REQUEST FOR PROPOSALS FOR
FINANCIAL ADVISORY SERVICES
JULY 21, 2025
SUBMITTED BY: KNN PUBLIC FINANCE , LLC
2054 UNIVERSITY AVENUE, SUITE 300 | BERKELEY, CA 94704
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES
SECTION PAG E
Letter of Transmittal 1
Team 3
Project Scope and Provisions 5
Cost Data 13
Additional Data 15
APPENDIX A | Cost Data A-1
APPENDIX B | KNN Advisor Team Resumes B-1
APPENDIX C | KNN Work Product Examples C-1
APPENDIX D | KNN Disclosures D-1
TABLE OF CONTENTS
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 1
LETTER OF TRANSMITTAL
July 21, 2025
Town of Yountville
Kyle Batista, Financial Analyst
6550 Yount Street, Yountville, CA 94599
RE: KNN RESPONSE TO RFP FOR FINANCIAL ADVISORY SERVICES Dear Mr. Batista:
KNN Public Finance, LLC (KNN) is pleased to submit our qualifications to serve as municipal advisor to the Town of Yountville (Town or Yountville) in connection with the desired assistance with various public finance-related services, including financial planning, debt issuance, and the ongoing management of your debt programs.
KNN is a full-service municipal advisory firm, with a breadth of experience in the range of activities that concern municipal finance officials. Under current and prior ownership structures, KNN has continuous professional public finance experience of over 40 years advising California municipalities. The original firm was first established in 1982. KNN is currently 100% employee-owned and structured as a California Limited Liability Company.
As a registered independent Municipal Advisory firm, KNN exclusively provides advisory services to our public agency clients. This is our sole line of business.
Our Fiduciary Duty is to provide independent, objective analysis and advice and to protect our clients’ interests throughout the planning and financing process. Our commitment to our Fiduciary Duty ensures our unwavering care and loyalty in serving as your Municipal Advisor.
We have closely reviewed the Town’s requested Scope of Work and confirm our ability to provide all such services in addition to countless other services that may involve the evaluation, review, planning, and issuance of municipal debt. Informed by our experience throughout the State serving as advisor to California cities of all sizes, as well as counties and special districts that provide municipal-type services, we have direct knowledge of the various tools that Yountville could conceivably use to raise and leverage resources. As a result, we have the capabilities and thoughtfulness that you are seeking in the appointment of a Municipal Advisor.
The following key qualifications of the KNN Advisor Team in serving the Town both in the context of providing on-going general municipal advisory and planning services and in the context of a debt issuance are further discussed in the proposal that follows:
>>EXPERTISE IN CALIFORNIA CITY FINANCE: KNN specializes in city (and town) finance, serving as advisor to over 30 California cities of all sizes and demographics. While we serve many of the California’s most populous cities (Los Angeles, San Diego, San Francisco, Fresno, and Long Beach), we are also distinguished in our practice with midsized and smaller cities. >>EXPERIENCE WITH CALIFORNIA FINANCING STRUCTURES: KNN has significant experience bringing to market a diverse mix of financings for California cities in addition to financings for other governmental agencies, including counties and special districts. We currently serve as Municipal Advisor to 75 local government agencies in addition to 60 school and community college districts. Since January 2020, KNN has advised on over 250 transactions aggregating to nearly $37 billion in transaction par for our local government clients (this excludes the firm’s K-14 financing LEGAL NAME:
KNN Public Finance, LLC
FIRM TYPE:
CA Limited Liability Company
ORGANIZATION:
Employee-owned Partnership
CA BUSINESS LICENSE #:
201536310278
TAX ID #:
81-0958321
WEBSITE:
www.knninc.com
HEADQUARTERS:
2054 University Avenue,
Suite 300, Berkeley, CA 94704
STAFF COMPOSITION:
15 Registered MAs
3 Operations Support Staff
STAFF LOCATION:
Bay Area
Los Angeles County
Orange County
REGISTRATION NUMBERS:
SEC: 867-01996
MSRB: K1151
FIRM INFORMATION
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 2 experience). Because of the volume of our experience, the KNN Advisor Team has the capabilities to plan, structure and execute virtually every form of municipal financing that Yountville has issued or may contemplate in the future. >>DEPTH OF STAFF AND RESOURCES: KNN has dedicated a team of four municipal advisors assigned to this engagement, including two partners of the firm. Our advisory approach is to staff our engagements with a committed team of senior advisors with complimentary experience and skill sets, strengthening the quality of our advice to meet the Town’s financing objectives. The KNN Advisor Team that will serve Yountville is based in our Bay Area – Berkeley Headquarters. The firm’s senior managing partner is also based in our Berkeley office along with an additional 8 registered municipal advisors and 2 support personnel.
>>VALUE-DRIVEN ADVISORY APPROACH: Our practice is built on a philosophy of providing comprehensive service to our clients, and ensuring they make informed decisions about capital financing and debt management activities.
We believe it is essential to clearly articulate the public policy and financial implications of debt financing and non-debt funding alternatives you may consider, so that staff and the Council are positioned to make informed decisions. In support of this value, we commonly prepare short memos that inform decision-making. We support our clients in advancing their strategic priorities with a commitment to transparency, taxpayer/ratepayer accountability, and integrity.
In closing, we confirm that, as authorized officers of KNN Public Finance, we have read, and our team will comply with all terms and conditions of this RFP. Melissa Shick, the individual advisor assigned to lead the firm’s engagement with the Town, is authorized by KNN to contractually negotiate the contract on behalf of our firm. The Town may contact Melissa or Bobby directly for questions and clarifications regarding the submittal of the proposal that follows – contact information is provided below.
We would welcome the opportunity to serve the Town of Yountville – we think there is a great fit between your needs and objectives and our experience, skills, and approach.
Sincerely,
MELISSA SHICK | MANAGING DIRECTOR
PARTNER & AUTHORIZED OFFICER
(510) 208-8226 | [email protected]
BOBBY CHEUNG | MANAGING DIRECTOR
PARTNER & AUTHORIZED OFFICER
(510) 208-8214 | [email protected]
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 3 TEAM
RFP Question: Identify the supervisors and consultants and include resumes of each person so identified.
TEAM STAF F ING APPROACH
KNN has assigned a Municipal Advisor team to serve Yountville providing extensive experience with financing tools used by California local governments (short-term and long-term, lease revenue, enterprise revenue, and special revenue bonds) to support the delivery of the Town’s general infrastructure projects and, importantly, the Yountville Commons Development Project. In supporting Town staff and the Finance Department specifically in implementing financing solutions, we offer the analysis and synthesis of various tools and options, the support in crafting policies specific to financial strategies; the ability to communicate with internal and external stakeholders in developing consensus around such strategies; and a command of the quantitative skills to accurately model the implications of strategies over time.
The Yountville engagement will be led by Melissa Shick, Managing Director, with further quantitative and senior advisory support from Bobby Cheung, Managing Director. The appointment of two senior advisors to the engagement ensures the availability of senior staff for all meetings and calls regardless of schedule conflicts or other client requirements. Further, Melissa and Bobby bring forth complementary skill sets and regularly work together to deliver specific expertise to our clients in support of both transaction and ad-hoc advisory work.
Overall, we expect that Melissa will provide around two-thirds of the required services with the remaining services provided by the additional pricing, quantitative, and support team members as described below. With minimal duplication of services, we believe that our collective staffing efforts will provide you with the highest level of expertise in all areas over the term of the engagement and the level of service that best serves your interests at a reasonable cost. Further, we provide a staffing approach that is appreciated by our clients – responsive, comprehensive, efficient, and user-friendly.
KNN ADVISOR TEAM
The KNN Advisor Team assigned to the Yountville engagement is based out of the firm’s Berkeley, California headquarters.
Given our driving proximity to Yountville, we can readily attend meetings with staff and participate in scheduled Council meetings in person as frequent as necessary and helpful. Further, the designated KNN Advisor Team is comprised of KNN personnel only and we would not include any sub-consultants or sub-contractor arrangements to deliver the requested municipal advisory services. We do not expect to depart from this core staffing approach over the term of the engagement.
KNN ADVISOR TEAM | TOWN OF YOUNTVILLE
ADVISOR TITLE | LOCATION ROLE LICENSES YEARS AT
KNN
YEARS IN
INDUSTRY
Melissa Shick Managing Director | Berkeley Lead Advisor Series 50 9 20 Bobby Cheung Managing Director | Berkeley Quantitative Advisor, Co-Lead Advisor Series 50 24 24 Dan Cox Director | Berkeley Pricing & Land Secured Expertise Series 50 38 40 Cameron Wong Associate | Berkeley Quantitative & Execution Support Series 50 3 3 Below we further discuss the anticipated roles and assigned responsibilities and relevant qualifications of individual advisors that comprise the KNN Advisor Team specific to delivering the Scope of Work. Please see Appendix B: KNN Advisor Team Resumes for a more detailed description of the background and experience of the KNN Advisor Team.
MELISSA SHICK, MANAGING DIRECTOR | LEAD MUNICIPAL ADVISOR Manage all day-to-day aspects of any assignment or financing.
OVERVIEW: Melisa brings a unique combination of experience (public agency staff, banker, and MA), providing an important understanding of both sides of the “table” and facilitates her thoughtful articulation of complex financing concepts and alternatives. She is a proven overall project manager, keeping the rest of the team accountable and making sure that all the key requirements of a project or assignment are met on time.
ANTICIPATED ROLE & RESPONSIBILITIES: Serve as the day-to-day advisor and transaction manager providing leadership on all aspects of the engagement with Yountville staff: strategic direction; special projects; plan of finance KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 4 development and approach; bond transaction management & execution; bank credit procurement & negotiation; financing team selection and management; credit strategy and rating agency outreach; document review; Council and stakeholder communication.
EXPERIENCE: Serves as lead and/or day-to-day municipal advisor to many of KNN’s city clients, including San Diego, San Francisco, Los Angeles, Oakland, Livermore, Emeryville, Vallejo in addition to advising various counties and special districts throughout California.
BOBBY CHEUNG, MANAGING DIRECTOR | QUANTITATIVE ADVISOR, CO-LEAD ADVISOR Lead and manage debt sizing, debt modeling, and other quantitative analysis.
OVERVIEW: Bobby has been a municipal advisor continuously since 2001, and works with numerous cities, counties, special districts, and the State of California. He has expertise in managing a wide variety of financing structures. Bobby has a strong working knowledge of jurisdictions in Napa County, including serving as advisor to Napa County, Napa Sanitation District in addition to his prior experience serving as advisor to the Town of Yountville (see further discussion in “Additional Data”).
ANTICIPATED ROLE: Provide additional senior advisor support to the engagement. Specifically, lead quantitative and analytic strategies and activities regarding bond sizing and structures, negotiated pricing comparables, and competitive sale execution. He will also lead all market outreach, underwriter proposal review, market assessments, interest rate updates, and other market information. Develop and maintain models to inform planning and pricing decisions.
EXPERIENCE: Senior advisor within KNN’s county and city client coverage, particularly as it relates to financing strategies and quantitative analysis.
DAN COX, DIRECTOR | PRICING ADVISOR & LAND SECURED EXPERTISE Serve as the lead pricing advisor on negotiated transactions and lead land secured financings.
OVERVIEW: Dan has worked with virtually every type of client and every type of financing tool, with a special expertise in land secured finance. Besides his skill as a full-service generalist, Dan is particularly skilled in bond pricing. He combines careful monitoring of market trends and comparable sales with an intuitive grasp of bond math. Pricing conversations are informed and cooperative, bringing out the best in most bond underwriters.
ANTICIPATED ROLE: Providing bond pricing analysis and would be closely involved in any negotiated pricing, with commentary on markets and analysis of comparable transactions. Dan is also skilled in land secured and other special tax financings and structures.
EXPERIENCE: In addition to his support of KNN’s negotiated pricings, Dan serves as the lead Municipal Advisor to CSU in addition to several cities.
CAMERON WONG, ASSOCIATE | QUANTITATIVE & EXECUTION SUPPORT Provide additional quantitative and execution support to team members.
OVERVIEW: Cameron joined KNN after graduating from Cal Poly San Luis Obispo. He has been with the firm for three years and is a quick study in all things public finance. Importantly, he brings intellectual curiosity, devotion, attention to detail, and timeliness to any given work product.
ANTICIPATED ROLE: Depending on assignment, Cameron will provide quantitative and analytical support in addition to conducting research, preparing presentations, and providing market data and market updates.
EXPERIENCE: Provides consistent execution and analytical support to KNN’s city and county engagements in addition to the State of California.
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 5
PROJECT SCOPE AND PROVISIONS
RFP Question: Describe the scope of the required services to be provided and outline a plan for how such services will be provided.
Please include the depth of work, staffing, and time estimates. Proposers should list all reports that are to be issued, the points to be addressed by reports, and the estimated completion dates.
In the discussion that follows, we provide an overview of our approach and capabilities relative to the task areas within Yountville’s Scope of Work. We would satisfy the Scope of Work not solely with a focus on executing bond transactions but by providing important value in key areas in the ongoing planning, management, and delivery of the Town’s financial management, capital projects, and current and/or anticipated debt programs. As we consider the delivery of the Scope of Work, there are three primary areas in which we have categorized the requested services: Item I) Capital Planning and Borrowing Alternatives; Item II) Transaction Advisory; and Item III) Ongoing Advisory. Advisory services in connection with developing funding and financing alternatives for the Yountville Commons Development Project would fall under Item I, which we discuss immediately below.
S CO P E O F WO RK IT E M I: CAP ITA L P LAN N IN G & B O R R O W IN G ALT ER N AT IV ES The Yountville Town Council has recently provided support and approval for the potential development of the Yountville Commons Site, referred to as the Yountville Commons Development Project located in the heart of Yountville. The development project objectives include workforce and affordable housing as well as spaces and buildings for a mix of community uses. KNN is well positioned to provide the necessary support and analysis to Town staff in identifying strategies and approaches to fund the Yountville Commons Development Project, which may include the issuance of debt.
Perhaps the best testament to our approach and ability to serve Yountville delivering Scope of Work tasks in connection with Capital Planning & Borrowing Alternatives is examples of work KNN prepared on similar projects for our California city client base. In Appendix C: KNN Work Product Examples we provide the following financial planning and analysis materials:
CITY OF EMERYVILLE REVENUE AND DEBT REPORT: Surveyed available new revenue sources to enhance the City’s annual resources to support priority capital improvement projects, specifically addressing Emeryville’s affordable housing needs (see also case study in “Additional Data” under “References” on page 18). CITY OF SAN LEANDRO REVENUE STUDY | COUNCIL PRESENTATION: Analyzed existing City revenue sources and evaluated enhancements to existing revenues or possibility of generating new revenues to support capital project initiatives at San Leandro. KNN presented this presentation at a San Leandro Council retreat. CITY OF LOS ANGELES FINANCING FEASIBILITY MEMO: Considered the potential use of assessment financing for the purpose of improving alleys in the City of Los Angeles.
Below we provide an overview of our experience and approach delivering municipal advisory services in connection with our clients’ capital planning needs within three main task areas: i) Plan; ii) Structure; and iii) Present and Inform.
I. PLAN…
LONG TERM FINANCIAL PLANNING
Having strong resources in quantitative analytics and financial planning is of paramount importance in delivering success, and we have staffed our Yountville team accordingly. Strong analytics guide sound financing recommendations and support long-term financial performance.
PLANNING AND CASH FLOW MODELS: An important component of our technical competence is our staff’s ability to build, improve, and manage custom financial models. For many of our clients, we have created and maintain (as needed) the cash flow models that they use to manage their capital programs and projects. Our team has built numerous such models from scratch, as well as reviewing and adapting existing cash flow models to support a financing program.
FOCUSED ANALYSIS: During capital planning efforts, there will be decisions that are not intuitive, but require disciplined analysis to reveal the implications. Often these will involve bond structures and credit structures that leverage public agency resources. We prepare memos that reveal the trade-offs of imbedded in these structuring decisions, so that the decisions benefits and costs/risks are revealed for more informed decision-making. NEW REVENUE MEASURES AND FINANCING VEHICLES
REVENUE SOURCES AND FINANCING STRUCTURES: We have helped a number of agencies inventory potential new revenue sources and dimension their potential return and cost to tax or rate payers. For example, we prepared a number KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 6 of white papers for the City of Los Angeles on subjects such as financing street, sidewalk and park improvements and completed studies for the cities of Emeryville and San Leandro on alternative sources of new revenues to address infrastructure needs. We have also assisted the City of Santa Clara in evaluating financing options for a community center and the County of Monterey in identifying financing alternatives for road rehabilitation needs.
BALLOT MEASURE INITIATIVES: Because of our large school finance practice, KNN is extremely experienced with helping agencies craft ballot measures to approve bonds and raise taxes. As appropriate, we assist in modeling the tax impacts of a measure, and work with public opinion consultants to refine the measure to increase the possibility of voter approval. We have assisted the cities of Emeryville, Oakland, and Los Angeles in obtaining voter approval for GO Bond authorization address affordable housing and other necessary infrastructure needs.
FINANCING METHODS: We have a broad knowledge of available financing mechanisms—be they methods for raising revenues or methods for leveraging those revenues. Of course, the municipal market and municipalities often innovate new approaches. When we evaluate such approaches, we seek to understand the underlying forces that support the use of such a mechanism. We make sure we evaluate both the potential benefits, but also the known costs and, perhaps most importantly, the risks. Our goal is to help the client find the appropriate balance of risk and reward, making informed recommendations to decision makers.
DEBT CAPACITY AND AFFORDABILITY ANALYSIS
KNN has notable experience assisting with long-term strategic financial planning, including providing debt capacity review studies and developing debt affordability models. Updates to cash flow models and/or the development of debt affordability models will provide the means to evaluate the issuance of new debt, and its integration with the Town’s Capital Improvement Program. We will then work with you to determine the amount and timing of your financings, based on key variables – project costs, revenue data, operating expenses, reserve balances, etc.
KNN DEBT AFFORDABILITY MODEL: One area where KNN excels is in the preparation of debt affordability analyses and metrics for our local government clients, including counties and cities. Our Debt Affordability Model (DAM) is a planning tool, which we update annually and in advance of new financings. It includes historic economic, financial and debt data necessary to calculate and project key economic, financial and debt ratios.
Specifically, our DAM tool is a dynamic model that allows us to project the impact of future proposed debt issuances on key Yountville debt ratios in order to assist in the preparation of financing plans for capital needs. It also aides in the preparation of multi-year financial plans. By varying key assumptions, for example, the Town can forecast the impact of future changes in economic and revenue growth, fund balance or salary and pension costs on key financial ratios.
Our clients use the information in the DAM in multiple ways: (i) to compare results to national and local peer group medians, (ii) to “score” the Town under rating agency criteria - i.e., budgetary performance, budgetary flexibility, liquidity and debt and contingent liabilities - in advance of meetings with the rating agencies, in order to better understand what the rating agencies will view as strengths and vulnerabilities, (iii) and to project ranges of additional “debt capacity” using target levels for particular debt ratios. If engaged as Yountville’s Municipal Advisor, the DAM is a tool that we would expect to utilize in evaluating the proposed Yountville Commons Development Project.
II. STRUCTURE…
EVALUATE BORROWING NEEDS AND APPROACH
At the start of any planning engagement, we begin by working with staff to understand the project funding needs and objectives. We would expect to review documentation, financial data and existing planning models, as well as conduct meetings and conference calls with staff to best understand your priorities. Upon the conclusion of the review, we would work with you to develop the plan of finance for your offering.
PROJECT FUNDING PLAN: As we approach the initial development of the funding plan for the Yountville Commons Development Project, we would expect to evaluate available resources for the project delivery – highlighting that debt is not the first or only resource to consider, but may make up the majority of the project funding mix. We take an approach to ensure that we consider any available project funding resources (before immediately defaulting to the use of debt) and aim to develop optimal financing plans that may involve a mix of pay-go, grant funding, and some form of borrowing as shown in the illustration below.
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 7 CREDIT AND BORROWING STRUCTURE: Upon identifying the borrowing/financing need to deliver the project, we would then evaluate various credit and borrowing structures that could be utilized for project. Consistent with the Town’s past practice, the issuance of Lease Revenue Bond will likely serve as the Base Case structure. The Lease Revenue Bond issuance could also include a pledge of Transient Occupancy Taxes (as done with the 2008 COP issuance that KNN served as Municipal Advisor – see also the discussion in the “Additional Data” section) or the Lease Revenue Bonds could be issued without the additional TOT pledge. While Yountville has an existing credit and security framework for financing priority projects for the Town, we would expect to explore other borrowing structures that may limit additional burden on the Town’s general fund. Other borrowing structures in lieu of or in tandem with the issuance of Lease Revenue Bonds include:
>>General Obligation Bonds: Recognizing that it can be challenging for Yountville to receive the necessary voter support of any new taxes, let alone the 2/3rds approval required for general obligation bonds, we still believe our experience with general obligation bond programs (both in the education sector and general governmental sector) could prove valuable in developing a comprehensive review of available alternatives for new projects and programs, and framing the benefits, costs, and considerations of various financing structures. More meaningful than serving as a straw man in alternative analysis, general obligation bonds could prove the appropriate tool for financing some of your general capital needs. >>Other Tax Supported Bonds: KNN’s California city finance experience encompasses a wide range of land-secured projects with varying characteristics, ranging from community facilities and assessment districts to the full array of instruments and techniques related to property-based taxes including parcel taxes and redevelopment tax increment.
With a greater understanding of the specific components of the Yountville Commons Development Project, we would explore other possible financing vehicle that would naturally align with project specifics.
PLAN OF FINANCE RECOMMENDATION: Overall, we view finance and debt issuance as just one component of meeting public agency goals. We are strategic in making sure a potential transaction fits within longer-term operational, financial, and policy objectives. A robust plan of finance will evaluate alternatives in terms of cost, legal constraints, credit, investor concerns, and public policy to support balanced recommendations. We carefully evaluate and articulate the numerous tradeoffs in the development of financing, capital, and strategic plans and are committed to supporting Yountville staff and Council in making informed decisions.
III. PRESENT AND INFORM…
ANALYSIS AND INFORMED DECISION MAKING
We take our fiduciary responsibilities – Duty of Care and Duty of Loyalty –very seriously. We provide independent, objective analysis and advice to assist our clients in making informed decisions. Importantly, we recommend financing vehicles that are suitable to your organization’s financial framework and avoid products that introduce risk. We work closely with staff, recognizing that one of our objectives is to make your job easier and to help you meet your responsibilities to the Town and its residents.
REPORT OF FINDINGS: We would prepare a comprehensive summary of the funding and financing options available to the Town, including:
>>Non-debt solutions: Available cash, reserves, grants, or other resources
AVAILABLE REVENUES/
CASH BALANCES
• “Pay-As-You-Go”
• Small and recurring capital
projects
• Projects built slowly over
time
• Easiest source of money
• Opportunity cost of funds
(i.e. interest earnings)
FEDERAL/STATE
GRANTS OR LOANS
• “Free” money with strings
attached
• May require oversight or
thorough review
• Application process can be
drawn-out and competitive
• Timing of funds can be
uncertain
BORROW
BONDS, LOANS, NOTES
• Large capital expenditures
• Acquisition projects
• Future revenues from project
available for debt service
• Interest and financing costs
• Staff resources required for
financing process
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 8 >>Debt solutions: Review and analysis of borrowing alternatives including the Base Case Lease Revenue Bonds in addition to consideration of other tax-supported financing vehicles (GO bonds, special tax bonds, and land secured bonds).
Within the Report of Findings we would discuss the practical considerations (for example, the budgetary capacity for general fund supported debt and the timing of placing a new measure on the ballot) for each alternative in addition to the policy considerations, including social equity (e.g., the regressive nature of sales tax) and political factors (for example, taxing visitors through transient occupancy taxes versus taxing voters).
The Report of Findings will also consider debt affordability and debt capacity specific to the types of financing vehicles that may be explored.
BUILDING CONSENSUS
A key part of the planning and analysis process is the development of a working consensus among staff, management, council members, and stakeholders. Such planning requires an iterative process. To be affective, the planning assumptions should be transparent and comprehensive to the various stakeholders. Our effectiveness in helping to develop consensus among various parties derives from our deep respect for the public process, and our years of working in and with public agencies.
STAFF & COUNCIL DISCUSSION: We typically would prepare a narrative report for the use of staff and for the historical record and summarize the key information in a Power Point for the Council and other public discussions. We would expect to present a summary of the analysis at up to three meetings, which we would be prepared to do:
1. At an internal meeting with the Town Manager (and assistants), Finance Director (and staff), and Town Attorney.
2. Upon finalizing a recommended plan of finance with staff, we would then expect to present the recommendations to Town’s Budget and/or Financing Committee.
3. If the Budget and/or Financing Committee recommends Council review, a presentation would be made to the full Town Council.
TRANSPARENCY & COMMUNICATION: The KNN Advisor Team is experienced in leading presentations before councils, boards, and stakeholder groups. Our team will provide support in preparing presentations and staff reports and providing back-up analyses. We view ourselves as an extension of staff, taking a broad view of our responsibility to meet a client’s needs.
SCOPE OF WORK ITEM II: TRANSACTION EXECUTION
With an established plan of finance in place for the Yountville Commons Development Project (or any other capital project that may require bond financing), we will then lead the transaction execution process on behalf of the Town. Our approach to ensure a successful transaction process begins well ahead of the day of issuance. As your partner from the beginning to end of the financing, our role is to ensure that your credit optimally approaches the market at pricing. In this context, we discuss the areas that we would work closely with you in preparation for your bond issuance with the overall objective of ensuring the lowest cost of borrowing on the day of sale.
DEBT ISSUANCE PROCESS & EXECUTION
Our approach to transaction advisory is hands-on and comprehensive. KNN will take the lead in managing the financing process and efforts of the financing team members. The following discusses the major stages of a transaction.
DEVELOP THE FINANCING TIMETABLE: We take ownership of the financing schedule and distribution list to make sure that our clients’ required milestones are met and that all members of the financing team understand their assignments and deadlines. We will be your strongest advocate in ensuring the financing process goes smoothly and according to the timetable envisioned.
ASSIST IN THE SELECTION OF ADDITIONAL SERVICE PROVIDERS: We often administer requests for proposals (RFPs) to help clients select financing team members in the absence of a pre-existing relationship or engagement. This provides for a transparent and competitive evaluation and selection process and aligns with GFOA recommendations. In all circumstances, we help our clients understand the roles and responsibilities (and costs) of financing team members, including underwriter, bank providers, trustee, verification agent, and bond insurers to name a KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 9 few. For all RFP responses, we summarize key areas in a side-by-side comparison for the Town. We will help ensure that the fees paid to your financing professionals and other costs are reasonable.
MONITOR THE TRANSACTION PROCESS: As part of taking ownership of the financing schedule and facilitating the roles of team members, KNN will actively assist with administrative matters throughout the financing process (even beyond closing). We regularly correspond with parties and prepare client communication for such matters as onboarding, invoicing, rating application forms, official statement hard copy orders, and closing memorandums. Furthermore, we schedule working group conference calls to discuss progress, deliverables, and scheduling. Regularly scheduled calls keep parties accountable and ensure the Town’s timeframe is met.
PROVIDE FINANCIAL ADVICE RELATING TO FINANCING DOCUMENTS: We review and comment on all legal, disclosure and closing documentation. We help to highlight the key policy decisions embedded in legal covenants, and we help ensure that your disclosure documents protect the Town in this era of increased regulatory scrutiny. For offering documents, we thoroughly review any “canned” language to make sure it properly characterizes the current facts and circumstances of a given issuer, undertake due diligence of disclosure facts, and draft accurate updates of evolving disclosures items. We also review and verify continuing disclosure representations in the Preliminary Official Statement.
MANAGE RATING STRATEGY: We manage the credit rating strategy and approach for virtually all our clients and have helped numerous clients prepare successful rating presentations. In doing so, we have assisted many clients in obtaining rating upgrades.
FACILITATE PRE-CLOSING AND CLOSING ACTIVITIES: We actively monitor all stages of the financing including the closing period. We regularly correspond with parties to facilitate the production of closing documents, the final official statement, invoicing, closing memorandums and scheduling the closing call.
DEBT SIZING & BOND STRUCTURE
We do not rely on underwriters alone to structure a transaction or to lead the decision-making process. We work with the underwriter (in a negotiated sale) in synthesizing and developing the best alternatives for the client’s consideration. We aim for a clear articulation of the costs, benefits and risks associated with key debt structuring decisions, so that the issuer can make conscious and informed decisions.
BOND STRUCTURES: Whether a proposed offering involves the issuance of new debt or the refinancing of existing debt, there are decisions to be made regarding credit features and bond repayment structure. For example, we evaluate the use of a debt service reserve fund and other refinements to credit structure. We will also review and analyze various bond structures in the context of the financing objectives, including the term of the debt, repayment and savings structure and financing vehicle.
DEBT SERVICE ESTIMATES: As a rule, we recommend the use of relatively conservative debt assumptions in financial planning. We carefully review the advantages and disadvantages of alternative structuring scenarios to help make informed decisions on the choice of financing vehicle, credit features and bond repayment structure. In addition to debt structuring, KNN staff are well versed in developing a wide variety of cash flow models customized to the specific requirements of each of our clients.
BOND SIZING SOFTWARE: KNN’s in-house team of quantitative experts routinely perform all the bond structuring and quantitative analysis. Our debt structuring and analytic capabilities equal or exceed those of the major municipal underwriting firms. We subscribe to De Bois, Brown & Co, (DBC) as KNN’s primary bond sizing software. Our DBC package includes Project Finance, which coordinates interdependent projects under a common plan of financing to optimize complicated financing solutions.
BOND PRICING ANALYSIS & ADVISORY
PRICING RESOURCES
KNN utilizes various resources to ensure our clients’ offerings optimally approach the market at the time of pricing, with the overall objective of achieving the lowest cost of borrowing on the day of sale. Our analytical and pricing capabilities are KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 10 supported by access to a broad array of paid subscription services in addition to our market relationships and direct access to underwriting desks.
DATA RESOURCES: We invest heavily in technology and
information services. KNN subscribes to both Refinitiv/TM3 (“TM3”) and Bloomberg, investing more than $75,000 per year in these and other subscription services. We also maintain a subscription to the Bond Buyer, which has historical databases of indexes they maintain.
MARKET RESOURCES: As a result of the number of
transactions the firm completes in California, we are in frequent contact with all the active underwriting desks and maintain multiple internal databases of new issue sales and secondary market trades, with spreads to comparable indices.
SALE TYPE AND PRICING APPROACH
KNN’s method of sale approach generally reflects market-wide trends in our mix of competitive and negotiated sales (as well as in our use of bank private placements and state and federal loan programs). We are comfortable with all methods of sale, and we always make an unbiased recommendation to our clients as to which path is more appropriate for their transaction.
Regarding the issuance of bonds in the public market, KNN has demonstrated significant expertise and experience managing both negotiated and competitive bond sales.
NEGOTIATED SALES: With our access to market information from information services and direct relations, combined with our frequent pricing of California paper and strong analytical skills, we are recognized among underwriting desks as “tough but fair” because our pricing negotiations are based on a sound understanding of the market and verifiable market information.
To be most effective in monitoring pricings and underwriter performance we:
DEVELOP…Benchmark pricing scales based on recent sales of comparable credits and secondary market trades, all examined as spreads to recognized indices.
ANALYZE…The underwriter’s proposed scale against our internal benchmarks and play a proactive role in informing the pre-marketing, pricing, and re-pricing scales based on data. MONITOR…Investor demand by maturity through the order book and advise regarding any adjustments to the scale based on the number and quality of orders.
NEGOTIATE…Consider tone of the market and relative depth of demand for the issue to suggest lower yields and provide a specific rationale why.
COMPETITIVE SALES: Should we collectively determine that the competitive sale process would provide the greatest value to the pricing of a particular bond issue, KNN is well equipped to advise the Town throughout the sale process. KNN manages the bidding process so that our clients receive the maximum number of bids possible, which typically leads to a lower cost of funds. We assist in drafting the Notice of Sale, with pricing parameters and terms designed to provide bidders with maximum flexibility. We evaluate supply calendars and economic releases to select an optimal pricing date. Once the Preliminary Official Statement and Notice of Sale are posted, we contact bidding underwriters in advance of sale to focus their attention and to clarify credit or continuing disclosure questions preceding the bid. We perform all of our competitive sales via an internet platform, which provides maximum transparency. Immediately after a sale, we evaluate bids for conformance with the Notice of Sale and confirm the calculation of all of the bids independently to help determine the winning bidder. We then re-size the bonds, as necessary, confirming final bond insurance or surety bond premiums, if any, and generating final debt service (or savings) numbers.
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 11 SCOPE OF WORK ITEM III: ONGOING ADVISORY
One of our key roles as your Municipal Advisor is to provide ongoing updates and analysis regarding the consideration of new debt or monitoring your outstanding debt portfolio. Further our role is to serve as a consistent resource to staff in navigating a changing landscape and evolving dynamics with regard to the Town’s finances, municipal market trends, and debt related needs and opportunities. Below we discuss areas in which we would expect to assist the Town in serving as your ongoing Municipal Advisor.
ONGOING DEBT MANAGEMENT
SERVE AS THE TOWN’S IRMA: The Independent Registered Municipal Advisor (IRMA) exception allows investment bankers to provide tailored information and proposals to the Town outside the context of an RFP, and we often play that role. There is some variation in how various agencies use their IRMA. While some of our clients use us to screen every proposal that comes in the door, others perform the initial screening themselves and share only those they want to consider further.
DEBT PORTFOLIO REVIEW & MARKET OPPORTUNITIES: We actively monitor our clients’ outstanding debt obligations for refunding and other restructuring opportunities. Below we summarize Yountville’s outstanding general fund supported and revenue supported debt obligations, which have prudently been structured and carry a low cost of borrowing relative to current market conditions. We would expect to conduct a detail review of the Town’s obligations and possible future opportunities upon engagement as your Municipal Advisor.
CREDIT RATING MANAGEMENT: KNN is before the rating agencies virtually every week, ensuring that our clients remain current on evolving rating methodologies and new approaches that may have implications for existing debt programs. We are familiar with and closely monitor changes to the rating methodologies of the agencies and have modeled their “scorecard” approach to the rating assessment in the local governmental (general fund) sector. We have helped many agencies in managing their rating agency relations, both in connection with a transaction and off cycle.
MARKET RELATIONSHIPS AND MARKET UPDATES: Because of the number of transactions we complete in California, we are in frequent contact with all the active underwriting desks and lending banks to stay informed and current with market dynamics. We maintain multiple databases of new issue sales and secondary market trades, tracking spreads to comparable indices. We generate a weekly market update, used both internally by our advisory staff and shared with interested clients.
INDUSTRY & LEGISLATIVE DYNAMICS: KNN’s active participation in a diverse mix of industry forums (including formal organizations such as CDIAC, CSMFO, and GFOA, as well as informal industry dialogue with rating agencies, underwriters, and other market participants) allows us to closely follow potential legislative changes which affect the municipal market and our clients. The experience of our staff and our active involvement as members of industry groups give us insight into the implications of proposed legislation. With this information and perspective, we would work closely with the Town to advise on and evaluate the consistently evolving and changing market and industry landscape.
POLICY DEVELOPMENT & REVIEW
For a Municipal Advisor, reviewing or developing a debt management policy, reserve policy, and disclosure policy, is a critical responsibility. These policies have a direct impact on capital financing, including reserves, revenues, bond issuance and management, and financial reporting. As a result, these policies are assessed during the credit rating process. KNN would work with you to ensure your policies adequately balance your needs and industry standards.
TOWN OF YOUNTVILLE | OUTSTANDING LONG-TERM OBLIGATIONS
Transaction Original Par
Amount
Outstanding
Par Amount1
Call
Provision
Final
Maturity
Callable
Coupon
Public Debt
Lease Revenue Refunding Bonds
Series 2017
$8,500,000 $6,495,000 12/1/2025 @ par 12/1/2039 2.00 - 4.00% Private Debt
2020 Financing Lease $2,303,000 $1,021,000 6/1/2024 @ par 6/1/2027 1.66% Other Debt
Clean Water State Revolving Fund Loan $3,465,362 $597,596 11/1/2026 1.90% 1 Outstanding values as of June, 30, 2024, except for Public Debt which is shown as of July 15, 2025.
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 12 DEBT POLICIES: We have helped numerous agencies develop their debt policies, including a number of cities, counties and special districts. We have also helped numerous agencies update their policies to better conform to the requirements of SB 1029 and changing best practices. Among recent policies that we have either written or assisted in substantial updates are the cities of Fresno, Lompoc, Marina, Poway and Santa Barbara and Alameda, Butte, Orange, Sonoma and Yolo Counties, to name a few. Rather than simply mark up the policies of another agency, we help our clients to assemble policies that incorporate best practices and are customized to that agency’s specific needs and circumstances.
RESERVE POLICIES: We have also helped several agencies adopt and revise their policies regarding reserves and fund balance, customizing them to the risk profile of the agency. Over the past eleven years (since its publication), we have relied on a tool developed by the GFOA that helps better define and quantify various risks. Examples of the outcomes of our work the incorporation of reserve goals in Orange County’s strategic financial plan and work with the San Diego County Water Authority, which resulted in the formulization of the Water Authority’s reserve policies (based on hydrological factors), and an increase in its target coverage ratios.
OTHER POLICIES: We work in tandem with disclosure counsel to ensure our clients have established policies with regard to the development of public market disclosure and continuing disclosure practices. We also assist with the drafting and review of our clients’ land secured and EIFD policies.
ANNUAL REPORTING & CONTINUING DISCLOSURE
CONTINUING DISCLOSURE: We currently provide continuing disclosure reporting services to approximately 60 clients, including schools, cities, counties and special districts and we would be happy to do so for Yountville. This includes annual and event-based reporting. We take a very thorough approach and go beyond the minimum filing responsibility of a dissemination agent. For each issuer, we review and catalog in a database all reporting requirements listed within each continuing disclosure certificate (“CDC”). Databases are regularly updated for new CDCs and matured or refunded bond issues. Reporting deadlines are meticulously tracked to ensure adequate lead time for production.
For annual reporting requirements, we correspond with issuers to facilitate production; collect reporting information, including contracting with outside data services; collect the issuer’s financial statements; and prepare and submit reports to EMMA. For event-based reporting, we communicate with issuers to determine if any significant events have or are expected to occur. We also regularly track certain event-based disclosures such as rating changes, redemptions and defeasances, and prepare filings to EMMA.
ANNUAL DEBT TRANSPARENCY REPORT: For its outstanding 2017 Lease Revenue Bonds and any additional debt that the Town may issue, Yountville is also required to prepare an Annual Debt Transparency Report (ADTR) for debt issued since 2017 pursuant to California SB 1029. The ADTR tracks expenditure of bond proceeds, debt authorization and debt service, and is submitted to the California Debt and Investment Advisory Commission (CDIAC) by January 31 each year. KNN can assist with preparing and submitting ADTRs on behalf of the Town to ensure timely filing.
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 13
COST DATA
RFP Question: Indicate the total hours and hourly rates by staff classification and the resulting all inclusive maximum fee (not to exceed total) for which the requested work will be done for each of the specific deliverables identified in this Request for Proposal.
Fees must include all anticipated costs including travel, per diem, and out-of pocket expenses.
Below we describe our proposed fee structure for the delivery of the Scope of Work to be performed and as discussed in detail above. We have flexibility to adjust our fee structure to meet our clients’ needs. While we do not strive to be a low-cost provider, we do recognize your need to pay a competitive price for services and are willing to discuss our fee proposal further.
SCOPE OF WORK ITEM I: CAPITA L PLANNING & BORROWING ALT ER N AT IV ES ( H O U R LY)
For the development of a borrowing structure and financing approach for the Yountville Commons Development Project (or other capital projects as may arise), KNN proposes a not-to-exceed fee of $25,000. However, actual invoices will be based on actual hours incurred up to this proposed cap. Our proposal is based on current advisor hourly rates (shown in the adjacent table) and various scenarios and estimates of required hours based on the Scope of Work. For this Scope of Work Item, we have completed Attachment A and provided estimates for necessary work hours to derive our proposed allinclusive maximum fee for the planning and analysis necessary for the implementation of the Yountville Commons Development Project.
SCOPE OF WORK ITEM II: TRANSACTION EXECUTION (FIXED)
For advisory services related to the execution of a municipal bond transaction or other form of borrowing, KNN typically negotiates fixed fees at the time the plan of finance is known, based on factors that impact complexity and time commitments, such as borrowing structure, credit features, financing vehicle, interest rate mode, and the method of sale (private placement versus public offering).
The adjacent table provides fixed transaction fee ranges for the primary transaction types that the Town is likely to pursue in connection with the Yountville Commons Development Project and other capital projects that may arise over the term of the contract.
Such fixed transaction fees are paid from bond proceeds (i.e., cost of issuance) and payment is contingent on the successful closing of the transaction. Contingent fee structures do raise a potential conflict of interest, which is addressed in our MSRB G-42 disclosure statement provided in Appendix D: KNN Disclosures.
SCOPE OF WORK ITEM III: O N G O ING ADV IS O RY ( H O U RLY) For serving as the Town’s independent registered municipal advisor and for the delivery of ongoing advisory services, including managing the Town’s outstanding obligations (i.e. monitoring for refinancing opportunities and assisting with continuing disclosure filings), performing general financial and financing analyses, providing market updates, and responding to as-needed requests, KNN will invoice based on actual advisor hours at the advisor rates shown in the table to the right.
We have not included a not-to-exceed estimate of the maximum cost of such services as the required work hours are harder to estimate for ad-hoc assignments. If helpful for the Town’s for annual budgetary purposes, we would be happy to work on an annual retainer, which could be established upon further discussion with the Yountville Finance Department staff based on your anticipated needs.
TITLE HOURLY RATE*
Managing Director $375
Director $355
Vice President $315
Assistant Vice President $295
Associate $275
Analyst $255
*Subject to a 3% annual increase with the Town’s approval.
TRANSACTION TYPE FEE RANGE
General Obligation Bonds $40,000 - $55,000
Lease Revenue Bonds or COPs $50,000 - $65,000
Special Tax Bonds (CFD & Assessment) $50,000 - $65,000
Enterprise Revenue Bonds $55,000 - $70,000
TITLE HOURLY RATE*
Managing Director $375
Director $355
Vice President $315
Assistant Vice President $295
Associate $275
Analyst $255
*Subject to a 3% annual increase with the Town’s approval.
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 14
REIMBURSEABLE EXPENSES
KNN limits the out-of-pocket costs for which we seek reimbursement and request reimbursement only for direct expenses.
Below we describe potential direct cost where KNN may seek reimbursement in providing municipal advisory services to the Town.
For Scope of Work Item I and Item II in connection with our general advisory, non-transaction services, the primary expenses that may be incurred include travel/mileage to attend meetings in person (typically in the context of appearing and presenting at a Council meeting) in addition to any production costs associated with requested hard copy delivery of memos, reports, and presentations. We would apply an annual fee cap on reimbursable expenses for general advisory services of $1,000.
For Scope of Work Item III related to transaction services, the primary reimbursable expense that we charge is a $550 overhead data charge for access to Bloomberg and TM3 market subscription services to support our pricing advisory services. In some circumstances, travel has also been a component of the pricing process and we would expect to be reimbursed for travel-related expenses as may be required. We typically apply a cap on reimbursable expenses for transaction services based on the particulars of a transaction, which has ranged from $1,000 to $5,000 on recent KNN transactions.
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 15
ADDITIONAL DATA
RFP Question: Data not specifically requested should not appear in the foregoing sections, but any additional information considered essential to the proposal may be presented in this section.
KNN has the experience and qualifications necessary to deliver superior service to meet Yountville’s objectives under its Municipal Advisor Scope of Work. Our capabilities to serve you in an effective and efficient manner are bolstered by the firm’s presence and leadership in the California municipal market, expertise in California city finance, and knowledge and presence serving other jurisdictions in the Napa Valley region. In the prior sections to our response to Yountville’s RFP, we present the qualifications of the specific Municipal Advisor Team assigned to serve the Town and we discuss their experience and approach in delivering the Scope of Work. Below we provide additional characteristics of the firm and the KNN Advisor Team that would ensure our immediate success in supporting the Town’s capital planning and financing objectives.
FIRM QUALIFICATIONS
KNN is an established, full-service municipal advisory firm, with a breadth of experience in the range of activities that concern municipal finance officials. Under current and prior ownership structures, KNN has continuous professional public finance experience of over 40 years advising California municipalities. As a registered independent Municipal Advisory firm, KNN exclusively provides advisory services to our public agency clients. Our services include advice and analysis to support our clients’ financial planning activities, ongoing (ad-hoc) advisory needs, and debt issuances.
ORGANIZATIONAL STRUCTURE: KNN is structured as a California Limited Liability Company. Under current and prior ownership structures, KNN has continuous professional public finance experience of over 40 years advising California municipalities. The original firm was first established in 1982. KNN is 100% employee-owned. Members of the LLC include seven senior members of the firm, including the senior advisors assigned to the Yountville team (Melissa Shick and Bobby Cheung).
LOCATION & STAFF RESOURCES: Our firm headquarters is in Berkeley, California; we have a staff of 18, comprised of 15 registered Municipal Advisors and 3 administrative support personnel. Our staff is based throughout several Bay Area counties, Los Angeles County, and Orange County. KNN’s advisors have diversified professional experiences, including public sector, rating agency, underwriting, banking, and legal backgrounds – offering a broad perspective to share with our clients. Moreover, the size of our staff enables us to assign multiple senior advisors to engagements, and allows for attendance at all engagements, ensuring the highest level of service for our clients.
LICENSES & REGISTRATION: KNN has the necessary authorization and certificates to conduct business in the State of California and in the national municipal bond market. Our license and registration numbers are provided in the adjacent table. KNN is in good standing with the laws of California and rules of the Securities and Exchange Commission (SEC) and the Municipal Securities Rule Making Board (MSRB) in all respects and is positioned to perform the work required under a municipal advisory contract with Yountville. Overall, the firm is in good standing and in compliance with all applicable rules and requirements of applicable governing authorities, laws, and regulations.
EXPERTISE IN CALIFORNIA CITY (TOWN) FINANCE
KNN serves as Municipal Advisor to over 30 California cities, some of which we have served over the course of several decades, while others represent newer engagements. We have had the opportunity to work with an eclectic mix of small, medium, and large cities, throughout the State. This mix exposes us to the largest array of revenue sources and financing tools available to municipalities and keeps us focused on providing the services required by our individual clients. Our experience allows us to deliver the level of service demanded by the largest cities to communities of every size.
Taxpayer Identification Number:
• 81-0958321
CA Business Entity Number:
201536310278
CA Small Business Certification:
2001287
MSRB and SEC Registrations:
MSRB ID: K1151
SEC File Number: 867-01996
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 16
CITY CLIENT SINCE CITY CLIENT SINCE CITY CLIENT SINCE CITY CLIENT SINCE Livermore 1985 Mission Viejo 2004 Manhattan Beach 2015 West Sacramento 2022 Vacaville 1987 Santee 2004 Newport Beach 2017 Burbank 2023 Los Angeles 1998 San Francisco 2005 Stockton 2017 Commerce 2023 Fresno 1999 Santa Clara 2007 Emeryville 2017 Paramount 2023 Santa Barbara 1999 Bell 2011 Huntington Beach 2018 Riverside 2023 Oakland 2000 Santa Maria 2011 El Segundo 2020 Hollister 2024 San Diego 2002 Gardena 2014 Redlands 2021 Pasadena 2024 Lathrop 2003 Marina 2014 Bishop 2021 Vallejo 2025
Lompoc 2004 Long Beach 2015 San Leandro 2022
For most of our city clients (as well as our broader general governmental clients), KNN provides both financial planning and analysis and debt issuance services – both requiring a firm grasp of the statutory and legal provisions and restrictions related to various revenue sources.
FINANCIAL PLANNING & ANALYSIS: We have the requisite experience assisting our California city clients with revenue measure evaluation, long-term strategic financial planning, debt capacity analysis, and cash flow modeling for larger CIP programs – some of which sets the stage for a borrowing over a near-term or longer-term horizon, while other planning efforts may have no consideration of a debt financing.
DEBT ISSUANCE SERVICES: Given our robust California city practice, we bring to the Yountville Municipal Advisor engagement the experience and capabilities to plan, structure and execute virtually every form of municipal financing that a California city may contemplate. Our expertise includes general fund lease obligations (including hybrid obligations that leverage other revenues such as voter-approved sales taxes), general obligation bonds (and other property-based obligations such as parcel tax and tax allocation bonds), enterprise and other revenue bonds, land secured and development financings, and both short-term and long-term working capital financing.
As summarized in the table below, since January 2020, KNN and its advisors have actively advised our client base on nearly 470 transactions totaling over $60 billion in issuance par.
HISTORY SERVING N APA VALLE Y I S S U E R S , IN CLU D IN G YO U N T V ILLE Our ability to assist Yountville is significantly enhanced by our prior and current experience serving as Municipal Advisor to public agencies in the Napa Valley. Members
of the KNN Advisor Team assigned to the Yountville
engagement currently serve, or have served, as
Municipal Advisor to the cities of Calistoga and Napa, to the Town of Yountville as well as to Napa County, the
Napa County Flood Protection and Watershed
Improvement Agency, the Napa Sanitation District, and
the Napa Valley Transportation Authority while other
members of the firm serve as advisor to Napa Valley
AGENCY # of
TRANSACTIONS
PAR AMOUNT of
TRANSACTIONS
Town of Yountville 2 $13,530,651
City of Calistoga 3 $6,128,500
City of Napa 1 $15,000,000
Napa County 5 $84,799,618
Napa Valley Tranportation Authority 2 $24,900,000
Napa Sanitation District 6 $118,350,000
Napa County Flood Protection & Watershed Improvement Authority 3 $49,255,000 Napa-Vallejo Waste Management Authority 2 $33,230,000
Lake Berryessa Resort Improvement District 2 $7,070,000 Napa Valley Unified School District 38 $1,106,980,000
Napa County Office of Education 2 $6,980,000
TOTAL: 66 $1,466,223,769
KNN EXPERIENCE SERVING PUBLIC AGENCIES IN THE NAPA VALLEY (SINCE 2000)
KNN FINANCING EXPERIENCE BY TYPE OF FINANCING (JANUARY 1, 2020 – JULY 11, 2025) CREDIT TYPE # OF
TRANSACTIONS
PAR
VALUE
General Obligation Bonds 200 $ 23,758,659,658
Revenue Bonds 101 19,603,652,045
Lease Revenue Bonds / Certificates of Participation 83 10,361,210,952 Special Tax Bonds (CFDS, TABS) 15 330,290,474
Bank Credit Facilities & Commercial Paper 37 3,461,980,000 Short-Term Notes 25 2,120,624,793
Other 7 811,985,609
SUB-TOTAL 468 $60,448,403,531
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 17 Unified School District. These experiences give us a deep understanding of the regional Napa County economy and overall credit profile.
Important to the engagement, KNN has a history serving the Town of Yountville and previously advised the Town on its issuance of 2004 Certificates of Participation (Floodwall Financing) and 2008 Lease Revenue Bonds (Yountville Town Center Project). The 2004 COPs have matured, and the 2008 LRBs were refinanced by the Town’s 2017 LRBs. Bobby Cheung, who will co-lead the KNN Advisor Team, served as advisor to Yountville on the issuance of both the 2004 COPs and the 2008 LRBs. Bobby, therefore, offers a
working knowledge of the Town’s
prior issuance history and
approach. As we consider the
issuance of debt to finance the
Yountville Commons Development
Project, the KNN Advisor Team
offers important background and
experience with the 2008 LRBs that
we believe will be relevant to the
evaluation of debt structures for the
current project.
RELEVANT AND LOCAL REFERENCES
Given the depth and breadth of our public agency client base and volume of financings that KNN served as Municipal Advisor just over the last five years, we have numerous examples and client references to share that are similar in scope and nature to the Scope of Work under Yountville’s RFP. While we are happy to share work product and contact information for any of our clients, below we share five references from our current client base of relevance to the Town – including assisting cities with planning and analysis needs relative to the delivery of capital projects and assisting public agencies in the Napa Valley in delivering priority capital projects.
CITY OF EMERYVILLE
PEDRO JIMINEZ, ASSISTANT CITY MANAGER
Phone: (510) 596-3770 | Email: [email protected]
**Due to staffing changes in Emeryville’s Finance Department, we also encourage you to contact the following individual relative to our advisory services to Emeryville and specifically our work on the Revenue Study Project.**
Susan Hsieh | City of Pleasanton | (925) 931-5408 | [email protected] YEARS OF SERVICE: 2017 to present
MUNICIPAL
ADVISOR(S): Melissa Shick
SERVICES
PROVIDED: Provided municipal advisory services in various capacities over the years, including i) delivering a comprehensive study that examined various new revenue sources, possible ballot measures, and related debt and financing tools to enhance funding for the City’s projects and programs (case study below) and serving as transaction advisor on the City’s general obligation bond issuance in 2023 and tax allocation refunding bond issuance in 2024.
TRANSACTION EXECUTION INCLUDES:
TRANSACTION TITLE SALE DATE PAR VALUE
Tax Allocation Refunding Bonds, Series 2024A 10/29/2024 29,550,000 Tax Allocation Refunding Bonds, Series 2024B (Federally Taxable) 10/29/2024 4,580,000 General Obligation Bonds (Housing Projects)(Federally Taxable)(Social Bonds) 4/27/2024 50,000,000 KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 18 CITY OF EMERYVILLE | STUDY OF REVENUE AND DEBT OPTIONS
In 2017, the City of Emeryville engaged KNN to evaluate various tools and options as the City considered a potential revenue raising alternatives through ballot measures. We prepared a comprehensive study that examined and discussed the following:
Overview of municipal finance – alternative revenue measures and related financing mechanisms used to leverage such revenue sources.
Emeryville’s tax burden and compared this tax burden with that of neighboring Alameda County cities. Ballot measures and financing techniques used in other California cities to enhance revenue sources, including a review of recent election results.
New funding sources and additional revenues that might be available and discussed the considerations and limitations for leveraging such revenue sources.
Bonding capacity analysis for financing mechanisms related to revenue alternatives. Policy and equity implications of financing and funding alternatives.
In addition, to help the City Council and staff evaluate funding options and the revenue mechanisms, we discussed the various constraints, particularly:
California Law: The State Constitution imposes various restrictions on municipal revenue-raising powers, perhaps the most important of which is that most revenues require majority or two-third approval by voters. Policy: The delivery of public services should always reconcile questions of who pays and who benefits.
Our analyses led the City to seek voter approval of $50 million in General Obligation bond authorization for affordable housing projects, which was approved by the required 2/3 vote in June 2018. We assisted the City in structuring its ballot measure and preparing the required analysis for the ballot.
In Appendix C, we have attached the Revenue & Debt Report that KNN prepared for the City of Emeryville. Additionally, the following Emeryville City Council Meeting link will allow you to review the associated staff report and the Revenue & Debt Report prepared by KNN:
https://emeryville.legistar.com/LegislationDetail.aspx?ID=3097499&GUID=5F2AB910-E067-46B5-9A9B-31DF4C1548C6
CITY OF LIVERMORE
TINA OLSON, ADMINISTRATIVE SERVICES DIRECTOR
Phone: (925) 960-4304 | Email: [email protected]
YEARS OF SERVICE: 1985 to present
MUNICIPAL
ADVISOR(S): Melissa Shick
SERVICES
PROVIDED: Serve as general municipal advisor to Livermore as well as transaction advisor on various debt programs, including certificates of participation, special tax/CFD bonds, and tax allocation bonds.
Advised on the City’s COP/lease financings in 2020 (refunding) and 2022 (new money).
Livermore’s 2022 COP issuance funded projects in connection with the Livermore Village Development, notably a downtown parking structure to support enhanced downtown foot traffic associated with the new development.
TRANSACTION EXECUTION INCLUDES:
TRANSACTION TITLE SALE DATE PAR VALUE
2022 Certificates of Participation (Livermore Village Development) 11/8/2022 $41,060,000 Refunding Certificates of Participation, Series 2020A (2014A Ref)(Qualified 501c3 Certificates)
6/11/2020 7,456,000
Refunding Certificates of Participation, Series 2020B) (2011 and 2014B Refundings)
6/11/2020 42,035,000
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE 19
NAPA VALLEY TRANSPORTATION AUTHORITY
ANTONIO ONORATO, DIRECTOR OF ADMIN, FINANCE, AND POLICY Phone: (707) 259-8779 | Email: [email protected]
YEARS OF SERVICE: 2020 to present
MUNICIPAL
ADVISOR(S): Melissa Shick
SERVICES
PROVIDED: Provided planning and analysis to guide borrowing plans for the construction of the Vine Transit Bus Maintenance Facility. In this role, we led the execution of NVTA’s TIFIA Loan borrowing and developed the TIFIA Loan cash flow model. We also helped structure an interim borrowing vehicle for the Vine Transit Bus Maintenance Facility with the Bank of Marin.
Serving as the general Municipal Advisor to NVTA, KNN updates their TIFIA Loan cash flow model and prepare the TIFIA Loan financial plan on an annual basis. Also in this role, we helped establish the program framework and Expenditure Plan for the Measure U sales tax program that was approved by the Napa County voters in November 2024. We are currently advising on the Measure U sales tax program, including maintaining and updating the Measure U cash flow model and assisting with planning for potential debt issuance needs.
TRANSACTION EXECUTION INCLUDES:
TRANSACTION TITLE SALE DATE PAR VALUE
2021 TIFIA Loan 11/23/2021 $ 19,917,401
2021 Bank Loan 11/23/2021 5,000,000
NAPA COUNTY
BOB MINAHEN, TREASURER-TAX COLLECTOR
Phone: (707) 253-4312 | Email: [email protected]
REBECCA CRAIG, ASSISTANT COUNTY EXECUTIVE OFFICER
Phone: (707) 253-4153 | Email: [email protected] YEARS OF SERVICE: 1996 to present
MUNICIPAL
ADVISOR(S): Bobby Cheung
SERVICES
PROVIDED KNN has successfully completed numerous financings, including Certificates of Participation, CREBs, and Assessment District Bonds for the County of Napa over the years. In total, KNN has completed 5 transactions for a total par amount of nearly $85 million. In addition, KNN has provided non-transaction services include: debt capacity study, downtown center financing feasibility analysis, solid waste system financing analysis, rating agency scoring analysis, and refunding analysis.
Transaction execution includes:
TRANSACTION TITLE SALE DATE PAR VALUE
2014 Certificates of Participation 3/20/2014 $15,590,000.00 2012 Taxable New CREBs 10/11/2012 3,359,618.00
2012 Refunding Certificates of Participation 5/1/2012 20,225,000.00 Refunding Certificates of Participation, Series 2005 (1996 Capital Improvements Project)
2/10/2005 13,275,000.00
Certificates of Participation (Juvenile Justice Facility) 2/20/2003 32,350,000.00 KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE A-1 APPENDIX A | COST DATA
ATTACHMENT A
Schedule of
Professional Fees and
Expenses to Support
the Total All-Including
Maximum Price Hours
Standard
Hourly Rates
Quoted
Hourly Rates Total
$ $ $
$ $ $
$ $ $
$ $ $
$
$
Lead Advisor
Co-Lead Advisor
Associate Support
Other (Specify)
Sub-Total
Out-of-Pocket
Expenses
Total
$
20 35
15 375
375 375
375
375
275
7,500
4,125
24,750
13,125
25,000
250
**
**The completed Attachment A relates only to anticpated planning, analysis, report, and presentation services provided in connection with Yountville Commons Development Project. Because this component of the Scope of Work is more certain relative to other Scope of Work items, we were able to estimate a maximum proposed fee.
All other fee/cost items will be charged as outlined within the RFP - actual advisor hours based on hourly rates for general advisory and fixed transaction fees that will be negotiated based on the plan of finance and paid out of bond proceeds at transaction close.
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE B-1 APPENDIX B | KNN ADVISOR TEAM RESUMES
MELISSA SHICK, MANAGING DIRECTOR
TEAM ROLE EDUCATIONAL BACKGROUND
Lead Advisor B.A. Business Administration, University of Washington Masters in Public Policy, University of Chicago
Melissa serves as a municipal advisor at KNN Public Finance. She joined KNN in 2016 and has 20 years of combined public sector, public finance investment banking, and municipal advisory experience.
Melissa began her career in public finance serving as a fiscal policy analyst for Alameda County, California. After several years in public service, Melissa moved to public finance investment banking in 2007, where she served as banker at both J.P. Morgan and RBC Capital Markets.
In her role at KNN, Melissa works with a diverse local government client base including cities both large and small – Benicia, Emeryville, Livermore, Los Angeles, Napa, Oakland, San Diego, San Francisco, San Leandro – and several county clients – Contra Costa, Monterey, San Luis Obispo, Santa Barbara and Ventura. She also serves various special district clients, including transportation/transit and water agencies.
Melissa has a strong grasp of California lease financings given her transaction experience as a public finance banker and in her role as municipal advisor. She currently advises the City of Los Angeles and the City and County of San Francisco on their respective lease borrowing programs, in addition to her work with the City of San Diego. Melissa is also experienced in structuring and leading financings for various other credits, including: general obligation, water and utility revenue, pension obligation, and special tax revenue bonds. Further, she advises on diverse borrowing programs inclusive of variable rate products, commercial paper, TIFIA, WIFIA, and SRF Loans.
BOBBY CHEUNG, MANAGING DIRECTOR
TEAM ROLE EDUCATIONAL BACKGROUND
Co-Lead,
Quantitative
Advisor
B.S. Business Administration
UC Berkeley Haas School of Business
Bobby specializes in execution of a variety of California financing structures for cities, counties, special districts, and the State of California. He has worked on numerous short and long-term transactions at KNN, including Tax and Revenue Anticipation Notes, Lease Revenue Bonds, Certificates of Participation, Water and Wastewater Revenue Bonds, Teeter Notes, Tobacco Securitization Bonds, and Pension Obligation Bonds. Non-transaction experience focuses upon preparing Debt Affordability Models and Debt Capacity Studies.
He serves as one of the firm’s debt sizing and quantitative experts, with experience using DBC Finance software for a variety of financing structures.
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE B-2
DAN COX, DIRECTOR
TEAM ROLE EDUCATIONAL BACKGROUND
Bond Pricing
Advisory &
Land Secured
Expertise
B.S. University of Connecticut
Dan, who is one of KNN’s longest tenured employees, is a general advisor to several California state agencies, cities, and special districts, and in addition, serves as a pricing specialist who leads many of our clients’ negotiated pricings. Dan would also serve as an important analytical and structuring resource for any bond offering.
Prior to joining KNN, Dan worked for a financial advisor in New York. His public finance career began with a municipal bond counsel who specialized in assessment bonds.
CAMERON WONG, ASSOCIATE
TEAM ROLE EDUCATIONAL BACKGROUND
Analysis &
Execution
Support
B.A Business Administration & Financial Management
California Polytechnic State University, San Luis Obispo Cameron joined KNN in June 2022 as an analyst after graduating from California Polytechnic State University San Luis Obispo, with a B.S. in Financial Management. He provides quantitative support to California general government agencies by maintaining spreadsheets, conducting market analysis, and reporting on significant economic events. Additionally, Cameron has provided support on various transactions for KNN’s county and city clients, including recent work on the City of Livermore’s issuance of Certificates of Participation in October 2022.
KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE C-1 APPENDIX C | KNN WORK PRODUCT EXAMPLES
City of Emeryville
Revenue and Debt Report
June 30, 2017
David Brodsly Melissa Shick
Managing Director Director
510-208-8205 510-208-8226
[email protected] [email protected]
1300 Clay Street, Suite 1000, Oakland, CA 94612
phone 510-839-8200 | fax 510-208-8282
A Limited Liability Company
Table of Contents
Section I: Background and Overview of Report ........................................................1 Section II: California Local Government Revenue Raising......................................3 Section III: Emeryville Major Revenue Categories....................................................7 Section IV: Ad Valorem Real Property Taxes.............................................................9 Section V: General Taxes..............................................................................................16 Section VI: Special Taxes..............................................................................................22 Section VI: Benefit Assessments .................................................................................26 Section VIII: Bond Issuance Process .........................................................................27 Section VII: Conclusion................................................................................................30 Attachment A: Illustrative GO Bond Sizing - $50 Million Authorization Attachment B: Illustrative GO Bond Sizing - $80 Million Authorization Attachment C: Illustrative General Tax Bond Sizing
Attachment D: California Municipal Statistics Reports
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 1
Section I: Background and Overview of Report
The City of Emeryville (the City) engaged KNN Public Finance LLC (KNN or Municipal Advisor) to evaluate debt capacity and affordability metrics as well as other relevant considerations as the City considers potential revenue raising alternatives through ballot measures.
City Financial Backdrop
The City currently enjoys a sound financial condition. During recent periods of budget surplus, the City has strategically invested in building reserves to ensure the continuity of services during economic downturns and as a contingency for unexpected events.
However, despite its sound reserves, the City faces emerging long-term financial pressures that are impacting the City’s ability to balance its annual operating budget. Most notably, these changes include 1) the slowing of tax revenue growth as consumers evolve their buying habits; and 2) sharply increasing pension funding requirements from the CalPERS pension system due to lowering of investment income assumptions.
At the June 20, 2017 City Council meeting, staff introduced options and impacts of proposed program changes that could be available to the City Council as it considers policy direction to rebalance the City’s proposed 2017-19 two-year budget. In this context, the City is exploring revenue enhancement options to maintain or increase the City’s capacity for future service delivery. The City is also considering seeking voter-authorization for general obligation bonds to meet a variety of capital needs, as well as relieving the general fund budget of capital appropriations.
This report considers the City’s current revenue landscape and tax rate structure and evaluates potential financing mechanisms and debt capacity metrics. In addition, the report discusses the requirements for raising new revenues and approving and issuing bonds.
Report Objectives
The goal of this report is to describe the menu of options available to City decision-makers in developing a plan of finance in the context of enhanced revenue alternatives. With the direction of City staff, our task involves the following scope of work:
Providing an overview of municipal finance – alternative revenue measures and related financing mechanisms used to leverage such revenue sources. Examining the City’s tax burden and comparing this tax burden with that of neighboring Alameda County cities.
Reporting on ballot measures and financing techniques used in other California cities to enhance revenue sources.
Identifying new funding sources and additional revenues that might be available and discussing the considerations and limitations for leveraging such revenue sources. Developing bonding capacity analysis for financing mechanisms related to revenue alternatives.
Discussing the policy and equity implications of financing alternatives.
To meet the stated objectives, this report addresses a variety of funding sources utilized by California local governments. Evaluation of funding options and selection of appropriate revenue mechanisms must be carried out in the context of various constraints, including:
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 2
California Law: The State Constitution imposes various restrictions on municipal revenueraising powers, perhaps the most important of which is that most revenues require majority or two-third approval by voters.
Policy Considerations: The delivery of public services must always reconcile questions of who pays and who benefits.
The table below provides an overview of the major revenue options and financing mechanisms available to the City, which serve as the basis of discussion in the report that follows.
City of Emerville
Major Revenue Options and Financing Mechanisms
Type
of Tax
Basis
of Levy
Voter Approval
Requirement
Financing
Mechanism
General Fund
Supported?
Ad Valorem
Property Tax
City-wide. A levy on property based on
the properties’ assessed value and
used for voter approved debt.
Two-thirds. General Obligation Bonds No
Sales Tax
General
City-wide. A levy on the retail sale of
tangible goods.
Majority. Pay-go or lease obligation. Yes
Sales Tax
Special
City-wide. A levy on the retail sale of
tangible goods.
Two-thirds. Sales Tax Revenue Bonds No
Business Tax City-wide. A levy on operators of
businesses.
Majority. Pay-go or lease obligation. Yes
Hotel Tax City-wide; primarily to visitors. A levy on
the occupancy of hotels, motels, or
other short-term lodging.
Majority. Pay-go or lease obligation. Yes
Utility Tax City-wide. A levy on the use of utilities,
such as electricity, gas, or
telecommunications.
Majority. Pay-go or lease obligation. Yes
Parcel Tax City-wide or local. A levy on parcels of
property, typically set at some fixed
amount per parcel. Cannot be based
on a property’s value.
Two-thirds. Special Tax Bonds No
Benefit
Assessment
Local. A levy on property within a
benefit assessment district. Based on
calculation of the special benefit.
50% of
property owners.
Assessment Bonds No
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 3
Section II: California Local Government Revenue Raising The options available to local officials in managing their finances and raising revenues to provide services needed by their communities are, to a certain extent, limited. Voters have placed restrictions in the State Constitution regarding a local government’s ability to raise revenues. The State’s voters and the California Legislature have acted in various ways, to limit financial powers and resources from cities, counties and special districts.
Some of the most significant limitations on local revenue raising in California include:
The amount of property tax that can be levied is fixed at 1% of “assessed valuation” (primarily based on the value at the time of purchase).
Property taxes can only be increased with a two-thirds vote to fund a general obligation bond. The allocation of local property tax among a county, cities, special districts and school districts within each county is controlled by the Legislature.
Voter approval is required prior to enacting, increasing or extending any type of local tax. Assessments to pay for public facilities that benefit real property require property owner approval and can only be used to finance “special” benefits. Fees for the use of local agency facilities and for services may not exceed the reasonable cost of providing those facilities and services.
Fees for services such as water, sewer and trash collection are subject to property owner majority protest.
California Constitutional Debt Limit
Article XVI, Section 18 of the California Constitution limits local governments’ ability to incur debt. “No county, city, town, township, board of education, or school district, shall incur any indebtedness or liability in any manner or for any purpose exceeding in any year the income and revenue provided for such year, without the assent of two-thirds [55% for school and community college districts under Proposition 39] of the voters of the public entity voting at an election to be held for that purpose…”
Simply stated, in order for a city to incur “indebtedness,” it must receive voter approval.
Most statutes prescribing an issuer’s debt limit as a percentage of assessed valuation have not been updated to take into account the provisions of Article XIIIA, Section 1(a) of the California Constitution. This Article requires property to be assessed at its “full cash value,” rather than onefourth of market value (as it was prior to Proposition 13). Thus, while the Government Code appears to limit the City’s general obligation debt to 15% of assessed value (Government Code Section 43605), since the statute has not been updated, the better view is to read such a limit in light of Article XIIIA.
Thus, Emeryville’s debt limit should now be read as 3.75% of assessed value.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 4
The table below calculates the City’s debt limit assuming its FY 2016-2017 total assessed value. While it is unlikely that the City would reach or exceed its debt limit, it is an important metric to bear in mind when evaluating the overall picture of a municipality’s debt burden.
In addition to the State’s limitations on voter-approved debt, State Supreme Court decisions have created various exceptions to the definition of indebtedness. These exceptions to the debt limit are important to the conversation of evaluating alternative financing mechanisms and leveraging revenue streams other than ad valorem property taxes (i.e. General Taxes and Special Taxes). Borrowing for working capital (i.e. Tax and Revenue Anticipation Notes) paid from the same fiscal year revenues;
Contingent obligations or lease agreements that are reliant on the use of equipment or property or the receipt of services;
Special fund obligations paid from enterprise or other special funds under a “special funds doctrine”; and
Obligations imposed by law (i.e. pension or judgment obligations).
Limitations on Local Government Revenue Sources
Amendments to the California Constitution over the last several decades have imposed limitations and procedural requirements for the tax levies, assessments, fees, and charges that comprise local government revenue. This has impacted the ability of local governments to generate revenues to fund services or pay debt service, and has influenced the shape of the financing vehicles employed by public agencies. These limitations have been enacted primarily through the voter initiative process and include the following:
Proposition 13 (1978) – Jarvis-Gann Initiative
Purpose: Addressed the perceived problems of high property taxes resulting from escalating property values. It also addressed the potential to off-set reduced property taxes through increases in other taxes.
Provisions: Added Article XIIIA to the California Constitution. Limited ad valorem property taxes to 1% of “full cash value” (with exceptions to protect existing obligations). Required 2/3 voter approval for “special taxes.” Subsequent court rulings excluded from “special taxes” taxes for general governmental purposes, assessments, user fees and charges, and regulatory charges.
Impact: Stopped the financing of public improvements through general obligation bonds by eliminating all additional property taxes except for prior indebtedness, giving rise to increase in financing through assessments, landowner-voted special taxes, special district sales taxes, revenue supported debt and lease financing. Shifted the allocation of property taxes to the State, allowing for such maneuvers as the creation of the Education Revenue Augmentation City of Emeryville
Debt Limit Calculation
Total 2016-17 Assessed Value* $5,013,447,958
Debt limit at 15.0% $752,017,193
Debt limit at 3.75% $188,004,298
*Source: California Municipal Statistics Inc.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 5
Fund (shifting property taxes away from cities and counties). The passage of Proposition 13 by California voters has been the catalyst for the creation of many alternative financing techniques in California.
Proposition 46 (1986) – Tax Increases for Bond Repayment Purpose: Addressed the effective exclusion of new property tax supported general obligation debt under Proposition 13. Allowed increases to local taxes for bond repayment. Provisions: Allowed, with 2/3 voter approval, the issuance of general obligation bonds to finance the acquisition of and improvements to real property. Impact: Restored general obligation bonds as a financing vehicle, most commonly used by school districts because they had a better record of gaining voter approval.
Proposition 62 (1986) – Voter Approval of Taxes Act
Purpose: Proposition 62 addressed the perceived problem caused by court decisions that narrowed the scope of limitations under Proposition 13, particularly a legislatures ability to raise general taxes without voter approval.
Provisions: New general taxes must be approved by a two-thirds vote of the governing body of the taxing entity before they are put on the ballot and in the event taxes are imposed in violation of Proposition 62, there is a mechanism that requires a dollar-for-dollar reduction in ad valorem property taxes as a “remedy” for illegal taxation. Impact: Set the stage for Proposition 218. Many Proposition 62 provisions, which were statutory, were subsequently embodied in Article XIIIC of the California Constitution by Proposition 218.
Proposition 218 (1996) – Right to Vote on Taxes Act
Purpose: Proposition 218 addressed the perceived problem caused by user fees, charges and assessments (so called “disguised taxes”) charged and levied without voter approval and removed certain limitations on the exercise of initiative power in local fiscal matters. Provisions: Proposition 218 added Article XIIIC and Article XIIID to the California Constitution, requiring majority voter approval of “general taxes” and expanding the scope of “special taxes” requiring 2/3 voter approval. The added articles also impose substantive and procedural limitations on assessments and “property related fees and charges” other than charges for electricity and gas services and fees imposed as a condition of property development. In addition, Proposition 218 extended the local agency initiative power to taxes, assessments, fees and charges.
Impact: Effectively ensured that all new, increased or modified taxes require voter approval.
Has created new procedural requirements for fee increases, and limited the use of assessments New or increased maintenance assessments and standby service charges have been effectively precluded. Pursuit of policy goals (e.g., water conservation) beyond recovery of the cost of providing service has been more challenging. Voter approval requirements have made tax increases more difficult.
Proposition 26 (2010) – Supermajority Vote to Pass New Taxes and Fees Act Purpose: Proposition 62 was designed to supplement tax limitations imposed by the voters by Proposition 13 and 218, addressing the perceived problem caused by the levy of “taxes” hidden as regulatory fees and assessed without voter approval. Provisions: Amended Article XIIIC to define “tax” as “any levy, charge, or exaction of any kind imposed by a local government” not falling within an enumerated exception. It also CITY OF EMERYVILLE REVENUE AND DEBT REPORT 6
extended the scope of limitation applicable to the recovery of the cost of providing service to charges for electricity and gas.
Impact: Restricted ability to mitigate externalized societal and environmental costs, and expanded the types of revenues requiring voter approval.
Types of Local Government Revenue Sources
As a result of the tax and revenue limitations discussed above, local government revenue sources fall, for purposes of the California Constitution, into one of the following categories:
1) Ad valorem real property taxes
2) Ad valorem real property taxes securing voter approved obligations 3) General taxes
4) Special taxes
5) Assessments
6) Fees and charges (property related and non-property related).
Public agencies may structure their debt with a security or repayment pledge from a variety of local government revenue sources. To determine how much and what type of local revenue is legally available to pay debt, California local governments must navigate complex constitutional provisions that define the categories of local government revenue sources. For purposes of the analysis contained in this report, we focus on ad valorem Real Property Taxes securing voter approved general obligations, General Taxes, and Special Taxes, although we offer some discussion across all revenue alternatives.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 7
Section III: Emeryville Major Revenue Categories
The City of Emeryville is located in Alameda County in the San Francisco Bay Area. It is bordered by Berkeley to the north and Oakland to the east and south. It has an estimated 2017 population of 11,854. Emeryville has evolved from an industrial town to a modern mixed use urban center through a number of development projects which added several thousand units of housing and over a million square feet of commercial space, including several major regional retail centers. As a fullservice City, Emeryville provides a complete array of in-house public services to its residents (excluding Library).
On November 4, 2014, the voters of Emeryville passed Measure U, which established the City of Emeryville as a charter city. The City was originally founded in 1896 as a general law city. The Emeryville City Charter approved by the voters in 2014 specifically establishes that the City’s new powers over municipal affairs will be limited solely to municipal revenue including taxation and assessment, and a system for a real property transfer tax. These powers have historically been found by the State courts to be municipal affairs. The Emeryville Charter states that in all other respects, the powers of the City shall remain as they were previously and therefore shall be constrained by, subject to, and governed by the general laws of the State of California.
The City’s General Fund is the main accounting category for revenues used for general governmental purposes. General taxes represent approximately 85% of the City’s general fund revenue sources with departmental fees and charges representing the balance of revenue sources.
In FY 2015-16, General Fund revenues from taxes increased by approximately $4 million to $35.6 million as compared to $31.7 million in FY 2014-15 (an increase of 12.3%), primarily the result of growth in sales taxes, transient occupancy taxes, licenses, and real property transfer taxes. However, the City has projected that General Fund revenues from taxes will be lower in FY 2016-17, attributable to declines in sales tax receipts and real property transfer tax. Below we summarize the City’s primary General Fund revenues from taxing sources for FY 2014-2015 (actual), FY 2015-16 (actual), and FY 2016-17 (projected).
City of Emeryville
General Fund Revenue Summary - Primary Tax Revenue Sources FY 2014-2015 FY 2015-2016 FY 2016-2017
Actual
Revenue
% of Total
GF Taxes
Actual
Revenue
% of Total
GF Taxes
Projected
Revenue
% of Total
GF Taxes
Property Tax 2,688,827 8.48% 2,851,258 7.99% 2,908,200 8.82% Sales Tax - 1% Bradley Burns 8,252,500 9,069,513 8,382,391 Sales Tax - Oakland agreements (325,024) (478,919) (487,434) Sales Tax - Prop 172 48,593 49,329 49,000
Total Sales Tax 7,976,069 25.15% 8,639,923 24.23% 7,943,957 24.10% Business License and Card Room Taxes 7,668,497 24.18% 8,172,325 22.91% 8,246,000 25.01% Transient Occupancy Tax 5,911,821 18.64% 6,894,846 19.33% 7,290,790 22.12% Utilities User Tax 2,870,024 9.05% 2,975,287 8.34% 3,000,000 9.10% Real Property Transfer Tax 1,503,485 4.74% 2,966,774 8.32% 1,130,000 3.43% Franchise Tax 1,553,715 4.90% 1,642,045 4.60% 1,667,400 5.06% Other General Taxes and Fees 1,547,453 4.88% 1,522,619 4.27% 779,400 2.36% Total General Fund Tax Revenue
Sources: 31,719,891 35,665,077 32,965,747
Total General Fund Revenues: 36,163,400 43,716,015 38,760,470 General Fund Taxes as
% of Total General Fund Revenues 87.71% 81.58% 85.05%
Source: Attachment F - June 6, 2017 City Council Meeting CITY OF EMERYVILLE REVENUE AND DEBT REPORT 8
Per capita General Fund revenues represent one metric for the relative “size” of government with respect to the demand for municipal services. As shown below, Emeryville ranked 1st out of its neighboring peer group cities in this category, even though its share of the 1% property tax is rather low. Since General Fund revenues derive largely from taxes, this is one indicator might suggest that Emeryville’s population is more heavily taxed, relative to the level of services delivered, when compared to its surrounding peers.
With that said, we note that the bulk of the City’s General Fund revenues (nearly 75%) are derived from Sales Taxes, Business License and Card Room Tax, and Transient Occupancy Tax – much of which are not directly paid by residents and are more likely taxes shouldered by non-residents. The high tax revenue per capita suggests that Emeryville is an effective importer of economic activity – reflected by Emeryville’s Sale Tax revenue per capita and TOT Revenue per capita, which are multiples higher than its neighboring peer cities.
With such data and comparisons as a backdrop, Emeryville’s General Fund revenues can be examined within the context of whether increases of these revenues are within the control of the City Council or its voters; and how revenue generation may support specific financing options.
Alameda County Peer Group Cities
Per Capita General Fund Revenue
Fiscal Year Ending June 30, 2016
(Ranked by Revenue Per Capita)
City Population1
General Fund
Total Revenues2
General Fund
Revenue Per Capita
Emeryville 11,854 $ 42,794,185 $ 3,610.11
Piedmont 11,283 $ 26,049,829 $ 2,308.77
Oakland 426,074 $ 694,886,000 $ 1,630.90
Berkeley 121,238 $ 165,400,130 $ 1,364.26
Alameda 79,928 $ 85,635,629 $ 1,071.41
Albany 18,988 $ 19,138,569 $ 1,007.93
1 California Department of Finance. 2017 City Population Rankings as of 1/1/2017. 2 Comprehensive Annual Financial Statements as of June 30, 2016.
Alameda County Peer Group Cities
Per Capita Sales Tax and TOT Revenue
Fiscal Year Ending June 30, 2016
City Population1
Sales Tax
Revenues2
Sales Tax
Revenue Per Capita
TOT
Revenues2
TOT
Revenue Per Capita
Emeryville 11,854 $ 8,507,880 $ 717.72 $ 6,894,846 $ 581.65 Albany 18,988 $ 3,808,107 $ 200.55 -- --
Oakland 426,074 $ 77,365,000 $ 181.58 $ 25,671,000 $ 60.25 Berkeley 121,238 $ 20,577,996 $ 169.73 $ 7,879,633 $ 64.99 Alameda 79,928 $ 10,187,902 $ 127.46 $ 2,174,973 $ 27.21 Piedmont 11,283 $ 197,333 $ 17.49 -- --
1 California Department of Finance. 2017 City Population Rankings as of 1/1/2017. 2 Comprehensive Annual Financial Statements as of June 30, 2016.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 9
Section IV: Ad Valorem Real Property Taxes
Overview
Ad valorem real property taxes are taxes levied on “real property” (land and permanently attached improvements such as buildings) and tangible personal property (movable property such as boats, aircraft and business equipment) as a percentage of the assessed valuation (AV) of such property.
All counties and cities and some special districts in California receive property tax revenues. For most cities, property taxes are the largest source of discretionary revenues.
Counties allocate property taxes to the county as well as cities, special districts and school districts within the county according to state law. Allocations among local agencies vary from place to place due to differences in the service responsibilities among agencies serving different areas and differences in the tax rates enacted by those agencies prior to Proposition 13 in 1978. Full-service cities generally receive higher shares than those that do not provide the complete range of municipal services. Emeryville’s share of the 1% is 0.2182%, which is consistent with other full-service cities.
The tax rate is applied to the assessed value of the property. The AV of real property is the “full cash value” of the property in 1975-76 or at change of ownership, whichever is more recent, adjusted annually by the change in the Consumer Price Index (CPI), not to exceed an annual increase of 2%. The value of new construction is additional. If a property changes hands, then the assessed value becomes the full cash value upon change in ownership. The ad valorem taxes assessed against a particular property may not exceed 1% of “full cash value.” Ad valorem real property taxes levied to pay obligations approved by voters prior to July 1, 1978 and general obligation bonds approved since 1986 in accordance with State Constitution are excluded from the 1% of full cash value limitation. Thus, a city’s ad valorem taxes assessed against property may exceed the 1% of “full cash value” limitation if the proceeds of such taxes are to be used to pay:
1) Obligations approved by voters prior to July 1, 1978 (Pre-Proposition 13 Obligations); 2) General obligation bonds approved in accordance with the provisions of California Constitution Article XIIIA, Section 1(b)(2) (Proposition 46 General Obligation Bonds); or 3) General obligation bonds approved in accordance with the provisions of California Constitution, Article XIIIA, Section 1(b)(3) (Proposition 39 General Obligation Bonds).
In sum, the maximum tax rate permitted on real property for general purposes is 1% of the property's assessed value plus voter approved rates to fund indebtedness (general obligation bonds, requiring two-thirds voter approval). On the following page, we provide a summary of the Emeryville’s ad valorem tax rate relative to its surrounding peer cities, which includes supplemental for overlapping jurisdictions such as schools and special districts. The City’s tax rate has been consistently lower in each of the last five years relative to its peers, as its neighboring community have approved general obligation bonds and have pre-Proposition 13 taxes for their pension City of Emeryville
Assesssed Valuations
2012-13 2013-14 2014-15 2015-16 2016-17
Local Secured 3,563,608,448 3,701,009,834 3,903,416,646 4,391,582,455 4,647,598,221 Utility 523,096 523,096 74,276 74,276 74,276
Unsecured 351,830,065 345,138,517 318,089,008 325,594,592 365,775,461 Total 3,915,961,609 4,046,671,447 4,221,579,930 4,717,251,323 5,013,447,958 %Growth 3.34% 4.32% 11.74% 6.28%
Source: California Municipal Statistics Inc.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 10
contributions. Thus, in considering an additional ad valorem tax levy, there is reason to believe that the additional burden would still fall within the realm of affordability considering tax rate levels in Emeryville’s neighboring communities.
Voter Approval for General Obligation Bonds
California cities, counties, and special districts are held to a higher voter approval threshold under Proposition 46 relative to school general obligation ballot measures under Proposition 39 (majority 55% approval). Thus, the prevalence of California cities seeking the voter approval required to issue general obligation bonds is less than that of California school bond measures.
The timing and duration of the bond election process will be largely driven by the City’s project planning, feasibility, and community outreach efforts. The critical deadline in placing a GO measure on a targeted election ballot is 88 days prior. City Council must approve the measure (with a twothirds vote) for the ballot at least 88 days in advance of the election date.
City of Emeryville and Alameda County Peer Group Cities Tax Rates Per $100 of Assessed Valuation
2012-13 2013-14 2014-15 2015-16 2016-17
Emeryville General Tax Rate 1.0000 1.0000 1.0000 1.0000 1.0000 Emery Unified School District 0.0663 0.0874 0.0759 0.0682 0.0680 Peralta Community College District 0.0434 0.0419 0.0412 0.0337 0.0256 Bay Area Rapid Transit District 0.0043 0.0075 0.0045 0.0026 0.0080 East Bay Regional Park District 0.0051 0.0078 0.0085 0.0067 0.0032 East Bay Municipal Utility District
Special District No. 1 0.0068 0.0066 0.0047 0.0034 0.0028 Total Emeryville Tax Rate 1.1259 1.1512 1.1348 1.1146 1.1076 Alameda 1.1409 1.1432 1.1342 1.1747 1.1593
Albany 1.3814 1.3806 1.2738 1.2430 1.3326
Berkeley 1.2472 1.2717 1.2447 1.2218 1.2168
Oakland 1.4057 1.4403 1.4376 1.3654 1.3508
Piedmont 1.2125 1.2228 1.2057 1.1904 1.1639
Median Peer Group Tax Rate 1.2472 1.2717 1.2447 1.2218 1.2168 Minimum Peer Group Tax Rate 1.1409 1.1432 1.1342 1.1747 1.1593 Maximum Peer Group Tax Rate 1.4057 1.4403 1.4376 1.3654 1.3508 Source: California Municipal Statistics Inc.
Requirements Proposition 46 Bonds (Cities, Counties, and Special Districts) Eligible Issuers Any local governmental entity with statutory authority and the power to tax real property.
Eligible Purposes Acquisition or improvement of real property.
Governing Board Approval Two-thirds vote for cities. Majority vote for counties and school districts.
Voter Approval Two-Thirds.
Election Day
November 6, 2018
Council Calls for
Election
At least 88 days prior
January February April May June
Deadline for Council
to Call Election
August 10, 2018
Planning/Community Outreach
November December July August September October November Deliver Tax Rate
Statement
At least 88 days prior
Mail Sample Ballot
No earlier than 40 days and
no later than 21 days prior
March
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 11
California General Obligation Bond Measure Results
California City Finance, a website maintained by Michael Coleman with support from the League of California Cities, conducts an ongoing review and tracks local revenue measures success rates in California. Since 2001 there have been 120 non-school local general obligation bond measures in California. Just over 50%, 66, of the 120 measures passed. Among the 54 failing measures, 37 received more than 55% “yes” votes and all but four received majority voter approval. Measures for hospitals and streets & roads garnered the most success.
November 2016 Election Results and Housing GO Bond Measures We understand that the City of Emeryville policy makers have expressed interest in evaluating funding solutions specifically to address affordable housing shortages and services. Affordable housing initiatives, particularly among urban cities and counties, are at top of many local governments’ policy priorities. In the November 2016 election, a total of four Housing GO bond measures were approved by the voters – three of the four measures were on behalf of Bay Area local governments, including the City of Oakland, County of Alameda, and County of Santa Clara. Separately, we note that $4.78 billion of new GO bond authorizations approved in November 2016 were in Alameda County alone.
Type of Measure Total Measures Pass Passing %
All GO Bonds 120 66 55.0%
Hospitals 23 15 65.2%
Streets & Roads 13 8 61.5%
Parks & Recreation 21 11 52.4%
Library 14 7 50.0%
Police/Fire/EMS 24 12 50.0%
Other 25 13 52.0%
Source: CaliforniaCityFinance.com “An Overview of Local Revenue Measures Since 2001.” General Obligation Bond Measures: Since 2001 through November 2016 Cities, Counties and Special Districts – Two-Thirds Voter Approval CITY OF EMERYVILLE REVENUE AND DEBT REPORT 12
The issuance of GO bonds to fund affordable housing/homeless facilities represents a new area and there is statewide learning curve. Until the November 2016 election, only San Francisco had gained voter approval or issued GO bonds for housing purposes. As municipalities evaluate the issuance of GO bonds for housing, there are certain challenges to consider:
State Law Challenge: Meeting the constitutional requirement that the proceeds be used “for the acquisition or improvement of real property,” which was added to Article XIIIA in 1986 as part of an amendment that allowed the property tax levy on GO bonds to exceed the 1% general rate. Because the precise definition of this restriction is not known (there has been no litigation and therefore no judicial interpretation), there may be divergent opinions as to the requirements for meeting this requirement.
Federal Tax Law Challenge: Meeting the complex structuring requirements of taxexemption presents another challenge. These challenges are why most of the TABs sold for housing in the past ten years have been done on a taxable basis. There may be opportunities to issue the bonds tax-exempt, but they probably won’t be the heart of a housing GO program.
In advance of the November 2016 election, KNN assisted the City of Los Angeles, Alameda County, and Santa Clara County in the preparation of their ballot authorizations for Housing GO bonds. All three of these measures passed with the necessary two-thirds votes. We are currently working with the County of Santa Clara and the County of Alameda on their first Housing GO issuances from the recently approved authorization. Below we provide a preliminary project list associated with the County of Santa Clara program. While still preliminary, the below areas provide a useful guide on types of costs expected to be financed with Housing GO bonds.
1. Acquisition of real property by the County or other parties (e.g., affordable housing developers, lenders, or funders);
2. Improvement of real property by the County or other parties (e.g., affordable housing developers, lenders, or funders) including, but not limited to: clearing; grading; landscaping; demolition; constructing, reconstructing or installing buildings, structural components, building systems, utilities, infrastructure, or other improvements; and major maintenance, reconstruction, and other work that continues or enhances the useful life of real property or a real property improvement;
3. Loans or other financial assistance to other parties (e.g., affordable housing developers, lenders or funders; first-time homebuyers) for the acquisition or improvement of real property;
4. Any other direct or indirect costs and fees associated with the acquisition or improvement of real property including, but not limited to, real estate fees and commissions, appraisals, title insurance, transfer taxes, financing costs, attorneys’ fees and other legal fees and costs, architecture, project design, general contractor, application/permitting/entitlement fees, geology, hazardous materials, project design, inspection, engineering, and project management/administration;
5. All direct and indirect costs and fees associated with the Measure financing, development, implementation and administration including, but not limited to, bond issuance costs, County personnel costs, consultant costs, attorneys’ fees and other legal fees and costs;
6. All direct and indirect costs and fees associated with the Measure oversight including, but not limited to, County personnel, consultants, auditors, and the Measure Independent Citizens’ Oversight Committee.
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Equity and Policy Considerations
The use of property tax overrides to finance the acquisition or improvement of real property has all the advantages and disadvantages of the levying of ad valorem property taxes under the 1% general tax rate. They are levied based on the valuation of property, which can be a proxy for wealth, making property taxes a so-called “progressive” form of taxation. Under Proposition 13, questions of equity arise, because properties of equal market value may have widely different taxable assessed valuations, depending on the changes of ownership that have taken place.
Increasing property taxes to service debt on general obligation bonds would generate the largest federal and state tax benefits to taxpayers, as these taxes are deductible for individuals as well as businesses, effectively reducing the net local tax burden.
Leveraging and Bond Issuance Analysis
General obligation bonds are backed by property tax revenue, which is used to repay the bond over a twenty- to thirty-year period. Increasing the property tax to repay the debt may only be done to acquire or improve real property.
Voter approved general obligation bonds are paid from a source of revenues (unlimited ad valorem real property taxes in excess the 1% of full cash value limit) that is not otherwise available to the issuer.
Although property tax obligations increase the overall burden on the issuer’s constituents, general obligation bond debt service payment obligations do not increase the amount payable from the issuer’s general fund revenues.
Various structural features and underlying assumptions are used to calculate a bond measure amount and tax rate.
Tax rate – the tax rate statement will estimate near-term and average tax rates in $ / $100,000 of AV.
Number of issues – determined based on the anticipated cash-flow needs of the City. Bond repayment term – generally 20 to 40 years (maximum). AV growth assumptions.
Bond Sizing Example
In prior discussions with City staff, we shared illustrative bond sizing results based on a $50 million GO bond authorization with a $25 million issuance in 2019 and a $25 million issuance in 2021.
Based on a set of conservative assumptions, we derived average and maximum tax rates assuming both 20-year and 30-year terms on the bonds.
On the following page, we summarize assumptions of the illustrative bond sizing. Assuming two issuances totaling $50 million the maximum and average tax rates per $100,000 AV for the 20-year scenario result in $67.89 and $50.51, respectively. Given the longer debt term and lower annual debt payments of the 30-year scenario, the maximum and average tax rates per $100,000 AV result in $57.22 and $37.63, respectively. We provide complete debt schedules and annual tax rate schedules associated with each scenario in Attachment A.
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Debt Affordability
In sharing the illustrative bond sizing analysis with City staff, questions pertaining to metrics of affordability were raised. “Affordability” is an elusive measure, especially voter-approved debt in California, as approval of the debt also creates new revenues to service that debt. Affordability is particular to a place and time, and what voters within that community are willing to support. While data is available as to what is common for similar jurisdictions, they do not speak to what are the appropriate upper bonds of indebtedness. Even the rating agencies, which factor debt burden into their rating assignments, give little hard insight in this area.
To help the City evaluate what might be affordable for Emeryville, we return below to the table summarizing Emeryville’s tax rates over the last five years relative to its surrounding peer cities.
The combined tax rate per $100,000 AV within the City of Emeryville has ranged from $121.30 to $107.20, which is lower than that of the median tax rate of the peer cities. Assuming the average and maximum tax rates calculated under the 20-year and 30-year scenarios (ranging from $37.63 to $67.89), levying for debt service on a $50 million GO bond authorization would still fall comfortably City of Emeryville
General Obligation Bonds
Illustrative Bond Structure Analysis
Key Bonding Assumptions:
Assessed Valuation for FY 2016-17
Secured Tax Base $4,647,598,221
Unsecured Tax Base $365,775,461
Total $5,013,373,682
Secured AV Growth Rate: 3.00%
Unsecured AV Growth Rate: 1.00%
Net tax delinquency 2% (accounted for first 5 years)
Borrowing Amount Borrowing Rate Year of Issuance
2019 Bond: 25,000,000 5.0% 2019
2021 Bond: 25,000,000 6.0% 2021
Total: $50,000,000
Tax Rate Per $100,000 AV Tax Rate Per $100,000 AV
TERM: 20-Year TERM: 30-Year
Average Tax Rate: $50.51 Average Tax Rate: $37.63
Max Tax Rate: $67.89 Max Tax Rate: $57.22
City of Emeryville and Alameda County Peer Group Cities Tax Rates Per $100 of Assessed Valuation
2012-13 2013-14 2014-15 2015-16 2016-17
Median Comparison
Total Emeryville Tax Rate 1.1259 1.1512 1.1348 1.1146 1.1076 Median of Peer City Rates 1.2472 1.2717 1.2447 1.2218 1.2168 Difference (0.1213) (0.1205) (0.1099) (0.1072) (0.1092) Direct Comparison
Alameda 1.1409 1.1432 1.1342 1.1747 1.1593
Difference (0.0150) 0.0080 0.0006 (0.0601) (0.0517)
Albany 1.3814 1.3806 1.2738 1.2430 1.3326
Difference (0.2555) (1.5011) (1.3837) (1.3502) (1.4418) Berkeley 1.2472 1.2717 1.2447 1.2218 1.2168
Difference (0.1213) (0.1205) (0.1099) (0.1072) (0.1092) Oakland 1.4057 1.4403 1.4376 1.3654 1.3508
Difference (0.2798) (0.2891) (0.3028) (0.2508) (0.2432) Piedmont 1.2125 1.2228 1.2057 1.1904 1.1639
Difference (0.0866) (0.0716) (0.0709) (0.0758) (0.0563) Source: California Municipal Statistics Inc.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 15
below the median peer city tax rate levels. Stated differently, assuming FY 2016-17 AV and tax rate levels, the City could add up to an additional $109 per $100,000 AV to its tax rate and still remain affordable relative to the peer tax rate median. Under the same set of assumptions as stated above, the levy of an additional $109 per $100,000 AV translates to a GO authorization of approximately $80 million (assuming a 20-year term). We provide complete debt schedules for both 20-year and 30-year debt terms and annual tax rates associated with a $80 million authorization in Attachment B.
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Section V: General Taxes
Overview
General taxes are taxes levied by local governmental entities for general revenue purposes. Although it may be possible for an advisory measure to indicate voters’ desires with respect to how tax proceeds should be spent, a “general tax” may not be imposed for a specific purpose or specific purposes. Only general purpose governmental entities (i.e., cities and counties) may levy general taxes and California Constitution, Article XIIIA precludes the imposition of new ad valorem real property taxes as “general taxes.” Common types of General Taxes levied by cities are listed below:
1) Add-on Sales Taxes
2) Business License Taxes (including a “soda tax,” a rental car tax, and a card room tax) 3) Transient Occupancy Taxes
4) Utility Users Taxes
5) Admissions or Event Entrance Taxes
The City’s currently levies general taxes in each of the areas above with the exception of 5) Admissions and Event taxes. Together, these general taxes represent over 80% of the City’s General Fund revenue from taxing sources. Based on the City’s Fiscal Year 2016-2017 projected revenues, sales taxes represent 24% of the City’s revenues from taxes with the Business License and Card Room Tax representing 25%, Transient Occupancy Tax representing 22%, and Utility User Tax representing 9% of the City’s tax revenues within the General Fund. Further below we provide discussion and consideration of these general tax revenue categories.
Voter Approval for General Taxes
The imposition, extension or increase of any general tax (like all taxes in California) must be approved by the governing board of the taxing entity or placed on the ballot by an initiative petition and must be approved by voters. A general tax is not “increased” if imposed at a rate not higher than previously approved.
State law designates four dates as established election dates: (1) the second Tuesday in April in evennumbered years, (2) the first Tuesday after the first Monday in March in odd numbered years, (3) the first Tuesday after the first Monday in June in each year, and (4) the first Tuesday after the first Monday in November in each year. Statewide elections generally are held in June and November in evenRequirements General Tax (Cities and Counties) Use of Revenues Unrestricted.
Governing Body Approval
Charter cities: majority.
Counties and general law cities: two-thirds.
Transactions and use taxes: two-thirds.
Voter Approval Majority.
Other Requirements
A general tax election must be consolidated with a regularly scheduled general election of members of the governing body, unless an emergency is declared by unanimous vote (among those present) of the governing body.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 17
numbered years. Local government elections including elections called for voter approval of taxes—generally must be held on an established election date or at a special election called by the Governor. The process and timeline for placing a general tax measure on the ballot will largely follow that of the timeline necessary for placing a GO bond measure on the ballot. 1) Add-on Sales Taxes
The State levies a variety of sales and use taxes that add up to a “base” statewide tax rate of 7.25%.
Of that total, 1% is allocated to the local jurisdiction as the “Bradley-Burns Uniform Local Sales and Use Tax.” Allocation of this local component is on the basis of “situs,” or the point of sale; this allocation represents most of the sales tax currently collected by the City’s General Fund.
State law also allows for local supplemental sales taxes to be approved on a county-wide basis, which is most commonly collected for transportation purposes. Cities can also levy a supplemental sales tax with a vote of the local electorate.
The sales tax is collected by retailers selling tangible personal property in California. The use tax is imposed on the user of a product purchased out-of-state and delivered for use in California. A significant portion of these taxes may be assessed against “business-to-business” sales, for property such as manufacturing and information technology equipment.
Several factors can influence the level of a city’s sales tax generation. One factor is the composition of the tax base, particularly the extent that the amount of taxable sales is increased by non-retail transactions such as the sale of manufacturing and business equipment to other businesses. In addition, the wealth of a community can influence the relative level of consumption. Another factor behind sales tax generation is the level of taxable sales made to non-residents of a city. Given the level of traffic through Emeryville and the abundance of “big-box” retail outlets servicing residents from neighboring communities, the City’s taxable sales per capita is high, making Emeryville a net importer of sales tax. However, we note that the City is projecting declines in taxable sales and sales tax revenue sources due to changing dynamics of the taxable sales base and online purchasing.
Under current state law, the maximum combination of transactions and use tax rates in any location may not exceed 2%, except in the counties of Los Angeles, Alameda and Contra Costa where the maximum may not exceed 2.5%. Below we provide a summary of the add-on sales tax measures for cities in Alameda County. Five of the fourteen cities in Alameda County have implemented an addon sales tax for general purposes, in addition to the 2% collected by the County and AC Transit.
The City of Emeryville has not implemented an add-on sales tax above the additional countywide sales taxes. Thus, the City has up to 0.50% of sales tax value yet to extract.
Alameda County Peer Group Cities
Transaction & Use Taxes Currently in Effect
City
State Base
Sales Tax Rate
Alameda County
Add-On Rate
City
Add-On Rate
Total
Sales Tax Rate
City
Tax Purpose
Tax
Term
Albany 7.25% 2.00% 0.50% 9.75% General 2021
Hayward 7.25% 2.00% 0.50% 9.75% General 2035
Newark 7.25% 2.00% 0.50% 9.75% General 2042
San Leandro 7.25% 2.00% 0.50% 9.75% General 2046
Union City 7.25% 2.00% 0.50% 9.75% General --
Alameda 7.25% 2.00% 0.0% 9.25%
Berkeley 7.25% 2.00% 0.0% 9.25%
Dublin 7.25% 2.00% 0.0% 9.25%
Emeryville 7.25% 2.00% 0.0% 9.25%
Fremont 7.25% 2.00% 0.0% 9.25%
Livermore 7.25% 2.00% 0.0% 9.25%
Oakland 7.25% 2.00% 0.0% 9.25%
Piedmont 7.25% 2.00% 0.0% 9.25%
Pleasanton 7.25% 2.00% 0.0% 9.25%
Source: California State Board of Equalization
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 18
California Add-on General Sales Tax Measure Results
Generally, city majority vote general purpose transactions and use taxes have shown a greater rate of success than countywide measures or city two-thirds vote special transactions and use taxes (see “Special Sales Tax” discussion in the following section). There have been 267 general-purpose, majority-vote add-on sales tax measures since 2001 to add a ¼, ½, ¾ or 1 percent tax rate. Twenty other measures extended an existing general purpose sales tax rate. Over two-thirds of the tax increases were successful. Most of these measures were by cities.
Equity and Policy Considerations
Many observers have criticized the “fiscalization” of land use, where sales tax generation becomes the dominant goal of land use and economic development policy. Certain California cities have vigorously competed with one another to build shopping and auto malls and “power centers” to grow their retail tax bases. Some critics believe that this retail development has been at the expense of the building of affordable housing.
Possible Revenue Impact
If the City were to levy a 0.50% local add-on sales tax, it would generate approximately $4.19 million a year. This calculation is based on sales tax receipts of $8,382,391 to the City from the 1% Bradley Burns local share that is currently projected for FY 2016-17. 2) Business License Tax
Most cities and a few counties have enacted business license taxes. Business license tax rates are set individually by each city and county most commonly based on gross receipts (overall business revenue) or levied at a flat rate, but may be based on the quantity of goods produced, number of employees, number of vehicles, square footage of the business or some combination of factors. The City’s cardroom tax is one of its business license taxes.
If a business operates in more than one city, a city may only tax that portion of the business’s activities conducted within the city. In most cases, business license taxes are not imposed for regulatory purposes (as the term “license” might imply) but to raise revenues for general municipal purposes (i.e. a tax). If imposed as a fee to pay for the cost of regulating the business, the fee may not exceed the reasonable cost of regulating the business.
Voter Approval
Regulatory fees may be imposed by City Council action. Taxes levied for revenue-raising purposes require simple-majority voter approval under Proposition 218.
Equity and Policy Considerations
Business taxes reportedly can affect business location and expansion decisions.
Type of Measure Total Measures Pass Passing %
General Tax – New or Increment 252 183 72.6%
General Tax – With Advisory 15 6 40.0%
Source: CaliforniaCityFinance.com “An Overview of Local Revenue Measures Since 2001.” General Purpose Add-On Sales Tax Measures: Since 2001 through November 2016 Cities and Counties – Majority Voter Approval
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3) Transient Occupancy Tax (TOT)
Most cities, like Emeryville, and some counties impose a transient occupancy tax or hotel bed tax on persons staying thirty days or less in hotels, motels and similar lodgings, including mobile homes.
Typically, the lodging provider collects the tax from guests and turns the funds over to the county or city.
Transient occupancy taxes are imposed by most cities and counties and range from four percent to 15 percent. To the right, we summarize TOT rates for the City and its neighboring peer cities – with the City ranking 2nd with Berkeley in TOT rates below that of Oakland and San Leandro at a high of 14%.
Voter Approval
After Proposition 218, a simple-majority vote has been required to increase the TOT. In addition, since the passage of Proposition 13, a TOT levied for a specific purpose (such as financing tourist promotion, or creeks restoration and water quality improvement) has required two-thirds voter approval as a “special tax.”
Equity and Policy Considerations
The TOT is usually viewed as one of the easiest taxes for which to gain voter approval, since it is typically levied on non-residents. However, a relatively high tax rate may reduce the competitiveness of the local hotel market and negatively impact convention and business travel and tourism.
Possible Revenue Impact
Based on FY 2016-2017 projected TOT receipts of $7.29 million at a rate of 12%, a 2% increase in the City’s TOT rate to that of the level of the City of Oakland currently levies would yield additional revenues of $1.2 million.
Utility User Tax (UUT)
Many cities impose utility user taxes on the consumption of utility services, including (but not limited to) electricity, gas, water, sewer, telephone (including mobile phone and long distance), sanitation and cable television. Counties may levy utility user taxes in county area outside city limits.
Utility companies usually collect utility user's taxes from their customers as part of their regular billing procedures and remit the funds collected to the city or county which imposed the tax.
In November 2007, voters approved Measure A, which continued and expanded the City's pre-existing Utility Users Tax to cover additional forms of services, particularly different varieties of telecommunication. "To maintain high quality of life in Emeryville and fund essential services including police, fire, 9-1-1, park maintenance, litter abatement, graffiti removal, flood protection, street maintenance, accessibility improvements, child care, senior and recreation programs...[and] modernize telecommunications service definitions so taxpayers are treated the same regardless of technology used.” Alameda County Peer Group Cities
Transient Occupancy Tax Rates
City Rate
Oakland 14.00%
San Leandro 14.00%
Berkeley 12.00%
Emeryville 12.00%
Alameda 10.00%
Albany 10.00%
Fremont 10.00%
Newark 10.00%
Union City 10.00%
Hayward 8.50%
Dublin 8.00%
Livermore 8.00%
Pleasanton 8.00%
Piedmont none
Source: Computations by CaliforniaCityFinance.com
from State Controller data.
Alameda County Peer Group Cities
Utility User Tax Rates - Calif Cities
City Rate
Alameda 7.50%
Berkeley 7.50%
Oakland 7.50%
Piedmont 7.50%
Albany 6.50%
San Leandro 5.70%
Emeryville 5.50%
Hayward 5.50%
Newark 3.25%
Dublin --
Fremont --
Livermore --
Pleasanton --
Union City --
Source: CaliforniaCityFinance.com from League of
Calif Cities and UUTINFO.ORG Survey Data.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 20
Relative to Alameda County city peers, Emeryville’s UUT rate of 5.5% is on the low end of the list despite a handful of cities that do not levy a rate. While UUT does not account for a significant portion of the City’s General Fund revenues, it offers a stable source of revenue at approximately $3 million.
Voter Approval
Many utility user tax ordinances have not kept up with changes in telecommunications technology, billing practices, and federal tax law. In order to continue to apply these taxes to telecommunications users, local UUT laws have needed revision. To ensure compliance with the voter approval requirements of Proposition 218, many localities have sought to revise their UUTs with voter approval. Certainly, any increase or extension of a local tax requires voter approval.
Prior to Proposition 218, these taxes were imposed or could be increased by Council action. Now, a simple-majority vote is required.
Equity and Policy Considerations
Generally, utility users taxes are viewed as regressive, as lower income families pay a higher proportion of their income on utility bills. On the other hand, business taxpayers represent a significant portion of this revenue source. Recent increases in electricity prices could undermine political support for increasing this type of tax.
Prior to the voter requirement imposed by state law, implementing such a tax could be politically unpopular. In certain cities, utility taxes were rolled back. Referendums in some cities resulted in recalls of elected officials who had supported such taxes.
Possible Revenue Impact
Based on FY 2016-2017 projected UUT receipts of $3.0 million at a rate of 5.5%, a 2% increase in the City’s UUT rate to 7.5% (the rate levied by Alameda, Berkeley, Oakland, and Piedmont) would yield additional revenues of $1.1 million.
Leveraging and Bond Issuance Analysis
Like a local governmental entity’s share of general property tax revenues, general taxes are a source of revenue available for general purposes. payment for general fund obligations such as leases and tax and revenue anticipation notes. While general tax and other general fund revenues cannot be directly pledged to service a revenue bond, they are commonly used to service debt obligations in the form of lease financing.
In a lease-purchase agreement, the City leases an asset for a period of years and acquires unencumbered ownership at the end of the lease. The lease payments are commonly used to secure a form of public indebtedness in the form of “certificates of participation” or “lease revenue bonds.” The amount of the lease payment is equivalent to the principal and interest that would be paid if the transaction were financed as a loan. Thus, in order to leverage a new general tax, the City would have to identify an asset free and clear of encumbrances with a “fair rental value” no less than the annual lease obligations; if the asset being constructed or acquired by the financing is a building, it can serve as the leased asset.
The City could structure a general fund lease obligation such that annual debt service payments are directly offset by annual general tax receipts. Again, assuming conservative assumptions of a 5% borrowing rate, we have calculated an illustrative bonding capacity assuming the annual flow of approximately $4 million in general tax revenues. On the following page, we provide a summary of CITY OF EMERYVILLE REVENUE AND DEBT REPORT 21
bond proceeds available to the City assuming both 20-year and 30-year debt structures and tax terms. In Attachment C we provide detailed debt service structures for this example.
City of Emeryville
Lease Revenue Bonds with General Tax Debt Service Offset Debt Term 20 Year 30 Year
Total Proceeds $ 49,810,000 $ 61,440,000
Total Principal 49,810,000 61,440,000
Total Interest 30,129,000 58,465,250
Total Debt Service $ 79,939,000 $ 119,905,250
Annual Sales Tax Receipts 4,000,000 4,000,000
Total Sales Tax Receipts $ 80,000,000 $ 120,000,000
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 22
Section VI: Special Taxes
Overview
Special taxes are taxes levied by local governmental entities for special purposes or taxes levied by local governmental entities that are not general purpose governmental entities (e.g., school districts and special districts). A tax levied for a special purpose is a special tax even if tax proceeds are deposited in the governmental entity’s general fund. Special taxes can be levied on real property as a parcel tax, but may not be ad valorem real property taxes. The proceeds of special taxes may be used solely for the voter-approved purpose or service for which the tax was imposed. The two most common types of Special Taxes include:
1) Add-on Special Sales Taxes: A tax that replicates the tax of the type described above under “General Taxes” but whose proceeds are to be used for a specific purpose or specific purposes. 2) Parcel Taxes: A parcel tax is a special tax on a parcel – or unit – of real property. Unlike the property tax, a parcel tax may not be based on the value of property. Instead, parcel taxes are generally based on a flat per-parcel rate. Parcel taxes may be imposed for any municipal purpose.
A parcel tax may be enacted, increased or extended by a city, county, special district or school district only with two-thirds voter approval, even for general purposes.
Voter Approval for Special Taxes
Special taxes must be approved by the governing body of the taxing entity or placed on the ballot by an initiative petition and must be approved by voters. A special tax is not “increased” if it is imposed at a rate not higher than previously approved.
1) Add-on Special Sales Taxes
California Add-on Special Sales Tax Measure Results
The success record of city special taxes is not as successful as general taxes. Since 2001 there have been 116 add-on sales tax measures earmarked for a particular purpose other than countywide transit or transportation. Proposals dedicated to law enforcement, fire or emergency medical services were the most common. However, below 50% of these measures have been successful.
Requirements Special Tax (Cities, Counties, and Special Districts) Use of Revenues Specific purpose.
Governing Body Approval Majority (two-thirds vote for add-on sales taxes).
Voter Approval Two-thirds.
Other Requirements
Special tax funds must be deposited in a separate account. The taxing agency must publish an annual report including: 1) the tax rate; 2) the amounts of revenues collected and expended; and 3) the status of any project funded by the special tax.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 23
Equity and Policy Considerations
As with a general sales tax measure, special sales taxes present considerations with respect to the “fiscalization” of land use, where sales tax generation becomes the dominant goal of land use and economic development policy.
Leveraging and Bond Issuance Analysis
Given the Special Fund exception to the debt limit, special taxes can be pledged to secure and used to pay debt service on bonds issued for the purpose for which the special tax is imposed. Thus, special tax bonds can be issued without a lease security and rather issued as special tax revenue bonds. However, the revenue bonds have certain security features that limit total bonding capacity. Debt Service Coverage: Special tax revenue bonds are sized such that tax revenues exceed debt service to protect against fluctuations in revenues (i.e. Emeryville annual special tax revenues of $4 million and a 1.5x debt service coverage factor equates to $2.67 million of annual debt service capacity). The additional revenues attributable to coverage would be applied to payas-you-go capital or services consistent with the voter-approved measure. Additional Bonds Test: A financial test must be satisfied to issue additional series of special tax revenue bonds, requiring that historical revenues exceed projected debt service requirements for both the outstanding issue and any proposed issue by a certain ratio. Actual special tax revenues prior to issuance are used to meet bond market requirements – not projected revenues.
Given the greater approval successes of general tax measures and the reduced bonding capacity under a special tax revenue bond structure, we have not performed a detailed leverage analysis for a new special tax revenue stream.
2) Parcel Taxes
Parcel taxes are non-ad valorem property taxes, levied for a specific purpose. The most common form of special tax used in California is a tax levied pursuant to the Mello-Roos Community Facilities Act of 1982 (the “Mello-Roos Act”), which authorizes certain public entities to form a Community Facilities District (“CFD”). This method of taxation, as well as benefit assessment districts, is used by cities to create special taxing sub-districts within particular neighborhoods. A City-wide special tax would more likely be implemented under the City’s charter powers. Thus, parcel tax (CFD) or other special tax measure may be citywide or in specific zones. A public opinion poll, relatively appropriate to all of the measures under discussion, would help to identify popular projects that might be candidates for CFD financing.
Type of Measure Total Measures Pass Passing %
All Special Sales Taxes 116 56 48.3%
Police/Fire/ EMS 43 20 46.5%
Streets & Roads 20 11 55.0%
Parks & Open Space 15 7 46.7%
Library 18 12 66.7%
Other 20 6 30.0%
*Exclusive of countywide transportation sales tax.
Source: CaliforniaCityFinance.com “An Overview of Local Revenue Measures Since 2001.” Transactions & Use (Sales) Tax Measures Special Purpose*: Since 2001 through November 2016 Cities and Counties – Two-Thirds Voter Approval
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 24
Parcel taxes may be used to finance new infrastructure development as further discussed in the bond leveraging below. However, parcel taxes also may be used to fund certain services, such as:
Police and fire protection and ambulance and paramedic services Recreation programs and library services
Operation and maintenance of museums and cultural facilities Maintenance of parks, parkways and open space
Flood and storm drain protection services
Services relating to hazardous substance clean-up
California Parcel Tax Measure Results
Over half of the proposed parcel taxes since 2001 have been for public safety or medical services including law enforcement, gang suppression, fire suppression and prevention, emergency medical and hospital services, equipment and facilities. Although there are many factors that determine the success or failure of a ballot measure, some uses of funds appear to be more successful than others.
The most successful measures were more broad-based public safety measures which permitted use of the funds for fire, medical and police services.
Equity and Policy Considerations
Special tax districts are generally formed to finance infrastructure for new development, with voterapproval provided by landowners. Some cities have a policy or practice of not allowing CFDs to be formed on residential property. When a CFD is formed, there is a general rule of thumb that the total tax bill (general and special taxes and assessments) should not exceed 2% of assessed value, although 2% is sometimes considered high for residential property.
New development projects effectively pay for new infrastructure through CFD taxes. The result may be that newer homes have a much higher tax bill than older homes. Property tax rates, including existing overrides, in older areas might be in the range of 1% to 1.2% of assessed value, while newer homes in CFDs (or other special tax or assessment districts) may have tax bills that total 1.5% to 2% of assessed value. Combined with typically higher assessed values, new home owners may be paying significantly more for services and infrastructure.
Type of Measure Total Measures Pass Passing %
All Parcel Taxes 528 275 52.1%
Police/Fire/ EMS 266 145 54.5%
Medical 30 22 73.3%
Library 60 31 51.7%
Parks & Recreation 73 32 43.8%
General 18 8 44.4%
Streets & Roads 49 17 34.7%
Other 32 20 62.5%
Source: CaliforniaCityFinance.com “An Overview of Local Revenue Measures Since 2001.” Parcel Tax Measures: Since 2001 through November 2016
Cities, Counties and Special Districts – Two-Thirds Voter Approval CITY OF EMERYVILLE REVENUE AND DEBT REPORT 25
The existence of CFDs (or other special districts) in newer areas can create a barrier to voter approval of new bonds or tax measures, as these homeowners may feel that they are already paying their fair share and should not be paying additional taxes. Some school districts with a high concentration of CFD’s, for example, have experienced great difficulty in passing General Obligation bond measures.
Leveraging and Bond Issuance Analysis
A local tax district may finance the acquisition, construction or improvement of any real or tangible property with an estimated useful life of five or more years. The financed facilities do not need to be located in the district, which allows a parcel tax to finance regional facilities. Most often, parcel taxes are used to service bonds, the proceeds of which finance the improvements. Examples of the types of facilities which may be financed include:
Local park, recreation, parkway and open space facilities Libraries and child care facilities
Streets and street-related improvements
Facilities for flood and storm drain protection purposes The amount of possible leverage of a parcel tax measure will vary based on the type and scope of the tax – city-wide or zone specific.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 26
Section VI: Benefit Assessments
Overview
Assessments are charges by cities, counties or special districts on real property to pay for public facilities or services within an area which benefit either real property or businesses. A common type of assessment is one used to pay for landscaping and lighting in a neighborhood. The amount of the assessment must reflect the special benefit to the property that results from the improvements. The general benefits of the improvements must be financed by other resources. Virtually all projects financed in part by special assessments also provide general benefits as well. Assessments on property are typically collected through the owner’s annual property tax bill.
A local government must follow certain specific procedures to impose benefit assessments. When a local agency considers an assessment, a majority of property owners may defeat the assessment in a public hearing procedure. If the proposed assessment is not defeated in a public hearing procedure, then a majority of the property owners subject to the charge must approve the assessment by a mailed ballot. The property owners’ votes are weighted according to how much their property will be charged.
Voter Approval Requirements
In addition to satisfying statutory requirements, the process for levying assessments must include the following steps:
1. A report must be prepared by a qualified engineer identifying the special and general benefits of the project, and setting-forth a reasonable basis for assessing the special benefit.
2. The record owner of the parcel must be mailed a notice of the proposed assessment of the parcel, the total amount chargeable to the entire assessment district, the duration of payments, the reason for the assessment, the basis for calculations the proposed assessment and notice of the required public hearing, and the record owner must be provided a ballot.
3. A public hearing must be held and ballots tabulated.
4. The assessment may not be imposed if there is a majority protest. A “majority protest” exists if the ballots submitted in opposition to the assessment exceed the ballots submitted in favor, with ballots weighted proportionally to the financial obligation of the affected property.
Leveraging and Bond Issuance Analysis
Assessment bonds (bonds the debt service on which is payable from assessments and which are secured by assessment liens) were historically a major source of financing for public improvements, especially infrastructure improvements necessary for new development; they are less commonly used today due to the requirements of Proposition 218 and subsequent court decisions. With respect to built-out communities, the constitutional requirements for assessments can be challenging to satisfy, but the requirements are less difficult to meet if assessments are imposed while the subject property is held by a limited number of owners (e.g., before the property is developed and homes or lots are sold).
Benefit assessment financing is supported by benefit assessments on the property to fund acquisition of property and improvement of infrastructure and additional facilities of benefit to the property that is charged.
As with the parcel tax, the amount of possible leverage of a benefit assessment will vary based on the type and scope of the charge.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 27
Section VIII: Bond Issuance Process
Following voter approval of new ad valorem taxes for GO bonds or other tax measures to support bonds or other types of securities, the bond issuance process is generally straightforward. Depending on future financing needs, we would expect the debt issuance process to average anywhere from 4 to 6 months (which may be proceeded by several months of pre-transaction related services). Below we provide an overview of the financing stages necessary to bring a bond issuance to market.
There are many players important to the financing process that work collectively to ensure the successful issuance of bonds. Particularly important roles are played by the public staff and their municipal advisor.
Public Staff: Establishes policy, priorities, and procedures as to when and how an agency finances a project with debt. Communicates with the legislative body relative to key decisions and approvals. Staff assembles internal and external financing teams and represents the issuer before the rating agencies and investors.
Municipal Advisor: The consultant that organizes the financing team, and has a fiduciary duty to the City and protects the City’s interests throughout financing process. Evaluates financing options with issuer and develops a plan of finance. Responsible for the overall management of the financing process, including debt service analysis, bond structuring, legal and disclosure document development, rating agency presentations, bond pricing and closing.
Staff, often with guidance and assistance with the Municipal Advisor, will assemble additional members of the financing team, including:
Bond Counsel: Prepares financing and legal documents, Authorizing Resolution, Indenture, Lease and Trust Agreement, Installment Purchase Agreement, etc. Opines as to legality and tax status of bonds.
Disclosure Counsel: Prepares the primary disclosure document known as the Official Statement, which contains material facts necessary for investors to make an informed investment decision on the bonds. Because of anti-fraud provisions of the federal securities law, this disclosure document has a significant level of importance and responsibility to issuers’ and their governing bodies.
Provides Rule 10b-5 opinion regarding adequacy of disclosure.
Underwriter: Sells bonds to investors in public offering. Structuring role depends on competitive vs. negotiated method of sale.
With concrete plan of finance decisions made and legal and disclosure documents finalized, public staff will seek approval from its legislative body to move forward with a debt issuance offering.
Following Council approval, the following activities will take place as part of the marketing process:
Price and
Close Bonds
Present City
Credit to Rating
Agencies
1 month prior
Month 2-4 Month 3-5
Council
Approves
Financing
Documents
Plan of Finance, Tax Rate
Analysis, and Financing
Document Development
(+/- 4 months)
Month 4-6
Release POS and
Market Bonds
Assemble Financing Team:
(Start of Process)
Bond counsel, disclosure counsel,
municipal advisor, underwriter (if
negotiated), trustee
Market/Stakeholder Outreach:
(Following Financing Development)
Present to rating agencies,
stakeholder education/information,
and Council approval
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 28
Present to the Rating Agencies, which assign ratings to debt issues, relied upon by investors.
Obtain ratings from Moody’s, Standard & Poor’s, and/or Fitch on the transaction.
Higher ratings equate to lower interest rates.
Evaluate bond insurance or other credit enhancement.
The pricing and closing process can take anywhere from two to four weeks. Upon distributing an official statement to potential investors, it is typical to allow for at least a week to conduct investor outreach efforts. Following a week of marketing and gaining sufficient investor interest, pricing the bonds and securing interest rates will take place on a single day. Closing of the offering and the delivery of bond proceeds typically occurs a week or two after pricing.
Following the closing on the bond transaction, the issuer has the responsibility to administer the issue until bonds are no longer outstanding – until maturity.
Financings Commonly Used by California Cities
Throughout this report we have discussed various revenue measures and related financing vehicles.
Below we provide a summary of the types of debt (true “indebtedness”) and debt-like securities (debt “exceptions”) commonly used by California cities.
Timeframe Key Items/Considerations
Prior to Issuance • Council Approval: Authorizing resolution (Gov’t Code) which serves as the “indenture” • Council Approval: Form of other financing documents, including official statement • Determine Issuance Amount: Capital needs vs. constraints (i.e. statutory debt capacity, tax rate) • Determine Method of Sale: Competitive or negotiated
• Present to Rating Agencies: Receive credit ratings
Issuance Process • Investor Outreach: Marketing bonds to investors/banks • Pricing: Set interest rates on the bonds
After Issuance Immediately after sale:
• Closing documents and certifications
• Deposit of proceeds to appropriate accounts
Annually:
• Tax rate setting and tax collection
• Investing proceeds and managing expenditure of proceeds • IRS rebate compliance
• Annual disclosure reports and material events reporting • Annual reporting to CDIAC subject to SB 1029
• Budgeting and paying debt service
• Rating surveillance and investor relations
Pricing and Closing:
(Following Council Approval)
Release preliminary official statement
(POS), underwriter markets bond
offering and places bonds with
investors
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 29
General Obligation Bonds – True Indebtedness
Voter-approved debt backed by ad valorem property taxes. Rated higher than LRBs/COPs, resulting in lower interest rates. No impact on General Fund, preserves General Fund debt capacity. Election support for publicly popular capital projects (hospital, library, housing etc.) Tax and Revenue Anticipation Notes (TRANs) – Exception 1 Note exception to debt limit allows for obligations that are paid out of current year revenues; thus, typically issues as a 12-month maturity. Issued for cash flow needs. For cities, property tax and business license taxes are the most cyclical of revenues, received beginning in December.
Lease Revenue Bonds (LRBs) / Certificates of Participation (COPs) – Exception 2 Lease rules in California commonly referred to as “Offner-Dean,” after two key California Supreme Court cases. Payments for “beneficial use and occupancy” of a leased asset and payment is abated with the loss of use and occupancy.
Most common instrument used to finance capital projects among local government issuers using general government resources.
Payable from “legally available funds.” In practice, this means General Fund revenues, and thus has a direct General Fund impact.
Enterprise Revenue / Limited Obligation Bonds – Exception 3 Debt limitation does not apply to debt that is paid for out of special revenue and used to finance an asset which is part of a project or system generating such revenues. Enterprise fund revenue debt is paid out of service fees and other user charges. Cities often sell bonds secured by water, sewer, wastewater, electric, and airport enterprises. The same concept is expanded to all special funds special taxes, fees, and assessments. Cities often sell bonds secured solely by special taxes or assessments on property, including Sales Tax, Mello Roos, or Assessment District bonds.
In the event that special fund or enterprise fund revenue is insufficient, there can be no obligation of the local agency to pay debt service.
No General Fund impact.
Obligations Imposed by Law – Exception 4
Limited case law in this area; however, debt is a not-contingent obligation of the General Fund.
Pension Obligation Bonds are the most common use of this vehicle. Judgement Obligation Bonds are issued occasionally under this mechanism as well.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 30
Section VII: Conclusion
As stated at the onset, the objective of this report is to describe the menu of options available to City decision-makers in developing a plan of finance in the context of enhanced revenue alternatives through a bond ballot measure. Our primer has only scratched the surface of evaluating and optimizing your potential needs and objectives. With details surrounding project size and scope, we can work with you to develop a more refined analysis and begin considering a detailed plan of finance within the context of your policy priorities. Further, as Emeryville policymakers develop a list of project priorities, we recommend that the City consider commissioning a public opinion survey to help in shaping the most viable revenue enhancing solutions.
Summary Observations
Our review of the City’s revenue sources, tax base, and various tax rates through this report has led us to several notable observations with respect to debt capacity and affordability metrics as the City considers potential revenue raising alternatives. We would encourage to the City to further its consideration of seeking voter approval of general obligation bonds, allowing for levying an Ad Valorem Property Tax to address evolving policy priorities for capital improvements. Without having details of your objectives, we believe this financing mechanisms provide the greatest amount of potential success – from both affordability and execution perspectives. Below we juxtapose the Ad Valorem Property Tax alternative against that of a General Tax – the other major revenue/financing mechanism alternative.
Ad Valorem Property Tax General Tax
Basis for Levy A levy on property based on the properties’ assessed value and only used and expended for voter approved debt
A non-property tax levied by a general purpose government and expended, at the discretion of the local government’s governing body, on any programs or services
Levy Type City-wide City-wide
Voter Approval
Threshold Two-thirds Majority
Financing
Mechanism General Obligation Bonds
Lease Revenue Bonds /
Certificates of Participation /
Pay-go
General Fund
Budgetary Impact No Yes
Project
Scope
Single purpose
(i.e. Housing, Hospital, Police/Fire)
Capital improvements only
Multi-purpose; various projects
Capital improvements and/or operations
Affordability
Metric
City 2016-17 Tax Rate Per $100 AV: 1.1076
Peer Group 2016-17 Median Tax Rate: 1.2168
City Capacity Tax Rate Capacity to Median: 0.1092
Dependent on type of general tax
The City's sales tax, TOT, and UUT are generally below or affordable to its peer cities
Revenue
Generation
Based on AV of $5.013 billion. Bond proceeds of $80 million assume $109 per $100,000 AV and 20 year bonds at an
average borrrowing rate of 5.5%. Conservative estimate.
Capacity and affordability could be higher based on changes to various assumptions.
Dependent on type of general tax
Benefits --Provides the easiest form of leverage
--Highest rating, lowest cost of funds
--Lowest voter threshold
--Funds multiple projects in various policy priorities
--Revenues can be used for pay-go and debt service offset --Can be used for both capital improvements and operations
Considerations
--Revenues can only be used for debt service
--Single purpose project
--Only available for capital improvements
--Funds cannot be legally earmarked
--General Fund obligation
--Must identify assets to secure the lease
--Lower rating, higher cost of funds
CITY OF EMERYVILLE REVENUE AND DEBT REPORT 31
Concluding Policy and Equity Remarks
City policymakers must evaluate the policy implications of any proposed financing program, such as who pays and who benefits, as well as the political implications–what options are most likely to garner sufficient support for their implementation. The following outlines some key areas for consideration in determining the optimal use of new or enhanced revenue sources.
Defining the Projects and Beneficiaries
As the City identifies the capital improvement projects and/or services to be funded by the additional revenue sources and debt financing mechanisms, it will want to evaluate the policy implications of such projects and services as “local improvements” impacting residents of specific communities or as “regional infrastructure” meeting the needs of the broader community.
City-Wide or Local Revenues
Some of the financing alternatives presented in this report would have City-wide impact. Taxes, such as property taxes and sales taxes, are broadly applied on a basis unrelated to the benefits of a specific service or capital improvement. There are sound public policy arguments favoring both approaches to funding local government. Other financing options considered could be targeted at specific neighborhoods, such as the creation of community facilities district through a parcel tax or an assessment district through an assessment, which would serve specific neighborhood needs.
Residential or Business Payers
Different types of levies place a burden on different sections of the community. Ad valorem property taxes are exacted against all property owners. In Emeryville, about 42% of such property taxes are paid by residents and 58% are paid by non-residents – commercial, industrial, and recreational.
Local or Visiting Taxpayers
Taxes that might be paid by visitors to or businesses in the City, such as Emeryville’s sales, business, or transient occupancy taxes could serve to lighten the total tax burden on residents. That said, decisions must be evaluated in light of the current level of taxation in these areas so as to not deter existing activity.
Equity Issues
There may be a number of other public policy issues that the City will want to address as it contemplates a plan of finance. For example, property-based taxes are often viewed as “progressive,” under the presumption that property value is a measure of wealth and therefore of the taxpayer's ability to pay.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT A-1
Attachment A: Illustrative GO Bond Sizing - $50 Million Authorization (20-YR) City of Emeryville
General Obligation Bonds
Illustrative Bond Structure Analysis
Key Bonding Assumptions:
Assessed Valuation for FY 2016-17
Secured Tax Base $4,647,598,221
Unsecured Tax Base $365,775,461
Total $5,013,373,682
Secured AV Growth Rate: 3.00%
Unsecured AV Growth Rate: 1.00%
Net tax delinquency 2% (accounted for first 5 years)
Borrowing Amount Borrowing Rate Year of Issuance
2019 Bond: 25,000,000 5.0% 2019
2021 Bond: 25,000,000 6.0% 2021
Total: $50,000,000
Tax Rate Per $100,000 AV Tax Rate Per $100,000 AV
TERM: 20-Year TERM: 30-Year
Average Tax Rate: $50.51 Average Tax Rate: $37.63
Max Tax Rate: $67.89 Max Tax Rate: $57.22
Bond/Tax Year Tax Rate Per
Ending Debt Service Secured AV Unsecured AV Tax Base $100,000 AV 8/1/2018 4,978,507,214 4,978,507,214 0.00
8/1/2019 0 5,127,862,431 376,748,725 5,504,611,156 0.00 1 8/1/2020 3,750,000 5,281,698,304 380,516,212 5,662,214,516 67.58 2 8/1/2021 3,875,000 5,440,149,253 384,321,374 5,824,470,627 67.89 3 8/1/2022 3,772,500 5,603,353,730 388,164,588 5,991,518,318 64.25 4 8/1/2023 3,772,400 5,771,454,342 392,046,234 6,163,500,576 61.21 5 8/1/2024 3,778,150 5,944,597,973 395,966,696 6,340,564,669 59.59 6 8/1/2025 3,774,800 6,122,935,912 399,926,363 6,522,862,275 57.87 7 8/1/2026 3,777,050 6,306,623,989 403,925,627 6,710,549,616 56.29 8 8/1/2027 3,774,900 6,495,822,709 407,964,883 6,903,787,592 54.68 9 8/1/2028 3,773,050 6,690,697,390 412,044,532 7,102,741,922 53.12 10 8/1/2029 3,775,950 6,891,418,312 416,164,977 7,307,583,289 51.67 11 8/1/2030 3,773,350 7,098,160,861 420,326,627 7,518,487,488 50.19 12 8/1/2031 3,775,500 7,311,105,687 424,529,893 7,735,635,580 48.81 13 8/1/2032 3,776,600 7,530,438,858 428,775,192 7,959,214,050 47.45 14 8/1/2033 3,771,350 7,756,352,023 433,062,944 8,189,414,967 46.05 15 8/1/2034 3,774,450 7,989,042,584 437,393,574 8,426,436,157 44.79 16 8/1/2035 3,775,650 8,228,713,861 441,767,509 8,670,481,371 43.55 17 8/1/2036 3,774,100 8,475,575,277 446,185,184 8,921,760,462 42.30 18 8/1/2037 3,774,800 8,729,842,536 450,647,036 9,180,489,572 41.12 19 8/1/2038 3,767,200 8,991,737,812 455,153,507 9,446,891,318 39.88 20 8/1/2039 3,771,300 9,261,489,946 459,705,042 9,721,194,988 38.79 21 8/1/2040 3,761,000 9,539,334,644 464,302,092 10,003,636,736 37.60 22 8/1/2041 3,760,000 9,825,514,684 468,945,113 10,294,459,797 36.52 $83,079,100 50.51
*Source: California Municipal Statistics Inc.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT A-2
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
Debt Service
Tax Rate
City of Emerville
$50 Million GO Illustrative Bond Sizing
20-YR Scenario
2019 Issue 2021 Issue Tax Rate Per $100,000 AV
CITY OF EMERYVILLE REVENUE AND DEBT REPORT A-3
Illustrative GO Bond Sizing - $50 Million Authorization (30-YR) City of Emeryville
General Obligation Bonds
Illustrative Bond Structure Analysis - 30 Year Scenario Key Bonding Assumptions:
Assessed Valuation for FY 201-17*
Secured Tax Base $4,647,598,221
Unsecured Tax Base $365,775,461
Total $5,013,373,682
Secured AV Growth Rate: 3.00%
Unsecured AV Growth Rate: 1.00%
Net tax delinquency 2% (accounted for first 5 years)
Borrowing Amount Borrowing Rate Year of Issuance
2019 Bond: 25,000,000 5.0% 2019
2021 Bond: 25,000,000 6.0% 2021
Total: $50,000,000
Tax Rate Per $100,000 AV Tax Rate Per $100,000 AV
TERM: 30-Year TERM: 20-Year
Average Tax Rate: $37.63 Average Tax Rate: $50.51
Max Tax Rate: $57.22 Max Tax Rate: $67.89
Bond/Tax Year Tax Rate Per
Ending Debt Service Secured AV Unsecured AV Tax Base $100,000 AV 8/1/2018 0 4,978,507,214 4,978,507,214 0.00
8/1/2019 0 5,127,862,431 376,748,725 5,504,611,156 0.00 1 8/1/2020 3,175,000 5,281,698,304 380,516,212 5,662,214,516 57.22 2 8/1/2021 3,178,750 5,440,149,253 384,321,374 5,824,470,627 55.69 3 8/1/2022 3,192,500 5,603,353,730 388,164,588 5,991,518,318 54.37 4 8/1/2023 3,192,700 5,771,454,342 392,046,234 6,163,500,576 51.80 5 8/1/2024 3,196,000 5,944,597,973 395,966,696 6,340,564,669 50.41 6 8/1/2025 3,192,100 6,122,935,912 399,926,363 6,522,862,275 48.94 7 8/1/2026 3,196,250 6,306,623,989 403,925,627 6,710,549,616 47.63 8 8/1/2027 3,192,950 6,495,822,709 407,964,883 6,903,787,592 46.25 9 8/1/2028 3,192,450 6,690,697,390 412,044,532 7,102,741,922 44.95 10 8/1/2029 3,189,500 6,891,418,312 416,164,977 7,307,583,289 43.65 11 8/1/2030 3,194,050 7,098,160,861 420,326,627 7,518,487,488 42.48 12 8/1/2031 3,195,600 7,311,105,687 424,529,893 7,735,635,580 41.31 13 8/1/2032 3,194,100 7,530,438,858 428,775,192 7,959,214,050 40.13 14 8/1/2033 3,189,600 7,756,352,023 433,062,944 8,189,414,967 38.95 15 8/1/2034 3,197,050 7,989,042,584 437,393,574 8,426,436,157 37.94 16 8/1/2035 3,190,650 8,228,713,861 441,767,509 8,670,481,371 36.80 17 8/1/2036 3,190,950 8,475,575,277 446,185,184 8,921,760,462 35.77 18 8/1/2037 3,192,400 8,729,842,536 450,647,036 9,180,489,572 34.77 19 8/1/2038 3,189,700 8,991,737,812 455,153,507 9,446,891,318 33.76 20 8/1/2039 3,192,850 9,261,489,946 459,705,042 9,721,194,988 32.84 21 8/1/2040 3,191,300 9,539,334,644 464,302,092 10,003,636,736 31.90 22 8/1/2041 3,190,050 9,825,514,684 468,945,113 10,294,459,797 30.99 23 8/1/2042 3,188,850 10,120,280,124 473,634,564 10,593,914,688 30.10 24 8/1/2043 3,192,400 10,423,888,528 478,370,910 10,902,259,438 29.28 25 8/1/2044 3,195,150 10,736,605,184 483,154,619 11,219,759,803 28.48 26 8/1/2045 3,191,800 11,058,703,339 487,986,165 11,546,689,504 27.64 27 8/1/2046 3,187,350 11,390,464,440 492,866,027 11,883,330,466 26.82 28 8/1/2047 3,191,550 11,732,178,373 497,794,687 12,229,973,060 26.10 29 8/1/2048 3,188,550 12,084,143,724 502,772,634 12,586,916,358 25.33 30 8/1/2049 3,193,350 12,446,668,036 507,800,360 12,954,468,396 24.65 31 8/1/2050 3,185,100 12,820,068,077 512,878,364 13,332,946,440 23.89 32 8/1/2051 3,180,000 13,204,670,119 518,007,147 13,722,677,266 23.17 $102,100,600 37.63
*Source: California Municipal Statistics Inc.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT A-4
-$5.00
$5.00
$15.00
$25.00
$35.00
$45.00
$55.00
$65.00
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
Tax Rate
Debt Service
City of Emerville
$50 Million GO Illustrative Bond Sizing
30-YR Scenario
2019 Issue 2021 Issue Tax Rate Per $100,000 AV
CITY OF EMERYVILLE REVENUE AND DEBT REPORT B-1
Attachment B: Illustrative GO Bond Sizing - $80 Million Authorization (20-YR) City of Emeryville
General Obligation Bonds
Illustrative Bond Structure Analysis
Key Bonding Assumptions:
Assessed Valuation for FY 2016-17
Secured Tax Base $4,647,598,221
Unsecured Tax Base $365,775,461
Total $5,013,373,682
Secured AV Growth Rate: 3.00%
Unsecured AV Growth Rate: 1.00%
Net tax delinquency 2% (accounted for first 5 years)
Borrowing Amount Borrowing Rate Year of Issuance
2019 Bond: 40,000,000 5.0% 2019
2021 Bond: 40,000,000 6.0% 2021
Total: $80,000,000
Tax Rate Per $100,000 AV Tax Rate Per $100,000 AV
TERM: 20-Year TERM: 30-Year
Average Tax Rate: $80.84 Average Tax Rate: $60.20
Max Tax Rate: $108.13 Max Tax Rate: $91.91
Bond/Tax Year Tax Rate Per
Ending Debt Service Secured AV Unsecured AV Tax Base $100,000 AV 8/1/2018 4,978,507,214 4,978,507,214 0.00
8/1/2019 0 5,127,862,431 376,748,725 5,504,611,156 0.00 1 8/1/2020 6,000,000 5,281,698,304 380,516,212 5,662,214,516 108.13 2 8/1/2021 6,000,000 5,440,149,253 384,321,374 5,824,470,627 105.12 3 8/1/2022 6,060,000 5,603,353,730 388,164,588 5,991,518,318 103.21 4 8/1/2023 6,062,100 5,771,454,342 392,046,234 6,163,500,576 98.35 5 8/1/2024 6,062,850 5,944,597,973 395,966,696 6,340,564,669 95.62 6 8/1/2025 6,062,000 6,122,935,912 399,926,363 6,522,862,275 92.93 7 8/1/2026 6,064,300 6,306,623,989 403,925,627 6,710,549,616 90.37 8 8/1/2027 6,064,150 6,495,822,709 407,964,883 6,903,787,592 87.84 9 8/1/2028 6,061,300 6,690,697,390 412,044,532 7,102,741,922 85.34 10 8/1/2029 6,060,450 6,891,418,312 416,164,977 7,307,583,289 82.93 11 8/1/2030 6,061,050 7,098,160,861 420,326,627 7,518,487,488 80.62 12 8/1/2031 6,062,550 7,311,105,687 424,529,893 7,735,635,580 78.37 13 8/1/2032 6,059,400 7,530,438,858 428,775,192 7,959,214,050 76.13 14 8/1/2033 6,066,300 7,756,352,023 433,062,944 8,189,414,967 74.07 15 8/1/2034 6,062,150 7,989,042,584 437,393,574 8,426,436,157 71.94 16 8/1/2035 6,061,950 8,228,713,861 441,767,509 8,670,481,371 69.91 17 8/1/2036 6,064,850 8,475,575,277 446,185,184 8,921,760,462 67.98 18 8/1/2037 6,060,050 8,729,842,536 450,647,036 9,180,489,572 66.01 19 8/1/2038 6,057,250 8,991,737,812 455,153,507 9,446,891,318 64.12 20 8/1/2039 6,060,600 9,261,489,946 459,705,042 9,721,194,988 62.34 21 8/1/2040 6,054,000 9,539,334,644 464,302,092 10,003,636,736 60.52 22 8/1/2041 5,830,000 9,825,514,684 468,945,113 10,294,459,797 56.63 $132,997,300 80.84
*Source: California Municipal Statistics Inc.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT B-2
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
Debt Service
Tax Rate
City of Emerville
$80 Million GO Illustrative Bond Sizing
20-YR Scenario
2019 Issue 2021 Issue Tax Rate Per $100,000 AV
CITY OF EMERYVILLE REVENUE AND DEBT REPORT B-3
Illustrative GO Bond Sizing - $80 Million Authorization (30-YR) City of Emeryville
General Obligation Bonds
Illustrative Bond Structure Analysis - 30 Year Scenario Key Bonding Assumptions:
Assessed Valuation for FY 201-17*
Secured Tax Base $4,647,598,221
Unsecured Tax Base $365,775,461
Total $5,013,373,682
Secured AV Growth Rate: 3.00%
Unsecured AV Growth Rate: 1.00%
Net tax delinquency 2% (accounted for first 5 years)
Borrowing Amount Borrowing Rate Year of Issuance
2019 Bond: 40,000,000 5.0% 2019
2021 Bond: 40,000,000 6.0% 2021
Total: $80,000,000
Tax Rate Per $100,000 AV Tax Rate Per $100,000 AV
TERM: 30-Year TERM: 20-Year
Average Tax Rate: $60.20 Average Tax Rate: $80.84
Max Tax Rate: $91.91 Max Tax Rate: $108.13
Bond/Tax Year Tax Rate Per
Ending Debt Service Secured AV Unsecured AV Tax Base $100,000 AV 8/1/2018 0 4,978,507,214 4,978,507,214 0.00
8/1/2019 0 5,127,862,431 376,748,725 5,504,611,156 0.00 1 8/1/2020 5,100,000 5,281,698,304 380,516,212 5,662,214,516 91.91 2 8/1/2021 5,120,000 5,440,149,253 384,321,374 5,824,470,627 89.70 3 8/1/2022 5,101,250 5,603,353,730 388,164,588 5,991,518,318 86.88 4 8/1/2023 5,105,800 5,771,454,342 392,046,234 6,163,500,576 82.84 5 8/1/2024 5,102,050 5,944,597,973 395,966,696 6,340,564,669 80.47 6 8/1/2025 5,100,300 6,122,935,912 399,926,363 6,522,862,275 78.19 7 8/1/2026 5,105,250 6,306,623,989 403,925,627 6,710,549,616 76.08 8 8/1/2027 5,106,350 6,495,822,709 407,964,883 6,903,787,592 73.96 9 8/1/2028 5,103,600 6,690,697,390 412,044,532 7,102,741,922 71.85 10 8/1/2029 5,102,000 6,891,418,312 416,164,977 7,307,583,289 69.82 11 8/1/2030 5,101,300 7,098,160,861 420,326,627 7,518,487,488 67.85 12 8/1/2031 5,106,200 7,311,105,687 424,529,893 7,735,635,580 66.01 13 8/1/2032 5,106,150 7,530,438,858 428,775,192 7,959,214,050 64.15 14 8/1/2033 5,106,150 7,756,352,023 433,062,944 8,189,414,967 62.35 15 8/1/2034 5,105,900 7,989,042,584 437,393,574 8,426,436,157 60.59 16 8/1/2035 5,100,150 8,228,713,861 441,767,509 8,670,481,371 58.82 17 8/1/2036 5,103,900 8,475,575,277 446,185,184 8,921,760,462 57.21 18 8/1/2037 5,101,300 8,729,842,536 450,647,036 9,180,489,572 55.57 19 8/1/2038 5,102,350 8,991,737,812 455,153,507 9,446,891,318 54.01 20 8/1/2039 5,101,500 9,261,489,946 459,705,042 9,721,194,988 52.48 21 8/1/2040 5,103,500 9,539,334,644 464,302,092 10,003,636,736 51.02 22 8/1/2041 5,102,750 9,825,514,684 468,945,113 10,294,459,797 49.57 23 8/1/2042 5,104,000 10,120,280,124 473,634,564 10,593,914,688 48.18 24 8/1/2043 5,106,700 10,423,888,528 478,370,910 10,902,259,438 46.84 25 8/1/2044 5,105,250 10,736,605,184 483,154,619 11,219,759,803 45.50 26 8/1/2045 5,104,400 11,058,703,339 487,986,165 11,546,689,504 44.21 27 8/1/2046 5,103,600 11,390,464,440 492,866,027 11,883,330,466 42.95 28 8/1/2047 5,102,250 11,732,178,373 497,794,687 12,229,973,060 41.72 29 8/1/2048 5,099,850 12,084,143,724 502,772,634 12,586,916,358 40.52 30 8/1/2049 5,105,800 12,446,668,036 507,800,360 12,954,468,396 39.41 31 8/1/2050 5,114,000 12,820,068,077 512,878,364 13,332,946,440 38.36 32 8/1/2051 5,141,000 13,204,670,119 518,007,147 13,722,677,266 37.46 $163,374,600 60.20
*Source: California Municipal Statistics Inc.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT B-4
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
$100.00
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
Tax Rate
Debt Service
City of Emerville
$80 Million GO Illustrative Bond Sizing
30-YR Scenario
2019 Issue 2021 Issue Tax Rate Per $100,000 AV
CITY OF EMERYVILLE REVENUE AND DEBT REPORT C-1
Attachment C: Illustrative General Tax / Lease Revenue Bond Sizing City of Emeryville
Lease Revenue Bonds with General Tax Debt Service Offset Debt Term 20 Year 30 Year
Total Proceeds $ 49,810,000 $ 61,440,000
Total Principal 49,810,000 61,440,000
Total Interest 30,129,000 58,465,250
Total Debt Service $ 79,939,000 $ 119,905,250
Annual Sales Tax Receipts 4,000,000 4,000,000
Total Sales Tax Receipts $ 80,000,000 $ 120,000,000
Annual Lease Revenue Bond Debt Service Payment Schedule Fiscal General Sales 20-YR 20-YR 20-YR 30-YR 30-YR 30-YR Year Year Tax Dollars Principal Interest Debt Service Principal Interest Debt Service 1 2020 4,000,000 1,505,000 2,490,500 3,995,500 925,000 3,072,000 3,997,000 2 2021 4,000,000 1,580,000 2,415,250 3,995,250 970,000 3,025,750 3,995,750 3 2022 4,000,000 1,660,000 2,336,250 3,996,250 1,020,000 2,977,250 3,997,250 4 2023 4,000,000 1,745,000 2,253,250 3,998,250 1,070,000 2,926,250 3,996,250 5 2024 4,000,000 1,830,000 2,166,000 3,996,000 1,125,000 2,872,750 3,997,750 6 2025 4,000,000 1,925,000 2,074,500 3,999,500 1,180,000 2,816,500 3,996,500 7 2026 4,000,000 2,020,000 1,978,250 3,998,250 1,240,000 2,757,500 3,997,500 8 2027 4,000,000 2,120,000 1,877,250 3,997,250 1,300,000 2,695,500 3,995,500 9 2028 4,000,000 2,225,000 1,771,250 3,996,250 1,365,000 2,630,500 3,995,500 10 2029 4,000,000 2,335,000 1,660,000 3,995,000 1,435,000 2,562,250 3,997,250 11 2030 4,000,000 2,455,000 1,543,250 3,998,250 1,505,000 2,490,500 3,995,500 12 2031 4,000,000 2,575,000 1,420,500 3,995,500 1,580,000 2,415,250 3,995,250 13 2032 4,000,000 2,705,000 1,291,750 3,996,750 1,660,000 2,336,250 3,996,250 14 2033 4,000,000 2,840,000 1,156,500 3,996,500 1,745,000 2,253,250 3,998,250 15 2034 4,000,000 2,985,000 1,014,500 3,999,500 1,830,000 2,166,000 3,996,000 16 2035 4,000,000 3,130,000 865,250 3,995,250 1,925,000 2,074,500 3,999,500 17 2036 4,000,000 3,290,000 708,750 3,998,750 2,020,000 1,978,250 3,998,250 18 2037 4,000,000 3,455,000 544,250 3,999,250 2,120,000 1,877,250 3,997,250 19 2038 4,000,000 3,625,000 371,500 3,996,500 2,225,000 1,771,250 3,996,250 20 2039 4,000,000 3,805,000 190,250 3,995,250 2,335,000 1,660,000 3,995,000 21 2040 4,000,000 2,455,000 1,543,250 3,998,250
22 2041 4,000,000 2,575,000 1,420,500 3,995,500
23 2042 4,000,000 2,705,000 1,291,750 3,996,750
24 2043 4,000,000 2,840,000 1,156,500 3,996,500
25 2044 4,000,000 2,985,000 1,014,500 3,999,500
26 2045 4,000,000 3,130,000 865,250 3,995,250
27 2046 4,000,000 3,290,000 708,750 3,998,750
28 2047 4,000,000 3,455,000 544,250 3,999,250
29 2048 4,000,000 3,625,000 371,500 3,996,500
30 2049 4,000,000 3,805,000 190,250 3,995,250
TOTAL: $ 120,000,000 $ 49,810,000 $ 30,129,000 $ 79,939,000 $ 61,440,000 $ 58,465,250 $ 119,905,250 Assumes 5% borrowing rate.
CITY OF EMERYVILLE REVENUE AND DEBT REPORT D-1
Attachment D: California Municipal Statistics Reports
CITY OF EMERYVILLE
Assessed Valuations
Local Secured Utility Unsecured Total
2012-13 $3,563,608,448 $523,096 $351,830,065 $3,915,961,609 2013-14 3,701,009,834 523,096 345,138,517 4,046,671,447 2014-15 3,903,416,646 74,276 318,089,008 4,221,579,930
2015-16 4,391,582,455 74,276 325,594,592 4,717,251,323
2016-17 4,647,598,221 74,276 365,775,461 5,013,447,958
Typical Tax Rates Per $100 of Assessed Valuation
TRA 14-003 (2016-17 Assessed Valuation: $2,340,367,621) 2012-13 2013-14 2014-15 2015-16 2016-17
General Tax Rate 1.0000 1.0000 1.0000 1.0000 1.0000
Emery Unified School District .0663 .0874 .0759 .0682 .0680 Peralta Community College District .0434 .0419 .0412 .0337 .0256 Bay Area Rapid Transit District .0043 .0075 .0045 .0026 .0080 East Bay Regional Park District .0051 .0078 .0085 .0067 .0032 East Bay Municipal Utility District
Special District No. 1 .0068 .0066 .0047 .0034 .0028
Total Tax Rate 1.1259 1.1512 1.1348 1.1146 1.1076
CITY OF EMERYVILLE REVENUE AND DEBT REPORT D-2
CITY OF ALAMEDA
Assessed Valuations
Local Secured Utility Unsecured Total
2012-13 $ 8,916,551,434 $10,495,070 $496,000,269 $ 9,423,046,773 2013-14 9,462,141,169 10,495,038 476,558,073 9,949,194,280 2014-15 10,067,110,668 7,211,614 457,262,328 10,531,584,610 2015-16 10,681,362,114 7,211,614 466,708,505 11,155,282,233 2016-17 11,396,899,575 7,211,614 454,198,686 11,858,309,875 Typical Tax Rates per $100 of Assessed Valuation
TRA 21-000 (2016-17 Assessed Valuation: $9,567,425,619) 2012-13 2013-14 2014-15 2015-16 2016-17
General Tax Rate 1.0000 1.0000 1.0000 1.0000 1.0000
Alameda Unified School District .0553 .0534 .0503 .1043 .0967 Peralta Community College District .0434 .0419 .0412 .0337 .0256 Bay Area Rapid Transit District .0043 .0075 .0045 .0026 .0080 East Bay Regional Park District .0051 .0078 .0085 .0067 .0032 East Bay Municipal Utility District Special District No. 1 .0068 .0066 .0047 .0034 .0028 City of Alameda .0260 .0260 .0250 .0240 .0230
Total Tax Rate 1.1409 1.1432 1.1342 1.1747 1.1593
CITY OF EMERYVILLE REVENUE AND DEBT REPORT D-3
CITY OF ALBANY
Assessed Valuations
Local Secured Utility Unsecured Total
2012-13 $1,955,413,661 $56,096 $26,961,117 $1,982,430,874 2013-14 2,058,756,847 56,096 25,902,237 2,084,715,180
2014-15 2,142,888,995 362 25,834,706 2,168,724,063
2015-16 2,294,775,462 362 23,053,866 2,317,829,690
2016-17 2,432,133,221 362 24,693,082 2,456,826,665
Typical Tax Rates per $100 of Assessed Valuation
2012-13 2013-14 2014-15 2015-16 2016-17
County-wide 1.0000 1.0000 1.0000 1.0000 1.0000
Albany Unified School District .1598 .1591 .1586 .1440 .2000 Peralta Community College District .0434 .0419 .0412 .0337 .0256 Bay Area Rapid Transit District .0043 .0075 .0045 .0026 .0080 East Bay Regional Park .0051 .0078 .0085 .0067 .0032
East Bay Municipal Utility District, Special District No. 1 .0068 .0066 .0047 .0034 .0028 City of Albany .1620 .1577 .0563 .0526 .0930
Total 1.3814 1.3806 1.2738 1.2430 1.3326
CITY OF EMERYVILLE REVENUE AND DEBT REPORT D-4
CITY OF BERKELEY
Assessed Valuations
Local Secured Utility Unsecured Total
2012-13 $12,834,926,300 $555,664 $673,174,230 $13,508,656,194 2013-14 13,686,258,913 555,664 677,170,723 14,363,985,300 2014-15 14,233,336,490 630,615 658,272,178 14,892,239,283 2015-16 15,342,135,061 388,860 702,569,323 16,045,093,244 2016-17 16,317,650,893 388,860 711,168,669 17,029,208,422 Typical Tax Rates per $100 of Assessed Valuation
TRA 13-000 (2016-17 Assessed Valuation: $16,571,365,857) 2012-13 2013-14 2014-15 2015-16 2016-17
General Tax Rate 1.0000 1.0000 1.0000 1.0000 1.0000
Berkeley Unified School District .1406 .1544 .1353 .1321 .1327 Peralta Community College District .0434 .0419 .0412 .0337 .0256 Bay Area Rapid Transit District .0043 .0075 .0045 .0026 .0080 East Bay Regional Park District .0051 .0078 .0085 .0067 .0032 East Bay Municipal Utility District Special District No. 1.0068 .0066 .0047 .0034 .0028 City of Berkeley .0470 .0535 .0505 .0433 .0445
Total Tax Rate 1.2472 1.2717 1.2447 1.2218 1.2168
CITY OF EMERYVILLE REVENUE AND DEBT REPORT D-5
CITY OF OAKLAND
Assessed Valuations
Local Secured Utility Unsecured Total
2012-13 $36,395,895,158 $16,985,541 $3,481,349,291 $39,894,229,990 2013-14 37,629,227,426 16,319,551 3,528,280,219 41,173,827,196 2014-15 40,225,963,094 15,070,688 3,522,788,188 43,763,821,970 2015-16 44,304,800,877 20,517,048 3,475,263,155 47,800,581,080 2016-17 47,401,607,176 24,317,524 3,932,787,995 51,358,712,695 Typical Tax Rates per $100 of Assessed Valuation
TRA 17-001 (2016-17 Assessed Valuation: $23,762,043,786) 2012-13 2013-14 2014-15 2015-16 2016-17
General 1.0000 1.0000 1.0000 1.0000 1.0000
Oakland Unified School District Bonds .1384 .1780 .1745 .1539 .1151 Oakland Unified School District State Loan .0000 .0000 .0000 .0000 .0000 Peralta Community College District Bonds .0434 .0419 .0412 .0337 .0256 Bay Area Rapid Transit District .0043 .0075 .0045 .0026 .0080 East Bay Regional Park District Bonds .0051 .0078 .0085 .0067 .0032 East Bay Municipal Utility District Bonds .0068 .0066 .0047 .0034 .0028 City of Oakland .2077 .1985 .2042 .1651 .1961
Total 1.4057 1.4403 1.4376 1.3654 1.3508
CITY OF EMERYVILLE REVENUE AND DEBT REPORT D-6
CITY OF PIEDMONT
Assessed Valuations
Local Secured Utility Unsecured Total
2012-13 $3,200,144,235 $0 $3,284,951 $3,203,429,186
2013-14 3,378,910,933 0 3,558,461 3,382,469,394
2014-15 3,547,898,410 0 4,521,255 3,552,419,665
2015-16 3,840,794,553 0 5,141,847 3,845,936,400
2016-17 4,059,401,036 0 5,637,996 4,065,039,032
Typical Tax Rates per $100 of Assessed Valuation
TRA 18-000 (2016-17 Assessed Valuation: $4,065,039,032) 2012-13 2013-14 2014-15 2015-16 2016-17
General Tax Rate 1.0000 1.0000 1.0000 1.0000 1.0000
Piedmont Unified School District .1529 .1590 .1468 .1440 .1243 Peralta Community College District .0434 .0419 .0412 .0337 .0256 Bay Area Rapid Transit District .0043 .0075 .0045 .0026 .0080 East Bay Regional Park District .0051 .0078 .0085 .0067 .0032 East Bay Municipal Utility District Special District No. 1 .0068 .0066 .0047 .0034 .0028 Total Tax Rate 1.2125 1.2228 1.2057 1.1904 1.1639
CITY OF SAN LEANDRO
CITY COUNCIL ANNUAL PLANNING SESSION
Discussion of San Leandro Revenues
February 25, 2023
Introduction: KNN Public Finance
1 MELISSA SHICK
Director
[email protected]
(510) 208 – 8226
17 years as public agency staff, public finance
banker, and municipal advisor
Diverse city client base – non-transaction
consulting services and various financing
types and structures
42 years experience as city staff, rating
analyst, and municipal advisor
Active in capital planning, alternatives
analysis, revenue analysis, policy
development
DAVID BRODSLY
Managing Director
[email protected]
(510) 208 – 8205
Discussion Objectives
2 1) PROVIDE BACKGROUND OF SAN LEANDRO REVENUES
» Current Revenue Sources
» Prior Voter Approval Successes
2) ESTABLISH LEGAL FRAMEWORK FOR REVENUES IN CALIFORNIA » California Constitution
» Voter Approval
3) REVIEW CALIFORNIA CITY REVENUES
» Basic characteristics and requirements
» Observations specific to San Leandro and its tax base 4) HIGHLIGHT FINANCING TOOLS TO LEVERAGE REVENUES
Background:
San Leandro Revenues
San Leandro General Purpose
Revenue Sources
4 SALES
TAXES
OTHER 42%
REVENUES
21%
UTILITY
USER
TAX
9%
Source: City of San Leandro Annual Comprehensive Financial Report for the year ending June 30,2022.
Sales Tax $54,686
Property Tax 27,773 Property Transfer Tax 14,957
Utility User Tax 11,612
Franchise Fee 5,951 911 Communication 3,388
Cannabis Tax 1,020
TOT 685 Other1
109
TOTAL $120,181
SAN LEANDRO GENERAL REVENUES
FY 2021-22 ($000)
1. Includes various taxes, assessments, charges, and
other income.
SALES TAX
45%
PROPERTY TAX
23%
PROPERTY
TRANSFER TAX
12%
UTILITY USER
TAX
10%
FRANCHISE FEE
5%
911 COMM
3%
CANNABIS TAX
1% TOT
1%
San Leandro Voter Approval Successes
5 MEASURE Z (NOVEMBER 2010):
¼ cent sales tax, 7-year sunset
MEASURE HH (NOVEMBER 2014):
Extended Measure Z at ½ cent rate, 30-year sunset
Maintained existing service levels
MEASURES OO, PP, NN (NOVEMBER 2016):
Small business license tax reduction, parking lot (10% of gross receipts) & warehouse tax ($100/$1,000 square feet) Modified T.O.T. (hotel tax) from 10% to 14%
Cannabis business tax (currently 5% of gross receipts) MEASURE VV (NOVEMBER 2020):
Increased real property transfer tax from $6/$1,000 to $11/$1,000
SAN LEANDRO
VOTERS AUTHORIZED
6 TAX MEASURES
SINCE 2010…
Legal Framework for
New Taxes and Fees
What Is a Tax?
7 A TAX NEED NOT BE
LEVIED IN
PROPORTION TO
SPECIFIC BENEFIT TO
A PERSON OR
PROPERTY
A TAX is a charge imposed to fund public services and facilities
According to the California Constitution, every local agency charge is a “tax,” unless it falls into a list of specified exceptions:
» User fees for specific benefit or service
» Regulatory fees for cost of issuing licenses/permits
» Rental fees for entrance or use of property
» Fines and penalties such as parking and enforcement
» Charge imposed as a condition of property
development
Cities may impose any tax not otherwise prohibited by state law » Cigarettes, alcohol and personal income are prohibited from local taxation (all used for the State’s own purposes)
Types of Taxes
8 GENERAL TAXES
(CITIES AND COUNTIES)
SPECIAL TAXES
(CITIES, COUNTIES, SPECIAL DISTRICTS)
Use of Revenues Unrestricted Specific Purpose
Types of Tax
Sales Tax
Business Tax
Transient Occupancy Tax
Utility Users Tax
Sales Tax
Parcel Tax
Voter Approval1 Majority Two-thirds
California Constitution distinguishes between a general tax and a special tax » GENERAL TAX revenues may be used for any purpose; although ballot measure can suggest the purposes for which it would likely be used, but cannot commit to specific application
» SPECIAL TAX revenues must be used for a specific purpose
1. Required for the implementation of a new tax and an increase or extension to an existing tax.
What is a Fee?
9 A FEE MAY NOT
EXCEED THE
ESTIMATED
REASONABLE COST
OF PROVIDING THE
SERVICE OR
PRODUCT FOR
WHICH THE FEE IS
CHARGED, PLUS
OVERHEAD
A fee is a charge imposed on an individual for
a service that the person chooses to receive
Cities have the general authority to impose
fees, charges, and rates granted by the
California Constitution (Article XI, Sections 7
and 9)
State law sets specific procedures for fee and
rate adoption
» Proposition 218 provides special rules
for property- related fees used to fund
property-related services
Limitations for Raising Local Revenues
in California
10 PRIMARY LIMITATIONS ON RAISING LOCAL
REVENUES:
Property taxes may not be increased except with a twothirds vote to pay debt service on general obligation bonds
The allocation of local property tax among a county and cities, special districts and school districts within each county is controlled by the Legislature and based on preProposition 13 historic allocation Voter approval is required prior to enacting, increasing or extending any type of local tax
Assessments to pay for public facilities limited to strict benefit analysis and require property owner approval
Fees for services such as water, sewer and trash
collection are subject to property owner majority protest OPTIONS AVAILABLE
TO LOCAL OFFICIALS
FOR RAISING
REVENUES TO
PROVIDE NECESSARY
SERVICES ARE LIMITED
BY CALIFORNIA
CONSTITUTION’S
REQUIREMENTS FOR
VOTER APPROVAL
California City Revenues
City Revenue Categories
12 Municipal revenues can generally be separated into two broad categories:
GENERAL PURPOSE REVENUES:
Can be used for any legitimate public purpose
General purpose taxes, including property taxes and sales taxes, account for most general city revenues statewide SPECIAL REVENUES:
Restricted by law to a particular use
Include funds derived from fees or rates that the local agency charges for public services, including municipal utilities such as water, sewer, and garbage collection, airports, marinas, harbors and water ports
Also includes most state or federal grants as they are usually restricted for specific programs
WHEN A CITY
CONSIDERS REVENUE
RAISING STRATEGIES
TO MEET
COMMUNITY AND
BUDGETARY NEEDS,
GENERAL PURPOSE
REVENUES TEND TO
BE THE PRIMARY
TARGET FOR
ENHANCING OR
EXPANDING ITS
REVENUE
FRAMEWORK
California City Revenue Sources
13 Source: A Primer on California City Revenues, Part One: Revenue Basics; November 16; www.californiacityfinance.com.
TOT 2%
THE MIX OF SERVICE
RESPONSIBILITIES
AND LOCAL
CHOICE
REGARDING
SERVICE LEVELS
AFFECTS THE
AMOUNT AND
COMPOSITION OF
REVENUES FROM
CITY TO CITY
Revenue Raising Strategies
14 ENHANCE EXISTING REVENUE SOURCES:
Property Taxes: Voter approved ad valorem tax (for capital only) Sales Taxes: Incremental general tax or special tax
Other Taxes and Fees: Utility User Tax, Transient Occupancy Tax, Cannabis Tax, or Franchise Fees through increases to existing rate
Most recently, in November 2020, voters approved an increase to San Leandro’s Property Transfer Tax Rate to $11 per $1,000 from $6 per $1,000 ESTABLISH NEW REVENUE SOURCES:
Other Taxes
» Parcel Tax, Business License Tax (above current regulatory rate) » “Innovative Taxes”…Vacant Property, Property Transfer Wealth Tax, Card Clubs Other Fees & Charges
» Benefit Assessment, User Fees
Property Taxes
>>Enhance Existing Revenue Sources
15 PROPERTY TAX: imposed on “real property” (land and buildings) and tangible personal property (movable property such as boats, aircraft and business equipment)
The property tax rate is applied to the assessed valuation (AV) of the property » The property tax rate levied for general purposes is 1% of AV plus voterapproved incremental rates to fund indebtedness (general obligation bonds) AV of real property is the “full cash value” of the property in 1975-76 or at change of ownership, whichever is more recent
» Adjusted annually by CPI, not to exceed an annual increase of 2% » AV becomes the new purchase price upon change in ownership Property tax allocations among local agencies vary due to differences in the service responsibilities among agencies serving different areas and differences in the tax rates enacted by those agencies prior to Proposition 13 in 1978
SAN LEANDRO ASSESSED VALUATION
San Leandro Property Tax Base and Rates
16 SAN LEANDRO PROPERTY TAX RATE
(PER $1,000 OF AV)
$-
$2
$4
$6
$8
$10
$12
$14
$16
$18
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Billions FISCAL
YEAR
TOTAL AV
($000s)
%
CHANGE
2014 10,560,253 $ -
2015 10,524,399 $ -0.34%
2016 11,295,832 $ 7.33%
2017 11,795,464 $ 4.42%
2018 12,516,114 $ 6.11%
2019 13,315,575 $ 6.39%
2020 14,205,470 $ 6.68%
2021 14,848,485 $ 4.53%
2022 15,407,010 $ 3.76%
2023 16,409,373 $ 6.51%
SAN LEANDRO
HISTORICAL AV San Leandro’s 10-year
compound average
growth in AV is 5.09%
Revenue grows as a
result of a growing tax
base
BASIC CITY AND COUNTY
City of San Leandro 0.157525
County of Alameda 0.150052
School Districts 0.634383
Special Districts 0.058041
Total Basic Levy 1.000000
OVERRIDE ASSESSMENTS
County GO 0.003600
K-14 GO 0.198400
Transportation and Parks GO 0.015300
Total Override Rate 0.217300
TOTAL TAX RATE 1.217300
Ad Valorem Property Taxes for GO Bonds
17 REQUIREMENTS
Date of Election Any Tuesday (except within 45 days of a State-wide election unless at the same time)
Eligible Issuers Any local governmental entity with statutory authority and the power to tax real property
Eligible Purposes Acquisition and improvement of real property Governing Board Approval Two-thirds vote for cities
Voter Approval Two-thirds
AD VALOREM PROPERTY TAX Only mechanism for increasing tax rate is with two-thirds voter approval and only to acquire or improve real property through the issuance of General Obligation Bonds
» Article XVI, Section 18 (Second California Constitution, 1879): two-thirds favorable vote required for bonds of cities, counties, and school districts » Article XIIIA, Section 1(b) (Proposition 46, 1986): exception from 1% real property tax limit for taxes to pay voter-approved general obligation bonds Property tax revenue is levied and used to pay debt service on the GO Bonds Sales & Use Taxes
>> Enhance Existing Revenue Sources
18 SALES & USE TAXES: A sales tax is imposed on the total retail price of any tangible personal property; a use tax is imposed on the purchaser for transactions for which the sales tax is not collected
Comprised of a state sales tax, the 1% Bradley-Burns sales tax for cities, and several other components
Cities may impose additional sales and use taxes in increments of 0.125% with certain approvals:
» Two-thirds City Council approval
» Majority voter approval for a general tax
» Two-thirds voter approval for a special tax
The combined rate of the city and county transaction and use taxes is capped at 2% in most counties (Alameda County is 3.5%)
Source: A Primer on California City Revenues, Part One: Revenue Basics; November 16; www.californiacityfinance.com.
San Leandro Sales & Use Taxes
19 STATE BASE SALES AND USE TAX RATE = 7.25%
LOCAL AD-ON SALES AND USE TAXES IN SAN LEANDRO = 3.50%
Of the State’s base sales
tax rate of 7.25%, 1% is
allocated for cities and the
remaining 6.25% is
directed toward State and
countywide uses
San Leandro and other
cities within Alameda
County have the highest
sales tax rate in the State
at 10.75%
Increases to the City’s
sales tax rate would
require State legislation
TAX AREA DISTRICT NAME RATE
EFFECTIVE
DATE
Children’s Health and Child Care 0.50% 7/1/2021
Essential Health Care Services 0.50% 7/1/2004
Alameda County 0.50% 7/1/2021
Alameda County Transportation Commission 0.50% 4/1/2015 Alameda County Transportation Commission 0.50% 4/1/2022 Bay Area Rapid Transit District 0.50% 4/1/1970
SAN LEANDRO City of San Leandro 0.50% 4/1/2015
TOTAL LOCAL ADD-ON SALES TAX 3.50%
TOTAL STATE + LOCAL ADD-ON SALES TAX 10.75%
ALAMEDA
COUNTY
Other Taxes
>> Enhance Existing Revenue Sources
20 UTILITY USER TAX (UUT)
Imposed by a city on the consumption of utility services, including (but not limited to) electricity, gas, water, sewer, telephone (including cell phone and long distance), sanitation, and cable television
PROPERTY TRANSFER TAX
Imposed by a city or county when the ownership of a property changes hands
CANNABIS ADD-ON TAX
The state imposes an excise tax of 15% and a state retail tax of 7.25% on gross receipts
Municipalities can add on as much as 15% more in local cannabis business taxes
TRANSIENT OCCUPANCY TAX (TOT)
Imposed by most cities on persons staying thirty days or less in hotels, motels and similar lodgings, including mobile homes
San Leandro Other Tax Revenues &
Tax Rates
21 Source: CaliforniaCityFinance.com from League of Calif Cities and UUTINFO.ORG Survey Data. Maximum California City tax rates based on various points in time; TOT as of November 2020; UUT as of February 2021; Property Transfer Tax as of March 2022. San Leandro could consider increasing the rate structure for existing tax revenues
» The Property Transfer Tax rate was recently increased in November 2020 » TOT is near the maximum rate charged by cities and does not generate meaningful revenues for the City
» Increases to UUT would likely provide the biggest impact to City revenues, but not typically popular among voters
FY 2022
REVENUES
($000)
SAN
LEANDRO
TAX RATE
CA CITY
MAX
TAX RATE
PROPERTY TRANSFER TAX $14,957 $11/$1,000 $13/$1,000
UTILITY USER TAX $11,612
Phone, Electricity, Gas 6.0% 11.0%
Telecom, Cable 5.7% 11.0%
Prepaid Wireless 5.5% 11.0%
CANNABIS ADD-ON TAX $1,020
Dispensaries 5.0% 15.0%
Manufacturers 3.0% N/A
Lab Testing 2.0% N/A
TRANSIENT OCCUPANCY TAX $685 15.0% 15.5%
TOTAL OTHER TAX REVS: $28,274
Parcel Taxes
>>Establish New Revenue Sources
22 PARCEL TAX: tax on property levied on a basis other than value
» Must be a special tax requiring two-thirds voter
approval
Most useful for operations and services where GO Bonds, which are limited to capital, are not an available option Local parcel taxes can be structured in a variety of ways
1. Flat tax for all parcels
2. Taxes based on square footage of improvements
» Tax for vacant property
3. More complicated tax structures may have legal hurdles
SAN LEANDRO PARCEL
COUNT
RESIDENTIAL: 22,730
COMMERCIAL: 2,277
TOTAL: 25,007
Other Taxes and Assessments
>>Establish New Revenue Sources
23 BUSINESS LICENSE TAX (BLT)
The City currently imposes a Business License for regulatory purposes but could charge at a higher rate to raise revenues for general municipal purposes (i.e. a “tax”)
VACANT PROPERTY TAX
Oakland is first city in California to adopt such a tax (Measure W) Applies to properties in use <50 days/year; $6,000 per parcel; $3,000 for condominiums, townhouses & duplexes
SPECIAL BENEFIT ASSESSMENTS
Charges levied to pay for public improvements or services within a predetermined district or area, according to the benefit the parcel receives from the improvement or services
The state Constitution requires strict demonstration of benefit and propertyowner approval to impose a benefit assessment 24 Summary
Raising significant new revenues would require voter approval » All practical options require taxes
» Non-tax measures such as assessments have legal and practical barriers Taxes for restricted uses (special taxes) require two-thirds voter approval » A general tax, most likely a local sales tax measure, can be passed with 50% approval
» Recent court rulings have suggested that a “special tax” initiative by citizen petition can be approved with 50% approval (may still be subject to challenge)
Primary two-third voter approval options
» General obligation bonds, for which ad valorem property tax is raised to finance improvements and service the debt
» Parcel tax on property on a basis other than ad valorem » “Special” supplemental local sales tax
Leveraging Revenue Sources
26 California Constitution
What is “Debt” and What is Not
CALIFORNIA CONSTITUTION
DEBT LIMIT
Article 16, Section 18
(2/3 vote generally required)
EXCEPTIONS TO THE
DEBT LIMIT
EXCEPTION 1
Current Fiscal Year
(eg. TRANs)
EXCEPTION 2
Contingent Obligations
(eg. COPs, LRBs)
EXCEPTION 3
Special Fund
Obligations
(eg. Revenue Bonds)
EXCEPTION 4
Obligations Imposed by
Law
(eg. POBs)
GENERAL OBLIGATION BONDS
True Indebtedness
Most likely financing approach for San Leandro
27 Types of Revenues and
Financing Mechanisms
REPAYMENT SOURCE TYPE OF FINANCING VOTERAPPROVED?
PAID FROM
GENERAL FUND
Lease Revenue Bonds/Certificates of
Participation (COPs)
Pension Obligation Bonds
Tax and Revenue Anticipation Notes
(TRANS)
No
PAID FROM
ENTERPRISE REVENUES
(WATER, WASTEWATER,
ETC.)
Enterprise Revenue Bonds
Installment Purchase COPs
No
PAID FROM SPECIAL
TAXES
General Obligation Bonds (GO Bonds)
Limited Tax Bonds (Sales Tax Revenue
Bonds)
Special Tax or Assessment Bonds
Yes
28 Illustrative Debt Sizing Analysis
>> Lease Revenue Bonds – No Voter Approval
The City receives Measure BB sales tax revenues (through ACTC) to support local paratransit, streets and roads, and bike/ped programs A bond program supported by Measure BB revenues can be implemented in two ways:
i. GENERAL FUND BONDS: Bonds secured by the City General Fund utilizing the City’s annual Measure BB direct allocation to pay debt service ii. REVENUE BONDS: Bonds secured solely by the Measure BB annual direct allocation
1. Estimated term of the Bonds assumes issuance in 2023 and a final term of 2045, consistent with the Measure BB sales tax term.
2. Based on FY 2021-22 revenues reported in the Measure BB Special Revenue Fund.
MEASURE BB DEBT SIZING AND CAPACITY ANALYSIS
BOND ASSUMPTIONS
Bond Term122 22 22
Interest Rate 5% 5% 5%
Cost of Issuance and Reserves 1% 1% 1%
CAPACITY ANALYSIS
Leverage Constraint 1.2x 1.5x 2.0x
Measure BB Revenues2$5,900,000 $5,900,000 $5,900,000
Maximum Debt Service $4,916,667 $3,933,333 $2,950,000
Measure BB PAYGO $983,333 $1,966,667 $2,950,000
Bonding Capacity $64,718,096 $51,774,477 $38,830,858
Net Proceeds to City $64,070,915 $51,256,732 $38,442,549 29 Illustrative Debt Sizing Analysis
>> General Obligation Bonds – Voter Approval
The City could seek voter approval to acquire or improve real property through the issuance of GO Bonds
GO Bond authorization would be based on project needs and tax-payer affordability
Incremental property tax revenues would be levied and used to pay principal and interest on the GO Bonds
GO BOND DEBT SIZING AND CAPACITY ANALYSIS
BOND ASSUMPTIONS
Bond Term120 25 30
Interest Rate 5% 5% 5%
Cost of Issuance and Reserves 0.5% 0.5% 0.5%
CAPACITY ANALYSIS
Assumed Annual Debt Service2$5,616,981 $5,676,197 $5,854,629 Bonding Capacity $70,000,000 $80,000,000 $90,000,000
Net Proceeds to City $69,650,000 $79,600,000 $89,550,000
PROPERTY TAX LEVY
FY 2022-23 Asssed Valuation
($000) $16,409,373 $16,409,373 $16,409,373
Tax Rate Per $100,000 AV $34.23 $34.59 $35.68
1. Bond terms assumed typical of GO authorizations.
2. Based on illustrative assumed property tax revenues and debt service consistent with lease example on prior slide. 30 Types of Revenues and
Financing Mechanisms
MAJOR REVENUE OPTIONS AND FINANCING MECHANISMS
TYPE OF TAX BASIS FOR LEVY VOTER APPROVAL
REQUIREMENT
FINANCING
MECHANISM
GENERAL FUND
SUPPORTED?
TAX ON PROPERTY
Ad Valorem
Property Tax
City-wide. A levy on property based
on the properties’ assessed value
and used for voter approved debt.
Two-thirds General Obligation Bonds No
Parcel Tax
City-wide or local. A levy on parcels
of property, typically set at some
fixed amount per parcel. Cannot be
based on a property’s value.
Two-thirds Special Tax Bonds No
GENERAL TAXES
Sales Tax
(General)
City-wide. A levy on the retail sale of
tangible goods. Majority Pay-go or lease obligation Yes Business Tax City-wide. A levy on operators of
businesses. Majority Pay-go or lease obligation Yes
Hotel Tax
City-wide; primarily to visitors. A levy
on the occupancy of hotels, motels,
or other short-term lodging.
Majority Pay-go or lease obligation Yes
Utility Tax
City-wide. A levy on the use of
utilities, such as electricity, gas, or
telecommunications.
Majority Pay-go or lease obligation Yes
SPECIAL TAXES
Sales Tax
(Special)
City-wide. A levy on the retail sale of
tangible goods. Two-thirds Sales Tax Revenue Bonds No
Benefit
Assessment
Local. A levy on property within a
benefit assessment district. Based
on calculation of the special benefit.
50% of
property owners Assessment Bonds No
Appendix I:
Revenue Measures in Practice
32 California City Finance, a website maintained by Michael Coleman, tracks results of local revenue measures in California since 2001 (last updated in 2019 for the period of 2002 through November 2018)
California Revenue Measure
Election Results
BOND AND REVENUE MEASURES: 2002 THROUGH NOVEMBER 2018
CITIES, COUNTIES AND SPECIAL DISTRICTS
TYPE OF MEASURE TOTAL MEASURES PASS PASSING %
GO Bonds 135 73 54.1%
Parcel Tax 670 322 48.1%
General Sales Tax 389 296 76.1%
Special Sales Tax 128 61 47.7%
Business Tax 284 237 83.5%
Transient Occupancy Tax 277 186 67.1%
Utility Users Tax 102 35 34.3%
Property Transfer Tax 23 12 52.2%
Source: CaliforniaCityFinance.com “An Overview of Local Revenue Measures Since 2001.” Through November 2018; updated publication dated October 30, 2019.
33 The California City Finance survey of local revenue measures in California provides some noteworthy observations:
» A proposal to increase a general purpose tax is more likely to succeed than a special tax – the additional hurdle of the two-thirds vote exceeds the appeal of dedicating a tax to a specific purpose
» Generally speaking, special taxes for broad based public safety services (law enforcement, fire, emergency medical) are more likely to garner twothirds voter approval than other purposes » For cities and counties, add-on sales (transactions & use), transient occupancy (hotel), and business license tax increase measures all succeed more often than proposals to increase utility user taxes » Most extensions and revisions of existing taxes that do not increase the rate are successful
California Revenue Measure
Election Results
Source: CaliforniaCityFinance.com “An Overview of Local Revenue Measures Since 2001.” Through November 2018; updated publication dated October 30, 2019.
34 Case Study: City of Oakland
TAX MEASURE TAX TYPE
2021-22
BUDGETED REVENUES
($MILLIONS)
EXPIRATION
Public Safety and Services Violence Prevention
(Measure Z) Parcel tax and 8.5% parking tax $26.40 2024 Transient Occupancy Tax for Tourism and Cultural
Facilities (Measure C) 3% special transient occupancy tax $4.60 None Library Services Retention and Enhancement
(Measure Q ) Parcel Tax $18.00 2024
Library Services (Measure D) Parcel Tax $13.40 2038
Parks & Recreation Preservation, Litter Reduction,
and Homelessness Support (Measure Q ) Parcel Tax $27.50 2040 Paramedic Services on Fire Trucks (Measure N) Parcel Tax $1.90 None Vacant Property, Homelessness, and Illegal
Dumping (Measure W) Parcel Tax $7.00 2040
Emergency Medical Services (Measure M) Parcel Tax $2.40 None Landscaping & Lighting Assessment District Parcel Tax $19.20 None
VOTER-APPROVED SPECIAL TAX REVENUES TO ENHANCE SERVICES Source: City of Oakland General Obligation Bonds, Series 2022C-1 and Series 2022C-2 Official Statement; Table 13 page A-2-24.
Appendix II:
Legal Framework
Key Constitutional Amendments
Restricting Local Revenues
36 A series of amendments to the California Constitution have impacted the ability of local governments to generate revenues to fund services or pay debt service:
PROPOSITION 13 (1978)
» Limited basic ad valorem tax to 1% of assessed valuation, limited growth in assessed valuation to 2% growth or value at sale, gave the State Legislature responsibility for allocating property taxes, and imposed requirement for twothird voter approval of special taxes PROPOSITION 218 (1996):
» Addressed perceived loopholes with Prop 13, requiring simple majority voter approval for general taxes, new requirements and procedures for “property related fees” such as for sewer service, and limited the use of assessment financing
PROPOSITION 26 (2010)
» In order to restrict the ability to mitigate externalized societal and environmental costs, expanded the types of revenues classified as “taxes,” thereby requiring voter approval
1300 Clay Street, Suite 1000 │ Oakland, CA 94612 │ Main 510-839-8200 │ Fax 510-208-8282 1451 Quail Street, Suite 200 │ Newport Beach, CA 92660 │ Main 949-346-4900 │ Fax 510-208-8282 5901 W. Century Boulevard, Suite 750 │ Los Angeles, CA 90045 │ Main 310-348-2901 │ Fax 510-208-8282 A Limited Liability Company
Date: February 11, 2019
To: Natalie Brill, Chief of Debt Management
Office of the City Administrative Officer, City of Los Angeles From: David Brodsly, Managing Director
KNN Public Finance
Re: Assessment District Financing of Alley Repairs
As one of your general municipal advisors, you asked that we advise you regarding the potential use of assessment financing for the purpose of improving alleys in the City. This request is in response to a motion (Blumenfield-Koretz) instructing the CAO, with the assistance of the Bureau of Street Services and the Bureau of Engineering, to report on the feasibility of implementing a cost-sharing program for the repair of some or all of the approximately 12,000 alleys in Los Angeles, including the establishment of alley repair assessment districts.
In summary, alley repair appears to be well suited for financing with special benefit assessments, whereby the properties that receive the benefits from the improvements finance the lion’s share of the cost by paying an additional charge on their property tax bill.
There are a number of steps required by the assessment statutes, but before these formal actions can be taken, a number of preliminary actions by the City should be undertaken. Among the next steps required to develop an assessment program for alley improvements are:
Determine the approximate types, cost, scope, and timing of improvements expected to be undertaken. Presumably, this work would be undertaken by the Bureaus of Street Services and Engineering.
Hire an assessment engineer to help determine major questions necessary to the process, including the method of apportioning assessments to property and the extent to which these improvements will also provide general public benefits that cannot be financed with the assessment.
Hire specialized legal counsel to help with the process, including the official action to initiate formal proceedings. Such work is usually performed by a bond counsel firm, who after the assessment district is formed, would then assist in the drafting of bond documents. Determine whether the property to be improved is publicly or privately owned, and if the latter, whether there is a public easement;
Determine if the improvements will be designed by City staff, an outside engineer, or both, and whether the work will be performed by contractors, City forces, or both. Identify a source of financing for preliminary activities (which can eventually be reimbursed out of bond proceeds) and to pay for any public benefit portion of the improvements.
LA Alley Assessment Memorandum | February 11, 2019 | pg 2 1300 Clay Street, Suite 1000 │ Oakland, CA 94612 │ Main 510-839-8200 │ Fax 510-208-8282 1451 Quail Street, Suite 200 │ Newport Beach, CA 92660 │ Main 949-346-4900 │ Fax 510-208-8282 5901 W. Century Boulevard, Suite 750 │ Los Angeles, CA 90045 │ Main 310-348-2901 │ Fax 510-208-8282 A Limited Liability Company
Hire the balance of the professionals required to execute the program, such as design engineers if such work is to be outsourced and financing team members including financial advisors, and eventually, disclosure counsel and underwriters. Complete the design of the improvements and estimate their cost.
At this stage, the City would be in a position to begin the formal proceedings to form an assessment district by the adoption of a resolution and the approval of an Engineer’s Report, as further described below.
The balance of this memo provides additional information and considerations for the City to pursue assessment financing for alley improvements.
1. Background on Assessment Districts
A special assessment is a charge on real property imposed by a local agency to finance all or a portion of the cost of providing public improvements or services. This form of financing predates the founding of Los Angeles. Assessment financing was used by the City to finance a large portion of its earliest street improvements.
Assessments are authorized for a large number of public improvements, including alleys, streets, sidewalks, and streetlights; storm drainage, sewers and water lines; and landscaping improvements.
Each property within an assessment district is assessed an amount to cover the proportional cost of the special benefit that it receives from the improvements. In practice, this involves spreading the cost of the improvements among property owners on some basis that best approximates the proportionate value. Typically, these assessments are collected annually to pay tax-exempt bonds that were issued to fund the improvements.
A registered assessment engineer is charged with recommending the basis for assessment. Among other tasks, the assessment engineer prepares the Engineer's Report, which includes the boundary map and assessment diagram, the roll of the properties to be assessed, a description of improvements and the preliminary cost spread. For example, it is common for the “spread” of a street assessment to be based on a property’s linear footage. In speaking to an assessment engineer, he thought that an alley assessment might be based on some combination of frontage and the number of units on the property. This is only one of the details that would be worked out if this program proceeds. To complete the Engineer’s Report there must be an estimate of the cost of the project.
There are a number of State statutes that govern the creation of assessments and the issuance of bonds secured by them to fund the improvements. The most common are the 1911 Act (which is rarely used these days but was commonly used by the City in the past), the 1913 Act (which governs the creation of the district), and the 1915 Act (which governs the issuance of bonds). For purposes of this memo, we assume that the most common approach, the combination of 1913 Act proceedings with 1915 Act bonds1
, would be employed. Other statutes might be used, or the City could even rely on its Charter to address specific issues. Because the fundamentals of assessment law are embedded in 1 Under the alternative 1911 Act, a separate bond is issued for each property after the improvements are completed.
Because the bond is secured by a single property, investor interest is very limited and thus the interest rates are significantly higher. As such, they are rarely used for anything but the smallest of projects, and only by a handful of cities, including Los Angeles.
LA Alley Assessment Memorandum | February 11, 2019 | pg 3 1300 Clay Street, Suite 1000 │ Oakland, CA 94612 │ Main 510-839-8200 │ Fax 510-208-8282 1451 Quail Street, Suite 200 │ Newport Beach, CA 92660 │ Main 949-346-4900 │ Fax 510-208-8282 5901 W. Century Boulevard, Suite 750 │ Los Angeles, CA 90045 │ Main 310-348-2901 │ Fax 510-208-8282 A Limited Liability Company
the California Constitution, the variations in statutes are technical and can be addressed once its bond counsel and assessment engineer are engaged.
2. Requirements Under Recent Law
While the names of the “modern” assessment statutes suggest the long history of assessments, the passage of Proposition 218 in 1996 significantly impacted how they are used in California.
After the passage of Proposition 13 in 1978, which significantly reduced the amount of property tax available to cities and limiting their options for raising other revenues, the use of assessment financing increased. Favorable court rulings widened the scope of assessments, so even parks were found to convey “special benefits” that could be assessed to property owners citywide.
In response, the Howard Jarvis Taxpayers’ Association sponsored a Constitutional Amendment to roll back the power of local government to raise funds in a number of different ways. One of the targets of Proposition 218 was to limit assessments in many ways, including limiting the notion of “special” benefit, and ensuring that the portion of a project that benefited the general public (rather than conveying general benefit) was not financed by the assessment, but was financed by other sources of funds available for the improvements.
Proposition 218 also changed the procedural requirements for establishing an assessment. Previously, a public agency could impose the assessment, and that decision could be stopped only if a majority of the property owners subject to the assessment filed a protest (although, in practice, a large minority protest often resulted in a legislative body retreating). Proposition 218 now requires an election of the property owners, whose votes are weighted based on the amount of their assessments. A majority of those voting must approve the assessment. Proposition 218 also shifted the burden of proof when an assessment is challenged. Rather than deferring to legislative findings, the burden of proof is now on the city to prove the legality of the assessments and their proceedings.
Subsequent challenges in court resulted in decisions that further tightened the limits on how assessments can be used and imposed a number of new requirements on assessment engineers in preparing their reports. Although these changes in law do not appear to limit the use of an assessment for alleys, they may impact the assessment proceedings and the amount of the project cost that can be financed by the assessment.
3. Policy and Factual Considerations
The following are just some initial observations of matters that might impact this program, and which will need to be addressed if the program proceeds.
With limited exceptions, the public work and improvements financed by assessments must be performed and constructed on public property. Public property would include easements and rightsof-way that have been dedicated to and accepted by the local agency. I don’t know if there are any fact patterns in this regard that would increase City liabilities relating to alleys.
In a conversation with an assessment engineer, I learned that it is likely that the general benefits of the improvements—for which funds of the City would need to be identified for financing—would be very small, if existent at all. While that would be a good conclusion, the City should presume at this stage that some level of public financing may be required.
LA Alley Assessment Memorandum | February 11, 2019 | pg 4 1300 Clay Street, Suite 1000 │ Oakland, CA 94612 │ Main 510-839-8200 │ Fax 510-208-8282 1451 Quail Street, Suite 200 │ Newport Beach, CA 92660 │ Main 949-346-4900 │ Fax 510-208-8282 5901 W. Century Boulevard, Suite 750 │ Los Angeles, CA 90045 │ Main 310-348-2901 │ Fax 510-208-8282 A Limited Liability Company
In a similar vein, Proposition 218 requires that assessments be levied against public property, even though in many cases those assessments will not be paid and there is no enforcement mechanism against public agencies. In practice, these costs are often borne by the sponsoring city.
For reasons beyond the scope of this memo, the City has very limited experience with 1913/1915 Act proceedings—the statutes most likely to be relied on for alley improvements—and historically relied on the 1911 Act. There is no question in my mind that the 1911 Act would be inappropriate for this project, among other reasons because it would significantly increase the cost to the assessed properties. But given the City’s history, resolving this issue might take additional conversation.
While the bonds issued to fund the improvements would likely bear tax-exempt interest, the changes in 2017 to federal tax law limiting deductions of state and local taxes will impact most property owners, so that the assessments themselves will, in effect, not be deductible to property owners.
Generally, bonds can be sold at both competitive and negotiated sales. While there are advantages to both, assessment bonds are more typically sold at a negotiated sale, because they represent “story bonds,” and their sale is benefitted by the ability of the underwriter to pre-sell the security.
4. Proceedings
The following is a summary of the key steps involved in creating an assessment district and executing its financing. Attachment
Initiation of Proceedings—While an assessment district can be initiated by a landowner petition, the motion that was already introduced has effectively started the process. As previously discussed, there are a number of actions that should be taken prior to beginning the first formal action, the adoption of a resolution of intention.
Design and engineering—Following initiation, two sets of engineers are required to further define the project.
A design engineer prepares plans, specifications (including bidding documents) and cost estimates of the proposed public improvements. This task could be undertaken by City staff or an outside firm.
An assessment engineer prepares the Engineer’s Report, which includes the assessment roll identifying the parcels that will receive a special benefit from the improvements and the preliminary assessment cost spread, determining the proportionality of the special benefit among the parcels, and making certain the assessment levied upon a parcel is not greater than its proportionate share of the costs of the special benefit received. In addition, there must be an analysis to determine if there are any general benefits associated with the improvements to be constructed or maintained.
Drafting of formation documents—To ensure that the City meets the various procedural requirements for forming an assessment district, we would recommend that you engage a bond counsel firm experienced in land-secured financing to draft the various legal documents, including resolutions and notices.
LA Alley Assessment Memorandum | February 11, 2019 | pg 5 1300 Clay Street, Suite 1000 │ Oakland, CA 94612 │ Main 510-839-8200 │ Fax 510-208-8282 1451 Quail Street, Suite 200 │ Newport Beach, CA 92660 │ Main 949-346-4900 │ Fax 510-208-8282 5901 W. Century Boulevard, Suite 750 │ Los Angeles, CA 90045 │ Main 310-348-2901 │ Fax 510-208-8282 A Limited Liability Company
Presentation of Engineer’s Report and Adoption of the Resolution of Intension—Upon completion of the preliminary engineering work, the City Council adopts a “resolution of intention” to form the assessment district, approves the Engineer's Report, calls for construction bids (meaning that design bids are completed), authorizes the future sale of bonds, sets the date, time and place for the public hearing and directs assessment notices to be mailed.
Receipt of Construction Bids—It is common for a city to receive the construction bids (assuming the improvements will not be performed by City forces) prior to the close of the formation process, so that the assessment engineer can modify the assessment roll and Engineer’s Report based on these bids.
Public Hearing—Notices are mailed of a public hearing to each affected property owner, which notice will include a ballot for each property owner to indicate his or her support for or opposition to the proposed assessment. The ballots are weighted by the proportional financial cost of each property.
If a majority of the ballots submitted are in opposition to the proposed assessment, then the assessment may not be imposed. A majority protest exists if the ballots submitted in opposition to the assessment exceed the ballots submitted in favor of the assessment. The City Council holds a public hearing at which written protests (effectively, the property owner votes) are presented and public testimony is taken. Following the public hearing, the Council would adopt another resolution, commonly referred to as a “resolution of formation.”
Cash Collection Period—Following adoption of the resolution of formation, the assessment is levied as a fixed amount per property, and property owners can pay this amount in full. The Treasurer may receive cash payments during the 30 days following confirmation if property owners elect to pay off the assessment prior to the issuance of bonds.
Authorize Issuance of Bonds—After the prepayment period closes, the City Council determines the balance of unpaid assessments and provides for the issuance of bonds to be secured thereby.
Sale of Bonds—Bonds are issued against the unpaid assessments; the proceeds are used for the projects described in the Engineer’s Report. The proportionate share of debt service is annually placed on the property tax bill, and collected by the County for remittance to the City.
LA Alley Assessment Memorandum | February 11, 2019 | pg 6 1300 Clay Street, Suite 1000 │ Oakland, CA 94612 │ Main 510-839-8200 │ Fax 510-208-8282 1451 Quail Street, Suite 200 │ Newport Beach, CA 92660 │ Main 949-346-4900 │ Fax 510-208-8282 5901 W. Century Boulevard, Suite 750 │ Los Angeles, CA 90045 │ Main 310-348-2901 │ Fax 510-208-8282 A Limited Liability Company
TYPICAL 1913 ACT ASSESSMENT PROCEEDINGS
(“Best Case” Scenario)
Task
Days for
Task Description
Cumulative
Days Elapsed
Initiation City Council determination to proceed 0 Days Mobilization 90 days Procurement of legal counsel, assessment engineer, and design engineer
90 days
Improvement Design
180 Days
Complete engineering design of public
improvements
270 Days Engineer’s Report Prepare boundary and other maps, determine assessment spread.
Legal documents Draft resolutions and notices and review Engineers Report
Presentation of Report, Resolution
of Intention
45 Days Presentation Engineers Report to City
Council, who makes various findings and
sets public hearing.
Election ballots sent to property owners
315 Days
Receive Construction Bids 30 Days Allows for amending of proceedings if necessary
345 Days
Public Hearing, Confirm
Assessments
15 Days Counting of ballots, public hearing, and
confirmation of assessments
360 Days
Cash Collection Period 30 Days Property owners can pay their assessments in full
390 Days
Determine Unpaid Assessments
and Authorize Issuance of Bonds
30 Days Final Council act for formation 420 Days
Sale of Bond 30 Days Bonds are marketed and sold to investors 450 Days KNN PUBLIC FINANCE RESPONSE TO RFP | FINANCIAL ADVISORY SERVICES | PAGE D-1 APPENDIX D | KNN DISCLOSURES
DISCLOSURES PURSUANT TO MSRB RULES G-42
Pursuant to Municipal Securities Rulemaking Board ("MSRB") Rule G-42, on Duties of Non-Solicitor Municipal Advisors, Municipal Advisors are required to make certain written disclosures to clients which include, amongst other things, Conflicts of Interest and any Legal or Disciplinary events of KNN Public Finance, LLC ("KNN Public Finance") and its associated persons.
CONFLICTS OF INTEREST
Other Municipal Advisor Relationships. KNN serves a wide variety of other clients that may from time to time have interests that could have a direct or indirect impact on the interests of another KNN client. For example, KNN serves as municipal advisor to other municipal advisory clients and, in such cases, owes a regulatory duty to such other clients just as it will to your entity, if hired. These other clients may, from time to time and depending on the specific circumstances, have competing interests. In acting in the interests of its various clients, KNN could potentially face a conflict of interest arising from these competing client interests. KNN fulfills its regulatory duty and mitigates such conflicts through dealing honestly and with the utmost good faith with its clients.
Compensation. KNN Public Finance represents that in connection with the issuance of municipal securities, KNN Public Finance may receive compensation from an Issuer or Obligated Person for services rendered, which compensation is contingent upon the successful closing of a transaction and/or is based on the size of a transaction. Consistent with the requirements of MSRB Rule G-42, KNN Public Finance hereby discloses that such contingent and/or transactional compensation may present a potential conflict of interest regarding KNN Public Finance's ability to provide unbiased advice to enter into such transaction. This conflict of interest will not impair KNN Public Finance's ability to render unbiased and competent advice or to fulfill its fiduciary duty to the Issuer.
If KNN Public Finance becomes aware of any additional potential or actual conflict of interest after this disclosure, KNN Public Finance will disclose the detailed information in writing to the Issuer in a timely manner.
LEGAL OR DISCIPLINARY EVENTS
KNN Public Finance, LLC, has never been subject to any legal, disciplinary or regulatory actions nor was it ever subject to any legal, disciplinary or regulatory actions previously, when it was a division of Zions First National Bank or Zions Public Finance, Inc.
A regulatory action disclosure has been made on Form MA-I for one of KNN Public Finance municipal advisory personnel relating to a 1998 U.S. Securities and Exchange Commission ("SEC") order that was filed while the municipal advisor was employed with a prior firm, (not KNN Public Finance). The details of which are available in Item 9; C(1), C(2), C(4), C(5) and the corresponding regulatory action DRP section on Form MA and Item 6C; (1), (2), (4), (5) and the corresponding regulatory action DRP section on Form MA-I. Issuers may electronically access KNN Public Finance's most recent Form MA and each most recent Form MA-I filed with the Commission at the following website:
www.sec.gov/edgar/searchedgar/companysearch.html.
The SEC permits certain items of information required on Form MA and Form MA-I to be provided by reference to such required information already filed on a regulatory system (e.g., FINRA CRD). The above noted regulatory action has been referenced on both Form MA and MA-I due to the information already filed on FINRA's CRD system and is publicly accessible through BrokerCheck at http://brokercheck.finra.org. For purpose of accessing such BrokerCheck information, the Municipal Advisor's CRD number is 4457537.
There has been no change to any legal or disciplinary event that has been disclosed on KNN Public Finance's original SEC registration Form MA filed on February 8, 2016 or Form MA-I's filed on January 22, 2016.