DIRECTORS
FROM: Scott Catlett, Finance Director/Treasurer - 949-644-3123, [email protected]
PREPARED BY: Trevor Power, Accounting Manager, [email protected] PHONE: 949-644-3125
TITLE: Review of Annual Financial Statements
/_1 16"t I:7_T91 6
The bylaws of the Newport Beach Public Facilities Corporation (Corporation) call for an annual meeting of the Board of Directors. The bylaws also specify that the chief financial officer shall maintain adequate financial records concerning the receipts and disbursements of the Corporation and the Board of Directors are entitled to inspect the associated financial records upon request. The attached financial statements represent the financial position and financial activities of the Corporation for the year ended June 30, 2022.
RECOMMENDATION:
a) Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; and
b) Receive and file the financial report.
DISCUSSION:
The Newport Beach Public Facilities Corporation was created on March 9, 1992, by the City of Newport Beach (City) under the authority of California law. The purpose of the Corporation is to assist the City in the financing of public improvements, including, in the past, the Central Library and the Civic Center. This type of non-profit corporation is utilized to facilitate the issuance of public financing instruments called Certificates of Participation (COPs). COPs are a common California public financing instrument utilized for the acquisition or construction of public facilities and/or equipment. They are structured as a type of lease purchase that requires a third party, the Corporation, as a party to the lease transaction along with the City. The Corporation assigns all of the rights, obligations and financial transactions associated with the COPs issuance to a trustee bank to facilitate the debt issuance.
2-1
Review of Annual Financial Statements
August 23, 2022
The Corporation is governed by a Board of Directors that has historically been comprised of the seven Newport Beach City Council members. Normally, the mayor serves as chairperson of the Board, with the mayor pro tem serving as the vice chairperson. Under the Corporation's bylaws, the city manager serves the Corporation as president, the city clerk serves as secretary, and the finance director serves as chief financial officer.
In 1992, the City issued $7.5 million of COPs to finance the construction of the Central Library and subsequently refinanced this obligation in 1998. In 2010, the City issued approximately $126.7 million of new COPs. Of this financing, $122.8 million was used for the Civic Center project and $3.9 million was used to refinance the remaining balance of the Central Library COPs. In 2020, the City issued $7.9 million of new COPs to finance the construction of Fire Station No. 2. The Corporation's financial data and transactions are included in the Debt Service Fund in the City's financial statements. The City's Debt Service Fund is used solely to account for the activities of the Corporation and contains no other City debt financing activities. Even though the Corporation is a separate legal entity, it is considered a component unit of the City and is included in the City's Annual Comprehensive Financial Report and its transactions are reviewed as part of the City's annual financial statement audit.
The main sources of revenues of the Corporation are lease payments from the City and Federal Build America Bond (BAB) interest subsidy payments for the Civic Center COPs, both of which are pledged for the sole purpose of paying interest and principal on the outstanding COPs. The Corporation has assigned its rights to receive and collect these payments to a trustee bank who makes the semi-annual debt service payments to the bondholders. Therefore, the lease and BAB subsidy payments are received directly by the trustee bank. While the outstanding debt has been issued by the Corporation, ultimately it is an obligation of the City, not the Corporation. The City owns the properties that are encumbered through the COPs lease transactions, which remain encumbered until such time as the outstanding debt has been repaid in full.
During the year, the trustee bank received lease payments from the City totaling $8.7 million and Federal Build America Bond (BAB) interest subsidy payments totaling $2.2 million. Together with investment earnings and any restricted funds already on hand with the trustee bank, there were sufficient resources available to satisfy the annual debt service payments totaling $11.0 million. The following table illustrates the remaining combined debt service payment schedule and principal balance outstanding on the Civic Center and Fire Station No. 2 COPs:
Year Ending
COP Debt Service
June 30
Principal
Interest
2023
3,940,000
6,826,969
2024
4,085,000
6,608,878
2025
4,235,000
6,357,471
2026
4,430,000
6,074,260
2027
4,635,000
5,777,615
2028-2032
25, 510, 000
23, 955, 045
2033-2037
27, 615, 000
14, 840, 806
2038-2041
27,100,000
3,995,444
$ 101,550,000
$ 74,436,488
Total
Balance
10, 766, 969
97, 610, 000
10, 693, 878
93, 525, 000
10, 592, 471
89, 290, 000
10, 504, 260
84, 860, 000
10,412,615
80,225,000
49, 465, 045
54, 715, 000
42, 455, 806
27,100, 000
31, 095, 444
-
$ 175,986,488
2-2
Review of Annual Financial Statements
August 23, 2022
The combined outstanding principal of the obligations was $101.6 million as of June 30, 2022. The remaining interest of $74.4 million does not yet reflect the remaining expected BAB subsidy of $24.1 million, so the remaining interest net of the BAB subsidy totals $50.3 million.
FISCAL IMPACT:
There is no fiscal impact related to this item.
ENVIRONMENTAL REVIEW:
Staff recommends the Board of Directors of the Public Facilities Corporation find this action is not subject to the California Environmental Quality Act ("CEQA") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly.
NOTICING:
The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item).
ATTACHMENT:
Attachment A — Financial Statements
2-3
Attachment A
Financial Statements
2-4
NEWPORT BEACH PUBLIC FACILITIES CORPORATION
Comparative Balance Sheet
June 30, 2022 and 2021
Assets
Cash with fiscal agent
Intergovernmental receivable
Total Assets
Liabilities and Fund Balances
Liabilities:
Accounts payable
Total Liabilities
Deferred Inflows of Resources:
Unavailable revenue
Total deferred inflows of resources
Fund balances:
Nonspendable
Restricted for:
Debt Service
Committed
Assigned
Unassigned
Total fund balance
Total liabilities and fund balance
2022
2021
$ 8,507,045
$ 8,651,423
$ 8,507,045
$ 8,651,423
8,507,045
8,651,423
8,507,045
8,651,423
$ 8,507,045 $ 8,651,423
2-5
NEWPORT BEACH PUBLIC FACILITIES CORPORATION
Comparative Statement of Revenues,
Expenditures and Changes in Fund Balances
June 30, 2022 and 2021
2022
2021
Revenues:
Lease revenues
$ 8,653,711
$ 8,649,734
Investment income
4,565
36,298
Federal interest subsidy
2,194,366
3,380,852
Total revenues
10,852,642
12,066,884
Expenditures:
Debt service:
Principal
3,940,000
3,065,000
Interest and fiscal charges
7,057,020
6,901,878
Total expenditures
10,997,020
9,966,878
Excess (deficiency) of revenues
over expenditures
(144,378)
2,100,006
Fund balance, beginning
8,651,423
6,551,417
Fund balance, ending
$ 8,507,045
$ 8,651,423
2-6