Placentia City Council
AGENDA REPORT
TO: CITY COUNCIL AND PLACENTIA PUBLIC FINANCING AUTHORITY VIA: CITY ADMINISTRATOR
FROM: DEPUTY CITY ADMINISTRATOR / PUBLIC SERVICES & INFRASTRUCTURE DATE: JULY 25, 2023
SUBJECT: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PLACENTIA
APPROVING THE ISSUANCE BY THE PLACENTIA PUBLIC FINANCING AUTHORITY OF NOT TO EXCEED $10 MILLION OF PLACENTIA PUBLIC
FINANCING AUTHORITY LEASE REVENUE BONDS (PUBLIC SAFETY
CENTER PROJECT) SERIES 2023A; APPROVING THE EXECUTION AND
DELIVERY OF RELATED DOCUMENTS IN CONNECTION WITH THE
OFFERING AND SALE OF SUCH BONDS; AND AUTHORIZING OTHER
MATTERS RELATED THERETO
A RESOLUTION OF THE GOVERNING BOARD OF THE PLACENTIA PUBLIC
FINANCING AUTHORITY AUTHORIZING THE ISSUANCE OF NOT TO EXCEED $10 MILLION OF PLACENTIA PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (PUBLIC SAFETY CENTER PROJECT) SERIES 2023A; AND
APPROVING THE EXECUTION AND DELIVERY OF RELATED DOCUMENTS IN CONNECTION WITH THE OFFERING AND SALE OF SUCH BONDS; AND
AUTHORIZING OTHER MATTERS RELATED THERETO
FISCAL
IMPACT: EXPENSE: LEASE PAYMENTS ON LEASE REVENUE BONDS IN LIEU OF
RENTAL PAYMENTS FOR CURRENT LEASED FACILITY
SUMMARY:
On March 1, 2022, the City Council selected a preferred project alternative for the proposed Placentia Public Safety Center and directed Staff to complete the architectural and engineering design for the project. On July 11, 2023, the City Council approved a revised project funding structure because of project costs exceeding original estimates due to inflation -related increases in construction costs. As part of that action the City Council authorized Staff and the City's bond consultant team to structure a lease revenue bond package for the purpose of issuing debt to raise the necessary funds to fully fund Phase II construction of the new facility. The proposed lease revenue bond structure authorizes the issuance of debt for a not -to -exceed amount of $10 million at a true interest cost not -to -exceed 5.5% for a period of 30 years.
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July 25, 2023
City Council Agenda
July 25, 2023
RECOMMENDATION:
It is recommended that the City Council take the following actions:
1. Open the Public Hearing concerning the sale of Lease Revenue Bonds to fund the construction of the Placentia Public Safety Center; and
2. Receive the Staff Report, consider all public testimony, ask questions of Staff; and
3. Close the Public Hearing; and
4. Adopt Resolution R-2023-72 authorizing the issuance of bonds by the Placentia Public Financing Authority in an amount not -to -exceed $10 million, approving the form of the Indenture, Site Lease, Lease Agreement, Preliminary Official Statement, Bond Purchase Agreement and Continuing Disclosure Agreement; and
5. Authorize the City Administrator to execute all the necessary documents, in a form approved by the City Attorney.
It is recommended that the Placentia Public Financing Authority take the following actions:
1. Adopt Resolution PPFA-2023-02 authorizing the issuance of bonds by the Placentia Public Financing Authority in an amount not to exceed $10 million and approving the form of the Indenture, Site Lease, Lease Agreement, Preliminary Official Statement, Bond Purchase Agreement and, Assignment Agreement; and
2. Authorize the Executive Director to execute all the necessary documents, in a form approved by the Authority's Counsel.
STRATEGIC PLANNING STATEMENT:
This agenda item conforms to Strategic Planning Goal and Objective 5.4, Construct the Placentia Public Safety Center.
DISCUSSION:
Lease Revenue Bond Issuance
In October 2020, Council directed Staff to develop a plan for the replacement of the current Police Evidence Facility that is currently being leased by the City. The lease for the facility is expiring in December 2023, requiring the City to find or construct an alternate facility. Lease Revenue Bonds (LRB) are a common and widely accepted financing tool in California used to acquire project financing. LRBs utilize a lease/lease-back structure of certain City assets. Staff is proposing certain City assets to be the leased assets for the proposed LRBs, primarily the new Placentia Public Safety Center itself. However, State law prohibits the City from making lease payments prior to the facility being completed. To avoid using bond proceeds to fund interest payments due during construction, the proposed structure would lease other City assets such as City Hall and
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July 25, 2023
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the City Yard during the construction period. Once the City issues a Certificate of Occupancy for the new facility, the other assets will be released from the lease and the lease for the remainder of the term of the LRBs will only be for the new Public Safety Center.
The City will lease the assets to the Placentia Public Financing Authority ("PPFA"). The PPFA will then lease the assets back to the City. The City pledges each year it will budget and appropriate lease payments to the PPFA. In turn, the PPFA will pay debt service on the Bonds. The estimated valuation of the City's Assets will need to meet or exceed the amount of the Bond issuance.
The list of proposed City assets that could be pledged is referenced below. The Public Safety Center will be pledged once construction has been completed and the building is occupied. A final determination on which City assets will be pledged during construction will occur before the LRBs are priced and sold.
ASSET
Public Safety Facility
City Corporate Yard & Facilities
City Hall
ESTIMATED VALUE
$21.6 million (project budget)
$14.1 million
$14.2 million
The LRBs will be sized to fund the "gap" in the construction fund that is not funded by other City resources, as indicated in the following table:
Option
Construction
Fund
1 $9,289,804
Estimated
Costs of
Issuance
Estimated
Total Bond
Issue
Proceeds
Estimated
Average
Annual
Debt
Service
$447,848 $9,737,652 $581,342
Total Principal
and Interest
(30 years)
$17,690,872
The City has received a "AA-" bond rating on the LRBs from Standard & Poor's. The bond rating is based primarily on the strength of the City's General Fund. The assigned rating on the Bonds of AA- reflects S&P criteria of rating "leases" at "1 -notch" below the City's Issuer Credit Rating, which reflects S&Ps opinion of the strength of the City's General Fund. The City's Issuer Credit Rating has been recently upgraded and is now AA, which is among the highest ratings in California.
Due the strength of the City's credit, the LRBs will not require bond insurance, nor does the City have to fund a debt service reserve fund to enhance the credit of the LRB. Purchasing a bond insurance policy remains an option and the City will only purchase a bond insurance policy if it results in reduced debt service costs over the life of the LRBs.
The current estimated Bond issuance amount is $9,737,652, with a not to exceed amount of $10 million as set forth in the Resolution. The "not -to -exceed" amount is recommended to provide the Financing Team the flexibility to react to changes in market conditions. As an example, if interest rates are slightly higher on the day of bond sale, that would increase the bond par amount.
City Council Agenda
July 25, 2023
The forms of financing documents to issue Lease Revenue Bonds are attached and include:
• Preliminary Official Statement: Offering document used for marketing of the LRBs • Indenture: Defines the terms of the Bonds and responsibilities of the Trustee • Site Lease: Establishes and defines the terms of the site lease from the City to the Authority • Lease Agreement: Establishes and defines the terms of the lease from the Authority to the City
• Assignment Agreement: The Authority assigns the right to receive lease payments to the Trustee
• Continuing Disclosure Agreement: Agreement to file annual reports and disclose material events
• Bond Purchase Agreement: Agreement among the Underwriter, the Authority and the City defining the terms and conditions of the Underwriter's purchase of the Bonds.
FISCAL IMPACT:
In accordance with Government Code Section 5852.1, the following information has been obtained and disclosed to the City Council prior to the issuance of the LRBs: (i) the estimated true interest cost of the Bonds (being the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the Bonds) is
4.5%; (ii) the estimated finance charge of the Bonds (being the sum of all fees and charges paid to third parties, including underwriter's discount and a bond insurance premium) is $447,848; (iii) the estimated proceeds of the Bonds expected to be received (net of proceeds for finance charges to be paid from the principal amount of the Bonds and any reserves or capitalized interest paid or funded with Bonds) is $9,289,804; and (iv) the estimated total payment amount of the Bonds (being the sum of debt service plus finance to be paid to final maturity, plus any financing costs not paid from proceeds of the Bonds) is $17,690,872. This information is based on good - faith estimates provided by the City's municipal advisor and bond underwriter.
Prepared by:
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Luis Estevez
Deputy City Administrator
Reviewed and approved:
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Daf4n R. Arrula
City Administrator
Reviewed and approved:
Jennifer Lampman
Director of Finance
City Council Agenda
July 25, 2023
Attachments:
1. City Resolution R-2023-72
2. Authority Resolution No. PPFA-2023-02
3. Preliminary Official Statement
4. Bond Purchase Agreement
5. Continuing Disclosure Agreement
6. Assignment Agreement
7. Lease Agreement
8. Site Lease
9. Indenture