City Council Memorandum
TO: HONORABLE MAYOR, CITY COUNCIL, AND DATE: JUNE 27, 2023
BOARD OF DIRECTORS OF THE RIVERSIDE
PUBLIC FINANCING AUTHORITY WARDS: ALL
FROM: FINANCE DEPARTMENT
SUBJECT: PUBLIC HEARING – ISSUANCE OF RIVERSIDE PUBLIC FINANCING AUTHORITY LOCAL MEASURE A SALES TAX REVENUE (INSTALLMENT SALE) REFUNDING CERTIFICATES OF PARTICIPATION SERIES 2023 (2013 RIVERSIDE PAVEMENT REHABILITATION PROJECT) – RESOLUTIONS – APPROVAL OF FINANCE TEAM ISSUES:
Conduct a public hearing to receive comments relative to the proposed financing transaction; approve the City’s Financing Team as described herein; approve the financing documents referenced herein and summarized below; and approve Resolutions to authorize the execution and delivery of the Riverside Public Financing Authority (“Authority”) Refunding Certificates of Participation (the “Refunding COPs”) in order to refinance the Riverside Pavement Rehabilitation (the “Project”), utilizing Measure A revenues for repayment, to achieve annual installment payment savings.
RECOMMENDATIONS:
That the City Council:
Conduct a public hearing to receive comments relative to the proposed financing transaction; Approve the City’s Financing Team of City Staff and CSG Advisors Incorporated as the Municipal Advisor, Piper Sandler & Co. as the underwriter, US Bank Trust Company as the Trustee and the firm of Stradling, Yocca, Carlson & Rauth as bond and disclosure counsel; Approve the attached Resolution and other financing documents referenced herein to authorize the issuance of the Refunding Certificates of Participation; Authorize the Mayor, City Manager, and Chief Financial Officer, or designee, to execute the documents and make changes as may be required to close the transaction; and Upon closing of the Refunding Certificates of Participation Series 2023, authorize the Chief Financial Officer to make the necessary budget adjustments and/or appropriations to properly record the refunding and financing expenses in accordance with governmental accounting requirements.
That the Board of Directors of the Riverside Public Financing Authority:
Approve the attached Resolution and other financing documents referenced herein to authorize the issuance of the Refunding Certificates of Participation; and Authorize the Executive Director and the Treasurer, or designee, to execute the documents and make changes as may be required to close the transaction.
BACKGROUND:
In 2013, the City, through the Riverside Public Financing Authority (“Authority”), issued its $35,235,000 Certificate of Participation, Series 2013 (the “Prior COPs”) in order to finance a pavement rehabilitation program to reduce the backlog of city streets requiring rehabilitation and to make improvements to both arterial and local streets throughout Riverside. The financing structure under State law was in the form of a COP and utilizes installment payments to repay the debt obligation.
Approximately $20 million of the Prior COPs were programmed to the City’s arterial streets. The scope of the rehabilitation included repairing the curb, gutter, and sidewalk, installation of wheelchair ramps when applicable, and rehabilitation of the pavement (addressing approximately 24 miles of the City’s 133 miles of arterial streets). The remaining approximate $15 million of bond proceeds was programmed to address local streets. As with the arterial streets, the program focused on local streets in the worst condition and included rehabilitating the curb, gutter, sidewalks, and pavement (addressing approximately 26 miles of the City’s 701 miles of local streets). These projects concluded in 2017.
As part of the 2013 financing, the City undertook a judicial validation process with respect to the pledged revenues in the Superior Court of the County of Riverside, pursuant to the provisions of Section 860 et-seq. of the California Code of Civil Procedure. On April 30, 2013, the Superior Court entered a default judgement to the effect that the installment payments are valid, legal, and binding obligations of the City, and the City has the legal ability to pledge these revenues toward the repayment of the installment sale agreement.
DISCUSSION:
The current outstanding principal amount of the Prior COPs is $23,225,000. The source of repayment for the Refunding COPs, as it was for the Prior COPs, is limited to Measure A sales tax revenue received by the City from the Riverside County Transportation Commission (“RCTC”) by an ordinance adopted pursuant to a voter election conducted in 2002. A certain amount of Measure A sales tax revenues are allocated, pursuant to the ordinance, to the City from RCTC to fund local streets and roads programs.
From an economic and financial viewpoint, the City can take advantage of favorable market conditions and refinance the Prior COP bonds at a lower interest rate, generating debt service savings. The Refunding COPs are structured to produce level annual installment payment savings, with the same payment dates and remaining term as the Prior COPs, with a final maturity date of June 1, 2033.
The financing team for the Refunding COPs consists of staff from the Finance Department, Public Works Department, and the City Attorney’s Office. Working with City staff, CSG Advisors Incorporated is serving as the Municipal Advisor. Piper Sandler & Co. is the underwriter and US Bank Trust Company is the Trustee. The firm of Stradling, Yocca, Carlson & Rauth is acting as bond and disclosure counsel.
The transaction is proposed to close in July 2023, assuming market conditions are favorable and targeted savings objectives can be achieved. Pursuant to the Resolutions, the aggregate net present value savings with respect to the prepaid Prior COPs cannot be less than 5%, and the underwriter’s discount cannot exceed 0.65% of the aggregate principal amount of the Refunding COPs.
Attached to this report are the resolutions of the City Council and the Authority that reference additional financing documents to be approved. A summary of the financing documents is shown below:
First Supplement to 2013 Installment Sale Agreement & Trust Agreement – which are agreements with the Trustee, US Bank Trust Company, that (together with the 2013 Installment Sale Agreement) includes all provisions related to issuance and repayment of the Refunding COPs.
Preliminary Official Statement (the POS) – which is the primary disclosure document used by the purchasers of the Refunding COPs to assess their risk in making a purchase of this obligation. The POS has been reviewed and approved for transmittal to the City Council by staff and the financing team. The POS must include all facts that would be considered material to an investor in the certificates. Members of the City Council and the Authority may review the document or make inquiries to staff to make sure they are comfortable that the POS contains all material facts of which they are aware. After the Refunding COPs have been priced, a Final Official Statement will be circulated to investors; the Final Official Statement should be identical to the Preliminary Official Statement except for the addition of the final pricing information (such as principal amounts, interest rates, and redemption terms).
Escrow Agreement (for the 2013 Certificates) – which is the agreement with the Escrow Agent, US Bank Trust Company, that provides for repayment of the Prior COPs.
Continuing Disclosure Certificate – under the federal Securities & Exchange Commission Rule 15c2-12, the underwriter of the Refunding COPs may only purchase the Refunding COPs if it has determined that the City is obligated to provide continuing disclosure, including annual updates of the financial and operating data included in the Official Statement and notices of certain specified events.
Certificate Purchase Agreement – at the time the Refunding COPs are sold, the City and the Authority will enter into a Certificate Purchase Contract with the underwriter, who will agree to underwrite the Refunding COPs, subject to satisfaction of conditions described therein. The underwriter was selected for the Refunding COPs through an RFP process and was chosen based upon the combination of qualifications and proposed fees.
California Government Code Section 5852.1 requires the City to obtain and disclose a good faith estimate of certain information about the Refunding COPs, including the estimated true interest cost, the financing costs, the amount of proceeds, and the total payment amount. This information is summarized below and is also included in Exhibit A of each of the resolutions.
True Interest Cost. Assuming a par amount of $21,135,000 of the 2023 Certificates of Participation is sold and based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the true interest cost of the certificates, which means the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the 2023 Certificates, is 2.73%.
Finance Charge. A good faith estimate of the finance charge for the 2023 Certificates, which means the sum of all fees and charges paid to third parties (or costs associated with the 2023 Certificates), is $361,000, assuming that no municipal bond insurance policy or debt service reserve insurance policy is purchased.
Amount of Proceeds to be Received. A good faith estimate of the amount of proceeds to be received by the City for sale of the 2023 Certificates, less the finance charge of the 2023 Certificates as estimated above, and any reserves or capitalized interest paid or funded with proceeds of the 2023 Certificates, is $23,359,000.
Total Payment Amount. Assuming a par amount of $21,135,000 is sold and based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the total payment amount, which means the sum total of all payments the City will make to pay debt service on the 2023 Certificates, plus the finance charge as described above, not paid with the proceeds of the 2023 Certificates, calculated to the final maturity of the bonds, is $27,212,000.
The amounts above are preliminary estimates and subject to change based on a number of factors, including market conditions at the time the Refunding COPs are sold to prospective investors.
STRATEGIC PLAN ALIGNMENT:
This item contributes to Strategic Priority 5 – High Performing Government and Goal 5.4 – Achieve and maintain financial health by addressing gaps between revenues and expenditures and aligning resources with strategic priorities to yield the greatest impact.
This item aligns with each of the five Cross-Cutting Threads as follows:
Community Trust – As with other financing opportunities, having a public hearing will allow members of the community to comment on the proposed refunding prior to the final approval of this issuance.
Equity – The Refunding COPs provides cash flow savings to the City, which will then be available to fund additional repairs to local streets and roads, providing a citywide benefit.
Fiscal Responsibility – The City works with a team of financial advisors to identify potential savings opportunities, such as the Refunding COPs. In this current market, the City can refund the Prior COPs at a lower interest rate, generating cash flow savings for the remaining life of the certificates.
Innovation – The proposed Refunding is an innovative strategy which allows the City to take advantage of market conditions and have realized savings in debt service payments through 2033.
Sustainability & Resiliency – Utilizing this refunding opportunity will provide potential cash flow savings of approximately $277,000 annually over the next 10 years. These savings will then be used towards additional streets and roads rehabilitation projects throughout the City.
FISCAL IMPACT:
The total fiscal impact related to the costs associated with the issuance of the Refunding COPs are estimated at $361,000, which will be paid from proceeds of the 2023 Certificates. This estimate is exclusive of bond insurance or a reserve surety, which would only be purchased in the event the City received a net economic benefit related to the purchase of each such policy.
Based on current market conditions, the estimated gross savings from this refunding is expected to be approximately $2.7 million, or $2.4 million present value savings, which will equate to an annual average cash flow savings of approximately $277,000 per year through 2033. Such savings will be available to the City to fund additional local streets and roads as designated under the RCTC ordinance.
Prepared by: Karen Hessell, Interim Debt & Treasury Manager Certified as to
availability of funds: Edward Enriquez, Interim Assistant City Manager/Chief Financial Officer/City Treasurer
Approved by: Edward Enriquez, Interim Assistant City Manager/Chief Financial Officer/City Treasurer
Approved as to form: Phaedra A. Norton, City Attorney
Attachments:
Resolution of the City Council approving the execution and delivery of the Refunding COPs Resolution of the Authority approving the execution and delivery of the Refunding COPs First Supplement to the 2013 Installment Sale Agreement Trust Agreement
Preliminary Official Statement
Escrow Agreement
Continuing Disclosure Certificate
Certificate Purchase Agreement
Notice of Public Hearing
Presentation
2023 Refunding Measure A COP ● Page 2