Agenda Item: 1
CITY OF SANTA CLARITA
AGENDA REPORT
PUBLIC HEARINGS
CITY MANAGER APPROVAL:
DATE: January 28, 2025
SUBJECT: ATIVO SENIOR LIVING OF SANTA CLARITA TAX EQUITY AND
FISCAL RESPONSIBILITY ACT (TEFRA) HEARING
DEPARTMENT: Administrative Services
PRESENTER: Amy Seyerle
RECOMMENDED ACTION
City Council conduct a public hearing and adopt a Tax Equity and Financial Responsibility Act resolution approving the issuance of tax-exempt obligations by the California Public Finance Authority in an aggregate principal amount not to exceed $130 million and by Arizona Industrial Development Authority in an aggregate principal amount not to exceed $170 million to finance or reimburse the acquisition and construction costs by ISF Ativo Holdings LLC of a 140-bed rental senior living community.
BACKGROUND
The California Public Finance Authority (CalPFA) is a joint exercise of powers authority created under the California Joint Powers Authority Act for the purpose of issuing tax-exempt and taxable conduit bonds for public and private entities throughout California. The California Public Finance Authority is empowered to promote economic, cultural, and community development opportunities that create temporary and permanent jobs, affordable housing, community infrastructure, and improve the overall quality of life in local communities. They issue bonds on behalf of their members, which includes the City of Santa Clarita (City), and to nonprofit and private entities within the members' geographical jurisdictions where public benefit projects are proposed to be located.
Section 147(f) of the Internal Revenue Code of 1986 requires that, in order for the interest on such tax-exempt conduit bonds to be excluded from gross income to investors for federal income tax purposes, the applicable elected representatives of the host governmental unit must approve the issuance of such bonds. This hearing and approval process is referred to as a "TEFRA" hearing, after the Tax Equity and Fiscal Responsibility Act of 1983, the regulations for which were promulgated under the Tax Code changes of 1986.
The City received a request to conduct a TEFRA public hearing under and in accordance with Section 147(f) of the Internal Revenue Code, in order for (a) CalPFA to issue tax-exempt revenue bonds (California Bonds) in an aggregate principal amount not to exceed $130 million and (b) the Arizona Industrial Development Authority (AZIDA) to issue tax-exempt bonds (Arizona Bonds, and together with California Bonds, the Bonds) in an aggregate principal amount of $170 million, of which all of the California Bonds and $20 million of the Arizona Bonds will be issued on behalf of ISF Ativo Holdings LLC (Borrower) the sole member of which is Integrated Senior Foundation, a 501(c)(3) organization.
The Arizona Industrial Development Authority is a nonprofit corporation and political subdivision of the State of Arizona. The Arizona Industrial Development Authority is a conduit issuer of municipal revenue bonds with the ability to assist private and public borrowers across the country. The AZIDA was created pursuant to A.R.S. §35-701 – 733 and is empowered to issue its bonds to provide funds for the financing or refinancing of the costs of the acquisition, construction, improvement, equipping or operating of a “project,” as defined in the AZIDA statute, such as the senior living project referenced below.
The proceeds from the sale of the Bonds will be loaned to the Borrower and used to finance or reimburse the costs of acquisition, construction, expansion, remodeling, renovation, improvement, furnishing, and/or equipping of a 140-bed independent living, assisted living and memory care community for residents who are age 65 or older at 16330 Village Way, Santa Clarita, to be known as Ativo Senior Living of Santa Clarita (Facility). This new construction project is part of the Sand Canyon Plaza Mixed Use Project (Master Case 14-077), which was approved by the City Council on September 12, 2017, with a revision by the City Council on December 12, 2023.
The primary financing for the Facility will be through the issuance of bonds by CalPFA. The financing of the Facility is happening concurrently with the financing of two other facilities in Arizona. As such, bonds will be issued through AZIDA for the two Arizona facilities. There is a possibility, due to financial considerations, that a small portion of subordinate bonds issued through AZIDA will be used for the Facility. If that is the case, the TEFRA documents also reference the AZIDA issuance.
The Bonds would be tax-exempt private activity bonds for purposes of the Internal Revenue Code and, as such, require the approval of the elected body of the governmental entity having jurisdiction over the area where the Facility to be financed is located. The approval and adoption of the resolution authorizing the issuance of the Bonds will not require the City to be financially obligated, liable, or provide any financing for the Facility. The City's credit and bond ratings are not at risk by adopting this resolution and no City revenues are at risk by this bond issuance.
In order for CalPFA and/or AZIDA to issue such Bonds, the City must (1) conduct a public hearing allowing members of the public to comment on the proposed Facility and the Bonds, and (2) approve the CalPFA’s and AZIDA's issuance of Bonds on behalf of the Borrower for the proposed financing. Although the CalPFA and AZIDA, as applicable, not the City, will be the issuer of the tax-exempt revenue bonds for the Facility, the financing cannot proceed without the City, as the governmental entity having jurisdiction over the site, approving the Bonds.
For this item, the Borrower selected CalPFA and AZIDA as the financing agencies. As a result
of the Borrower selecting CalPFA, the City will receive a positive fiscal impact from CalPFA's Community Benefit Program. This program provides for 15 percent of the annual administrative fee paid by the Borrower to be allocated to the City, which is an amount of up to $2,925 anticipated in year one, reducing to zero as the bonds are paid down. The annual amount received by the City is contingent upon the principal amount after issuance.
Participation by the City will not impact the City's appropriations limits or constitute any type of indebtedness by the City. Once the City holds the required public hearing and adopts the required resolution following the public hearing, no other participation of the City in the actions of the CalPFA or in the financing will be required.
Approval pursuant to this resolution does not constitute any other approval by any commission or agency of the City with respect to any other City regulatory or other requirements, such as building permits, in connection with the Facility.
ALTERNATIVE ACTION
Other action as determined by the City Council.
FISCAL IMPACT
The City is to receive on an annual basis, over the anticipated 35-year life of the California Bonds, 15 percent of the administrative fee that ISF Ativo Holdings LLC pays to CalPFA annually. Since the administrative fee is 1.5 basis points or .015 percent of the outstanding bond principal, the City is estimated to receive an amount of up to $2,925 in year one, reducing annually as the bonds are paid down. The funds will be deposited to General Fund Miscellaneous Revenues (100-462101).
ATTACHMENTS
Public Hearing Notice
TEFRA Resolution ISF Ativo Holdings LLC