TO: HONORABLE MAYOR
AND CITY COUNCIL
FROM: Julia H. Cooper
SUBJECT:
COMPREHENSIVE ANNUAL
DEBT REPORT FOR FISCAL
YEAR ENDED JUNE 30, 2022
DATE: November 14, 2022
Approved Date
11/17/2022
RECOMMENDATION
Accept the Comprehensive Annual Debt Report for the City of San José for Fiscal Year 2021- 2022.
OUTCOME
Acceptance of the Fiscal Year 2021-2022 Comprehensive Annual Debt Report (CADR) will provide relevant information related to the debt portfolio of the City and its related entities to the City Council, residents of San José, creditors, investors, and other interested parties. This document serves to augment the disclosure practices described in the City’s Debt Management Policy, and to help meet the Strategic Support City Service Area Strategic Goal: “Customers have the financial information they need to make informed decisions” and may be a starting point for those interested in finding information on the outstanding debt of the City and its related entities.
BACKGROUND
The City’s Finance Department oversees the issuance of debt and the management of outstanding debt issued by the City, the Successor Agency to the Redevelopment Agency, and other related entities. The Fiscal Year 2021-2022 CADR provides a detailed description of the debt issuance and management activities for the period of July 1, 2021 through June 30, 2022, and is divided into four key sections:
• An overview of the City’s debt management program;
• A summary of recent debt issuance activity;
COUNCIL AGENDA: 12/6/22
FILE: 22-1797
ITEM: 3.7
HONORABLE MAYOR AND CITY COUNCIL
November 14, 2022
Subject: Comprehensive Annual Debt Report for Fiscal Year Ended June 30, 202 2
• A discussion of the key debt administration tasks; and • A review of the outstanding debt portfolio.
ANALYSIS
The Fiscal Year 2021-2022 CADR provides a comprehensive review of the City’s debt management portfolio activities.
The CADR discusses the activities undertaken and managed by Debt Management staff within the Debt & Treasury Management Division of the Finance Department. This annual report is prepared pursuant to Section II (B) of the City Council-adopted Debt Management Policy. Major sections of the report summarize recent debt issuance activity; discuss key debt administration tasks; review the outstanding debt portfolio; and describe projects anticipated in the next fiscal year.
In fiscal year 2021-2022, the Finance Department oversaw the issuance of $877.3 million of debt consisting of a $285 million Tax Revenue Anticipation Note, $200.5 million in City of San José General Obligation Bonds, $22.8 million in City of San José Financing Authority (CSJFA) Lease Revenue Bonds (Fire Department Training Center and Central Service Yard projects), $165.8 million in CSJFA Taxable Lease Revenue Bonds (Convention Center Refunding Project), $45.0 million in CSJFA Lease Revenue Taxable Commercial Paper Notes to fund San José Clean Energy operations, $86.5 million in CSJFA Subordinate Wastewater Revenue Notes to finance capital improvements at the San José-Santa Clara Regional Wastewater Facility, and $71.7 million of conduit multi-family housing revenue obligations.
The outstanding debt portfolio totals $4.6 billion, consisting of 79 debt obligations, consisting of 75 series of bonds, two commercial paper programs, one revolving line of credit facility for the San José-Santa Clara Regional Wastewater Facility, and one revolving credit facility for San José Clean Energy. Of the 75 series of bonds, 24 series are debt of the City, the Successor Agency to the Redevelopment Agency, or related entities while the remaining 51 series are multifamily housing revenue bonds for which private developers are the obligors and the City is a conduit issuer.
The City continues to receive high credit ratings from all three national rating agencies. Please see the table below for rating details regarding General Obligation Bonds, CSJFA Lease Revenue Bonds, and Airport Revenue Bonds.
HONORABLE MAYOR AND CITY COUNCIL
November 14, 2022
Subject: Comprehensive Annual Debt Report for Fiscal Year Ended June 30, 202 2
Moody’s S&P Fitch
City of San José General Obligation Bonds Aa1 AA+ AAA
CSJFA Lease Revenue Bonds (1) Aa2 AA AA
CSJFA Lease Revenue Bonds (2) Aa3 AA AA-
CSJFA Lease Revenue Bonds (3) Aa3 AA AA
Airport Revenue Bonds A2 A A
(1) Series 2013B (Civic Center Garage), 2020A (Civic Center Refunding), 2021A (Fire Department Training Center, and Central Service Yard projects)
(2) Series 2020B (Ice Centre Project)
(3) Series 2022A (Convention Center Refunding Project)
CONCLUSION
Acceptance of the Fiscal Year 2021-2022 CADR provides relevant information related to the debt portfolio of the City and its related entities to the City Council, residents of San José, creditors, investors, and other interested parties.
EVALUATION AND FOLLOW-UP
Staff from the Finance Department will be available to answer questions regarding the Fiscal Year 2021-2022 CADR at the City Council meeting on December 6, 2022.
CLIMATE SMART SAN JOSE
The recommendation in this memorandum has no effect on Climate Smart San José energy, water, or mobility goals.
PUBLIC OUTREACH
This memorandum along with the CADR will be posted on the City’s website for the December 6, 2022 City Council meeting.
COORDINATION
The CADR was prepared by the Finance Department in coordination with the City Attorney’s Office.
HONORABLE MAYOR AND CITY COUNCIL
November 14, 2022
Subject: Comprehensive Annual Debt Report for Fiscal Year Ended June 30, 202 2
COMMISSION RECOMMENDATION/INPUT
No commission recommendation or input is associated with this action.
CEQA
Not a Project, File No. PP17-009, Staff Reports, Assessments, Annual Reports, and Informational Memos that involve no approvals of any City action.
/s/
JULIA H. COOPER
Director of Finance
For questions, please contact Qianyu Sun, Deputy Director of Finance, Debt & Treasury Management Division, (408) 535-7832.
Attachment – FY 2021-2022 Comprehensive Annual Debt Report
20 COMP
REHENSIVE
ANNUAL DEBT
REPORT
FISCAL YEAR ENDED JUNE 30,
2022
Back Cover – The back cover photo features the new Fire Station 37, located on Lincoln Avenue. The new building is an 8,100 square foot two-story, single-fire company station that contains two apparatus bays, separate crew and captain’s offices.
The featured photos on the front and back pages of this year’s Comprehensive Annual Debt Report include:
Cover – The cover photo features a view of the City Hall tower through the rotunda. City Hall consists of three structures within the Civic Plaza: the Tower, the Rotunda, and the Wing. City Hall has received LEED Platinum certification for its environmentally friendly design.
City of San José
California
31st Comprehensive Annual
Debt Report
Fis
cal Year Ended June 30, 2022
31st Comprehensive Annual Debt Report
City of San José
Department of Finance
De
bt & Treasury Management Division
Qianyu Sun
Deputy Director
De
bt Management Staff
Kevin Freimarck, Financial Analyst
Soumya Panday, Financial Analyst
Deepak Sharma, Financial Analyst
Cal Haynes, Analyst
Sp
ecial Assistance – Departments and Offices
Office of the City Attorney
City Manager’s Office
Community Energy Department
Environmental Services Department
Fire Department
Housing Department
Library Department
Norman Y. Mineta San José International Airport
Parks, Recreation and Neighborhood Services Department
Police Department
Public Works Department
Transportation Department
Luz Cofresí-Howe
Assistant Director of Finance
Julia H. Cooper
Director of Finance
CITY OF SAN JOSE
COMPREHENSIVE ANNUAL DEBT REPORT
FISCAL YEAR ENDED JUNE 30, 2022
TABLE OF CONTENTS
Letter of Transmittal ................................................................................................................. i I. Overview ................................................................................................................................. 1 A. Debt Management Program.......................................................................................... 1
1. Debt Issuance .............................................................................................................. 1
2. Debt Administration .................................................................................................... 2
3. Debt Management Projects ....................................................................................... 2 B. Review of Debt Management Policies.......................................................................... 8
1. Debt Management Policy ........................................................................................... 8
2. Policy for the issuance of Multifamily Housing Bonds ........................................... 10 C. Rating Agency Relations and Credit Maintenance .................................................... 10
1. Credit Analysis Process ............................................................................................ 10
2. Rating Summary ........................................................................................................ 11
3. Legal Debt Margins ................................................................................................... 12 D. Legislative and Regulatory Issues .............................................................................. 13 II. Debt Issuance ..................................................................................................................... 15 A. Debt Issued During FY 2021-22 .................................................................................. 15 B. Debt Activity for FY 2022-23....................................................................................... 20 C. Historical Market Conditions ...................................................................................... 23 D. Selection of Debt Financing Teams ........................................................................... 25 III. Debt Administration .......................................................................................................... 27 A. Debt Administration System ....................................................................................... 27 B. Compliance and Monitoring ........................................................................................ 27
1. Trustee Activities ..................................................................................................... 29
2. Bond Proceeds Expenditures and Reimbursement Procedures .......................... 29
3. Arbitrage Rebate ...................................................................................................... 30
4. Continuing Disclosure .............................................................................................. 30 C. Investment of Bond Proceeds ................................................................................... 31 D. Outstanding Variable-Rate Debt ................................................................................ 31 E. Refunding Opportunities ............................................................................................. 34 IV. City’s Outstanding Debt Portfolio ................................................................................... 35 A. General Obligation Bonds .......................................................................................... 36 B. City of San José Financing Authority Obligations .................................................... 38 C. Enterprise Fund Obligations ....................................................................................... 41
1. Norman Y. Mineta San José International Airport ................................................. 41
2. Debt Related to the San José-Santa Clara Regional Wastewater Facility ............ 42 D. Land-Secured Financing ............................................................................................. 43 E. Successor Agency to the Redevelopment Agency of the City of San José. ........... 44 F. Multifamily Housing Revenue Bonds ......................................................................... 47 G. Summary of Outstanding Debt .................................................................................. 51 Appendix A: Debt Management Policy ............................................................................... 53 Appendix B: Policy for the Issuance of Multifamily Housing Revenue Bonds .................. 67 Appendix C: CSJFA Lease Revenue Commercial Paper Program .................................... 79 Appendix D: Airport Commercial Paper Program ............................................................... 85 Appendix E: Current Ratings Summary ................................................................................ 89 Appendix F: Overlapping Debt Report .................................................................................. 95 Appendix G: Special Tax Annual Report .............................................................................. 99 Glossary ................................................................................................................................103
Finance
JULIA H. COOPER, DIRECTOR
200 East Santa Clara Street, San José, CA 95113-1905 tel (408) 535-7000 fax (408) 292-6482 www.sanjoseca.gov
LETTER OF TRANSMITTAL
November 17, 2022
HONORABLE MAYOR AND CITY COUNCIL
THE COMPREHENSIVE ANNUAL DEBT REPORT
OF THE CITY OF SAN JOSE
I am pleased to present the 31st Comprehensive Annual Debt Report (CADR) for the City of San José (City) for the fiscal year (FY) ended June 30, 2022. The CADR is submitted for review and approval by the City Council in accordance with the City Debt Management Policy originally approved by the City Council on May 21, 2002 with the most recent amendment approved on March 7, 2017. This CADR covers FY 2021-22 and discusses the activities undertaken and managed by the Debt Management Program. The major sections in the CADR include:
x Overview of the City Debt Management Program
x Summary of Recent Debt Issuance Activity
x Discussion of Key Debt Administration Tasks
x Review of the Outstanding Debt Portfolio
In addition, the CADR includes a glossary to help guide the reader in understanding municipal finance terms.
The discussions of debt management activities in the CADR pertain to activities managed by the City’s Debt Management Program, and the section of the CADR pertaining to the City’s outstanding debt portfolio includes all debt issued by the City of San José, City of San José Financing Authority (Authority or CSJFA) and the Successor Agency to the Redevelopment Agency of the City of San José (Successor Agency). Debt Management staff is responsible for managing the City’s participation in the debt issuance process for all borrowings.
In addition to the activities and programs described above, the CADR includes a review of the Debt Management Policy, rating agency relations and credit maintenance issues, and a discussion of legislative and regulatory issues.
ii
DEBT MANAGEMENT ACTIVITIES
Debt issuance is a key component of the Debt Management Program. As illustrated in the graph on page two, FY 2021-22 activities reflected debt issuance of approximately $877.3 million. The debt issued included a $285.0 million City of San José Tax and Revenue Anticipation Note (2021 TRAN), $200.5 million in City of San José General Obligation (GO) Bonds, $22.8 million in CSJFA Lease Revenue Bonds (new issuance and Central Service Yard Refunding Projects), $165.8 million in CSJFA Taxable Lease Revenue Bonds (Convention Center Refunding Project), $45.0 million in CSJFA Lease Revenue Taxable Commercial Paper Notes to fund San José Clean Energy (SJCE) operations, $86.5 million in CSJFA Subordinate Wastewater Revenue Notes to finance capital improvements at the San José-Santa Clara Regional Wastewater Facility, and $71.7 million of conduit multi-family housing revenue obligations.
The City continues to maintain high general credit ratings from three of the major national bond rating agencies. The City’s General Obligation ratings were affirmed “Aa1” by Moody’s Investors Service (Moody’s), “AA+” by S&P Global Ratings
(S&P), and “AAA” by Fitch Ratings (Fitch) in
June 2021 with a “Stable” outlook in conjunction with the issuance of the Series 2021ABC General Obligation Bonds in July 2021. On June 23, 2022, S&P Ratings upgraded the long-term and underlying ratings on the Airport Revenue Bonds to “A” from “A-“.
The ratings reflect the diversity of the local economy, anchored by a strong technology presence with the ability to provide financial resilience through economic downturns; very strong management with sound financial policies and practices; healthy reserves and liquidity as well as strong budgetary practices. Overall, the maintenance of these ratings translates into significant interest cost savings in the City’s debt program, which in turn benefit the taxpayers and residents of the San José community.
In addition to providing the core debt management services of debt issuance, primary market and secondary market continuing disclosure, bank contract compliance reporting, budgeting and forecasting, debt service invoice processing, funds’ management, accounting, and professional services procurements, a significant amount of Debt Management staff resources was devoted to providing financial advisory services to numerous citywide projects during FY 2021-22.
These projects included:
x 10-year Capital Funding Strategy support for the Regional Wastewater Facility (RWF) x Extension of the Airport Commercial Paper Letter of Credit (Airport CP) to September 10, 2024
x Extension of CSJFA Commercial Paper (CSJFA CP) Letter of Credit to March 24, 2025 and increased maximum capacity to $175 million
x Redemption of Community Facility District #1 Bonds (Capitol Expressway Auto Mall) x Redemption of Limited Obligation Improvement Bonds, Series 24Q (Hellyer-Piercy) x Active participation in the management of Successor Agency operations and finances including budgeting, reporting and accounting
iii
The Debt Management Program work plan for FY 2022-23 anticipates a major focus on issuing the City of San José Wastewater Revenue Bonds to refund all outstanding Subordinate Wastewater Revenue Notes, issued to fund capital improvements at the RWF, planning activities for the third issuance of the GO Bonds under the Measure T authorization and potentially issuing commercial paper (CP) for interim financing of the San José Municipal Water System (Muni Water) Water Resources Administration and Operations Facility. Pension obligation bond planning activities continue, including proceeding with the judicial validation actions, development of a pension funding policy, and evaluation of potential issuance of such bonds based on market conditions upon receipt of judicial validation. Total debt issuance in FY 2022-23 for the City and its related entities is estimated at $621.4 million, comprised of new money and refunding issuances. A Tax and Revenue Anticipation Note (2022 TRAN) in the amount of $275.0 million has already been issued. Of the remaining planned issuances, the City expects the issuance of $300 million in Wastewater Revenue Bonds, $40.0 million in authorization for issuing CSJFA Tax-Exempt CP Notes for the construction of a Water Resources Administration and Operations Facility, and $6.4 million in CSJFA CP Notes for the Flood Recovery Improvements project in June 2023.
Other work efforts will include issuance of future conduit housing bonds, and administration of outstanding conduit housing bonds, and continued monitoring of private activity at tax-exempt financed facilities.
ACKNOWLEDGMENTS
The preparation of this CADR represents the culmination of a concerted team effort led by the Finance Department Debt Management staff as well as special assistance and support from key departments and offices throughout the City. Of particular note is the ongoing collaboration and support between the Finance Department and the City Attorney’s Office. The support received from the City Attorney’s Office cannot be overlooked and is integral to the success of the City’s Debt Management program. In addition, City departments who have participated in partnership with the Debt Management program should be recognized for responding positively to the requests for detailed information required for every debt issuance, as well as for the information they provide to the Debt Management staff for the ongoing management and monitoring of the City’s outstanding debt portfolio. The City’s municipal advisors and bond counsel are acknowledged for providing a significant contribution to the City’s success in its Debt Management program, especially for the role they have played in helping to secure and maintain the City’s excellent bond ratings.
Finally, after being intimately involved in either the production or review of the CADR since its inception thirty-one years ago, as a reporting tool for the City Council, our community, and the municipal bond market, I wish to express my sincere appreciation to the Mayor, City Council, and the City Manager for providing leadership, policy direction, and support in guiding the City to a secure, strong financial condition. Their leadership ensures necessary financial resources can be available to provide capital facilities and affordable housing for our community.
Respectfully submitted,
JULIA H. COOPER
Director of Finance
iv
1 I. OVERVIEW
The Overview section of the CADR includes a discussion of the Debt Management Program, review of Debt Management Policies, Rating Agency Relations and Credit Maintenance, and Legislative and Regulatory Issues.
The CADR does not include discussions of the City’s obligations related to pension and other postemployment benefits (OPEB). For details relating to pension and OPEB unfunded liabilities, please refer to “Defined Benefit Retirement Plans” section in the Notes to the Annual Comprehensive Financial Report for the City of San José for the fiscal year ended June 30, 2022.
A. Debt Management Program
This section of the report provides an overview of debt issuance, debt administration, and debt management projects for FY 2021-22 that have been completed, currently underway, or planned for FY 2022-23.
1. Debt Issuance
Debt Management, a program within the Finance Department’s Debt & Treasury Management Division, is responsible for managing the debt issuance process for all City borrowings.
FY 2021-22 debt issuance totaled $877.3 million, composed of a 2021 TRAN in the amount of $285.0 million, $200.5 million in GO Bonds, $22.8 million in CSJFA Lease Revenue Bonds, $165.8 million in CSJFA Taxable Lease Revenue Bonds, $45.0 million CSJFA Lease Revenue Taxable Commercial Paper Notes, $86.5 million in CSJFA Subordinate Wastewater Revenue Notes to finance capital improvements at the San José-Santa Clara Regional Wastewater Facility, and $71.7 million of conduit multi-family housing revenue obligations.
The
Debt Management Program work plan for FY 2022-23 includes total debt issuance estimated at $621.4 million. Of that amount, a $275.0 million 2022 TRAN has already been issued. Of the remaining planned issuance, the City expects the issuance of $300 million in Wastewater Revenue Bonds, $40.0 million in authorization for issuing CSJFA Tax-Exempt CP Notes for construction of a Water Resources Administration and Operations Facility, and $6.4 million in CSJFA Taxable CP Notes for the Flood Recovery Improvements project in June 2023.
The debt team will also analyze current bond interest rates to see if CSJFA Lease Revenue Bonds, Series 2013B are a refunding candidate. For the refunding to occur, the Debt Management Policy, in general, requires a minimum of 3% net present value savings. 2 City Debt Portfolio and Debt Issuance History
FY 2011-12 through FY 2021-22
2. Debt Administration
After debt issuance, the Debt Management staff is responsible for administering the debt portfolio. As part of the City’s statutory compliance program, the Special Tax Annual Report required by State law has been incorporated into this CADR as Appendix E. Section III of this report (Debt Administration) provides a detailed discussion of debt administration tasks performed by Debt Management staff.
3. Debt Management Projects
In addition to debt issuance and administration, Debt Management staff serves in a financial advisory role to other City departments to assist in the review of capital funding options.
Various projects and administrative efforts are described below. a. Projects in FY 2021-22
Renewal/Replacement/Expansion of Letters of Credit and Direct Placement for Variable- Rate Debt. Staff completed the following work in FY 2021-22:
• Airport Commercial Paper Notes. On August 19, 2021, the City extended the Letter of Credit and Reimbursement Agreement with the Bank of America National Association (BANA) securing the City’s Airport CP program through September 10, 2024. In conjunction, BANA extended an irrevocable transferable letter of credit (LOC) to the City in the stated amount of $81.7 million (to cover the principal of $75 million and interest on the subordinated CP Notes calculated at a rate of 12% for 270 days based on a 365- day year) scheduled to expire on September 10, 2021. The current facility fee rate is
0.40%.
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
Annual Debt Issuance
($ million)
Outstanding Debt
($ million)
Fiscal Year Ended June 30
City and Related Entity Debt Outstanding Conduit Debt Outstanding Annual Debt Issuance 3 On August 31, 2021, the City conducted a Tax Equity and Fiscal Responsibility Act (TEFRA) hearing with respect to the proposed issuance by the City of one or more issues of tax-exempt Series B subordinated commercial paper notes (Series B Notes) in an aggregate principal amount not to exceed $600,000,000. The issuance was pursuant to a plan of finance to provide proceeds to pay for or reimburse all or a portion of the costs of acquisition, construction, equipping, financing, reconstruction, development, and modification of airport terminal and ancillary facilities that are included in or are consistent with the Airport master plan for the Norman Y. Mineta San José International Airport (Airport). The City Council adopted Resolution No. 80201 approving, for purposes of Section 147(f) of the Internal Revenue Code of 1986, the issuance of Series B Notes, in an aggregate principal amount together with certain other commercial paper notes not to exceed $600,000,000 from time to time, to finance and refinance the facilities at the Airport. The actual principal amount of Airport CP Notes that can be issued currently is constrained by the amount of the LOC.
• City of San José Financing Authority Lease Revenue Commercial Paper Notes. On August 31, 2021, the City adopted Resolution No. 80208 authorizing the execution and delivery of amendments to certain financing documents. The amendments to an amended and restated trust agreement with Wells Fargo Bank N.A. (WFBNA) and the sublease increased the maximum principal amount outstanding of Series 2 Notes and Series 2-T Notes to $175 million, supported solely by the U.S. Bank LOC, and reduced the maximum principal amount outstanding of Series 1 Notes and Series 1-T Notes to $0 dollars. The amendment to the Letter of Credit and Reimbursement Agreement with U.S.
Bank increased the commitment to the aggregate principal amount of $175 million and extended the stated expiration date of the U.S. Bank LOC to March 24, 2025. The State Street Bank and Trust Company (State Street) LOC was terminated at the election of the City on September 23, 2021. U.S. Bank’s current commitment fee is 0.38%, paid quarterly in arrears. The dealer fee remains at 0.045%.
Pension Obligation Bonds. The City has been exploring options for controlling retirement costs including issuing Pension Obligation Bonds (POBs) since at least 2007. Prior staff reached a conclusion in 2010 that POBs were not a viable tool at that time to address the 2010-11 budget shortfall. In March 2019, the Mayor convened the Retirement Stakeholder Solutions Working Group to address retirement fund resilience and explore options that would protect both employee benefits and the City's ability to provide basic services through the next recession. In April 2021, the Retirement Stakeholder Solutions Working Group issued its final report indicating POBs were the only viable option to have a significant impact on reducing the unfunded actuarial liability. Since April 2021, the City has held several public study sessions, meetings with the City Council and the Police and Fire and Federated Retirement Boards on analyzing the benefits, risks, and process for issuing POBs.
On October 5, 2021, the City Council adopted Reso
lution 80248 authorizing the issuance of
bonds to refund certain pension obligations of the City of San José, including approving the form, and authorizing the execution of, a Trust Agreement and Bond Purchase Agreement; and authorizing judicial validation proceedings and additional actions relating to the issuance of the bonds. The pension obligations include the unfunded liability for both the Police and Fire Department Retirement Plan and the Federated City Employees' Retirement System Plan, and the annually required retirement contribution that is due and payable 4 within 12 months of the issuance of the bonds. The proposed final aggregate principal amount of the bonds may not be greater than $3.5 billion or the sum of the City’s unfunded liability and current obligation, as calculated by the actuary for both Retirement Plans, together with the costs of issuing the Bonds. The Trust Agreement will not constitute an obligation for which the City is obligated or permitted to levy or pledge any form of taxation or for which the City has levied or pledged or will levy or pledge any form of taxation. The City filed a complaint for validation on November 18, 2021. Howard Jarvis Taxpayers Association, Citizens for Fiscal Responsibility and Pat Waite (HJTA) filed a response challenging the City’s authority to issue bonds without voter approval. A hearing before the Santa Clara Superior Court occurred on August 22, 2022, and a final decision is pending. If the City receives a favorable judgment, the size and timing of the actual bond issuance would require the City Council's approval of offering documents, including disclosures, and would be contingent on favorable market conditions. Prior to actual issuance of any pension obligation bonds, the City Council will consider adoption of a pension funding policy.
Request for Qualifications
and Request for Proposals. In May 2022, the City issued a Request for Qualifications for a Municipal Bond Underwriting Pool for the following credits:
CSJFA Lease Revenue Bonds, Regional Wastewater Facility Bonds, Norman Y. Mineta San José International Airport Revenue Bonds and Land-Secured Financings including issuances through Community Facility Districts. The City selected the underwriting firms of Morgan Stanley & Co. LLC, Stifel, Nicolaus & Company, Incorporated and Jefferies LLC for the 2022A CSJFA Convention Center Refunding Project. The City also issued a Request for Proposals for a Municipal Bond Underwriting Pool for the Regional Wastewater Facility Bonds within the RFQ, proposals from which the City established the underwriter pool. Morgan Stanley & Co. LLC, Academy Securities, Inc., Samuel A. Ramirez & Co., Inc. and Stifel, Nicolaus & Company, Inc. were chosen from the Regional Wastewater Facility underwriter pool for the CSJFA Wastewater Revenue Bonds, Series 2022B (Green Bonds – Climate Bond Certified).
Pools for other bonds are pending.
Request for Bank Commitment.
In April 2022, the City invited commercial banks to respond to its Request for Bank Commitments for direct purchase of its 2022 TRAN in the range of $200 million - $450 million to support the City prefunding of retirement contributions. A TRAN is a short-term note that must be repaid within the same fiscal year. In April 2022, the City received responses from nine banks submitting various possible TRAN/alternative product commitments ranging from $100 million to $450 million. The City selected BANA for the direct purchase of the 2022 TRAN, which was ultimately sized at $275 million.
Special Assessment Bonds, Series 24Q (Hellyer-P iercy). On March 2, 2022, the 24Q Bonds were redeemed in full and are no longer outstanding.
Declaration of Surplus Construction Funds, S pecial Assessment Bonds, Series 24Q (Hellyer- Piercy). Staff identified remaining surplus construction funds for which the capital projects were concluded. Working closely with the Department of Public Works and the City Attorney’s Office, staff performed a thorough analysis of surplus funds and developed a close-out plan that was approved by the City Council on November 22, 2021. During FY 2021-22, Debt Management staff implemented the close-out plan, including transferring surplus funds to designated accounts, developing accounting and allocation schedules, creating a refund notification program to identify and locate refund eligible recipients. The refund notification began in April 2022 by directly mailing the claim forms to each eligible 5 recipient. Staff is currently working with the recipients to assist in completing their claim forms.
Special Tax Bonds, Community Facility District No. 1 (Capitol Expressway Auto Mall). On May 1, 2022, the CFD 1 Bonds were redeemed in full and are no longer outstanding.
Affordable Housing Project TEFRA Hearings. The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 requires a published notice, public hearing and approval by elected officials for issuance of qualified private activity bonds, such as multifamily housing revenue bonds.
The City Policy for the Issuance of Multifamily Housing Revenue Bonds (Housing Policy), adopted by Council in June 2002, and San José Municipal Code Chapter 5.06 delegated the authority to hold TEFRA hearings for multifamily housing projects, with the City as the conduit issuer, to the Director of Finance. The Housing Policy was last amended/re-affirmed on March 13, 2018, to comply with the California Debt Limit Allocation Committee (CDLAC), Regulation 5031(c), which required City Council to re-affirm the existing bond policies and procedures, by resolution of the City Council, to refresh the current documents, and to conform to the CDLAC policy requiring re-approval of the issuer’s policy and post-issuance policies at least every ten (10) years. In FY 2021-22, the Finance Department held TEFRA hearings for the following projects:
• Vitalia (formerly known as Bascom Apartments) – A TEFRA hearing was held on November 2, 2021 for the approval and proposed issuance of tax-exempt 501(c)(3) revenue bonds in an amount not to exceed $35,672,716, to finance the acquisition, construction and development of a 79-unit (including two manager’s units) residential rental project located at 3090 South Bascom Avenue, to be renumbered upon building permit issuance to 3100 South Bascom Avenue, in the City to be occupied by low- income and very low-income tenants. The note was issued on January 28, 2022. • Mariposa Place –
A TEFRA hearing was held on November 2, 2021, for the approval and proposed issuance of tax-exempt 501(c)(3) revenue bonds in an amount not to exceed $31,341,010, to finance the acquisition, construction and development of an 80-unit (including one manager's unit) of residential rental housing by Danco Communities or an affiliate located at 750 West San Carlos in the City to be occupied by low-income and very low-income tenants. The note was issued on January 28, 2022.
TEFRA Hearings for Multifamily Housing Projects
City as Conduit Debt Issuer
FY 2021-22
Date Project Amount Issue Date
11/2/2021 Vitalia (formerly Bascom Apartments) $35,672,716 1/28/2022 11/2/2021 Mariposa Place 31,341,010 1/28/2022
3/28/2022 Algarve Apartments 32,532,700 No issuance
3/28/2022 McEvoy Apartments 64,160,884 No Issuance
6 • Algarve Apartments – A TEFRA hearing was held on March 28, 2022, for the approval and proposed issuance of tax-exempt 501(c)(3) revenue bonds in an amount not to exceed $32,532,700, to finance the acquisition, construction and development of a 91- unit (including one manager's units) residential rent and income-restricted apartments project located at 1135 East Santa Clara Street in the City to be occupied by extremely low-income and very low-income tenants. Algarve’s CDLAC allocation was set to expire in June 2022. In May 2022, CDLAC granted a 90-day blanket extension to all the projects to September 2022. However, Algarve returned its allocation to CDLAC in August 2022.
Therefore, no note was issued.
• McEvoy Ap artments – A TEFRA hearing was held on March 28, 2022, for the approval and proposed issuance of tax-exempt 501(c)(3) revenue bonds in an amount not to exceed $64,160,884 to finance the acquisition, construction and development of a 224- unit (including two manager's units) residential rent and income-restricted apartments project located at 280 McEvoy Street (also known as 699 West San Carlos Street) in the City to be occupied by low or moderate-income households. McEvoy’s CDLAC allocation was set to expire in June 2022. In May 2022, CDLAC granted a 90-day blanket extension to all the projects to September 2022. However, McEvoy returned its allocation to CDLAC in May 2022. Therefore, no note was issued.
TE
FRA Hearings for Other Conduit Financings – Debt Management staff coordinates with the other Conduit issuers (e.g., the California Enterprise Development Authority [CEDA], California Municipal Finance Authority [CMFA], or California Statewide Community Development Authority [CSCDA]) to prepare the required documentation for the City Council to hold a TEFRA hearing and approve the issuance of tax-exempt bonds for the projects located in the City. Debt Management staff facilitated the following TEFRA hearings for Other Conduit issuers in FY 2021-22:
• 425 Auzerais Apartments (CMFA as issuer) – On August 10, 2021, City Council held a TEFRA meeting and approved the issuance of tax-exempt 501(c)(3) revenue obligations in an amount not to exceed $45,000,000 of tax-exempt private activity revenue bonds by the CMFA to finance and refinance the acquisition, construction, improvement and equipping of the 130-unit affordable apartment complex. b. Pr
ojects Completed and/or Anticipated for FY 2022-23
Request for Proposals ( RFP) and Qualifications (RFQ):
• Continuing Disclosure Services - The City anticipates issuing an RFP inviting experienced consulting firms to respond for the purpose of continuing disclosure audit/compliance services. The selected firm for this assignment will provide continuing disclosure consulting and audit services for compliance in conjunction with previously entered into continuing disclosure undertakings pursuant to Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities and Exchange Act of 1934.
• Arbitrage Rebate Services - The City anticipates issuing an RFP inviting firms experienced in offering arbitrage rebate calculation services in conjunction with the tax-exempt bonds to respond to this RFP to provide arbitrage rebate calculation 7 services to the City and its related issuing entities for a five-year engagement, subject to additional one-year extensions. The selected firm will provide arbitrage rebate calculation services for tax exempt bonds to comply with Internal Revenue Code requirements.
• S pecial Tax Consultant Services - The City anticipates issuing an RFP inviting experienced consultants to provide special tax consulting services for special district formations and land-secured (Community Facilities Districts and Assessment Districts) bond financings. The selected firm will assist the City in the potential formation of the Market Park Community Facilities District and issuance of bonds to finance certain public improvements in accordance with the City’s Community Facilities District Financing Procedure.
Wastewater Revenue Bonds, Series 2022B
:
• Request for Trustee Services – In August 2022, the City with the assistance of its Municipal Advisors, Public Resources Advisory Group, invited commercial banks to respond to its RFQ to provide trustee services for the City’s anticipated City of San José Financing Authority Wastewater Revenue Bonds. In September 2022, the City received responses from seven firms. Based on the statement of qualifications provide by proposers, the RFQ evaluation committee, in accordance with the selection process and evaluation criteria prescribed in the RFQ Wilmington Trust, N.A. was selected to provide trustee services for the 2022B Wastewater Revenue Bonds.
• R
equest for Second Party Opinion (Green Bonds-Climate Bond Certification) – In August 2022, the City with the assistance of its Co-Senior Manager, Morgan Stanley, invited qualifying firms to respond to its RFQ to provide a Second Party Opinion for the City’s anticipated City of San José Financing Authority Wastewater Revenue Bonds. In September 2022, the City received responses from four firms. Based on the statement of qualifications provided by the proposers, the Evaluation Committee, in accordance with the selection process and evaluation criteria prescribed in the RFQ, Kestrel Verifiers was selected to provide the Second Party Opinion for the 2022B Wastewater Revenue Bonds. Kestrel Verifiers completed its review of the Wastewater Revenue Bonds and assisted the City in successfully securing the “Green Bonds-Climate Bond Certified” label for the Bonds.
General and Municipal Ad
visory and Underwriting Services:
• R equest for Municipal Advisor - The City anticipates issuing an RFQ inviting experienced municipal advisory firms to respond to one or more of the assignments, which may include general advisory services along with municipal advisory services for the following credits: General Obligation and Lease Revenue, Airport, Multifamily Housing, Wastewater Revenue, Clean Energy, the Successor Agency to the Redevelopment Agency (SARA) and Land-Secured (community facility districts and improvement districts).
8 • Request for Underwriters – The Request for Qualifications for the City bond underwriting pool was published in May 2022. The Debt Management team is evaluating responses from the underwriters for CSJFA lease revenue bonds, Airport revenue bonds, and land-secured financings including issuances through Community Facility Districts. The term of each financing pool is 5 years, with the City’s ability to consider optional renewal periods. The City will select senior managers and co- managers for each pool.
B. Review of Debt Management Policies
1. Debt Management Policy
On May 21, 2002, City Council adopted, by Resolution No. 70977, Council Policy No. 1-15, a Debt Management Policy (Policy) (See Appendix A) which establishes the following objectives in order to obtain cost-effective access to the capital markets:
• Minimize debt service and issuance costs
• Maintain access to cost-effective borrowing
• Achieve the highest practical credit rating
• Full and timely repayment of debt
• Maintain full and complete financial disclosure and reporting • Ensure financial controls are in place with respect to proceeds of debt issuances • Ensure compliance with applicable State and Federal laws The Policy establishes parameters for when and how the City may enter into debt obligations but permits sufficient flexibility to allow the City to take advantage of opportunities that may arise. The Policy was most recently amended on March 7, 2017, to comply with California Senate Bill 1029 which requires additional reporting requirements of debt issued by the City (including that of the Successor Agency and the Authority) to the California Debt and Investment Advisory Commission (CDIAC).
9 In February 2022, the City complied with the California Senate Bill 1029 with submission of the Annual Debt Transparency Report for debt issued on or after January 21, 2017. Those debt issues reported and submitted to CDIAC, that occurred from January 21, 2017 through June 30, 2021 and new issuances in FY 2021-22, are shown in the table below:
10 The Administrative Disclosure Policies and Procedures1 (Administrative Disclosure Policy) establish a policy, process, and procedures that the City, including the Successor Agency and Other Related Entities, follows to promote compliance with primary disclosure and continuing disclosure requirements. The Administrative Disclosure Policy provides for the creation of disclosure working groups that include the City Manager, City Attorney, City Budget Director, City Finance Director, and other senior departmental staff as needed, who are responsible for the review and release of disclosure documents related to the sale of securities, and provide for on-going training of staff and City Council on disclosure issues. The Administrative Disclosure Policy was approved by the City Manager in June 2020 and will be periodically reviewed and updated as needed.
2. Policy for the Issuance of Multifamily Housing Revenue Bonds In addition to the general Debt Management Policy, the City Council approved by Resolution No. 71023 on June 11, 2002, Council Policy No. 1-16, a supplemental policy for the Issuance of Multifamily Housing Revenue Bonds (Housing Policy) (See Appendix B). The Housing Policy was last amended/re-affirmed on March 27, 2018, to comply with the California Debt Limit Allocation Committee (CDLAC), Regulation 5031(c), which required City Council to re-affirm the existing bond policies and procedures, by resolution of the City Council, to refresh the current documents, and to conform the CDLAC policy requiring re-approval of the issuer’s policy and post-issuance policies at least every ten (10) years.
C. R
ating Agency Relations and Credit Maintenance
1. Credit Analysis Process
Municipal bond ratings provide investors with a simple way to compare the relative investment quality of different bonds. Bond ratings express the opinions of the rating agencies as to the issuer’s ability and willingness to pay debt service when it is due. As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) adopted in August 2014, credit rating agencies have adopted and followed new requirements to enhance governance, protect against conflicts of interest, and increase transparency to improve the quality of credit ratings and increase credit rating agency accountability. While the criteria for evaluating municipal bonds vary by type of bond, the credit rating analysis in general includes the evaluation of the relative strengths and weaknesses of the following four factors as they affect an issuer’s ability to pay debt service:
a. Fiscal Factors
Financial results have a significant impact on the rating process. The rating review involves an examination of results of operations, including a review of the actual fiscal performance versus planned budget performance. The financial statements are examined with emphasis on current financial position and fund balances, as well as three- and five-year trends in planning and budgeting procedures. Pension and OPEB liabilities are also important in the analytical process.
1 CPM 7 Disclosures Policies and Procedures (sanjoseca.gov) 11 b. Economic Factors
The overall economic strength is heavily weighted in the evaluation of creditworthiness by diversity of both the economic base and, as applicable, the tax base. The diversity of industries employing residents and paying taxes reflects an agency’s ability to weather industry-specific downturns as well as general economic recession. Property values, employment levels, income levels, costs of living, and other factors impacting the wealth of the taxpayers provide an indication of the strength of a tax base. c. Debt Factors
Overall debt burden is considered in the credit analysis process. In addition to government regulated debt ceilings, the ability to maintain manageable debt levels and debt service coverage is evaluated. Other positive indicators are proper management of existing debt, proactive efforts in identifying and executing financially prudent refunding opportunities, and closely matching capital financing structures to the funding needs of the project. d. Administrative/Management Factors
Administrative and management factors include the examination of the form of government and assessment of ability to implement plans as well as fulfill legal requirements, policymakers' commitment to disciplined fiscal policies, and management's capacity to implement these decisions over several administrations. The quality and implementation of a financial plan that supports financial discipline, stability and comprehensiveness of the budgeting process to monitor revenues and control expenditures, including pension responsibilities and the implementation of large-scale infrastructure projects, is also a factor. The focus is on the capabilities of management staff and related entities, which are seen as a vital ingredient in assessing an issuer’s credit quality. Managerial and legislative willingness to make difficult decisions, the development of financial policies, and the reliability and continuity of regularly updated accounting and financial information are key.
Management that maintains regular contact with the rating agencies is well regarded.
The formal criteria used by each of the three major rating agencies currently rating some of the City’s debt – Moody’s, S&P and Fitch – are independently established by the respective rating agencies and can vary among the rating agencies and are subject to change over time.
2. Rating Summary
A complete listing of the ratings for the City’s general obligation and Enterprise debt, CSJFA lease revenue and the Successor Agency tax allocation bonds is provided in Appendix C. This section covers rating activity during the 2021-22 fiscal year:
Rating Agency Credit Reviews
The rating agencies conduct periodic and regular credit reviews as part of their required surveillance compliance of the City’s and related entities outstanding bonds. Responding to the rating agencies’ request for information relevant to their credit analysis involves a coordinated effort by Debt Management staff with City departments. Below are rating actions that occurred either during Fiscal Year 2021-22 (or, where indicated, after the fiscal year prior to CADR publication), by issuer credit category:
• Th
e City’s GO Bond credit ratings at the end for the FY 2021-22 were Aa1/AA+/AAA from 12 Moody’s, S&P, and Fitch, respectively. The ratings continue to reflect the diversity of the local economy anchored by a strong technology presence, sound financial management and prudent budgetary practices and translates into significant interest cost savings in the City’s borrowing costs, which in turn benefits the taxpayers and residents of the San José community.
• The A
uthority issued tax-exempt Lease Revenue Bonds, Series 2021A (Fire Department Training Center and Central Service Yard Projects) to refund CSJFA Series 2003A Bonds and Central Service Yard Commercial Paper Notes and finance the acquisition and construction of public improvements benefitting the City, including (i) the acquisition, construction, and equipping of a portion of the City’s Fire Department Training Center and (ii) additional improvements to and equipping of the Central Service Yard. The 2021A Bonds are rated by Moody’s, S&P and Fitch: Aa2, AA and AA, respectively.
• The A
uthority issued Taxable Lease Revenue Bonds, Series 2022A (Convention Center Refunding Project) to refund CCFD Hotel Tax Bonds Series 2011, CSJFA Lease Revenue Bonds Series 2011A and CSJFA Exhibit Hall and South Hall Commercial Paper Notes. The 2022A Bonds are rated by Moody’s, S&P and Fitch: Aa3, AA and AA, respectively.
Notwithstanding the City’s determination that each of these assets were important public improvements worthy of City financial support, Moody’s and Fitch make a rating distinction among assets they deem to be essential (such as police and fire facilities, city halls and facilities serving core government functions), and facilities they deem to be “less essential” which may include various types of recreational facilities the rating agencies believe would be more vulnerable to non-appropriation of lease payments in the event of financial difficulty. The differences in the ratings of the various series of Lease Revenue Bonds reflect the differences in criteria among the rating agencies for evaluating the impact of asset “essentiality” on the credit rating.
As
of June 30, 2022, the CSJFA Lease Revenue Bonds had the following ratings shown in the table below.
Series Moody’s S&P Fitch
2013B, 2020A, 2021A Aa2 AA AA
2020B
Aa3 AA AA-
2022A Aa3 AA AA
Rating Outlook Stable Stable Stable
• Th
e City’s Airport bonds credit ratings are A2, A, and A from Moody’s, S&P, and Fitch, respectively as of June 2022. S&P upgraded the rating from A- to A in June 2022.
3. Le
gal Debt Margins
General Obligation debt is debt secured by the City’s property tax revenues. Section 1216 of the San José City Charter limits outstanding GO debt of the City to 15% of the total assessed value of all real and personal property within the City limits (debt limit). For FY2021-22 the City’s gross assessed value of taxable property, provided by the County, was $222.7 billion, which results in 13 a total debt limit of approximately $33.4 billion (total assessed value x 15% = debt limit). As of June 30, 2022, the City had $582.1 million in GO debt outstanding (principal), representing 1.7% of the debt limit.
D. Legislative and Regulatory Issues
Debt Management staff review federal and state legislative referrals for potential impact to the outstanding debt portfolio. Staff also monitor regulatory changes proposed by governmental agencies such as the Internal Revenue Service (IRS), the Securities and Exchange Commission (SEC), and the Municipal Securities Rulemaking Board (MSRB), as well as industry organizations such as the National Association of Bond Lawyers (NABL), the National Federation of Municipal Analysts (NFMA), and the Government Finance Officers Association (GFOA).
The Tax Cuts and Jobs Act (Act) was enacted on December 22, 2017. One of the provisions of the Act eliminated the ability to use tax exempt bond proceeds to advance refund tax exempt bonds issued after December 31, 2017; tax exempt bonds may continue to be issued for current refunding bonds (bonds closed no more than 90 days prior to the call date). There have been legislative efforts to pass a reconciliation bill that would, among other things, reinstate the federal tax exemption for interest income earned on advance refunding bonds, reintroduce direct-pay bonds and expand bank-qualified debt, but as of the time this report was published no new provision has been passed.
14 15
II. DEBT ISSUANCE
A. Debt Issued During FY 2021-22
FY 2021-22 debt issuance totaled $877.3 million. The issuance included a $285.0 million TRAN, $200.5 million in General Obligation Bonds, $22.8 million in Lease Revenue Bonds, $165.8 million in Taxable Lease Revenue Bonds, $45.0 million Lease Revenue Taxable Commercial Paper Notes, $86.5 million in subordinate wastewater revenue notes to finance capital improvements at the San José-Santa Clara Regional Wastewater Facility, and $71.7 million of conduit multi-family housing revenue obligations. These financings are described below and are presented in the summary table at the end of this section.
City of San José 2021 Tax and Revenue Anticipation Note - The City issued a short-term note for cash flow borrowing purposes to facilitate the prefunding of employer retirement contributions.
A $285 million TRAN was purchased by BANA, on July 1, 2021. Security for the repayment of the 2021 TRAN was a pledge of the City’s FY 2021-22 secured property tax and other available General Fund revenues of the City including sales tax revenues, if required. The 2021 Note was fully repaid on June 30, 2022.
City of San José General Obligation Bonds - On July 29, 2021, the City issued $200,530,000 of General Obligation Bonds, consisting of Series 2021A (in the principal amount of $151,210,000), Series 2021B (federally taxable, in the principal amount of $8,450,000) and Series 2021C (federally taxable, in the principal amount of $40,870,000) (collectively, the 2021 GO Bonds).
The 2021 GO Bonds constitute the second round of general obligation bonds issued under the Measure T authorization of $650,000,000 for Disaster Preparedness, Public Safety, and Infrastructure, approved by the voters in November 2018. The 2021 GO Bonds are secured by a pledge of the City to levy ad valorem property taxes without limitation of rate or amount (except certain personal property which is taxable at limited rates). The ad valorem property tax levy is calculated for each fiscal year to generate sufficient revenue to pay 100% of annual debt service net of other available funding sources. The 2021 GO Bonds were rated Aa1 from Moody’s, AA+ from S&P, and AAA from Fitch with stable outlook. The Fitch rating on the outstanding 2019 GO Bonds was upgraded from AA+ to AAA in connection with Fitch’s rating of the 2021 GO Bonds.
City of San José Financing Authority Lease Revenue Bonds Series 2021A (Fire Department Training Center and Central Service Yard Projects) - On November 2, 2021, the Authority issued $22,825,000 of Lease Revenue Bonds, Series 2021A (CSJFA 2021A Bonds) to (i) refinance on a current basis the outstanding Lease Revenue Bonds, Series 2003A (Central Service Yard Refunding Project) of the Authority and the related lease payment obligation of the City of San José (the City), (ii) refinance on a current basis the outstanding Central Service Yard ($2,474,000) Commercial Paper Notes of the Authority, (iii) finance the acquisition and construction of public improvements, and (iv) pay the costs of issuing the CSJFA 2021A Bonds.
City of San José Financing Authority Taxable Lease Revenue Bonds, Series 2022A (Convention Center Refunding Project) - On April 21, 2022 the Authority issued $165,815,000 of Taxable Lease Revenue Bonds, Series 2022A (CSJFA 2022A Bonds) to refinance on a current basis the outstanding (i) Special Hotel Tax Revenue Bonds, Series 2011 (Convention Center Expansion and Renovation Project) of the City, (ii) Lease Revenue Bonds, Series 2011A (Convention Center Expansion and Renovation Project) of the Authority and the related lease payment obligation of the City, and (iii) refinance the outstanding Exhibit Hall ($8,432,847) and South Hall 16 ($42,400,000) Commercial Paper Notes of the Authority and (iv) pay the cost of issuing the CSJFA 2022A Bonds.
While the City incurred additional cost by replacing low-cost tax-exempt bonds with taxable bonds, it was done at a time when the spread between tax-exempt and taxable bonds was historically low and therefore will provide greater operating flexibility for the Convention Center and the South Hall Site. Additionally, the refunding of the CP Notes to fixed rate bonds reduced the risk of increases in the interest rates of the Exhibit Hall and the South Hall Commercial Paper Notes. Finally, by structuring the refunding transaction as a General Fund lease, the refinancing of the 2011 CCFD Bonds benefited from the City’s stronger lease revenue bond ratings relative to the existing special hotel tax ratings, thereby lowering the cost of debt service and maximizing savings. Under the Pledge Agreement dated as of April 1, 2022, between the City, for and on behalf of the Convention Center Facilities District (CCFD), and the Authority, the City pledged a lien and security interest on the Special Taxes (4% hotel special tax levied by the CCFD) for the benefit of the Authority as security for the City’s obligations to make Lease Payments.
City of San José Financing Authority Lease Revenue Commercial Paper Notes – The CSJFA CP program utilizes a lease revenue financing structure. Under this program, the Authority issues commercial paper notes with maturities not exceeding 270 days. The CSJFA CP Notes are secured by a pledge of lease revenues from various City assets (the Animal Care Center, Fire Station No. 1, Fire Station No. 3, the Police Communications Center, the South San José Police Substation, and the Tech Museum) and one direct-pay LOC provided by U.S. Bank pursuant to a letter of credit and reimbursement agreement by and among the Authority, the City and U.S.
Bank, as amended.
On August 31, 2021, the City adopted Resolution No. 80208 app roving and authorizing the execution and delivery of amendments to certain financing documents. The amendments to the amended and restated trust agreement with WFBNA along with the sublease increased the maximum principal amount outstanding of Series 2 Notes and Series 2-T Notes to $175 million, supported solely by the U.S. Bank LOC, and reduced the maximum principal amount outstanding of Series 1 Notes and Series 1-T Notes to $0 dollars. The State Street LOC was terminated at the election of the City on September 23, 2021. The U.S. Bank’s current commitment fee is
0.38%, paid quarterly in arrears. The dealer fee remains at 0.045% and is Barclays Bank PLC (Barclays).
During FY 2021-22, the Authority issued $45 million of new money commercial paper notes to finance SJCE energy costs and operations. As of June 30, 2022, $66.95 million of CSJFA Taxable CP Notes were outstanding at an average interest rate of 1.35%. The CSJFA CP program was initially established in January 2004 and has been amended and expanded through various City Council and Authority Board actions over time. A summary of these program amendments is provided in Appendix C.
City of San José Financing Authority Subordinate Wastewater Revenue Notes – On October 3, 2017 the City Council/Authority Board approved the Authority entering into an agreement with WFBNA with a three-year term (Wastewater Credit Agreement) under which the Authority issues subordinate wastewater revenue notes (the Subordinate Notes) from time to time in an aggregate principal amount not to exceed $300 million outstanding at any time, and request 17 advances of funds under the Subordinate Notes for the purpose of financing Wastewater System and Treatment Plant Projects. The Subordinate Notes are supported by wastewater net system revenues and have no claim against the City’s General Fund. This facility closed on October 19, 2017.
This
interim financing facility is part of a long-term plan to provide funding for the RWF Capital Improvement Program at the lowest possible cost and with the least risk. The initial Wastewater Credit Agreement was amended and extended prior to its scheduled expiration on October 18, 2020. The City and Authority approved the First Amendment to the Wastewater Credit Agreement and an Amended and Restated Fee Letter Agreement, both with WFBNA on June 26, 2018 to adjust the calculation of interest and fees for tax-exempt Subordinate Notes to address increased borrowing cost under the terms of the agreement resulting from tax changes in the Tax Cuts and Jobs Act of December 2017. The City and Authority approved the second amendment to the Wastewater Credit Agreement and a second amended and restated fee letter agreement with WFBNA on September 29, 2020, with a new expiration date of October 18, 2023.
During FY 2021-22, $86.5 million was drawn on the facility. The outstanding balance of Subordinate Notes drawn, as of June 30, 2022 was $236.87 million, leaving an undrawn amount of approximately $63.13 million for use on capital improvements at the Wastewater System Treatment Plant facility. The Authority will refinance the Subordinate Notes (which bears interest at a variable interest rate) with long-term, fixed rate financing amortized over 30 years in winter 2022.
City of San José, California, San José International Airport Subordinated Commercial Paper Notes – The Airport CP program was established in November 1999, pursuant to Council Resolution 69200, to provide interim financing for Airport capital needs in anticipation of issuance of long-term fixed-rate airport revenue bonds. Airport CP Notes are debt obligations backed by Net General Airport Revenues (Airport’s gross revenues less maintenance and operation expenses) and are subordinate to Airport senior lien debt, also backed by these revenues and one direct-pay LOC currently issued by BANA.
On
September 12, 2018, BANA issued an Airport LOC replacing the Airport LOC issued by Barclays. Pursuant to a letter of credit and reimbursement agreement between the City and BANA, BANA issued its irrevocable transferrable Airport LOC in the initial stated amount of approximately $81.7 million (to cover principal of $75.0 million and interest on the subordinated Airport CP Notes accruing calculated at a rate of 12% for 270 days based on a 365-day year), scheduled to expire on September 10, 2021.
In connection with BANA’s issuance of its Airport LOC, the following documents were executed:
• First amendment to the third amended and restated issuing and paying agent agreement between the City and U.S. Bank
• Fourth amended and restated dealer agreement between the City and each of the dealers of the Airport CP Notes
• Fee letter between the City and BANA
• Bank note payable to BANA in the amount of approximately $81.7 million under which the City promises to pay principal and interest on the unpaid principal amount of all unreimbursed drawings and term loans evidenced by the bank note on the dates and at the rates provided for in a reimbursement agreement
18 On August 19, 2021, BANA extended the expiration date of the Airport LOC from September 10, 2021, to September 10, 2024.
As of June 30, 2022, the only Airport CP series outstanding under the program was Series B with $34.1 million notes outstanding at an interest rate of 1.60%, Series A2 and Series C notes were both fully redeemed in November 2018 and July 2017, respectively.
As
noted above, the Airport CP program was initially established in 1999, and it has been expanded and amended by various City Council actions. A summary of these Airport CP program amendments is provided in Appendix D.
Multifamily Housing Revenue Bonds/Notes
• Vitalia (formerly Bascom Apartments) – CDLAC approved up to $35.7 million for the issuance of tax-exempt debt at the August 11, 2021 meeting. City Council approved the issuance of multifamily housing notes on December 7, 2021. The notes were issued on January 28, 2022 for $35.7 million to provide financing for the acquisition and construction and development of the 79-unit multifamily rental housing project to low- income and very low-income residents.
• Mariposa Place – CDLAC approved up to $31.3 million for the issuance of tax-exempt debt at the August 11, 2021 meeting. City Council approved the issuance of multifamily housing notes on December 14, 2021. The notes were issued on January 28, 2022 for $31.3 million to provide financing for the acquisition and construction and development of the 80-unit multifamily rental housing project to low-income and very low-income residents.
19 20
B. Debt Activity for FY 2022-23
Staff anticipate debt issuance in FY 2022-23 totaling approximately $621.4 million in both new money and refunding issuance. A $275.0 million 2022 TRAN has already been issued. Of the remaining planned issuance, the City expects the issuance of $300 million in Wastewater Revenue Bonds, $6.4 million in CSJFA Taxable CP Notes for the Flood Recovery Improvements project, and $40.0 million in authorization for issuing CSJFA Tax-Exempt CP Notes for the interim construction financing of a Water Resources Administration and Operations Facility. These financings are described below and are presented in the summary table at the end of this section.
Debt Issuance and Redemptions Completed
City of San José 2022 Tax and Revenue Anticipation Note – On July 1, 2022, the City issued a $275,000,000 TRAN to facilitate the prefunding of employer retirement contributions for FY 2023. The 2022 TRAN was sold in a direct placement to BANA. For repayment of the 2022 TRAN is a pledge of the City’s FY 2022-2023 secured property tax and other legally available General Fund revenues of the City including sales tax revenues, if required. The 2022 TRAN maturity dates are February 28, 2023 ($137.5 million) and June 30, 2023 ($137.5 million).
Re
demption of Special Tax Bonds CFD #6 and #10 – On September 1, 2022, the Special Tax Bonds, Community Facility District 6 (Great Oaks-Route 85), with an outstanding principal balance of $1.7 million, and Community Facility District 10 (Hassler-Silver Creek), with an outstanding principal balance of $1.8 million, were redeemed in full and are no longer outstanding.
Debt Planned for FY 2022-23
City of San José Financing Authority Wastewater Revenue Bonds – This transaction will refinance the Authority’s outstanding Subordinate Wastewater Revenue Notes, Series A in the amount of $300,000,000. The City, with the assistance of its municipal advisor, Public Resources Advisory Group, solicited proposals from experienced investment banking firms and selected Wells Fargo Bank, N.A., to serve as the Senior Manager and Morgan Stanley as the Co-Senior Manager. The City also solicited firms to provide Second Party Opinion (SPO) for Green Bonds – Climate Bond Certification and selected Kestrel Verifiers with the assistance of the Co-Senior Manager through an RFQ process.
City Council and the Authority Board approved the issuance of the bonds on November 15; staff anticipates bond sale on December 1 and bond closing on December 15. The Subordinate Notes will be refunded within 90 days of the bond closing date.
SJCE Credit Facility Solicitation - The City issued an RFP for San José Clean Energy Revolving Credit Facilities in the amount up to $250 million on October 7, 2022. The City requested qualified lenders and/or financial institutions to submit proposals for credit facilities consisting of a revolving line of credit and a standby letter of credit facility in an aggregate amount up to $250 million to support operations related to San José Clean Energy, the community choice aggregation program of the City. On November 17, 2022, the City issued a recommendation to award to JPMorgan Chase Bank for the full amount of the facility. Contract negotiations are pending. 21 CSJFA CP Notes – The Debt Management staff currently anticipates seeking City Council and Authority Board approval for the issuance of up to $40 million for interim financing and issuing $6.4 million as described below:
• $40 million authorization for the interim financing for the construction of a new Water Resources Administration & Operations Facility, consisting of one large building that will house all staff and infrastructure necessary to ensure continuous operations. The new facility is expected to include conference and training rooms; a customer service and payment area; a water quality laboratory; a map room for utility plans and documents; a warehouse for equipment, materials, and parts; a welding shop for metalwork and fabrication needs; adequate parking for staff, City vehicles, and visitors; and site security systems and fencing.
• $6.4 million is anticipated to be issued for the Flood Recovery Improvements project.
Multifamily Housing Revenue Bonds/Notes
The City anticipates serving as conduit issuer for the following multi-family housing revenue bonds on the basis of the CDLAC applications filed on August 9, 2022. The four projects that submitted applications were Tamien, The Charles, 1860 Alum Rock and 777 W. San Carlos. CDLAC will award the bond allocations on November 30, 2022. The issuance will occur if a project is awarded a CDLAC allocation and there are no obstacles with the issuance.
22 Be
low is a table that shows the planned issuance for FY 2022-23.
23 C. Historical Market Conditions
After the dot-com bubble, the Federal Open Market Committee (the FOMC) tightened the interest rates. The housing crisis in 2008 followed by the Great Recession forced the FOMC to reverse its course, reducing interest rates to a historical low level in a short period of time.
Rates stayed relatively unchanged until the end of 2015, as the Federal Reserve and central banks of many other countries dedicated monetary policies to extensive quantitative easing.
Economic recovery gradually took hold, albeit uneven, from 2016 to 2019. The spread of the coronavirus in early 2020 halted economic activities abruptly and triggered decline in interest rates. During COVID-19, supply chain disruptions and resignation of labor force contributed to price increases and labor shortages. The war on Ukraine adds more inflationary pressures and the Federal Reserve has taken action by increasing interest rates in an effort to curb rising inflation. From January to October 2022, the Federal Reserve increased the Fed Funds Target Rate from 0.25% to 3.25%. More increases are anticipated at the November and December 2022 Fed meetings.
The
Fed Funds Target Rate experienced significant ups and downs during the last twenty years.
The following graph demonstrates the changes and trend of the Fed Fund Target Rate throughout the period.
Fe
deral Funds Target Interest Rates
January 2002 through September 2022
Data Source: https://fred.stlouisfed.org/series/DFF
In the aftermath of the Great Recession, the financial industry has transformed significantly, which has contributed in part to tightening of credit standards, and produced more stringent capital adequacy requirements for banks. Although the historical trend for variable rate bonds has been consistently lower than fixed rate bonds, this may not hold true in the future. Staff continues to monitor how future regulatory proposals to regulate the banking industry, such as the Basel III Finalization, and financial market changes may affect the City’s variable rate program and will recommend adjustments to the program as appropriate. As of June 30, 2022, the City’s variable rate exposure is limited to the Airport CP program, CSJFA Lease Revenue CP program, and the RWF Revolver Note.
3.08%
24 The chart below compares the changes in interest rates between tax-exempt and taxable interest rates beginning in July 2012 through June 2022. Normally, taxable bonds have higher interest rates than tax-exempt bonds, although the spread is not consistent throughout the historical period. Spreads between the taxable and tax-exempt municipal bonds are dependent upon market factors, including supply, demand, liquidity, etc. Due to inflation and interest rate increases, tax-exempted municipal bond rates are now above the 10-year average.
Com
parison of Tax-Exempt and Taxable Municipal Bonds Interest Rates June 30, 2012 through June 30, 2022
Da
ta Source: Refinitiv TM3
0%
1%
2%
3%
4%
5%Interest Rate
AAA GO 20 yr AAA Taxable 20 yr
25 Ten-Year History of Tax-Exempt Interest Rates
June 30, 2012 through June 30, 2022
Dat
a Source: Refinitiv TM3
D. Selection of Debt Financing Teams
The selection of the municipal advisor and underwriter for a financing engagement is generally done in the form of a competitive request for proposals (RFP) or request for qualifications (RFQ) process. Written proposals are reviewed by representatives from the Finance Department and other City departments involved with the financing. The selection process may, at the City’s discretion, proceed to oral presentations from among the highest ranked proposers.
Municipal Adv isory Pool – Debt Management staff is planning to conduct an RFP process for municipal advisory services in FY 2022-23. The municipal advisors selected will be eligible for project assignments through June 30, 2028. A six-month extension was executed in June 2022 and expires in December 2022 for the current municipal advisors under contract. Staff is working on extending these agreements to June 2023. The municipal advisors are listed by subject area in the table below:
0%
1%
1%
2%
2%
3%
3%
4%
4%
5%
Interest Rate
AAA GO 20 yr Average
26 Pension Obligation Bonds — In December 2020, the City released an RFP via the City’s procurement site on www.biddingo.com, inviting experienced and registered municipal advisor firms to respond for the purpose of providing advice on options for funding its annual obligations to fund retirement system payments including the unfunded actuarial liabilities of the two retirement systems.
The engagement was split into two separate servi ce agreements: Phase 1 – assist the City in evaluating options and development of a pension funding plan; Phase 2 – provide municipal advisory services if the City elects to issue Pension Obligation Bonds (or other long-term obligations) to fund the unfunded liabilities of its retirement systems. If the City chooses to finance the unfunded actuarial liability with bonds or other financing vehicles, a separate engagement was to be entered into with a municipal advisor (Phase 2 engagement). In January 2021, the City received proposals from six municipal advisory firms. The City selected Urban Futures, Inc. (UFI) as the municipal advisor for Phase 1 of the engagement. Phase 2 of the engagement was further split into Phase 2A (validation process) and Phase 2B (bond issuance).
UFI was selected to continue to serve for Phase 2A and provide additional services, as needed.
The City has not selected the municipal advisor(s) for the bond issuance phase (Phase 2B) of the engagement and expects to select such a firm or firms only if the judicial validation of POBs is successful and the market conditions are appropriate for bond issuance.
27 III. DEBT ADMINISTRATION
A. Debt Administration System
The Debt Management staff continually work to improve the comprehensive debt administration system, MunEase. Inputs to the system come from financing documents, trustee reports, reports from the City’s remarketing agents and collateral agents, contracts with financial services providers, and reports and requests from City staff. These inputs provide the data needed to ensure that the City meets its debt administration obligations to:
• Pay debt service
• Issue, invest, and disburse bond funds
• Monitor trustee-held accounts and investment agreements • Comply with bond covenants and IRS requirements
• Provide continuing disclosure and other reports to the municipal bond market • Ensure market pricing of variable rate debt
• Manage liquidity and credit enhancement contracts
• Evaluate potential refunding opportunities
MunEase is a legacy debt administrative system and no longer actively supported by its owner.
The City appropriated $250,000 in FY 2022-23 for the replacement of MunEase. Due to critical staff vacancies in the Debt Management program, the City has not been able to start the market research and solicitation process. Work will commence after vacancies in the Debt Management Team are filled.
B. Compliance and Monitoring
Compliance and monitoring activities constitute a large and growing portion of the Debt Management staff’s daily tasks. While the process of assembling a specific bond financing project may take several months, compliance with the provisions of bond covenants last the entire life the bonds are outstanding, up to 30 years or more. Debt Management staff also monitors compliance with IRS regulations governing tax-exempt debt. Debt Management staff work very closely with other City departments as well as with the City Attorney’s Office and the Budget Office to manage the investment, disbursement, and compliance/continuing disclosure requirements of the debt portfolio.
28 The table presents a summary of compliance items currently monitored and provided by Debt Management staff.
SUMMARY OF COMPLIANCE REQUIREMENTS
Item Descriptions Airport Airport CP
RWF Credit
Facility GO
Successor
Agency(4)
Lease-
Backed
Lease-
Backed CP
Land-Backed
(6) TRAN
Clean Energy
LOC
1. Annual Compliance Report/Certificate
2. Budget Distribution
3. ACFR Distribution
4. CDIAC Annual Debt Transparency Reports(5)
5. Certificate of adequate Budgeted Debt Service
6. Certificate of Property Insurance
7. Certificate of the City/No Event of Default Certificate
8. Continuing Disclosure (SEC Rule 15c2-12)(1)
i) Annual Report(2)
ii) Material Events Notice(3)
9. Investment Policy
10. Special Reporting
i) Tax Roll
ii) Quarterly Billing
iii) Other Available Funds Report
iv) Monthly Cash Reports
v) Quarterly Financials & Compliance Certificate/Quarterly Report vi) Special Tax Annual Report
vii) Airport Commercial Paper Debt Service Certification viii) Tax-Exempt Compliance/Private Activity (1) The CP programs are not subject to Continuing Disclosure obligations. However, the banks providing letters of credit support or the banks that have directly purchased the lease revenue bonds require copies of applicable reports and material events notices posted to EMMA pursuant to the City’s continuing disclosure agreements. (2) Annual Report includes Annual Financial Information and Operating Data, and Audited Financial Statements or ACFR. (3) Material Events include: (1) Principal/Interest payment delinquency, (2) Non-payment related default, (3) Unscheduled draw on debt service reserve reflecting financial difficulties, (4) Unscheduled draw on credit enhancement reflecting financial difficulties, (5) Substitution of credit or liquidity provider, or I ts failure to perform, (6) Adverse tax opinion or event affecting the tax -exempt status of the security, (7) Material modification to the rights of security holders, (8) Material bond call, (9) Defeasances (10) Release, substitution or sale of property sec uring repayment of the security, (11) Rating change, and (12) Bankruptcy or insolvency of the obligated person (13) Consummation of a merger, consolidation or acquisition or termination of a definitive agreement (14) Appointment of a success or or additional trustee or change of name of trustee (15) Incurrence of a financial obligation of the issuer or obligated person[1], if material, or agreement to covenants, events of default, remedies, priority rights, o r other similar terms of a financial obligation of the issuer or obligated person, any of which affect security holders, if material (16) Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the issuer or obligated p erson, any of which reflect financial difficulties It is a requirement to post a notice to EMMA within 10 business days when (1) it incurs financial obligation if material; (2) there is a default, modifications of terms, acceleration or other similar terms of a financial obligation that reflect financial difficulties. (4) Successor Agency to the Redevelopment Agency of the City of San José Refunding Bonds. (5) CDIAC Annual Debt Transparency Reports include (SB 1029, Mello -Roos and Marks -Roos reports). Multi-Family Housing Revenue bonds/notes are excluded from compliance requirements because they are conduit obligations. The Borrower takes full responsibility for compliance and continuing disclosure on these obligations. (6) As of September 1, 2022, the City no longer has any land-backed (community facilities district or improvement district bonds outstanding) 29 1. Trustee Activities
As of June 30, 2022, the City had approximately $561.1 million in bond and commercial paper note funds, including reserve funds, held by four banking institutions serving as trustee, fiscal agent or issuing and paying agent (collectively, Trustees). The Successor Agency had approximately $121.8 million in funds to pay for debt service. The table below summarizes the City’s and Successor Agency’s trustee fund balances and activity.
Trustee Summary1
As of June 30, 2022
Trustee
Number of
Bond/CP
Loan/Revolver
Issues
Original Par Amount
of Bonds/CP
Loan/Revolver Trustee Fund Balance
City Related
Bank of New York 8 $ 1,177,995,000 $ 98,675,676
US Bank 2 24,700,000 1,962,337
Wells Fargo Bank 1 30,445,000 2,004,663
Wilmington Trust 11 1,360,305,000 336,330,404
U.S. Bank (Airport CP) 1 600,000,000 316,772
Wells Fargo Bank, N.A.
(RWF Note and CSJFA CP)
2 475,000,000 9,153
Barclays Bank, PLC. 1 65,000,000 0
Sub-Total 26 $ 3,733,445,000 $ 439,299,005
Successor Agency
Wilmington Trust 3 $1,677,540,000 $ 121,843,000
Sub-Total 3 $1,677,540,000 $ 121,843,329
Grand Total 29 $ 5,410,985,000 $ 561,142,334
1 Does not include multifamily housing revenue bonds funds held.
2. Bon
d Proceeds Expenditures and Reimbursement Procedures
The City’s use of tax-exempt bond proceeds is limited by Federal and State law, and in some cases, by the ballot language authorizing the debt. Generally, tax-exempt bond proceeds, including interest earnings on bond funds, may only be spent for governmental purposes and only on capital projects. In the case of voter-approved debt, the bond proceeds may only be used for the purposes described in the ballot language authorizing the debt. To provide accountability in managing bond funds, most of the City’s bond-financed project funds are held by trustees, who disburse the construction or improvement funds after Debt Management staff has reviewed a disbursement request from the City department managing the project.
Dis
bursement requests are reviewed and approved by department heads or their deputies before they are submitted to Debt Management. Debt Management staff then reviews, reconciles, and qualifies the bond-financed project expenditures before submitting disbursement requests to the Trustees. When there is an ambiguity, the City Attorney’s Office assists in determining the eligibility of expenditure items. 30 3. Arbitrage Rebate
Debt Management staff actively monitor proceeds of tax-exempt bonds for arbitrage compliance purposes. Arbitrage is the profit that results from investing low-yield tax-exempt bond proceeds in higher-yield securities (also referred to as positive arbitrage). Federal law stipulates that investment earnings in excess of the bond yield are arbitrage earnings and must be rebated and paid to the U.S. Treasury. However, if a jurisdiction meets certain IRS expenditure exceptions for bond proceeds, the arbitrage earnings do not have to be rebated to the U.S. Treasury.
The investment of bond proceeds is managed in accordance with the City Investment Policy and the Permitted Investment provisions of the governing documents of each series of bonds.
For some types of bond funds, particularly a construction fund that must be held in short-term securities, a fund may earn at a rate less than the bond yield. The fund is said to be earning negative arbitrage. Through careful management of its investments, the City can use positive arbitrage earnings in one account of a bond series to offset negative arbitrage in another account of the same bond series.
Although arbitrage earnings are rebated to the U.S. Treasury on a five-year installment basis, Debt Management staff conduct annual rebate calculations to ensure the City remains current on compliance issues and to facilitate appropriate budgeting and accounting for any potential rebate liability. Since FY 2018, the Debt Management staff has conducted and managed rebate calculations for the Successor Agency to ensure and maintain compliance with the IRS.
In addition to performing its own annual calculations, the City uses an outside consultant, BLX, to (1) review the City’s arbitrage compliance at five-year anniversary dates when rebate is due to the U.S. Treasury; (2) compute annual and five-year installment arbitrage rebate liability on the more complex financings; and (3) provide technical assistance to the City in the area of arbitrage rebate compliance. This third-party review provides an added level of confidence that the City is in compliance with the arbitrage regulations. Such review is particularly important given the IRS has a random audit and target audit programs for tax-exempt bond issues. The City plans to issue a RFP in FY22-23 for arbitrage services.
No
ne of the City’s tax-exempt bond issues currently have a positive arbitrage rebate liability.
4. Co
ntinuing Disclosure
On November 10, 1994, the Securities and Exchange Commission (SEC) adopted amendments to existing federal regulations (Rule 15c2-12 or the Rule) under which municipalities issuing securities on or after July 3, 1995 are required to:
1. Prepare official statements meeting current requirements of the Rule;
2. Annually file certain financial information and operating data with national and state repositories; and
3. Prepare announcements of the significant events enumerated in the Rule.
Ef
fective July 1, 2009, the SEC requires all municipal issuers and other obligated persons to make all continuing disclosure filings electronically to an on-line, electronic filing system, known as the Electronic Municipal Market Access system (EMMA) maintained by the Municipal Securities Rulemaking Board (MSRB) instead of making these continuing disclosure filings with national and state repositories as originally required by Rule 15c2-12. Subsequently, the SEC amended Rule 15c2-12, for municipal bonds issued on or after December 1, 2010, to (1) 31 increase the number of events required to be reported as significant events from 11 to 14; (2) require that certain events previously required to be reported only if material to be reported regardless of materiality; (3) impose the requirement to report significant events within 10 business days from the occurrence of the event; (4) remove the exemption from the continuing disclosure for variable rate demand and other demand securities; and (5) amend the provisions regarding reporting of certain adverse tax events.
Ad
ditional amendments to SEC Rule 15c2-12 regarding continuing disclosure obligations became effective on February 27, 2019 for bonds issued after this date. The amendments generally require a municipal issuer or obligated person to post a notice to EMMA within 10 business days when (1) it incurs a financial obligation (e.g. a debt obligation such as a loan), if material, or enters into an agreement related to a financial obligation that includes default, remedies, priority of rights or similar terms that will affect other bond holders, if material; or (2) there is a default, modifications of terms, acceleration or other similar terms of a financial obligation that reflect financial difficulties.
As
noted above, the City has an Administrative Disclosure Policy and Procedures, approved by the City Manager and Director of Finance in June 2020, that includes procedures related to continuing disclosure to guide staff in meeting the City’s and the Successor Agency’s continuing disclosure obligations. Continuing disclosure, as well as compliance reporting, will continue to be a significant and important part of Debt Management’s administration of outstanding debt. The City is in the process of creating an RFP for post-issuance compliance for disclosure and arbitrage compliance monitoring.
C. Investment of Bond Proceeds
Debt Management staff work closely with bond trustees and Investment staff to manage the investment and disbursement of bond proceeds. Bond proceeds are invested in accordance with bond covenants and guided by the provisions of the City’s Investment Policy, which was most recently amended on March 15, 2022.
D. Outstanding Variable-Rate Debt
The City’s and Authority’s outstanding debt portfolios, as described in Section IV, include variable rate bonds and commercial paper notes secured by letters of credit or purchased directly by a bank (direct placements). Administration of LOC facilities and direct placements presents an ongoing and significant work effort for Debt Management staff and the City Attorney’s Office, especially as it relates to the work involved in bank facility renewal efforts.
The agreements with the banks typically require renewal every three years, and market activity requires ongoing review and monitoring given the variable rate nature of the obligations.
Th
e interest on variable rate demand bonds is determined through a remarketing function, with rates set by the market, based on liquidity in the form of an LOC or standby purchase agreement for a limited period such as three years when the facility needs to be renewed, replaced or the bonds redeemed. Issuing and paying agents draw against facilities when necessary for liquidity.
Bank direct placements provide a similar form of borrowing liquidity as well. The interest rate on a bank direct placement is generally set based on an indexed interest rate, plus a spread and have a mandatory tender at the expiration date. The total cost of funds under either type of facility is comparable, but different market conditions have provided an advantage to one or the other, especially based on internal factors affecting banks. In particular, bank facilities may be advantageous as they may charge a lower bank facility rate for undrawn balances; letters of 32 credit and standby purchase agreements typically charge a single fee for all balances, whether drawn or not.
As
outlined in the table below, the City currently has approximately $615 million in letters of credit, securing two commercial paper programs (CSJFA CP program and Airport CP program), a revolving credit facility (for SJCE) and a revolving line of credit facility (for the RWF) as of June 30, 2022. In September 23, 2021 the CSJFA CP Notes capacity increased from $125 million to $175 million.
As
of June 30, 2022, the City has no outstanding variable rate bonds.
Fo
r several years, regulators and market participants have been preparing for a transition from the benchmark London Interbank Offer Rate (LIBOR) index. On November 30, 2020, the Federal Reserve announced that LIBOR will be phased out and eventually replaced by June 2023; banks were instructed to stop writing contracts using LIBOR by the end of 2021, and all contracts using LIBOR are to wrap up by June 30, 2023. Publication of LIBOR rates is scheduled to cease in 2023. In the municipal market a large volume of bank loans, floaters and interest rate swaps use LIBOR to calculate cash interest rates. A new benchmark, U.S. Secured Overnight Financing Rate (SOFR), has been developed to serve as a broad measure of the cost of borrowing cash Summary of Letters of Credit and Direct Placement Banks As of June 30, 2022
Bond Series Project Description Bank
Authorized
Amount (1) Expiration Date
Letters of Credit
Airport Commercial Paper
Series ABC
Airport Terminal Area
Improvement Program Bank of America $75,000,000(2) 9/10/2024 City of San José
Financing Authority
Commercial Paper
Various City projects U.S. Bank 175,000, 000(3) 3/24/2025 Revolving Line of Credit
San
José-Santa Clara
Regional Wastewater
Facility
Wastewater System
and Treatment Plant
Projects
Wells Fargo
Bank, N.A. 300,000,000
(4) 10/18/2023
Revolving Credit Facility
San José Clean Energy
Letter of Credit
Energy Power
Provider Contracts
Barclays Bank
PLC 65,000,000
(5) 11/27/2023
Total $615,000,000
(1) Commercial Paper principal or Credit Facility capacity. (2) Airport CP Notes outstanding as of June 30, 2022 was $34.1 million. The City Council has authorized the Airport CP Notes to be issued in an aggregate principal amount of up to $600 million outstanding at any one time. (3) CSJFA CP Notes outstanding as of June 30, 2022 was $66.95 million. (4) The amount drawn on the Revolving Line of Credit during FY 2021-22 was $43.4 million; total amount drawn as of June 30, 2022 was $236.9 million with debt service calculated using SOFR based formula. (5) Debt Service calculated using a LIBOR based formula and total amount outstanding cannot exceed $65 million. 33 overnight collateralized by Treasury securities. SOFR is intended to work alongside LIBOR and is expected to be used in new transactions and amendments of existing contracts that extend beyond the termination of LIBOR.
A sw
itch of benchmark from LIBOR to SOFR for existing tax-exempt securities could be interpreted as a material change that would cause the securities to be considered newly reissued and subject to current tax laws. On October 9, 2019, the U.S. Treasury Department and the Internal Revenue Service (IRS) issued proposed regulations providing guidance to taxpayers on the tax consequences of modifying financial instruments and contracts in advance of the upcoming phase-out of the LIBOR and other interbank rates (collectively, IBORs). The detailed report on guidance on the transition can be found in the federal register website.
The City’s exposure to LIBOR borrowing rates is currently limited to a $65 million City revolving credit agreement for SJCE. Financing documents for the transaction includes a provision for a transition from the LIBOR index to a new benchmark index as determined by Barclays. For conduit housing debt, there is some LIBOR rate exposure, but recent bond documents also provide for a transition from the LIBOR index to a new benchmark index.
The following chart provides indicative variable rates the City and related entities paid during FY 2021-22 for taxable bond obligations. The taxable three-month LIBOR interest rate averaged
0.58% and daily SOFR rate averaged 0.18% for the fiscal year.
Va
riable Rates
FY 2021-22
To develop budget estimates for variable rate debt, Debt Management staff undertakes a comprehensive analysis which considers historical rates, trends and future projections.
Annually, Debt Management staff provides the City’s Budget Office forecasted interest rates for budgeting short-term borrowing cost, in this case for the City’s 2023-2027 General Fund
34 Forecast. The rates below for FY2022-23 are based on 3-month LIBOR (for taxable rates) and 80% of 3-month LIBOR (for tax-exempt rates), plus 50 basis points (bps) for fees/spread and 25 bps as a cushion against rising interest. The forward rates are based on future rates from Bloomberg Market Data – Forward Swap Curves as of August 2, 2022. For FY2024-2027, rates below are based on 3-month SOFR (for taxable rates) and 80% of 3-month SOFR (for tax-exempt rates), plus 50 bps for fees/spread and 25 bps as a cushion against rising interest.
E. Refunding Opportunities
Debt Management staff review and analyze the outstanding debt portfolio with the goal of identifying opportunities to refund or restructure certain series of bonds to reduce annual debt service obligations.
Generally, fixed rate bonds can be refunded in two ways: as a current refunding or as an advance refunding. A current refunding is a refinancing in which the refunding bonds (new bonds) are issued less than 90 days before a date on which the refunded bonds (old bonds) can be called. The proceeds of the refunding bonds are applied immediately to pay principal, interest, and a call premium, if any, on the refunded bonds. Thereafter, the revenues originally pledged to the payment of the refunded bonds are pledged to the payment of the refunding bonds.
An advance refunding is the refinancing of outstanding bonds by the issuance of a new issue of bonds more than 90 days prior to the date on which the outstanding bonds are callable. Certain types of tax-exempt bonds, such as the bonds issued to finance airport terminal improvements, are not eligible to be advance refunded with tax-exempt proceeds. The proceeds of advance refunding bonds are invested in an escrow until the first call date of the bonds to be refunded.
Accordingly, for a period of time, both the issue being refunded and the refunding bond issue are outstanding until the refunded bonds are redeemed from the refunding escrow on their call date. The Tax Cuts and Jobs Act (Act), enacted on December 22, 2017, effectively eliminated the use of tax-exempt proceeds for advance refunding tax-exempt bonds issued after December 31, 2017. The proceeds of taxable bonds may be used to advance refund bonds and tax-exempt bond proceeds may still be used to current refund tax-exempt bonds.
Variable Interest Rate Forecast
for Future Debt Service Payments
July 2022 – June 2027
Fiscal Year Tax-Exempt Rates Taxable Rates
2022-23 4.48% 5.60%
2023-24 4.17% 5.21%
2024-25 3.61% 4.52%
2025-26 3.41% 4.27%
2026-27 3.34% 4.18%
35 IV. CITY’S OUTSTANDING DEBT PORTFOLIO
This section includes a presentation of the City’s debt portfolio which as of June 30, 2022 was comprised of 79 different debt obligations, consisting of 75 series of bonds/notes, two commercial paper programs, one revolving line of credit facility for RWF and one revolving credit facility for SJCE , totaling $4.6 billion. Of the 75 series of bonds, 24 series are debt of the City, the Successor Agency, or related entities while the remaining 51 series are multifamily housing revenue bonds or notes for which a private developer is the obligor and the City is a conduit issuer. This analysis includes all debt issued by the City of San José, the Successor Agency, and various financing authorities of which the City is a member and obligated to make payment.
As
of June 30, 2022, the City and related entities had debt outstanding totaling approximately $3.9 billion, excluding $790.8 million in outstanding multifamily housing revenue bonds.
A su
mmary table of all outstanding debt by series, excluding multifamily housing revenue bonds, is included in subsection I. Summary of Outstanding Debt. The multifamily housing revenue bonds are summarized in a separate table in subsection F. Multifamily Housing Revenue Bonds.
The following chart shows the distribution among the various categories of outstanding debt issued by the City and its related entities.
36 The following chart illustrates the annual debt service payments for all outstanding City-related debt except listed below:
Out
standing Debt Issued by All Agencies
Annual Debt Service
(excludes conduit debt, pension, OPEB, commercial paper and other liabilities of the City not listed in key below)
A. General Obligation Bonds
On November 6, 2018, voters approved Measure T, authorizing a total issuance of $650,000,000 in GO bonds to acquire property and construct improvements to improve emergency and disaster response, repair deteriorating bridges vulnerable to earthquakes, repave streets and potholes, prevent flooding and water contamination including the acquisition of land in the Coyote Valley for these purposes, and repair critical infrastructure.
On
July 29, 2021, the City issued $200,530,000 of General Obligation Bonds, Series 2021A (in the amount of $151,210,000), Series 2021B (federally taxable, in the amount of $8,450,000) and Series 2021C (federally taxable, in the amount of $40,870,000) (collectively, the 2021 GO Bonds). The 2021 GO Bonds constitute the second round of bonds issued under the Measure T authorization of $650,000,000 for Disaster Preparedness, Public Safety, and Infrastructure. The 2021 Bonds are secured by a pledge of the City to levy ad valorem property taxes without limitation of rate or amount (except certain personal property which is taxable at limited rates).
The ad valorem property tax levy is calculated for each fiscal year to generate sufficient revenue to pay 100% of annual debt service net of other available funding sources. Total principal outstanding and interest due as of June 30, 2022 is $949,689,403 with final maturity of 09/01/2051.
37 General Obligation Bonds
Annual Debt Service
The table below reflects the General Obligation Bond portfolio as of June 30, 2022:
City of San José
General Obligation Bonds
Issuance Amounts and Outstanding Balances as of June 30, 2022 Me
asure T Issuance
Issuance
Final
Maturity
Series 2019
(Refunding)
Series 2019
(New Money)
Series 2021
(New Money)
Measure T
Total Issued
Outstanding
Balance
Series 2019A 9/1/2049 $173,400,000 $173,400,000 $140,360,000 Series 2019B 9/1/2027 66,500,000 66,500,000 66,500,000
Series 2019C(1) 9/1/2035 $158,185,000 156,045,000
Series 2019D 9/1/2024 103,935,000 59,545,000
Series 2021A 9/1/2051 $151,210,000 $151,210,000 151,210,000 Series 2021B 9/1/2022 8,450,000 8,450,000 8,450,000
Series 2021C 9/1/2021 40,870,000 40,870,000 0
Total $262,120,000 $239,900,000 $200,530,000 $.430.000.440 $582,110,000 Measure T Voter Authorization $650,000,000
Remaining Measure T Authorization $209,570,000
(1) A portion of the 2019C Bonds funded remaining projects under Measure O (2000) in the amount of $5,905,000 and u
nder Measure O (2002) in the amount of $3,325,000.
38 B. City of San José Financing Authority Obligations
The financing projects included in this category include bond-financed capital projects for which the City General Fund bears the majority of the debt burden.
In No
vember 2021, the Authority issued $22.8 million in lease revenue refunding bonds, Series 2021A to (i) refinance on a current basis the outstanding Lease Revenue Bonds, Series 2003A (Central Service Yard Refunding Project) of the Authority and the related lease payment obligation of the City, (ii) refinance on a current basis the outstanding Central Service Yard ($2,474,000) Commercial Paper Notes of the Authority, (iii) finance the acquisition and construction of public improvements, and (iv) pay the costs of issuing the CSJFA 2021A Bonds.
In
April 2022, the Authority issued $165.8 of Taxable Lease Revenue Bonds, Series 2022A (CSJFA 2022A Bonds) to refinance on a current basis the outstanding (i) Special Hotel Tax Revenue Bonds, Series 2011 (Convention Center Expansion and Renovation Project) of the City, (ii) Lease Revenue Bonds, Series 2011A (Convention Center Expansion and Renovation Project) of the Authority and the related lease payment obligation of the City, and (iii) refinance the outstanding Exhibit Hall ($8,432,847) and South Hall ($42,400,000) Commercial Paper Notes of the Authority and (iv) pay the cost of issuing the CSJFA 2022A Bonds.
Non-self-supporting obligations - Several outstanding lease revenue bond issues financed projects are considered non-self-supporting as they do not generate revenues that can be applied to offset the City’s lease payments. Although City special funds or other revenue sources may be earmarked to make these payments, the City’s General Fund bears the majority of the debt service burden. Below is a short description of each of the non-self-supporting projects:
• Series 2013B Bonds w
ere issued to refund the bonds issued to finance the land acquisition and construction of the City Hall Employee Parking Garage (2008B Bonds) • Series 2020A Bonds were issued to refund the bonds that refunded the City Hall project and recreational facilities (2006A, 2007A, 2013A Bonds) and finance the build out of SJCE operations
• Series 2021A Bonds were issued to finance the acquisition and construction of Fire Department Training Facility, finance the City’s Central Service Yard improvements project, refund the Central Service Yard Outstanding Commercial Paper and outstanding CSJFA 2003A Bonds
• Commercial paper notes issued to provide funding for Flood Recovery Improvement Projects.
Self-supporting obligations – Such obligations are issued for projects that produce sufficient revenues to retire the debt. The bonds are not supported by the taxing power of the governmental entity issuing them. Financing projects are considered self-supporting if revenue generated from the project can be applied to offset, in whole or in part, the City’s lease payments.
To the extent that offsetting revenues are insufficient to completely cover the debt service payments for any of these bonds, the City’s General Fund is committed to making up the difference. A short description of each of these self-supporting projects is listed below. 39 • Series 2020B Bonds were issued to refund the 2008E-1 and 2008E-2 Bonds and finance the acquisition and construction of two additional ice rinks and related facilities at the Ice Centre of San José. Under the Second Amended and Restated Lease, Sharks Ice leases the expanded facility and the Sharks Ice’s base rent payments to the City are the first source of the City’s repayment of the 2020B Bonds. • Series 2022A Bon ds were issued to refund bonds that financed the convention center expansion and renovation project (2011 Special Hotel Tax Revenue Bonds and CSJFA 2011A Bonds) and refunded Exhibit Hall and South Hall Commercial Paper Notes. Under the Pledge Agreement dated as of April 1, 2022, between the City, for and on behalf of the Convention Center Facilities District (CCFD), and the Authority, the City pledged a lien and security interest on the Special Taxes (4% hotel special tax levied by the CCFD for the benefit of the Authority as security for the City’s obligations to make Lease Payments).
• Co
mmercial paper notes have been issued to provide funding for the following projects (self-supporting): Community Energy power purchase and other operating costs. 40 As of June 30, 2022, the total amount of CSJFA Lease Revenue obligations outstanding was $746.5 million, consisting of $679.6 million in fixed rate bonds and $66.9 million of outstanding CSJFA CP Notes. The following chart illustrates the annual debt service requirements. CSJFA CP Notes outstanding is not included in the graph because there is no fixed amortization schedule.
Debt with Recourse to the City General Fund
Self-Supporting Annual Debt Service
41 C. Enterprise Fund Obligations
1. Norman Y. Mineta San José International Airport
As of June 30, 2022, the total amount of Airport obligations outstanding was estimated at $1.1 billion, consisting of senior debt of $1.0 billion and $34.1 million of outstanding Airport CP Notes. The Airport CP program is subordinate to the airport revenue bonds.
Th
e following chart illustrates the annual debt service requirements. Airport CP Notes outstanding is not included in the graph as there is no fixed amortization schedule.
Ai
rport Revenue Bonds
Annual Debt Service
42 2. Debt Related to the San José-Santa Clara Regional Wastewater Facility Pursuant to a Wastewater Credit Agreement dated as of October 1, 2017 and amended on October 18, 2020 by and among the City, the Financing Authority, and WFBNA, the Financing Authority issued to WFBNA (i) a subordinate tax-exempt wastewater revenue note in an amount not to exceed $300 million or (ii) a subordinate taxable wastewater revenue note in an amount not to exceed $300 million outstanding at any one time. The Wastewater Credit Agreement effectively established an interim financing program under a three-year contract that enables the issuance of subordinate wastewater revenue notes to finance capital improvements at the RWF.
In September 2020, City staff negotiated a Second Amendment to the Wastewater Credit Agreement with WFBNA that extended the Wastewater Credit Agreement to October 18, 2023.
As of June 30, 2022, the Authority had drawn $236.9 of the aggregate principal amount of $300 million available to be drawn on the n ote. The Wastewater Credit Agreement currently expires October 18, 2023. The table below reflects the changes in the note outstanding during the fiscal year; figures are presented in millions.
July 1, 2021 Additions Deletions June 30, 2022 Interest Rate $150.4 $86.5 $ - $236.9 1.53%
On N
ovember 15, 2022 the City Council and Authority Board authorized the issuance of up to $300 million in wastewater revenue bonds. The Authority anticipates issuing these wastewater revenue bonds on or about December 15, 2022 to refinance the interim financing facility with long-term, fixed rate financing amortized over 30 years. 43 D. Land-Secured Financing
As of June 30, 2022, the City had two series of community facilities district bonds outstanding totaling $3,525,000.
Th
e chart below illustrates the total annual debt service requirements for the community facilities district debt outstanding as of June 30, 2022. Note that unlike prior charts, these bond issues are payable from a separate and discrete revenue stream and therefore debt service for each of these transactions is structured independently.
Land-Secured Bonds
Annual Debt Service
On September 1, 2022, the two outstanding series of community facilities district debt, Special Tax Bonds CFD No. 6 (Great Oaks-Route 85) in the amount of $1.7 million, and CFD No.10 (Hassler-Silver Creek) in the amount of $1.8 million were redeemed. The City has no outstanding community facilities district debt as of September 2022.
E. Successor Agency to the Redevelopment Agency of the City of San José The former Redevelopment Agency of the City of José (Agency) was established in 1956 by the San José City Council as a public entity legally separate from the City of San José (City). In January 1975, the City Council declared itself the Agency Board, replacing a separate board.
Until June 28, 2011, the Agency had the broad authority to acquire, rehabilitate, develop, administer, and sell or lease property in a Redevelopment Area. Redevelopment projects were developed in cooperation with private developers. Public redevelopment projects were also developed under cooperation agreements between the Agency and the City or other public entity that would own the project.
On June 28, 2011, Assembly Bill X1 26 (AB X1 26) was enacted. On December 29, 2011, the California Supreme Court upheld the constitutionality of AB X1 26, and all redevelopment agencies in California were dissolved by operation of law effective February 1, 2012. AB X1 26 has since been amended by AB 1484 in 2012 and by SB 107 in 2015. AB X1 26, as subsequently amended, is referred to herein as the Redevelopment Dissolution Law. The legislation provides for successor agencies and oversight boards to be responsible for overseeing the dissolution process and the wind down of redevelopment activity. On January 24, 2012, the City Council affirmed its decision to serve as the Successor Agency, effective February 1, 2012. The Successor Agency is a component unit of the City. Also, upon dissolution, the City Council elected to retain the housing assets, functions and powers previously performed by the Agency.
The Successor Agency is a separate public entity from the City, subject to the direction and oversight of a Board consisting of the Mayor and the other members of the City Council. The Successor Agency is also, pursuant to the Redevelopment Dissolution Law, subject to the direction and oversight of an Oversight Board. Beginning July 1, 2018, the individual oversight boards within Santa Clara County were combined into one county-wide oversight board (Oversight Board). The Oversight Board is comprised of seven member representatives with one member appointed by each of the following: County Board of Supervisors, the city selection committee established pursuant to Section 50270 of the Government Code, the independent special district selection committee established pursuant to Section 56332 of the Government Code, the County Superintendent of Education, the Chancellor of the California Community Colleges, a public appointment made by the County Board of Supervisors, and the recognized employee organization representing the largest number of successor agency employees in the County. The Oversight Board is staffed by the County of Santa Clara Auditor-Controller (“County Auditor-Controller”) and tasks have been delegated among the County Finance Agency, the Office of the County Executive, the Clerk of the Board of Supervisors, and Office of the County Counsel
In general, the Successor Agency’s assets can only be used to pay enforceable obligations in existence at the date of dissolution (including the completion of any unfinished projects that were subject to legally enforceable contractual commitments).
On December 21, 2017, the Successor Agency issued 2017 Senior Tax Allocation Refunding Bonds and the 2017 Subordinate Tax Allocation Refunding Bonds (the 2017 Refunding Bonds).
The 2017 Refunding Bonds were issued in the aggregate principal amount of $1,677,540,000, in two senior series and one subordinate series: (i) $79,825,000 of the tax-exempt senior lien 2017 Series A Bonds (the 2017A Bonds), (ii) $1,333,325,000 of taxable senior lien 2017 Series A-T Bonds (the 2017A-T Bonds) and collectively (the 2017 Senior Tax Allocation Refunding Bonds), 44 45
and (iii) $264,390,000 of tax-exempt subordinate lien 2017 Series B Bonds (the 2017 Subordinate Tax Allocation Refunding Bonds or 2017B Bonds).
Pro
ceeds of the 2017 Refunding Bonds were used to i) redeem, defease, or prepay all of the Former Agency's outstanding tax allocation bonds and obligations in connection with agreements entered into in connection with the City of San José Financing Authority's Revenue Bonds, Series 2001A (4th & San Fernando Parking Facility Project) and Lease Revenue Bonds, Series 2001F (Convention Center Refunding Project), ii) and pay the costs of issuing the 2017 Refunding Bonds including the debt service reserve insurance policies. The 2017 Refunding Bonds generated total debt service savings of $253,855,595 over the next eighteen years and net present value savings of $185,599,774 (discounted at the all-in true interest cost) or 10.82% of the Refunded Obligations.
The
2017 Refunding Bonds are secured and payable from Redevelopment Property Tax Trust Fund tax revenues which is generally defined as the portion of property tax revenues collected in the Merged Project Area derived from incremental growth in assessed property values over the initial base year values in each of 17 component areas, less certain County administrative fees and the AB1290 statutory pass-through payment to the San José Unified School District, and excluding the amounts collected pursuant to the pension override or State Water Project override provisions
2 of the Dissolution Law that were not pledged to the repayment of the 2017 Refunding Bonds. All other AB1290 statutory pass-through payments and the negotiated pass- through payments to Santa Clara County were subordinated to the 2017 Refunding Bonds. As of June 30, 2022, the Successor Agency had total debt outstanding of $,1,287,630,000, consisting of approximately $1,111,130,000 in senior Tax Allocation Bonds and $176,500000 in subordinate Tax Allocation Bonds.
2 For more detailed discussion on pension override and State Water Project override, refer to page 26 in the Official Statement, Successor Agency to the Redevelopment Agency of the City of San José, Series 2017A, A-T and B Tax Allocation Refunding Bonds” https://emma.msrb.org/ER1114101-ER871408-ER1272103.pdf 46 The following chart illustrates the total annual debt service requirements for Successor Agency debt outstanding:
F. Multifamily Housing Revenue Bonds
Multifamily housing revenue bonds are issued to finance the construction, acquisition and rehabilitation of rental apartment projects by private developers. The City issues the bonds, typically on a tax-exempt basis, and then lends the proceeds to the developer/ borrower. The bonds are limited obligations of the City, payable solely from loan repayments by the borrower and any credit enhancement. For multifamily housing revenue bonds to qualify for tax- exemption, generally one of two restrictions must apply: either at least 20 percent of the units in the housing development must be reserved for occupancy by individuals and families of very- low income (50% of area median income) or at least 40 percent of the units must be reserved for occupancy by individuals and families of low income (60% of area median income).
Since November 1985, the City has issued $1.9 billion of bonds and notes for the City’s multifamily housing program, which has financed the production of 9,989 affordable housing units. As of June 30, 2022, the total principal amount of bonds outstanding for the housing program was $790.8 million.
In addition to serving as a conduit for financing multifamily housing revenue bonds/notes, there are other vehicles available to the City to assist with the financing of affordable housing units, including loans, grants and application of low-income housing tax-credits. However, the state’s elimination of redevelopment agencies, which were required to set aside 20% of tax increment revenue for affordable housing, has significantly reduced the City’s ability to facilitate the financing of affordable housing. In March 2020, the voters approved Measure E – Real Property Transfer Tax in which by City Council Policy 1-18, Section 22 are allocated for development of new affordable housing, homeless prevention and homeless supportive services, which provided additional source of funding. The information presented in this report represents affordable housing projects that were financed, in whole or in part, with bonds or notes issued by the City.
The table presented on the following pages summarizes the City’s portfolio of multifamily revenue bonds and represents information provided by the City of San José Housing Department as of June 30, 2022.
47 48
Project Name Series Date Issued
Issue Amount
(thousands)
Balance
(thousands)
Maturity/
Redemption
Affordable
Units Annual Fees
Fairway Glen 1985A 11/18/85 10,100 - 04/15/07 29 n/a
Foxchase Drive 1985B 11/18/85 11,700 - 05/15/08 29 n/a Somerset Park Apartments 1987A 11/20/87 8,000 - 08/01/05 26 n/a Timberwood Apartments 1990A 02/01/90 13,425 - 09/01/05 166 n/a Timberwood Apartments 1990B (Sub.) 02/01/90 1,500 - 08/01/05 - n/a Countrybrook Apartments 1992A 04/15/92 20,090 - 04/01/12 72 n/a Countrybrook Apartments 1992B (Tax.) 04/15/92 1,000 - 04/01/97 - n/a Siena at Renaissance Square 1996A 08/22/96 50,000 - 12/01/29 271 n/a Siena at Renaissance Square 1996B 08/22/96 10,000 - 04/01/98 - n/a Almaden Lake Village Apartments 1997A 03/27/97 25,000 03/01/32 50 33,750 Almaden Lake Village Apartments 1997B 03/27/97 2,000 - 03/29/00 - n/a Coleman Senior Apartments 1998 04/24/98 8,050 - 05/01/30 140 n/a Italian Gardens Senior Apartments 1998 04/24/98 8,000 - 05/01/30 146 n/a Carlton Plaza 1998A 04/24/98 12,000 - 10/15/32 28 n/a Carlton Plaza 1998A (Tax.) 04/24/98 2,600 - 04/02/01 - n/a The Gardens Apartments 1999A 05/12/99 18,970 - 01/01/32 286 n/a The Gardens Apartments 1999B (Tax.) 05/12/99 2,930 - 01/01/11 - n/a Helzer Court Apartments 1999A 06/02/99 16,948 13,413 12/01/41 153 26,123 Helzer Court Apartments 1999B 06/02/99 3,950 - 12/01/08 - n/a Helzer Court Apartments 1999B (Tax.) 06/02/99 2,271 - 12/01/04 - n/a Ohlone-Chynoweth Commons Apartments 1999 06/04/99 16,200 - 06/01/39 192 20,250 Kimberly Woods Apartments 1999A 12/20/99 16,050 - 12/01/29 42 n/a Almaden Lake Village Apartments 2000A 03/29/00 2,000 2,000 03/01/32 - n/a Sixth and Martha Family Apartments Phase I 2000 07/21/00 9,900 - 03/01/33 102 n/a Craig Gardens Apartments 2000A 12/05/00 7,100 12/18/20 89 n/a El Parador Apartments 2000A 12/07/00 6,130 4,865 01/01/41 124 14,413 El Parador Apartments 2000B 12/07/00 900 - 01/01/16 - n/a El Parador Apartments 2000C 12/07/00 4,500 - 01/01/04 - n/a Monte Vista Gardens Senior Housing 2000A 12/08/00 3,740 02/17/21 68 n/a Willow Glen Senior Apartments 2000A 12/08/00 9,700 02/01/03 132 n/a Willow Glen Senior Apartments 2000B 12/08/00 1,320 - 02/01/03 - n/a San Jose Lutheran Seniors Apartments 2001A-1 07/11/01 3,850 2,323 02/15/34 62 6,250 San Jose Lutheran Seniors Apartments 2001A-2 07/11/01 1,150 - 02/15/04 - n/a Sixth and Martha Family Apartments Phase II 2001C 08/01/01 9,000 - 04/01/34 87 n/a The Villages Parkway Senior Apartments 2001D 08/01/01 6,800 - 04/01/ 34 78 n/a Lenzen Housing 2001B 08/22/01 8,395 - 02/20/43 87 n/a Lenzen Housing 2001B (Sub.) 08/22/01 1,100 - 10/01/03 - n/a Terramina Square Apts/North White Rd Proj 2001F 11/15/01 16,845 - 04/01/44 156 n/a Villa de Guadalupe Apartments 2001E 11/27/01 6,840 - 01/01/32 41 n/a Villa de Guadalupe Apartments 2001E (Tax.) 11/27/01 760 - 04/01/12 - n/a Multifamily Housing Revenue Bonds
As of June 30, 2022
49 Project Name Series
Date
Issued
Issue Amount
(thousands)
Balance
(thousands)
Maturity/
Redemption
Affordable
Units Annual Fees
Almaden Senior Housing Apartments 2001G 12/05/01 6,050 07/15/34 65 7,563 Betty Anne Gardens Apartments 2002A 04/05/02 11,000 02/16/21 76 n/a El Paseo Apartments 2002B 04/05/02 9,600 07/29/20 98 12,000 Sunset Square Apartments 2002E 06/26/02 10,904 06/01/34 94 n/a Villa Monterey Apartments 2002F 06/27/02 11,000 11/16/20 119 n/a Monte Vista Gardens Senior Hsg Apts, Phase II 2002C-1 07/24/02 3,465 01/29/20 48 n/a Monte Vista Gardens Senior Hsg Apts, Phase II 2002C-2 12/13/02 200 - 02/01/05 - n/a Pollard Plaza Apartments 2002D 08/06/02 14,000 5,195 08/01/35 129 17,500 Evans Lane Apartments 2002H 10/08/02 31,000 - 04/15/36 236 n/a Hacienda Villa Creek Senior Apartments 2002G-1 10/10/02 4,453 2,562 12/01/34 79 8,750 Hacienda Villa Creek Senior Apartments 2002G-2 10/10/02 2,547 - 05/12/06 - n/a Kennedy Apartment Homes 2002K 12/11/02 14,000 6,675 12/15/35 100 17,500 Fallen Leaves Apartments 2002J-1 12/18/02 13,360 8,490 06/01/36 159 23,500 Fallen Leaves Apartments 2002J-2 (Sub.) 12/18/02 3,340 2,190 05/01/36 - n/a Fallen Leaves Apartments 2002J-3 (Jr. Sub.) 12/18/02 2,100 - 07/31/07 - n/a Turnleaf Apartments 2003A 06/26/03 15,290 12/15/20 152 n/a The Oaks of Almaden Apartments 2003B-1 07/29/03 4,365 2,765 02/15/36 125 10,438 The Oaks of Almaden Apartments 2003B-2 07/29/03 3,985 - 10/04/05 - n/a Cinnabar Commons 2003C 08/07/03 25,900 21,100 02/01/37 243 32,375 Almaden Family Apartments 2003D 11/14/03 31,300 11/15/37 223 39,125 Trestles Apartments 2004A 03/04/04 7,325 12/15/20 70 n/a Trestles Apartments 2004A (Sub.) 03/04/04 1,300 12/15/20 - n/a Vintage Tower Apartments 2004B-1 06/28/04 4,150 10/21/20 59 n/a Vintage Tower Apartments 2004B-2 06/28/04 1,350 - 11/01/06 - n/a Delmas Park 2004C-1 10/15/04 13,780 11,417 01/01/47 122 24,224 Delmas Park 2004C-2 10/15/04 5,599 - 06/01/07 - n/a
Raintree Apartments 2005A 02/01/05 21,100 - 02/01/38 174 n/a Paseo Senter I 2005B-1 12/21/05 6,142 3,832 12/01/38 115 7,500 Paseo Senter I 2005B-2 12/21/05 23,805 - 06/01/09 - n/a Paseo Senter II 2005C-1 12/21/05 4,903 2,929 06/01/38 99 7,500 Paseo Senter II 2005C-2 12/21/05 19,776 - 12/01/08 - n/a Casa Feliz Studio Apartments 2007A 06/13/07 11,000 - 06/01/36 60 7,500 Almaden Family Apartments 2007B (Sub.) 12/17/07 6,385 - 05/01/36 - n/a Curtner Studios 2007C-1 12/19/07 5,520 4,166 07/31/07 - 7,500 Curtner Studios 2007C-2 12/19/07 3,275 - 12/15/20 178 n/a Fairgrounds Senior Housing Apartments 2008B 05/08/08 26,000 10,030 02/15/36 199 32,500 Las Ventanas Apartments 2008B 07/15/08 25, 900 25,900 10/04/05 237 38,750 Brookwood Terrace Family Apts 2009B-1 12/23/09 7,780 6,620 02/01/37 83 17,000 Brookwood Terrace Family Apts 2009B-2 12/23/09 5,445 - 11/15/37 - n/a Multifamily Housing Revenue Bonds
As of June 30, 2022
50 Project Name Series
Date
Issued
Issue Amount
(thousands)
Balance
(thousands)
Maturity/
Redemption
Affordable
Units Annual Fees
Fourth Street Apts 2010A-1 06/04/10 5,620 4,577 05/01/43 99 7,500 Fourth Street Apts 2010A-2 06/04/10 17,380 - 05/01/13 - n/a Orvieto Family Apartments 2010B-1 07/20/10 7,760 7,010 08/01/29 91 17,750 Orvieto Family Apartments 2010B-2 07/20/10 6,440 - 08/01/29 - n/a Kings Crossing Apartments 2010C 09/17/10 24,125 2,054 09/01/45 92 7,500 Taylor Oaks Apartments 2011A-1 10/21/11 3,950 3,585 10/01/28 58 7,875 Taylor Oaks Apartments 2011A-2 10/21/11 2,350 - 04/01/24 - n/a 1st and Rosemary Family Apartments 2012C 04/19/12 35,500 24,404 10/01/44 182 33,900 1st and Rosemary Senior Apartments 2012D 04/19/12 15,500 8,868 10/01/44 105 12,319 Mayfair Court Apartments 2012B-1 04/20/12 5,220 4,348 10/01/44 92 27,500 Mayfair Court Apartments 2012B-2 04/20/12 16,780 - 10/01/44 - n/a La Moraga Apartments 2012E 09/07/12 52,440 47,662 03/01/26 60 65,550 3rd Street Residential Apartments 2013A 06/27/13 6,630 3,639 07/01/33 36 8,288 Cambrian Center 2014A-1 10/17/14 19,035 11,913 05/01/47 151 32,048 Cambrian Center 2014A-2 10/17/14 19,035 11,913 05/01/47 - n/a Cambrian Center 2014A-3 10/17/14 1,695 - 11/01/18 - n/a Cambrian Center 2014A-4 10/17/14 1,695 - 11/01/18 - n/a Parkview Family Apartments 2014B 11/13/14 13,600 - 06/01/16 89 n/a Parkview Senior Apartments 2014C 11/13/14 14,630 - 06/01/16 140 n/a Poco Way Apartments 2015A-1 02/01/15 21,833 10,313 09/01/47 130 14,406 Poco Way Apartments 2015A-2 02/01/15 3,000 - 09/01/47 - n/a Canoas Terrace Apartments 2015B 10/30/15 22,700 20,501 05/01/48 112 28,375 Town Park Towers Apartments 2015C 10/14/15 45,250 21,570 04/01/48 216 28,281 Casa del Pueblo Apartments 2015D 12/04/15 30,000 - 12/01/17 163 37,500 Don de Dios Apartments 2016A 12/22/16 17,376 6,371 06/01/34 70 8,353 Villa De Guadalupe 2017A1 & A2 05/23/17 37,700 28,980 03/01/52 100 41,995 Villa De Guadalupe Junior 2017B 05/23/17 4,616 4,616 03/01/52 - n/a Catalonia Apartments 2017C 10/17/17 16,264 6,063 04/01/39 50 7,905 El Rancho Verde 2018A 08/28/18 277,700 271,904 09/01/48 700 52,500 El Rancho Verde 2018B 08/28/18 40,300 40,300 09/01/20 0 n/a Lenzen Square 2019A-1 08/22/19 18,500 16,250 08/01/59 87 28,750 Lenzen Square 2019A-2 08/22/19 3,000 3,000 08/01/59 0 n/a Markham I 2019B-1 10/01/19 18,000 10/01/22 152 28,750
Markham I 2019B-2 10/01/19 5,000 - 10/01/22 - n/a
Vi
sta Park I 2019C 10/11/19 13,245 5,578 06/01/38 82 16,557 Palm Court Sr 2019D 10/11/19 12,247 4,394 06/01/38 65 15,309 Quetzal Gardens 2019E 12/20/19 32,208 28,829 07/01/37 70 40,259 Page Street 2020 B -1 10/01/20 6,000 5,926 05/05/53 81 33,437 Page Street 2020 B -2 10/01/20 20,750 - 11/02/23 - n/a Alum Rock 2020 11/01/20 32,896 23,480 12/01/39 85 9,503 Arya 2021 03/01/21 34,314 4,596 03/01/46 86 42,893 Markham Plaza II C-1 2021 05/01/21 19,000 15,177 05/01/66 151 31,250 Markham Plaza II C-2 2021 05/01/21 6,000 - 05/01/66 - n/a Immanual Sobrato 2021D 06/01/21 34,980 57 05/01/41 95 43,725 Blossom Hill 2021 06/01/21 39,363 4,728 08/01/45 145 49,203 Mariposa Place 2021 E-1 01/28/22 31,341 56 01/01/40 79 39,176 Maiposa 2021 E-2 01/28/22 4,659 - 01/01/40 - n/a
Vitalia 2021F-1 01/28/22 25,173 1,679 01/01/41 77 44,591 Vitalia 2021F-2 01/28/22 10,500 - 01/01/41 - n/a
Grand Total 1,932,507$ 790,813$ 9,989 1,274,958$ Multifamily Housing Revenue Bonds
As of June 30, 2022
51 G. Summary of Outstanding Debt
The following table summarizes all outstanding debt by series, excluding multifamily housing revenue bonds, pension, OPEB, and other liabilities of the City.
Issue Amount
(thousands) Issue Date Call Date (1, 2) Final Maturity
Balance
(thousands)
Long-Term Debt
Governmental Activities
City of San José
General Obligation Bonds:
Series 2019A-1 (DPPS&I) 140,360$ 07/25/2019 03/01/2029 09/01/2049 140,360$ Series 2019B (DPPS&I) 66,500 07/25/2019 Anytime 09/01/2027 66,500 Series 2019C (Libraries, Parks, Public Safety) 158,185 07/25/2019 03/01/2029 09/01/2035 156,045 Series 2019D (Libraries, Parks, Public Safety) 103,935 07/25/2019 Anytime 09/01/2024 59,545 Series 2021A (DPPS&I) 151,210 07/29/2021 03/01/2031 09/01/2051 151,210 Series 2021B (DPPS&I) 8,450 07/29/2021 N/A 09/01/2022 8,450 628,640$ 582,110$
City of San José Financing Authority
Series 2013B (Civic Center Garage Project) 30,445$ 06/19/2013 06/01/2023 06/01/2039 23,835$ Series 2020A (Civic Center Refunding) 355,620 09/24/2020 06/01/2030 06/01/2039 320,590 Series 2020B (Ice Center Expansion) 146,535 10/15/2020 06/01/2030 06/01/2051 146,535 Series 2021A (Fire Training Center and Central Service Yard Proje 22,825 11/02/2021 10/01/2031 10/01/2034 22,825 Series 2022A (Convention Center Refunding) 165,815 04/21/2022 05/01/2032 05/01/2052 165,815 721,240$ 679,600$
Special Tax Bonds
CFD No. 6 (Great Oaks-Route 85) (4) 12,200 12/18/2001 09/01/2010 09/01/2023 1,695 CFD No. 10 (Hassler-Silver Creek) (4) 12,500 07/23/2003 09/01/2010 09/01/2023 1,830 24,700$ 3,525$
Government Activities Totals 1,374,580$ 1,265,235$ Business-Type Activities
Norman Y. Mineta San José International Airport
Revenue Bonds:
Series 2014A (AMT) 57,350$ 10/07/2014 03/01/2024 03/01/2026 18,240 $ Series 2014B (Non-AMT) 28,010 10/07/2014 03/01/2024 03/01/2028 28,010 Series 2014C (Non-AMT) 40,285 10/07/2014 03/01/2024 03/01/2031 40,285 Series 2017A (AMT) 473,595 04/11/2017 03/01/2027 03/01/2047 405,350 Series 2017B (Non-AMT) 150,675 04/11/2017 03/01/2027 03/01/2047 128,960 Series 2021A (AMT) 85,860 04/07/2021 03/01/2031 03/01/2034 85,860 Series 2021B (Non-AMT) 48,200 04/07/2021 03/01/2031 03/01/2034 48,200 Series 2021C (Taxable) 294,020 04/07/2021 Various 03/01/2041 292,120 1,177,995$ 1,047,025$
Business-Type Activity Totals 1,177,995$ 1,047,025$ Summary of Outstanding Debt
As of 6/30/2022
Lease Revenue Bonds:
52 Issue Amount
(thousands) Issue Date Call Date (1, 2) Final Maturity
Balance
(thousands)
Private Purpose Trust Activities
Sucessor Agency
Tax Allocation Bonds:
Series 2017A Senior 79,825$ 12/21/2017 08/01/2027 08/01/2035 79,825$ Series 2017A-T Senior Taxable 1,333,325 12/21/2017 08/01/2027 08/01/2034 1,031,305 Series 2017B Subordinate 264,390 12/21/2017 08/01/2027 08/01/2029 176,500 1,677,540$ 1,287,630$
Private Purpose Trust Activities Totals 1,677,540$ 1,287,630$ Long-Term Debt Totals 4,230,115$ 3,599,890$
Short-Term Debt (3)
City of San José Financing Authority
Lease Revenue Commercial Paper Notes 175,000$ Various Anytime 3/24/2025 66,947$ Wastewater System (RWF) Notes Payable 300,000 Various Anytime 10/18/2023 236,870 Clean Energy Revolving Credit Facility 65,000 Various Anytime 11/27/2023 - Norman Y. Mineta San José International Airport
Airport Revenue Commercial Paper Notes 75,000$ Various Anytime 9/10/2024 34,112$ Short-Term Debt Totals 615,000$ 337,929$
Grand Totals 4,845,115$ 3,937,819$
(2) In reference to "Various" in the Call Date column, with respect to Long-Term Debt, the Airport Bonds, Series 2021C are fixed rate taxable bonds with 2022-2031 maturity dates callable at anytime and 2032 to 2041 maturity dates callable on March 1, 2031.
As of 6/30/2022
(1) In reference to "Anytime": (i) with respect to Long-Term Debt, the GO Bonds, Series 2019B and Series 2019D are fixed-rate taxable bonds redeemable at anytime with make-whole call provisions as prescribed in the respective bond documents; (ii) with respect to Short-Term Debt, those obligations are in variable-rate mode (a) Lease Revenue Commercial Paper Notes - are not subject to early redemption and can be paid in full upon maturity (up to 270 days); (b) Wastewater System (RWF) Notes Payable - the Note can be terminated and paid in full anytime with 3-days notice; and (c) Clean Energy Revolving Credit Facility - the Commitment can be terminated anytime with 5-days notice, paid in full. (4) CFD 6 and 10 were redeemed in full on September 1, 2022.
Summary of Outstanding Debt (Continued)
(3) The dollar amounts in the Issue Amount column for all Short Term Debt are authorized amounts and the dollar amounts in the Balance column are the outstanding amounts that have been drawn.
53 APPENDIX A:
DEBT MANAGEMENT POLICY
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67 APPENDIX B
POLICY FOR THE ISSUANCE OF MULTIFAMILY
HOUSING REVENUE BONDS
68 COUNCIL POLICY
TITLE POLICY FOR THE ISSUANCE OF
MUL TIF AMIL Y HOUSING REVENUE
BONDS
PAGE
1o f 9
POLICY NUMBER
1-16
EFFECTIVE DATE June 11, 2002 REVISEDDATE
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APPROVED BY COUNCIL ACTION
June11,2002,Item3.7,ResolutionNo.71023
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GENERAL MATTERS
I. ISSUER
The City of San José (the "City") shall be the issuer of all bonds financing multifamily housing rental projects (a "Project" or "Projects") within the City , except as provided below . The City's Housing Department and Finance Department will consider other issuing agencies as follows:
A. The Redevelopment Agency
1RWDSSOLFDEOH
B. ABAG, CSCDA, Other Conduits
The City may agree to the issuance of bonds by the Association of Bay Area Governments ("ABAG"), California Statewide Community Development Authority ("CSCDA") or a similar issuing conduit provided that the City is not making a loan or grant to the Project and the Project is one of multiple projects being financed by the Project Sponsor through such issuing conduit agency in the same California Debt Limit Allocation Committee ("CDLAC") round under a similar financing program so as to result in economies of issuance.
C. Special circumstances
Another agency may issue bonds when merited by special circumstances of the Project and the financing.
Where the City is not the issuer of bonds for a Project, it shall be the City's policy to require the issuer to assume full responsibility for issuance and on-going compliance of the bond issue with federal tax and state laws. Where feasible, however , the City shall seek to hold The Equity and Fiscal Responsi- bility Act of 1986 Hearing, better known as the "TEFRA" Hearing for such Project.
II. FINANCING TEAM
The City shall select the financing team for all multifamily housing revenue bonds issued by the City . The Finance Department is responsible for selecting the financial advisor , trustee and the investment banker/ underwriter (assuming a negotiated public sale of bonds). The City Attorney's Office is responsible for selecting the bond counsel firm. The financial advisor , investment banker and bond counsel shall be selected from approved lists determined from time to time by a request for qualifications/proposal process.
III. COORDINATION AMONG CITY DEPARTMENTS
The City recognizes that the issuance of housing bonds entails a coordinated effort among the Housing Department, Finance Department and City Attorney's Office. The Housing Department shall ensure that the Finance Department and the City Attorney's Office are provided with regular updates on projects that may involve the issuance of bonds.
City of San José, California
THE FINANCING PROCESS
I. INITIAL MEETING WITH PROJECT SPONSOR
A. Prior Due Diligence
Prior to arranging an initial meeting with the Project Sponsor , the Housing Department shall perform initial due diligence on the Project Sponsor , including whether the Project Sponsor has ever failed to use an allocation from CDLAC and whether the Project Sponsor has failed to comply with the terms of any other City financings or City loans.
B. Determination of Readiness
Following the initial meeting, City representatives shall determine if the project is in a state of sufficient "readiness" to proceed with the CDLAC application process. This includes the status of the project in terms of the development process. In general, a project will be deemed "not ready" if the discretionary planning approvals will not have been completed by the time of the CDLAC application.
C. Selection of Financing Team
Following a determination of readiness, the Finance Department and City Attorney shall recommend the financial advisor , underwriter (if applicable) and bond counsel, as the case may be, for each project.
II. DEPARTMENTAL APPROVALS
Pursuant to the Delegation of Authority by the City Council, both the City's Directors of Finance and Housing must approve each Project, the financing, and the filing of a CDLAC application before the City can make an application to CDLAC for private activity bond allocation. The approval of the Finance and Housing Directors shall be evidenced by a jointly signed "Notice to Proceed" addressed to the Project Sponsor . The Notice to Proceed shall describe the project, identify the developer or Project Sponsor , the affordability mix, the proposed plan of finance and the amount of bond funding requested.
A. Resolution
The City Attorney's Office will be responsible for preparing a resolution for joint approval by the Directors of Finance and Housing. The resolution will:
1. Memorialize the Council's intent to issue the debt in order to induce others to provide project financing;
2. Authorize the filing of a CDLAC application; and
3. Authorize the execution of a Deposit and Escrow Agreement.
B. TEFRA HEARING
The TEFRA hearing will be held before the Director of Finance on the date specified in the TEFRA Notice. The Director of Finance has the discretion to have the TEFRA hearing held by the City Council.
III. CDLAC APPLICATIONS
A. Description
Before the City is legally able to issue private activity tax-exempt bonds for a project, an application must be filed with CDLAC in Sacramento and an allocation of the State ceiling on qualified private activity bonds must be approved by CDLAC.
B. City to File
The City is the applicant to CDLAC for each project to be financed with tax-exempt bonds issued by the City . The Housing Department will file all applications to CDLAC on behalf of project sponsors.
TITLE POLICY FOR THE ISSUANCE OF MUL TIF AMIL Y
HOUSING REVENUE BONDS
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POLICY NUMBER
1-16
C. Project Sponsor to Prepare Application
Each project sponsor shall take responsibility for preparing the CDLAC application for its project with input from City representatives, the City's financial advisor and bond counsel.
D. Deposit and Escrow Agreement
The City will not file a Project Sponsor's CDLAC application unless the Project Sponsor executes a Deposit and Escrow Agreement and makes the necessary deposits specified in this Agreement. The Deposit and Escrow Agreement shall contain the items identified below . It shall be the responsibility of the Housing Department to see that all requirements under the Deposit and Escrow Agreement are met.
1. CDLAC Performance Deposit
The Deposit and Escrow Agreement must require the payment of the CDLAC performance deposit, provided that current CDLAC rules require the payment of such deposit to the issuer .
2. City of San José Performance Deposit
In addition to the CDLAC performance deposit, the Deposit and Escrow Agreement shall require the Project Sponsor to deposit $50,000 with the City as a City of San José performance deposit.
This deposit shall be forfeited in the event that the City , on behalf of the Project Sponsor , receives an allocation but does not issue bonds. The deposit may be applied to pay costs of issuance or returned to the Project Sponsor as soon as practicable. By agreement between the City and the Project Sponsor , the Project Sponsor may designate its City loan as the source of payment in the event of forfeiture.
3. Financing T eam Fees
The Deposit and Escrow Agreement shall identify , if available, the fees of the bond counsel, financial advisor , and underwriter (if applicable). It shall be the responsibility of the Finance Department and the City Attorney's Office to identify these fees.
IV .COUNCIL APPROVAL
A. Staff Report
The Finance Department, in conjunction with the Housing Department and City Attorney's Office, shall prepare a staff report recommending final Council approval for a bond issue. The staff report shall be submitted to the City Manager's Office in accordance with the timing requirements of the then-current City procedures.
The staff report shall specify the approvals that are recommended, provide background on the project being financed, describe the financing structure, indicate any exceptions to the City's investment policy , describe the financing documents to be approved, identify the financing team participants, and seek approval of consultant agreements and financing participants that have not previously been approved by Council. The staff report should indicate if a separate City loan is being provided. However , the terms of that loan should be discussed in a separate staff report which, whenever possible, shall be submitted for the same agenda. The staff report shall be signed by the Directors of Finance and Housing.
The staff report should be submitted only after the major transaction terms (e.g., financing structure, security provisions, bond amount, maximum maturity , etc.) are identified and agreed to by the parties.
The staff report may note that the bond issue is contingent upon certain other approvals and may identify certain issues to be resolved at a later time.
TITLE POLICY FOR THE ISSUANCE OF MUL TIF AMIL Y
HOUSING REVENUE BONDS
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POLICY NUMBER
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B. Substantially Final Documents
The City Council shall approve documents that are "substantially final" documents. Documents are in "substantially final" form if they identify the final security provisions and financing structure for the transaction. The City Attorney's Office shall determine whether documentation is in substantially final form.
C. Council Meeting
The Council meeting shall occur on a date after which all approvals from major financial participants (e.g., credit enhancement provider , bond purchaser , tax credit investor) have been obtained. At the discretion of the City Attorney and Finance Department, the Council may proceed with its approval process without such other final approvals if: (1) such final approval is likely; (2) the Council's approval is subject to such other party's final approval; and (3) the Council approval process cannot be delayed without jeopardizing the financing.
V.BOND SALE AND CLOSING
A. Timing
The bond sale and closing may commence only after the Council authorizes the bond issue, including the distribution of a Preliminary Official Statement, if applicable.
B. Investment Agreements
If authorized by the Council, the Project Sponsor , through its representative, which may include the underwriter or financial advisor , may solicit investment agreement providers for the purpose of reinvesting bond proceeds and revenues. The investment agreement providers must meet the City's requirements and the requirements in the bond resolution and trust indenture for the bonds. Bond counsel and the financial advisor shall review the investment agreement solicitation forms, the eligible providers, and the investment agreements.
C. Payment of Issuance Fee
The City's issuance fee shall be funded from the Costs of Issuance Fund held by the T rustee.
D. Information Memorandum to Council
Promptly after the issuance of all bonds for a CDLAC round, the City Finance Department shall prepare an information memorandum summarizing the salient points of each bond issue.
CITY FEES
I. TEFRA HEARING FEE
The City shall charge a fee of $5,000 for the administrative costs associated with holding a TEFRA hearing relating to a Project. The fee shall be payable prior to the date that notice of the TEFRA hearing is published.
No separate TEFRA hearing fee shall be charged if the City or Redevelopment Agency is issuing the bonds for the Project.
II. ISSUANCE FEE
The City shall charge a fee for the administrative costs associated with issuing the bonds for a Project Sponsor .
The fee shall be payable at bond closing and may be contingent on the bond sale. The issuance fee shall be based on the total amount of the bonds (both tax-exempt and taxable) to be issued in accordance with the following sliding scale:
$0 to $10 million: 0.5% of the principal amount of bonds issued, with a minimum fee of $30,000.
Over $10 million: 0.5% of the first $10 million principal amount of bonds; 0.25% of any additional amount.
TITLE POLICY FOR THE ISSUANCE OF MUL TIF AMIL Y
HOUSING REVENUE BONDS
PAGE
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POLICY NUMBER
1-16
III. ANNUAL MONITORING FEE
The City shall charge an annual fee for monitoring the restricted units. The fee shall be in an amount equal to
0.125% of the original principal amount of tax-exempt bonds issued. Except for non-profit or government agency Project Sponsors, the fee shall not be reduced until all of the tax-exempt bonds are retired and the bond regulatory agreement ceases to have validity or is no longer in effect, at which time it will terminate. Upon conversion to permanent financing, a nonprofit or government agency Project Sponsor , may have a reduction in their annual fee to 0.125% of the permanent bond amount after conversion subject, to a minimum annual fee of $7,500.
The City annual monitoring fee shall be paid "above the line," i.e., on a parity with bond debt service and trustee fees. This parity provides the greatest assurance that the City's fee will be paid, although it may reduce the amount that the Project Sponsor's lender may be willing to underwrite. The City may determine, at its sole discretion, to subordinate all or a portion of its annual fee to bond debt service only when the Housing Department has made a substantial loan to the Project, so long as the Project Sponsor provides adequate assurance of the payment of such fees. The City shall not subordinate its fee in circumstances where no City funds are subsidizing the Project.
CREDIT CONSIDERATIONS
I. CREDIT ENHANCEMENT
A. General Policy
It shall be the general policy of the City to encourage the use of credit enhancement for bonds issued by the City . Credit enhancement shall be a requirement for any multifamily bonds that are publicly distributed. The minimum rating on such credit enhancement shall be "A" or higher by Moody's, Standard & Poor's, and/or Fitch. This policy shall be subject to the exceptions described below .
B. Forms of Credit Enhancement
Credit enhancement may be in the form of a bank letter of credit, bond insurance, surety , financial guaranty , mortgage-backed security (e.g., Fannie Mae, Freddie Mac or Ginnie Mae) or other type of credit enhancement approved by the market. If the City has not previously issued bonds with a particular kind of credit enhancement, the Finance Department and financial advisor shall determine whether such credit enhancement is acceptable and whether marketing restrictions shall be imposed.
C. Project Sponsor Responsibility
It shall be the responsibility of the Project Sponsor to obtain and pay for the costs of credit enhancement. The City will assume no responsibility therefor .
II. NON-CREDIT ENHANCED BONDS
A. General Policy
It shall be the general policy of the City to require bonds that are not secured with credit enhancement to be sold through private placement or through a limited public offering to institutional or accredited investors. As an exception to this policy , the City may authorize the public distribution of non-credit enhanced bonds that are rated at least in the "A" category by Moody's, Standard & Poor's, and/or Fitch, after consultation with the underwriter and financial advisor . In connection with such authorization, the City shall consider the sophistication of the Project Sponsor , its financial resources, commitment to the community and other factors.
TITLE POLICY FOR THE ISSUANCE OF MUL TIF AMIL Y
HOUSING REVENUE BONDS
PAGE
5o f 9
POLICY NUMBER
1-16
B. Additional Requirements for Non-Rated Bonds
Non-rated bonds must comply with the following additional requirements:
1. Minimum Denominations and Number of Bondholders
In order to limit the transferability of non-rated bonds, the City shall seek minimum denominations of at least $100,000. In addition, the City may also limit the number of bondholders to further limit the transferability of non-rated bonds.
2. Qualified Institutional Buyer ("QIB") Letter
The bond purchaser in a private placement or limited public offering must certify that it is a qualified or accredited investor (a "big boy letter"). Such letter must be signed by subsequent bond purchasers so long as the bonds remain unrated.
REFUNDING/RESTRUCTURING/REMARKETING
I. General
The City has issued both fixed rate and variable rate multifamily bonds. On occasion, the Project Sponsor may ask the City to refund those bonds to lower the interest rate, to remarket the bonds with a new credit enhancement, and/or to remarket the bonds as fixed rate bonds. The Project Sponsor will be responsible for all costs and fees related to the refunding.
II. Optional Refunding
A. Reasons to Refund Outstanding Bonds
A Project Sponsor may ask the City to refund its outstanding bonds for one of several reasons:
1. Lower the interest rate on fixed rate bonds at the call date (through the issuance of fixed rate or variable rate refunding bonds);
2. Substitute a new credit structure that was not expressly provided for in the existing documents; or
3. Restructure the existing debt.
B. Financing Team
The City shall select the financing team to implement the refunding. Where possible and if desired by the City , the financing team shall consist of the bond counsel, financial advisor and, if applicable, underwriter that were retained for the original financing.
C. Legal/Documentation
New documents shall be prepared to meet the City's then-current legal, credit, financial, and procedural requirements. The City shall follow the documentation process applicable to new bonds. Because the City's primary purpose in issuing multifamily housing bonds is to preserve and increase the supply of affordable housing in the City , if federal or state affordability , income, and/or rent restrictions have changed between the time of the original financing and the refunding bonds, the more restrictive provisions shall apply . If new requirements are more restrictive than existing requirements, the new requirements shall be applied in phases to new tenants over a period of time, not to exceed five (5) years, as determined by the Housing Department staff and the City Attorney .
D. Bond Maturity
Subject to the approval of bond counsel, the final maturity of the refunding bonds may be later than the final maturity of the prior bonds so as to allow the Project Sponsor the longest possible period for repayment under federal law .
TITLE POLICY FOR THE ISSUANCE OF MUL TIF AMIL Y
HOUSING REVENUE BONDS
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POLICY NUMBER
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E. Compliance
The City shall not proceed with a refunding if the Project is not in compliance with the current regulatory agreement, continuing disclosure reporting, or arbitrage rebate reporting and payment.
F. Fees
The Project Sponsor shall pay the following City fees in connection with the refunding:
1. Issuance Fee
The City shall charge an issuance fee in accordance with the City's current policy on issuance fees for new projects.
2. Annual Monitoring Fee
The City shall continue to charge the same annual fee for monitoring the Project as for the original bonds. Such fee shall not be reduced even if the refunding bond size is lower .
G. Cash Flow Savings
Cash flow savings from refunding fixed rate bonds at a lower fixed interest rate or a variable rate shall be applied as follows:
1. Projects with a City Loan
A portion of the projected cash flow savings, to be determined by the Housing Department, shall be used to accelerate the repayment of the City loan, subject to restrictions in existing documents.
2. Projects with No City Loan
The City Housing Department shall require the Project Sponsor to provide affordability or other financial concessions to the City as a condition for refunding. Such concessions may include increasing the percentage of affordable units and extending the term of affordability restrictions.
H. City Council Approval
All refunding bonds and related legal documentation must be approved by the City Council in accordance with the procedures set for the issuance of new bonds.
III. DEFAULT REFUNDING
A. General
In the event of a default on the bonds or the underlying mortgage, a fixed rate bond issue may be refundable in advance of the call date without premium. The issue does not arise with variable rate bonds, as such bonds are callable at any time. Default refunding bonds are an area of potential sensitivity for the City as it will not want a developer to manufacture a default to take advantage of more favorable interest rates.
B. Financing Team
The City shall select the financing team to implement the refunding. Where possible and if desired by the City , the financing team shall consist of the bond counsel, financial advisor and, if applicable, underwriter that were retained for the original financing.
C. Confirming the Default
T o confirm a default, the City must receive a notice from an independent party , such as the bond trustee.
If applicable, notice of cash flow insufficiency is then filed as part of the Continuing Disclosure
TITLE POLICY FOR THE ISSUANCE OF MUL TIF AMIL Y
HOUSING REVENUE BONDS
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POLICY NUMBER
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Certificate. In addition, the City shall retain, at the expense of the Project Sponsor , an independent feasibility consultant to review the default. The City will proceed with the transaction only if a review by staff and the independent consultant indicates that:
1. Net cash flow from the Project is currently insufficient to pay debt service on the outstanding bonds and is unlikely to do so within a reasonable period;
2. The Project is being operated in accordance with reasonable real estate management practices and the net operating income has not been artificially reduced by failing to rent units actively , inflating operating expenses, or other reasons within the control of the Project Sponsor; and
3. The Project Sponsor has provided audited operating statements, Continuing Disclosure filings (if applicable), and arbitrage rebate reports for all years, has cooperated in providing requested information, and has used operating income and other resources to pay debt service.
D. Additional Requirements
1. Indemnification
The City shall be indemnified as to any costs incurred as a result of the refunding. Such indemnification shall come from a party or parties with adequate net worth or other financial capacity and whose assets are not limited to ownership of the Project.
2. Future Debt Coverage
The analysis of the feasibility consultant shall show that, upon the refunding, the Project's current net operating income will be at least sufficient to pay the revised debt service plus a reasonable coverage ratio (or adequate non-bond proceeds will be available to cover such deficiencies). In other words, the City shall not proceed with the refunding if it will not cure the cash flow problem.
3. Bond Counsel Review
Bond counsel shall have determined that the original bond and disclosure documents provided adequate disclosure of such a potential redemption and that the provisions of the prior docu- ments have been satisfied.
4. Compliance
The City shall not proceed with a refunding if the Project is not in compliance with the current regulatory agreement, continuing disclosure reporting, or arbitrage rebate reporting and pay- ment.
E. Fees
The fees and expenses of the feasibility consultant, financial advisor and bond counsel shall not be contingent on their findings or completion of a refunding. The City shall require that the Project Sponsor deposit the estimated fees and expenses with the City prior to the commencement of any analysis.
F. Affordability Restrictions
The affordability requirements for a default refunding shall be the same as those listed under "Legal/Documentation" for an optional refunding.
G. City Council Approval.
1. Initial City Council Approval
The Finance Department, in conjunction with the Housing Department and City Attorney's Office, shall obtain initial City Council approval prior to proceeding with any documentation for a default refunding. Initial City Council approval shall occur after the independent feasibility consultant performs the initial analysis, a default is confirmed, and it is determined that a refunding will cure the cash flow problem.
TITLE POLICY FOR THE ISSUANCE OF MUL TIF AMIL Y
HOUSING REVENUE BONDS
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POLICY NUMBER
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2. Final City Council Approval
The Finance Department, in conjunction with the Housing Department and City Attorney's Office, shall obtain final City Council authorizing the bond issue and execution of the relevant documen- tation.
H. City Fees
The City shall charge the same issuance fee and annual monitoring fee that it otherwise would in conjunction with a new bond issue.
IV .REMARKETING
A. General
A Project Sponsor may ask the City to remarket outstanding bonds under one of three basic scenarios:
(1) converting variable rate bonds to fixed rate bonds; (2) a mandatory tender of bonds; or (3) substituting a new credit enhancement for the bonds in accordance with existing documentation.
B. Financing Team
The City shall select the financing team to implement the refunding. Where possible and if desired by the City , the financing team shall consist of the bond counsel, financial advisor and, if applicable, underwriter that were retained for the original financing.
C. Legal/Documentation
A remarketing of fixed rate bonds will not require new legal documentation. However , the City Attorney's Office, in conjunction with bond counsel, may require a new disclosure document. A remarketing of bonds with a new credit enhancement may require amended documentation, as well as a new disclosure document, as determined by the City Attorney's Office and bond counsel.
D. Fees
A remarketing will not result in the payment of additional or revised City issuance or annual fees.
However , the City shall charge a fee of $10,000 to $25,000 to the Project Sponsor for administrative costs.
E. Council Approval
All remarketed bonds and any related documentation shall be approved by the City Council prior to any remarketing.
TITLE POLICY FOR THE ISSUANCE OF MUL TIF AMIL Y
HOUSING REVENUE BONDS
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POLICY NUMBER
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78 79
APPENDIX C:
CITY OF SAN JOSÉ FINANCING AUTHORITY’S
LEASE REVENUE COMMERCIAL PAPER PROGRAM
80 81
Date
City Council/City of San José Financing Authority Board Actions – Authority’s Lease Revenue Commercial Paper Program
January 13, 2004 Authorized the issuance of CSJFA tax-exempt CP Notes in an amount not to exceed $98 million to finance public improvements of the City including the offsite parking garage for the new City Hall and non- construction costs for technology, furniture, equipment, and relocation services for the new City Hall.
November 9, 2004 Authorized the issuance of CSJFA tax-exempt CP Notes to provide additional funding for the Integrated Utility Billing, Customer Service and Performance Management System (the CUSP Project).
June 21, 2005 Authorized the issuance of CSJFA taxable CP Notes, under the same $98 million not to exceed limitation as the tax-exempt notes. This subsequent authorization permits the Authority to issue CSJFA taxable CP Notes to pay for expenses otherwise authorized under the CSJFA CP program, but ineligible to be paid from CSJFA tax-exempt CP proceeds.
November 15, 2005 Authorized expanding the capacity of the CSJFA CP program from $98 million to $116 million and authorizing the issuance of CSJFA CP Notes to pay a portion of the costs of the Phase II improvements at the City’s Central Service Yard and a portion of the demolition and clean-up costs at the City’s Main Service Yard.
May 22, 2007 Authorized the issuance of CSJFA CP Notes in an amount not to exceed $8.25 million to pay for capital improvements at the City’s HP Pavilion (Arena).
October 21, 2008 Authorized the issuance of CSJFA CP Notes to refund bonds and other obligations of the City or the Authority pursuant to Government Code Sections 53570 et seq. and 53580 et seq.
December 8, 2009 Authorized staff to amend and renew the letter of credit and reimbursement agreement supporting the CSJFA CP Notes in order to extend the term to January 27, 2013.
April 27, 2010 Authorized the issuance of CSJFA CP Notes to fund a loan to the low and moderate income housing fund and to fund short-term cash flow needs of the City.
March 15, 2011 Authorized the execution and delivery of a Third Amendment to the Site Lease, a Third Amendment to the Sublease, and other related actions pertaining to the CSJFA CP Program in order to provide for the substitution of certain components of the property under the Site Lease and the Sublease.
June 19, 2012 Authorized the issuance of CSJFA CP Notes in an amount not to exceed $10.0 million to provide funding for additional projects for the Convention Center Expansion and Renovation Project.
82 December 4, 2012 Authorized staff to amend and restate the letter of credit and reimbursement agreement supporting the CSJFA CP Notes in order to extend the term to March 15, 2013.
February 12, 2013 Authorized staff to negotiate two new letters of credit and reimbursement agreements supporting the CSJFA CP Notes and to extend those terms; and authorized the execution and delivery of a Fourth Amendment to the Site Lease, a Fourth Amendment to the Sublease, and other related actions in order to provide for the substitution of certain components of the property under the Site Lease and the Sublease. In connection with these actions, also reduced the capacity of the CSJFA CP program to $85 million from $116 million.
June 17, 2014 Authorized the execution and delivery of a Fifth Amendment to the Site Lease, a Fifth Amendment to the Sublease, and other related actions in order to provide for the addition of a component of property (the Tech Museum) under the Site Lease and the Sublease to provide an additional pledged asset of the CSJFA CP program.
September 15, 2015 Authorized the issuance of CSJFA CP Notes in an amount not to exceed $3.5 million to provide additional financing for the Water Meter Replacement Project.
June 21, 2016 Authorized the issuance of CSJFA CP Notes in an amount not to exceed $10.0 million to provide additional financing for the Conservation Projects.
January 31, 2017 Authorized the issuance of CSJFA CP Notes in an amount not to exceed $15.0 million to provide financing for the Convention Center Exhibit Hall Project.
August 29, 2017 Authorized the issuance of CSJFA CP Notes in an amount not to exceed $10.0 million to provide financing for start-up costs for the San José Clean Energy Project.
February 13, 2018 Authorized the issuance of CSJFA CP Notes in an amount not to exceed $21.0 million to provide financing for the Flood Recovery Project.
August 14, 2018 Authorized the extension of the respective letters of credit supporting the CSJFA CP program for 3.5 years to February 23, 2022 and increase of the aggregate principal size of the CSJFA CP Program from $85 million to $125 million, with each bank providing 50% of the credit support.
Authorize the issuance of CSJFA CP Notes in an amount not to exceed $47 million to finance the purchase of the San José Convention Center South Hall property.
January 12, 2021 Authorized the issuance of CSJFA CP Notes in an amount not to exceed $23.4 million to provide bridge funding for the Fire Department Training Center and Emergency Operations Relocation project.
83 June 22, 2021 Authorized the issuance of CSJFA CP Notes in an amount not to exceed $95.0 million to provide funding for energy and other operating costs for the San José Clean Energy department.
August 31, 2021 Authorized the extension of an LOC supporting the CSJFA CP program for three years to March 24, 2025 and increased of the aggregate principal size of the CSJFA CP program from $125 million to $175 million, with U.S Bank being the sole LOC provider supporting payment on Series 2 Notes and Series 2-T Notes only).
November 2, 2021 Deauthorized $19.2 million of the bridge CP funding for the Fire Department Training Center and Central Service Yard projects with the issuance of the CSJFA 2021A Bonds.
84 85
APPENDIX D:
AIRPORT COMMERCIAL PAPER PROGRAM
86 87
Date City Council Actions – Airport Commercial Paper Program November 2, 1999 Council adopted Resolution No. 69200 approving the implementation of a commercial paper program (the Airport CP program) for the Norman Y.
Mineta San José International Airport (the Airport), which authorized the issuance of up to $100 million through a combination of three series of commercial paper notes: Series A (Non-AMT), Series B (AMT), and Series C (Taxable).
June 20, 2006 Council approved an expansion of the Airport CP program from $100 million to $200 million to ensure that funding would be available for the award of the design and construction contracts related to the amended Airport Master Plan projects and to pay costs related to the Airport’s lease of the former FMC property.
January 9, 2007 Council approved an expansion of the Airport CP program from $200 million to $450 million to ensure that funding would be available for the design and construction contracts related to the re-phased Airport Master Plan projects. The Series A-C Notes of the Airport CP program were secured by letters of credit issued on a several, not joint, basis by J.P.
Morgan Chase Bank, N.A. (J.P. Morgan), BANA, and Dexia Credit Local, acting through its New York Branch (Dexia), pursuant to the second amended and restated letter of credit and reimbursement agreement (the JPM/BANA/Dexia agreement).
March 25, 2008 Council approved an expansion of the Airport CP program from $450 million to $600 million primarily to refund the Series 2004A/B Bonds that were adversely impacted by disruptions in the financial markets related to auction rate securities. This expansion was accomplished through a combination of three additional series of commercial paper notes: Series D (Non-AMT), Series E (AMT), and Series F (Taxable), and was secured by a LOC issued by Lloyds TSB Bank plc, acting through its New York Branch (Lloyds), pursuant to a letter of credit and reimbursement agreement.
September 1, 2009 Council adopted a resolution authorizing the issuance of tax-exempt private activity Non-AMT commercial paper notes as provided for in the American Recovery and Reinvestment Act of 2009. At that time, the Series A Notes were redesignated as Series A-1 (Non-AMT) and Series A-2 (Non- AMT/Private Activity) and the Series D Notes were authorized to be redesignated as Series D-1 (Non-AMT) and Series D-2 (Non-AMT/Private Activity).
November 9, 2010 Council authorized an amendment to the JPM/BANA/Dexia agreement that extended the term of the agreement for two months from December 2, 2010 to February 2, 2011, removed Dexia Credit Local as a party to the agreement, reduced the amount of available credit from $450 million to approximately $283 million, and amended other terms of the reimbursement agreement. The two-month extension provided additional time to complete negotiations related to the replacement letters of credit approved by the City Council on January 11, 2011.
88 January 11, 2011 Council approved letter of credit and reimbursement agreements with each of J.P. Morgan, BANA, Citibank, and WFB. The terms of the agreements ranged from one year to three years and the replacement letters of credit provided aggregate credit support of $383 million to the Airport CP program.
April 26, 2011 Council approved an amended and restated letter of credit and reimbursement agreement (the Amended Agreement) with Lloyds, which provided for the extension of the credit facility for the Series D, Series E and Series F Notes to September 7, 2011 from its previous termination date of May 7, 2011. The Amended Agreement provided aggregate credit support of $140 million to the Airport CP program.
June 21,2011 and
November 15, 2011
Council approved the issuance of Airport Revenue Bonds, Series 2011A-1 and Series 2011B to refund a significant portion of the outstanding commercial paper notes. As a result of these bond issuances, the total outstanding Airport CP Notes authorization amount was reduced from $410 million, as of July 1, 2011, to $52 million, as of December 31, 2011.
February 4, 2014 Since December 2011, letters of credit issued by BANA, Citibank, JPMorgan and Lloyds have been terminated or expired. The LOC issued by WFBNA, by Council, was replaced with one issued by Barclays on February 11, 2014 and is scheduled to expire on February 9, 2018.
September 8, 2015 The City directed U.S. Bank N.A, as Issuing & Paying Agent, to decrease the stated amount of the LOC established by Barclays from $60 million in capacity to $38 million in capacity. The Barclays LOC was subsequently extended to February 8, 2019.
August 28, 2018
Au
gust 19, 2021
Council authorized the substitution of the LOC provided by Barclays with a LOC provided by BANA in an aggregate principal amount of $75 million and with expiration date of September 10, 2021.
The City executed an amendment to the letter of credit and reimbursement agreement, dated as of September 1, 2018, between City of San José and BANA in the stated amount of $81.7 million to extend the expiration date from September 10, 2021 to September 10, 2024. In connection with the extension of the expiration date of the Airport LOC on August 19, 2021, the facility fee rate was increased to 0.40%.
August 31, 2021 Council held a new TEFRA hearing for the Airport, approving the issuance of the Series B Notes. The TEFRA hearing will allow the issuance of tax- exempt Series B Notes, in an aggregate principal amount together with certain other commercial paper notes not to exceed $600 million to be issued from time to time, to finance and refinance the facilities at the Airport. The maximum issuance is limited to $75 million, the maximum principal amount supported by the LOC from BANA.
89 APPENDIX E:
CURRENT RATINGS SUMMARY
90 91
CURRENT RATINGS SUMMARY
The table below shows the long-term and short-term ratings scales from Moody’s Investors Service (Moody’s), S&P Global Ratings (S&P) and Fitch Ratings (Fitch). (The ratings for bonds issued by the City and its related entities are summarized on the Current Ratings Summary table on the following pages.)
Rating Scale
Moody’s S&P Fitch
Long-term Short-term Long-term Short-term Long-term Short-term Aaa
MIG1 VMIG1 P-1
AAA
A-1+
AAA
F1+ Aa1 AA+ AA+
Aa2 AA AA
Aa3 AA- AA-
A1 A+ A-1 A+ F1 A2 A A
A3 MIG2 VMIG2 P-2 A- A-2 A- F2 Baa1
MIG3
VMIG3 BBB+ BBB+
Baa2
SG
P-3 BBB A-3 BBB F3 Baa3 BBB- BBB-
Ba1
SG Not
prime
BB+
B
BB+
B
Ba2 BB BB
Ba3 BB- BB-
B1 B+ B+
B2 B B
B3 B- B-
Caa1 CCC+
C CCC C
Caa2 CCC
Caa3 CCC-
Ca CC
C
C
D /
DDD
/ / DD
/ D
A-category = Highest quality
B-category = Medium grade, speculative
C-category = Lowest grade, highest speculation
D-category = Default, questionable value
92 Current Ratings Summary (5)
As of September 2022
Moody's S&P Fitch
City of San José
General Obligation Bonds
Series 2019A-1 (Disaster Preparedness, Public
Safety and Infrastructure) Aa1 AA+ AAA
Series 2019B (Disaster Preparedness, Public Safety
and Infrastructure) Aa1 AA+ AAA
Series 2019C (Libraries, Parks and Public Safety) Aa1 AA+ AAA Series 2019D (Libraries, Parks and Public Safety) Aa1 AA+ AAA Series 2021A (Disaster Preparedness, Public Safety
and Infrastructure) Aa1 AA+ AAA
Series 2021B (Disaster Preparedness, Public Safety
and Infrastructure) Aa1 AA+ AAA
City of San José Financing Authority
Lease Revenue Bonds
Series 2013B (Civic Center Garage) Aa2 AA AA
Series 2020A (Civic Center Refunding) Aa2 AA AA
Series 2020B (Ice Centre Project) Aa3 AA AA-
Series 2021A (Fire Dept Training Center and Central
Service Yard Projects) Aa2 AA AA
Series 2022A (Convention Center Refunding Project) Aa3 AA AA Commercial Paper Notes
Lease Revenue Commercial Paper Notes
LOC: U.S. Bank (expires 3/24/25) P-1 A-1+ F1+
Wastewater Revenue Notes
Regional Wastewater Facility (3) -- -- --
Revolving Credit Facility (4)
Clean Energy -- -- --
Norman Y. Mineta San José International Airport
Airport Revenue Bonds
Series 2014A (AMT) A2 A A
Series 2014B (Non-AMT) A2 A A
Series 2014C (Non-AMT) A2 A A
Series 2017A (AMT) (1) A2 A A
Series 2017B (AMT) (1) A2 A A
Series 2021A (AMT) (1) A2 A A
Series 2021B (Non-AMT) (1) A2 A A
Series 2021C (Taxable) (1) A2 A A
93 Current Ratings Summary (5)
As of September 2022
Moody's S&P Fitch
Subordinate Airport Commercial Paper Notes
CP Series A-1 (Non-AMT)
LOC: Bank of America N.A. (expires 9/10/2024) (2) P-1 A-1 F1+ CP Series A-2 (Private Activity Non-AMT)
LOC: Bank of America N.A. (expires 9/10/2024) (2) P-1 A-1 F1+ CP Series B (AMT)
LOC: Bank of America N.A. (expires 9/10/2024) (2) P-1 A-1 F1+ CP Series C (Taxable)
LOC: Bank of America N.A. (expires 9/10/2024) (2) P-1 A-1 F1+ Clean Water Financing Authority – No Bonds
outstanding (6)
-- -- --
Successor Agency to the Redevelopment Agency
SARA Tax Allocation Bonds
Series 2017A Senior -- AA AA
Series 2017(A-T) (Senior Taxable) -- AA AA
Series 2017B Subordinate -- AA- AA-
(1) Insured by Build America Mutual (BAM) – NR/AA/NR
(2) Bank of America replaced Barclays as the LOC provider effective September 1, 2018 (3) There is no obligor rating associated with the RWF. The directly placed bank facility with Wells Fargo Bank, N.A. is n
ot rated.
(4) There is no obligor rating associated with the Revolving Credit Facility. The directly placed bank facility with B
arclays Bank PLC. Is not rated.
(5) The ratings in this table are provided without effect to any credit enhancement and would be separately footnoted. (6) Currently there are no outstanding bonds issued the Clean Water Financing Authority. “--“
denotes bonds that are not rated by the respective rating agency. 94 95
APPENDIX F:
OVERLAPPING DEBT REPORT
Co
ntained within the City are overlapping local agencies providing public services. These local agencies have outstanding bonds issued in the form of general obligation, lease revenue obligations (including certificates of participation), bonds issued to refund pension and other post-employment benefits, and special assessment bonds. A statement of the overlapping debt of the City, prepared by California Municipal Statistics, Inc., as of June 30, 2022, is shown in this appendix. The City makes no representations as to the completeness or accuracy of such statement.
96 97
98 99
APPENDIX G:
SPECIAL TAX ANNUAL REPORT
This information is provided in the CADR to the City Council pursuant to California Government Code Sections 50075, 50075.3, 53410 and 53411. California Government Code Section 50075 requires that on or after January 1, 2001, any local special tax measure that is subject to voter approval that w ould provide for the imposition of a special tax by a local agency shall provide accountability measures that include an annual report. California Government Code Sections 53410 and 53411 require the same type of annual report for voter approved bond measures.
Pu
rsuant to Government Code Section 50075.3 and 53411, the Chief Financial Officer of the levying local agency shall file the annual report with its governing body no later than January 1, 2002, and at least once a year thereafter. The annual report shall contain both of the following: (a) the amount of funds collected and expended; and (b) the status of any project required or authorized to be funded as identified in the applicable measure.
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101
Special Tax Annual Report
FY 2021-22
Date of
Election Special Tax or Bond Measure
YTD
Revenue
Status by
Fund1
YTD Program
Expense by
Fund1 Status of Funded Projects
11/07/2000 San José Neighborhood Libraries Bonds
(Measure O – GO Bonds)
See Note 2 See Note 2 20 Completed,
Misc. projects
11/07/2000 San José Neighborhood Parks and Recreation Bonds (Measure P – GO Bonds)
See Note 2 See Note 2 89 Completed,
1 Design
03/05/2002 San José 911, Fire, Police and Paramedic Neighborhood Security Act (Measure O – GO Bonds)
See Note 2 See Note 2 Project Completed
11/06/2018 Public Safety and Infrastructure Bonds
(Measure T- GO Bonds)
See Note 2 See Note 2 3 Completed,
21 Design/Construction
03/27/2001 Community Facilities District No. 6 (Great Oaks-Route 85) $1,031,325 $976,609 Project Completed 06/19/2001 Community Facilities District No. 5B (North Coyote Valley Services)
$0 $0 No Activity
09/03/2002 Community Facilities District No. 8 (Communications Hill) $956,867 $861,183 On-going Maintenance 12/17/2002 Community Facilities District No. 9 (Bailey/Highway 101) $0 $0 Project Completed 04/01/2003 Community Facilities District No. 10 (Hassler-Silver Creek) $1,047,325 $1,067,622 Project Completed 06/07/2005 Community Facilities District No. 11 (Adeline-Mary Helen) $50,311 $104,983 On-going Maintenance 11/08/2005 Community Facilities District No. 12 (Basking Ridge) $230,097 $396,143 On-going Maintenance 06/16/2009 Convention Center Financing District (See Note 3) $8,511,087 $4,144,453 On-going 09/20/2011 Community Facilities District No. 14 (Raleigh-Charlotte) $597,597 $418,531 On-going Maintenance 10/02/2012 Community Facilities District No. 13 (Guadalupe Mines) $64,162 $72,804 On-going Maintenance 06/03/2014 Library Parcel Tax (Measure B) $10,059,02
6 See Note 1 On-going
06/17/2014 Community Facilities District No. 15
(Berryessa-Sierra)
$114,443 $106,793 On-going Maintenance
06/06/2017 Community Facilities District No. 16
(Raleigh-Coronado)
$427,793 $348,946 On-going Maintenance
08/14/2018 Community Facilities District No. 17
(Raleigh-Coronado)
$85,185 $6,464 On-going Maintenance
1 The fiscal year revenue by fund includes all revenue entries including special taxes collected for General Obligation Bonds, Community Facilities Districts, Convention Center Financing District, and library parcel tax (Measure B 2014). The fiscal year expenses by fund include debt service, administration, and maintenance service charge for General Obligation, Community Facilities Districts, and Convention Center Financing District bonds. A detailed annual report on the expenditure of library parcel taxes is prepared by the City’s external auditor, which is available on the City Auditors website after the CADR has been approved and distributed. 2 On July 25, 2019, the City issued $502 million of General Obligation Bonds (2019 GO Bonds), to finance new projects under Measure T, and to refund all outstanding GO Bonds issued under prior authorizations of Measure O (2000) and P (2000) and Measure O (2002).
The 2019 GO Bonds provided $239.9 million for Measure T critical infrastructure and land acquisition projects; $9.2 million for prior and remaining Measure O (2000 and 2002) library and public safety projects, San José 911, Fire, Police and Paramedic Neighborhood Security Act projects completed in FY2022 ; and $252.9 million in GO refunding bonds that refunded all of the prior general obligation bonds issued under Measure O (2000), Measure P (2000) and Measure O (2002). On July 29, 2021, the City issued $200.5 million to finance new projects under Measure T. The City's external auditor prepares a detailed annual report on each of the General Obligation Bond measures which is available on the City Auditor's website after the CADR has been approved and distributed. 3 The Special Tax Bonds, Series 2011 and CSJFA Lease Revenue Bonds, Series 2011A were refunded in full by CSJFA Lease Revenue Bonds, Series 2022A in April 2022. Under the Pledge Agreement dated as of April 1, 2022, between the City, for and on behalf of the Convention Center Facilities District (CCFD), and the Authority, the City pledged a lien and security interest on the Special Taxes (4% hotel special tax levied by the CCFD for the benefit of the Authority as security for the City’s obligations to make Lease Payments to the Authority.
102
103
GLOSSARY
Accrued Interest: In general, interest that has been earned on a bond, but not yet paid – usually because it is not yet due. More specifically, this term is often used to refer to interest earned on a bond from its dated date to the closing date.
Ad Valorem Tax: A ta x which is based on the value (assessed value) of property.
Advance Refunding: A refinancing of tax exempt bonds from the proceeds of a new bond issue more than ninety (90) days prior to the date on which the outstanding bonds (refunded bonds) become due or are callable. Federal legislation, the Tax Cuts and Jobs Act, enacted on December 22, 2017, eliminated the use of tax-exempt proceeds to advance refund bonds.
Advanced refundings using taxable proceeds are still permitted and as of the date of this report, Congress is considering legislation which would, if signed into law, potentially allow tax exempt proceeds to be used for advance refundings.
Alternative Minimum Tax (AMT): An i
ncome tax based on a separate and alternative method of calculating taxable income and separate and alternative schedule of rates. With respect to bonds, the interest on certain types of qualified tax-exempt private activity bonds is included in income for purposes of the individual and corporate alternative minimum tax.
Amortization: The process of paying the principal amount of an issue of securities by periodic payments either directly to bondholders or to a sinking fund for the benefit of bondholders.
Arbitrage: With respect to municipal bonds, arbitrage is the profit made from investing the proceeds of tax-exempt bonds in higher-yielding securities.
Arbitrage Rebate: Pay ment of arbitrage profits to the United States Treasury by a tax-exempt bond issuer.
Assessed Valuation or Assessed Value: The value of a property as set by a taxing authority for purposes of ad valorem taxation. The method of establishing assessed valuation varies from state to state. In California, Assessed Valuation is typically less than Market Value as the State’s constitution limits the growth in A.V. to the lesser of 2% or actual growth.
Basis Point: One basis point is equal to 1/100 of one percent or 0.01%. If interest rates increase from 4.50% to 4.75%, the difference is referred to as a 25 basis point increase.
Bond: An interest-be aring or discounted government or corporate security that obligates the issuer (borrower) to pay the bondholder a specific sum of money (interest), usually at specific intervals, and to repay the principal amount of the loan at maturity.
Bond Counsel: An a
ttorney (or a firm of attorneys), retained by the issuer, who provides the legal opinion delivered with the bonds confirming that (i) the bonds are valid and binding obligations of the issuer; (ii) the issuer is authorized to issue the proposed securities; (iii) the issuer has met all legal requirements necessary for issuance, and; (iv) and in the case of tax-exempt bonds, that interest on the bonds is exempt from federal and/or state income taxes. 104
Bond Insurance: Non-cancellable insurance purchased from a bond insurer by the issuer or purchaser of a bond or series of bonds pursuant to which the insurer promises to make scheduled payments of interest, principal and mandatory sinking fund payments on an issue if the issuer fails to make timely payments. When an issue is insured, the investor relies on the creditworthiness of the insurer rather than the issuer. Payment of an installment by the insurer does not relieve the issuer of its obligation to pay that installment; the issuer remains liable to pay that installment to the insurer.
Bond Insurer: A co
mpany that pledges to make all interest and principal payments when due if the issuer of the bonds defaults on its obligations. In return, the bond issuer or purchaser pays a premium (bond insurance premium) to the insurance company. Insured bonds generally trade on the rating of the bond insurer rather than the rating on the underlying bonds, since the bond insurer is ultimately at risk for payment of the principal and interest due on the bonds.
Bond Purchase Contract or Agreement: In
a negotiated sale, the bond purchase contract is an
agreement between an issuer and an underwriter or group of underwriters in a syndicate or selling group who have agreed to purchase the issue pursuant to the price, terms and conditions outlined in the agreement.
Bond Series: An is
sue of bonds may be structured as multiple bond series reflecting differences in tax status, priority of debt service payment, or interest rate mode, as well as to facilitate marketing of the bonds.
Bondholder: The
owner of a bond. Bondholders may be individuals or institutions such as banks, insurance companies, mutual funds, and corporations. Bondholders are generally entitled to receive regular interest payments and return of principal when the bond matures.
Call: The terms of the bond giving the issuer the right to redeem or call al l or portion of an outstanding issue of bonds prior to their stated date of maturity at a specified price, usually at or above par.
Certificates of Part
icipation (COPs): An instrument evidencing a pro rata share in a specific pledged revenue stream, usually lease payments by the issuer that are typically subject to annual appropriation. The certificate generally entitles the holder to receive a share, or participation, in the payments from a particular project. The payments are passed through the lessor to the certificate holders. The lessor typically assigns the lease and the payments to a trustee, which then distributes the payments to the certificate holders. While the City currently does not issue COPs, as reflected in the overlapping debt report in this report, many overlapping agencies do issue such COPs.
CSJFA: City of San José Financing Authority, a j
oint powers authority.
Closing Date (Delivery Date): The date on which an issue is delivered by the issuer to, and paid for by, the original purchaser (underwriter), also called the delivery date. This date may be a different date than the sale date or the dated date.
Commercial Paper: Shor t-term, unsecured promissory notes, usually backed by a line of credit and/or LOC with a bank, with maturities between 1 day through 270 days. 105
Competitive Sale: One of three ways bonds may be sold to investors in the primary issuance market (competitive, negotiated and direct placement. The competitive sale is the sale of bonds to the bidder presenting the best sealed bid at the time and place specified in a published notice of sale (also called a public sale).
Coupon: Interest rate on a b ond or note that the issuer promises to pay to the bondholder until maturity, expressed as an annual percentage of the face value of the bond.
CUSIP: The acronym for Committee on Uniform Security Identification Procedures, which was established under the auspices of the American Bankers Association to develop a uniform method of identifying municipal, United States government and corporate securities. A separate CUSIP number is assigned for each maturity of each issue and is printed on each bond and generally on the cover of the Official Statement.
CWFA: San José-Sa
nta Clara Clean Water Financing Authority.
Dated Date: The date on which interest on the bonds begins to accrue to the benefit of bondholders.
Debt Retirement: Rep ayment of debt.
Debt Service: The total interest, principal and mandatory sinking fund payments due at any one time.
Debt Service Coverage: The ratio of pledged revenues available annually to pay debt service on the annual debt service requirement. Pledged revenues are either calculated before operating and maintenance expenses (Gross Revenue) or net of operating and maintenance expenses (Net Revenue). This ratio is one indication of the margin of safety for payment of debt service.
Debt Service Reserve Fund/Account: An a ccount from which moneys may be drawn to pay debt service on an issue of bonds if pledged revenues and other amounts available to satisfy debt service are insufficient. The size of the debt service reserve fund and investment of moneys in the fund/account are subject to restrictions contained in federal tax law for tax-exempt bonds.
Default or Event of Default: Fai lure to make prompt debt service payment or to comply with other covenants and requirements specified in the financing agreements for the bonds.
Defeasance: Usua lly occurs in connection with the refunding of an outstanding issue by final payment or provision for future payment of principal and interest on a prior issue. In an advance refunding, the defeasance of the bonds being refunded is generally accomplished by establishing an escrow of high quality securities to provide for payment of debt service on the bonds to redemption or maturity.
Direct Placement or Direct Purchase: See
Private Placement.
EMMA: Electronic Municipal Market Access (EMMA) is the municipal disclosure website sponsored by the Municipal Securities Rule Making Board (MSRB). As of July 1, 2009, municipal 106
issuers are required to file disclosure through EMMA in lieu of filing disclosure with the NRMSIRs.
Federal Open-Ma rket Committee (FOMC): Committee that sets interest and credit policies for the Federal Reserve Board (the Fed), the United States’ central bank. The Committee’s decisions are closely watched and interpreted by economists and stock and bond markets analysts, who try to predict whether the Fed is seeking to tighten credit to reduce inflation or to loosen credit to stimulate the economy.
Financial Industry Regulatory Authority (FINR
A): A self-regulatory organization, formerly known
as the National Association of Securities Dealers (NASD), that enforces MSRB rules applicable to the municipal securities activities of its member broker-dealers, administers the MSRB’s professional qualification examinations and handles arbitration proceedings relating to municipal securities for its member broker-dealers and for bank dealers. FINRA also adopts rules governing the conduct of its members with respect to most types of securities other than municipal securities.
Fiscal Agent: A co
mmercial bank or trust company designated by an issuer under the Indenture or Bond Resolution to act as a fiduciary and as the custodian of moneys related to a bond issue.
The duties are typically limited to receiving moneys from the issuer which is to be held in funds and accounts created under the Indenture or Bond Resolution and paying out principal and interest to bondholders.
General Obligation Bond: A bo
nd which is secured either by a pledge of the full faith and credit of an issuer or by a promise to levy taxes in an unlimited amount as necessary to pay debt service, or both. With very few exceptions, local agencies in California are not authorized to issue full faith and credit bonds. Typically, general obligation bonds of a city are payable only from ad valorem property taxes which are required to be levied in an amount sufficient to pay debt service. Under the State Constitution, a city’s authority to issue general obligation bonds must be approved by a two-thirds vote of the electorate and the bond proceeds are limited to the acquisition and improvement of real property.
Indenture/Trust Agreement: An ag reement executed by an issuer and a fiscal agent/trustee who pledges certain revenues and other property as security for the repayment of the bonds, sets forth the terms of the bonds and contains the responsibilities and duties of the trustee and the rights of the bondholders. The rights of the bondholders are set forth in the indenture provisions relating to the timing of the interest and principal payments, interest rate setting mechanisms (in the case of variable-rate bonds), redemption provisions, events of default, remedies and the mailing of notices of various events.
Issuance: Sal
e and delivery of a series of bonds or other securities.
Issue: One or more bonds or series of bonds initially delivered by an issuer in a substantially simultaneous transaction, and which are generally designated in a manner that distinguishes them from bonds of other issues. Bonds of a single issue may vary in maturity, interest rate, redemption and other provisions.
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Issuer: An entity that borrows money through the sale of bonds or notes and is committed to making timely payments of interest and principal to bondholders.
Lease Agreement: The document, in a Lease Revenue Bond or lease backed Certificates of Participation issue, is the means by which the issuer leases to another public entity (the obligor) the facility or project to be acquired or constructed with the proceeds of the bond issue and by which the obligor agrees to make periodic lease payments to the issuer, generally for the period of time the bond issue is outstanding.
Lease Revenue Bonds: A le ase revenue bond is a bond secured by rental payments, generally pledged from the General Fund, for the beneficial use and occupancy of assets, such as a building. Lease rental bonds do not require voter approval, by virtue of a legal exception to the Constitutional debt limitation. These payments are included in the City Budget as part of the annual appropriation process based on a bond covenant to budget and appropriate in the lease documents.
Letter of Credit (LOC): L etters of Credit are irrevocable obligations of a financial institution that obligate it to provide sufficient funds to make all required payments of principal, interest (premium, if any) and purchase price due to bondholders or holders of CP in a full and timely manner. Letters of Credit, Lines of Credit and Standby Purchase Agreements (SBPAs) are also referred to as liquidity facilities in connection with obligations such as commercial paper and variable-rate bonds.
LIBOR: An acronym for London Interbank Offered Rate, a rate that the most creditworthy international banks dealing in Eurodollars charge each other for large loans. The LIBOR rate is usually the basis for other large Eurodollar loans to less creditworthy corporate and government borrowers. This rate is often used as a benchmark for short-term taxable municipal securities.
Line of Credit: Also r eferred to as a liquidity facility, is a contract between the issuer and a bank that provides a source of borrowed moneys to the issuer in the event that moneys available to pay debt service, for example on commercial paper are insufficient.
Liquidity: The ease with which an investment may be
converted to cash.
Liquidity Facility: See Letter of Credit and Line of Credit or Standby Bond Purchase Agreement.
Maturity: With respect to a single bond, the date upon which the principal of the bond is due; with respect to an issue, all of the bonds of an issue which are due on a single date.
Municipal Securities Rulemaking Board (MSR B): An independent, self-regulatory organization established by Congress in 1975 having general rulemaking authority over municipal securities market participants, generally brokers and dealers. The MSRB is required by federal law to propose and adopt rules in the areas which include professional qualification standards, rules of fair practice, record keeping, the scope and frequency of compliance examinations, the form and content of municipal bond quotations, and sales to related portfolios during the underwriting period. While the MSRB is the principal regulator of the municipal securities market, the MSRB does not carry out the enforcement of its rules or conduct compliance examinations.
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Municipal Advisor: A person or entity (with certain exceptions) who (a) advises to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues, or (b) solicits a municipal entity, for compensation, on behalf of an unaffiliated municipal securities dealer, municipal advisor, or investment adviser to engage such party in connection with municipal financial products, the issuance of municipal securities, or investment advisory services. A consultant who advises the issuer on matters pertinent to a bond issue, such as structure, cash flow, timing, marketing, fairness of pricing, terms, bond ratings, and at times investment of bond proceeds. A municipal advisor may also be hired to provide analysis relating to an issuer’s debt capacity or future debt issuance. A Municipal Advisor is subject to fiduciary duty in dealing with their clients. This means the adviser must hold the client's interest above its own in all matters.
Negotiated Sale: The
sale of bonds, the terms and price of which are negotiated by the issuer through an exclusive agreement with a previously selected underwriter and/or underwriting syndicate. One of three methods of sale, including Competitive Sales and Private Placements.
Non-AMT Bond: Int
erest on such bonds is not subject to the federal alternative minimum tax.
NRMSIR: An acronym for Nationally Recognized Municipal Securities Information Repository.
NRMSIRs were the repositories for all annual reports and event notices filed under SEC Rule 15c2-12; however, as of July 1, 2009 issuers are required to file such disclosure with the MSRB’s EMMA system. See EMMA.
Official Statement: A d ocument containing information about the bonds being offered, the issuer, and the sources of repayment of the bonds. Federal securities law generally requires that if an Official Statement is used to market an issue of bonds, it must fully and accurately disclose all facts that would be of interest (material) to a potential buyer of bonds. The issuer of bonds typically issues a Preliminary Official Statement to market the bonds and a Final Official Statement prior to the delivery of the bonds to investors. The City’s Final Official Statements are available on EMMA.
Par/Par Value: Ref ers to the principal amount of a bond or the total principal amount of a bond series or issue.
Parity Bonds: Two or more issues of bonds which have the same priority of claim or lien against the issuer’s pledge of particular revenues, e.g., revenues from an enterprise such as an airport or parking garage. With respect to the initial issue of bonds, called the prior issue, the indenture or bond resolution normally provides the requirements which must be satisfied before subsequent issues of bonds, called additional parity bonds may be issued.
Present Value: The
current value of a future payment, or stream of payments, calculated by discounting the future payments by an appropriate interest rate. Alternatively, present value is the amount of money which should be invested today to return a certain sum at a future time.
Private Placement: The sale of bonds by the issuer directly to one or more investors rather than through an underwriter. Often, the terms of the issue are negotiated directly between the issuer and the investor. Sometimes, an investment banker will act as the placement agent; bring 109
parties together and act as an intermediary in the negotiations. Instead of an Official Statement, an Offering Circular, Offering Memorandum or Private Placement Memorandum may be prepared.
Proceeds: Fu nds received by the issuer upon sale of the bonds which may include accrued interest and a premium. For tax purposes bond proceeds include interest earnings on the sale proceeds.
Ratings: An opinion by a rating agency of the credit-worthiness of a bond denoted by a combination of letters and/or numbers/symbols.
Rating Agencies: The organizations which provide, for a fee customarily paid by the issuer, an independent appraisal of the credit quality and likelihood of timely repayment of a bond issue.
The term is most often used to refer to the four nationally recognized bond rating agencies, Moody’s Investor Services, Inc., S&P Global Ratings, Fitch Ratings and Kroll Bond Rating Agency (KBRA).
Redemption: The payment of principal of a bond, whether at maturity, or, under certain circumstances described in the bond, prior to maturity. Redemption of a bond by the issuer prior to maturity is sometimes referred to as calling the bond.
Refunding: An is sue of new bonds (the refunding bonds) to pay debt service on a prior issue (the refunded bonds). Generally, the purpose of a refunding is either to reduce the debt service on the financing or to remove or replace restrictive covenant imposed by the terms of the refunded bonds. The proceeds of the refunding bonds are either deposited in a defeasance escrow to pay the refunded bonds on a date more than 90 days after the issuance (Advance Refunding) or applied to the payment of the refunded bonds within 90 days of the issuance (Current Refunding). As noted above under Advance Refunding, the Tax Cuts and Jobs Act, enacted on December 22, 2017, eliminated the use of tax exempt proceeds for advance refunding bonds issued after December 31, 2017.
Reserve Fund/Account: See
Debt Service Reserve Fund/Account
Revenue Bond: A bond which is payable solely from a specific source of revenue. Revenue bonds do not permit the bondholders to compel taxation or legislative appropriation of funds not pledged for payment of debt service. Revenue bonds are issued to acquire or construct assets owned by the City whereby the City pledges income derived from the asset or enterprise to pay the debt service.
Successor Agency: Su
ccessor Agency to the Redevelopment Agency of the City of San José created in 2012.
Sale Date: In th e case of a negotiated sale, the date on which the bond purchase agreement is signed, and in the case of a competitive sale, the date on which the bonds are awarded to the winning bidder.
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Serial Bonds: Bonds of an issue which are payable as to principal in amounts due at successive regular intervals, generally annual or semiannual and generally in the early years of the term of the issue. An issue may consist of both serial bonds and term bonds.
SIFMA Index: An ind ex published by the Securities Industry and Financial Markets Association (SIFMA). The index is produced from Municipal Market Data and is a 7-day high-grade market index comprised of tax-exempt variable-rate demand obligations. SIFMA was formed through the merger between the Securities Industry Association (SIA) and the Bond Market Association (BMA). Formerly referred to as the BMA Index.
Sinking Fund: An a ccount, sometimes called a debt service fund or sinking fund to provide for the redemption or payment at maturity of term bonds. Generally, sinking fund payments are mandatory in a specified amount for each payment period to provide for the periodic redemption of term bonds prior to their final maturity. The individual term bonds to be redeemed each year are customarily selected at random by the trustee.
SOFR: Secured Overnight Financing Rate a b
road measure of the cost of borrowing cash
overnight collateralized by Treasury securities. SOFR is a secured interbank overnight interest rate and reference rate established as an alternative to Libor and it is based on transactions in the U.S. Treasury repurchase market where investors offer banks overnight loans backed by their bond assets.
Standby Bond Purchase Agreement (SBPA): a ty
pe of liquidity facility provided by a bank or
other qualified financial institution (Liquidity Provider) to purchase variable rate demand obligations that are not remarketed.
Surety: In the public finance context, a surety policy is a form of insurance provided by a bond insurer to satisfy a reserve fund requirement for a bond issue. Under this arrangement, instead of depositing cash in a reserve fund, the issuer buys a surety policy by paying a one-time premium equal to a percentage of the face amount of the policy. If the reserve fund is needed to make a debt service payment, the trustee notifies the surety provider and the provider makes the payment, up to the face amount of the policy. The issuer then has an obligation to reimburse the provider for the payment, plus interest.
Tax Allocation Bonds: Bond s secured by the incremental property tax revenues generated from a redevelopment project area. As usually structured, a project area is designated, its property tax base frozen, and revenue from the incremental growth of the property tax base is used to provide additional funds for further redevelopment or for debt service on bonds issued for redevelopment purposes.
Tax and revenue anticipation note (TRAN): Not
e issued in anticipation of receiving future tax
receipts and revenues at a future date, but which must be repaid from current year revenues.
Such notes are not subject to State voter approval requirements.
Tax-Exempt Bonds: Bo nds whose interest is exempt from federal income taxation. In California, the interest on bonds issued by a California governmental entity is also exempt from state income tax. Certain bonds may be exempt from State taxes, while remaining subject to Federal taxes.
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Tax Equity and Fiscal Responsibility Act (TEFRA): As a pre-condition for the exclusion from gross income for federal income tax purposes of interest on all qualified private activity bonds, TEFRA requires, among other things, that the issue be approved (a TEFRA approval) either by an elected official or body of elected officials of the applicable governmental entity after a public hearing (a TEFRA hearing) following reasonable public notice (a TEFRA notice) or by voter referendum of such governmental entity.
Term Loan: A loan from a bank for a specific amount that has a specified repayment schedule.
Term loans generally accrue interest at a floating rate and mature between one and ten years.
Term Bonds: Bond s coming due in a single maturity. The issuer generally agrees to make periodic payments into a sinking fund for mandatory redemption of term bonds before maturity or for payment at maturity.
Trust Agreement: See I ndenture/Trust Agreement in glossary.
Trustee: Financial institution, with trust powers which acts in a fiduciary capacity for the benefit of the bondholders in enforcing the terms of the Trust Agreement or Indenture.
Underwriter: An inve stment banking firm which, singly or as a member of an underwriting group or syndicate, agrees to purchase a new issue of bonds from an issuer for resale and distribution to investors. The underwriter may acquire the bonds either by negotiation with the issuer or by award on the basis of competitive sale.
Underlying Rating: The r
ating assigned by a rating agency to a credit enhanced security, on a stand-alone basis, without regard to the credit enhancement.
Variable Rate: An inte rest rate which periodically changes based upon an index or remarketing procedure. Variable-rate bonds or notes generally have a demand feature allowing the bondholder to demand that the issuer or another party repurchases the bond upon a specified number of days’ notice or at certain times which reflect the intervals at which the rate varies.
Yield: In general, rate of return on bonds or on any capital investment. T echnically, yield is the discount rate which makes the present value of all future streams of payments equal to the present value.