Staff recommends that the City Council rescind a prior resolution and approve a new resolution authorizing the issuance of Bond Anticipation Notes (Notes) to finance the construction of two parking facilities as part of the Town Center remodel project.

The Notes will finance the construction of parking facilities required by the remodel of the Town Center. At its January 12, 1999 meeting, the City Council initiated the formation of a Community Facilities District (CFD No. 1) that will provide a financing mechanism for the parking construction. This action included approval of the hiring of a financing team for the Notes and the Bonds to be issued by CFD No. 1, including E. J. De La Rosa & Co. as underwriter and Jones Hall as bond counsel. At its meeting on February 23, 1999, the City Council approved the formation of CFD No. 1. The City Council also established the maximum amount of debt for CFD No. 1 at $25 million. At its meeting on March 11, 1999, the City Council authorized the land exchange between the Redevelopment Agency (Agency) and American Mall Properties (AMP) and approved the Special Development Permits and the Tentative Map for AMP’s remodeling of the Town Center. At its meeting on April 6, 1999, the City Council approved a change in the leased asset for the 1998 Certificates of Participation. The two new parcels the Agency will acquire from AMP were substituted for the middle portion of the existing Town Center parking facility. This substitution is required before the Note sale.

At its meeting on June 15, 1999, the City Council authorized the issuance of the Notes and approved the execution of a number of agreements necessary to complete the issuance, including the Fiscal Agent Agreement, the Preliminary Official Statement, the Note Purchase Contract and the Continuing Disclosure Certificate. In so doing, it authorized the issuance of no more than $24 million of Notes and set the maximum interest rate on the Notes at 6.00%.

The Goals and Policies adopted by Council outline how projects eligible for CFD financing will be evaluated. These policies are generally designed to ensure that the CFDs created are made for the public good. They define credit requirements for projects under consideration that protect bondholders from default and set forth disclosure requirements that notify prospective property purchasers of the lien associated with the properties they seek to buy.

In June 1999, the interest rates on the Notes would have been approximately 4.75% to 5.00%. Since that time, interest rates have risen. If the Notes were sold today, it is estimated that the interest rate would be about 6.00%. The uncertainty of rising interest rates between now and the sale date makes it prudent to increase the maximum interest rate from 6.00% to 8.00%. The actual interest rate will be determined by the level of market interest rates on the day the Notes are offered to investors.

In June, it was estimated that the construction cost of the two parking facilities could be fully funded from a Note issue of no more than $24 million. It now appears that the cost of constructing the two garages may be higher than was estimated in June. Though final construction costs have not yet been determined, it is prudent to increase the limit on the size of the Notes to $25 million, which represents the maximum amount of debt that CFD No. 1 can have outstanding. That limit was established when the City Council approved the creation of CFD No. 1 on February 23, 1999. If $25 million of Notes is issued, the maximum amount of CFD indebtedness would have to be increased to permit the issuance of long-term bonds to refinance the Notes at their maturity in 2002. AMP has agreed to such an increase and funds for the construction of the second garage will not be released by the Note Trustee until such an increase has been approved by AMP and the City Council. Such an increase would be requested of the City Council later in 2000.

All other terms of the Note issuance will remain the same as when the issuance was initially approved on June 15, 1999.

All costs of issuing the Notes, as well as debt service payments on the Notes, will be paid by AMP. Issuance of the Notes and subsequent Bonds will provide AMP the financing necessary to proceed with the construction of the downtown parking facilities as part of the Town Center remodel project.

Public contact has been accomplished through publication and posting of the Council agenda. Additionally, Reports to Council are available in the Library and on the City’s web page.

Staff recommends that the City Council amend the issuance of Bond Anticipation Notes by adopting the resolution set forth in Attachment A:

Prepared by:

Grace Kim
Management Analyst

Reviewed by:

Mary J. Bradley
Director of Finance

Approved by:

Robert S. LaSala
City Manager