The City Council is being asked to hold a public hearing to consider increasing the annual appropriations limit and maximum amount of bonded indebtedness, and altering the Rate and Method of Apportionment of Special Taxes for Community Facilities District No. 1 (Downtown Parking Facilities). At the conclusion of the hearing, Council will be asked to adopt a resolution that certifies these changes.

Community Facilities District No. 1 (CFD No. 1) was formed to provide a financing mechanism for the construction of two parking facilities required by the remodel of the Town Center. At the time of formation, City Council established the maximum amount of debt for CFD No. 1 at $25 million.

The parking facilities will be financed by issuance of debt in a two step process. First, short-term Bond Anticipation Notes (Notes) will be issued. Their issuance is scheduled for February 2000. This will be followed by the issuance of long-term Mello-Roos Bonds (Bonds) when the Notes mature.

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%. At its meeting on January 11, 2000, the City Council authorized increasing the Note issuance to $25 million to account for the higher cost of constructing the two garages and reset the maximum interest rate to 8.00%.

In addition, at its meeting on June 15, 1999, the City Council also authorized the future issuance of Bonds that will pay off 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 Bond Purchase Contract and the Continuing Disclosure Certificate. In so doing, it authorized the issuance of no more than $25 million of Bonds and set the maximum interest rate on the Bonds at 7.00%.

The Goals and Policies adopted by Council outline how projects eligible for Community Facilities District (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.

Since the size of the Notes will now be $25 million to account for higher construction costs, the maximum amount of CFD indebtedness must be increased to permit issuance of the Bonds to refinance the Notes at their maturity in 2002. Refinancing $25 million of Notes will require more than $25 million of Bonds because of transaction costs and the need to fund a debt service reserve fund. Though the final size of the Bonds has not yet been determined, it is prudent to increase the maximum amount of CFD indebtedness to $30 million.

In June 1999, the interest rates on the Bonds would have been approximately 6.50%. The maximum tax rate was set to permit payment of debt service on $25 million of bonds carrying an interest rate of slightly above that. Since that time, interest rates have risen. The uncertainty of further increases in interest rates between now and the sale date (approximately two years from today) makes it prudent to increase the maximum tax rate such that the Bonds could be issued at higher interest rates. The actual interest rate will be determined by the level of market interest rates on the day the Bonds are offered to investors.

Increasing the maximum bonded indebtedness and allowing for the possibility of higher interest rates will require the maximum special tax rate for the CFD to be increased as well. The special tax is levied as an amount of money per square foot of land area. Each year that the tax is levied, the City Council will set a tax rate for that year at or below the maximum rate. In January 1999, the maximum tax rate was set at $2.90 per square foot. As a result of these changes, it is prudent to raise the maximum tax rate to $5.40 per square foot. This rate was determined using a 12% interest rate. Although staff does not believe the actual interest rate will be this high, it allows room for the uncertainty of future increases and provides investors with a stronger degree of comfort. The actual tax rate levied in each year will not exceed that which is necessary to pay debt service as determined by the actual size and interest rates on the Bonds.

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

After approval of the resolution set forth in Attachment A, Council must hold a hearing to consider increasing the annual appropriations limit and maximum amount of bonded indebtedness, and altering the Rate and Method of Apportionment of Special Taxes for CFD No. 1. That hearing must be scheduled and noticed for a period of at least thirty days following today’s meeting. That hearing will be scheduled for March 21. Upon conclusion of the hearing, the Council will act on a resolution to approve these changes. Assuming approval by the Council, an election of all landowners will vote to approve the changes to the maximum bonded indebtedness and maximum tax rate. Upon approval by American Mall Properties (AMP), the sole landowner, the Council will be asked to certify these changes. AMP has agreed to the change in maximum bonded indebtedness to $30 million and the corresponding increase in the maximum tax rate in the Public Improvements Acquisition and Development Agreement, approved by Council on January 11, 2000.

All costs of issuing the Notes and Bonds, as well as debt service payments on the Notes and Bonds, 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. Reports to Council are also available in the Library and on the City’s web page.

Staff recommends that the City Council increase the appropriations limit and maximum amount of bonded indebtedness for CFD No. 1 by adopting the resolution set forth in Attachment A:

Resolution of Consideration to Increase the Annual Appropriations Limit and Maximum Amount of Bonded Indebtedness, and to Alter the Rate and Method of Apportionment of Special Taxes

Prepared by:

Grace H. Kim
Management Analyst

Reviewed by:

Mary J. Bradley
Director of Finance

Approved by:

Robert S. LaSala
City Manager