1 Memorandum
To: Marisol Gómez
Director of Finance and Administrative Services
City of Pacifica
From: Peter Wong
Date: November 4, 2025
Re: Issuing General Obligation Bonds for General Law Cities The following is a generic overview of the process for issuing general obligation (GO) bonds. Once a city decides to sell bonds or any other type of securities, it is best to retain legal counsel who can properly guide the municipality through the process.
LEGAL BACKGROUND:
California cities are subject to two primary legal constraints when issuing GO bonds. First, Article XVI, Section 18 of the California Constitution imposes a debt limit, preventing cities from incurring debt beyond their annual income without two-thirds voter approval. Second, Section 43605 et seq of the California Government Code sets a statutory limit on GO debt at 15% of the gross assessed property value (or adjusted to 3.75% of full market value).
BASIC STEPS TO GO BOND ISSUANCE:
1. Bond Resolution. Once a city decides to use GO bonds to finance local projects, the city council of a general law city must adopt a resolution by a two-thirds vote. The resolution places a GO bond measure on the election ballot and must clearly describe the capital project(s) to be financed, the bond amount, and the uses of the bond proceeds.
2. Ballot Measure and Election Campaign. GO bonds repaid with property taxes require two-thirds voter approval. The city prepares and distributes election materials, including ballot arguments, project details, and the projected tax rate impact. If the ballot passes, a Citizens' Bond Oversight Committee is appointed to monitor the spending of bond funds.
3. Financial Analysis and Bond Sale Preparation. After voter approval, the city's finance department or a municipal advisor analyzes the debt structure, considering market conditions and the taxable status of the bonds. The repayment structure is determined, which specifies the timing and amount of principal and interest payments, including final bond maturity. The city and legal counsel prepare official bond documents, including a preliminary and final Official Statement which disclose financial and bond details to investors. Compliance with SEC, MSRB and IRS rules is required.
4. Selling the bonds. Bonds may be sold through either a negotiated sale with an underwriter or a competitive bid. Marketing of the bonds needs to follow industry best practices to secure the lowest possible interest rate on pricing day.
130 Battery Street, Suite 560
San Francisco, CA 94111
Backstrom McCarley Berry & Co., LLC
Attachment C
Issuing General Obligation Bonds
2 OTHER FINANCING ALTERNATIVES TO CONSIDER:
There are always direct and indirect costs to any financing strategies. While this brief memo does not detail those costs, below are general considerations:
PayGo. This approach avoids interest costs of a loan but carries the opportunity cost from foregone investment income. For long-term capital projects, intergenerational equity—whether today’s taxpayers or future ones bear the burden—is a key consideration.
General Obligation Bonds. GO bond can be efficient for large projects, but requires a costly, time-consuming campaign and a two-thirds voter majority. For authorizations in the tens of millions of dollars, the GO bonds make sense. For smaller needs (under $10 million), a cost-benefit analysis should be conducted to ensure the upfront election and issuance costs are justified.
Certificates of Participations (COP), or General Fund Lease. COPs provide an alternative to GO bonds, avoiding the need for an election. This option may be preferable if the likelihood of achieving two-thirds voter approval is low. Under a hypothetical scenario whereby a city allocates $1 million annually from its general fund for debt service payments, the following illustrates the bonding capacity that can be supported:
Maturity 20-year COP 25-year COP 30-year COP
Par Amount $12.5 million $14.2 million $15.5 million
The bond sizing assumes level annual DS at 5% coupon. The above estimates are for illustration purposes only using conservative assumptions.
Direct Bank Loan vs. Securities. Generally, GO bonds provide the lowest interest rates, followed by COPs, then bank loans. Bank loan efficiency depends heavily on size: the breakeven for bank loans is typically $5-$7 million. Issuance costs for bank loans are often one-third those of GO bonds, and when election costs are added, the difference grows. For smaller funding needs, bank loans may be the more efficient and costeffective option.
Parcel Tax-Secured Bonds. Parcel tax-secured bonds may be an option but will be more complicated than GO bonds. As with GO bonds, a parcel tax will also require a 2/3 vote. Parcel Tax bonds are not common because parcel tax measures are usually intended to fund ongoing operations and not to secure a bond financing. A significant advantage of a parcel tax is that the revenue can be used for salaries and other operating expenditures. The following are two examples of parcel tax-secured bonds that were priced within the past 12 months.
1. Marin County Emergency Radio System (911) Authority sold $5.8 million bonds for 20-year with a
1.10x DS coverage; charging home properties $29 and was passed by 69%, and the parcel tax is Teeter Plan secured.
2. Santa Fe Springs (LA County) sold $31.81 mm with a 2.70x coverage for 25 yrs; approved by 76.7% of voters; and no Teeter Plan (which may partly explain the higher DS coverage).
If the projected annual revenue from a parcel tax is $4 million, a parcel tax-secured bond can be sized up to approximately $45 million over 20 years, assuming a 5% interest rate and a 1.10x debt service coverage ratio. This estimate also assumes the bonds qualify under the San Mateo County Teeter Plan. With county support, the bonds may achieve a credit rating of AA+ or higher.
One potential advantage of a parcel tax is that, if approved by voters, the revenue may be used to support operating expenses such as salaries and maintenance.
Issuing General Obligation Bonds
3 In contrast, general obligation (GO) bonds are typically considered a stronger credit than parcel taxsecured bonds and therefore carry lower interest costs. However, GO bonds can only be used to fund capital projects. Since they do not require a coverage ratio above 1.00x and benefit from lower interest rates, GO bonds can generate greater net proceeds for capital funding.