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. American Mall Properties (AMP), the owner of Sunnyvale Town Center, will then vote to approve 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 Sunnyvale Town Center. At the time of formation, City Council established the maximum amount of debt for CFD No. 1 at $25 million.

At its meeting on June 15, 1999, the City Council authorized the issuance of the Bond Anticipation Notes (CFD No. 1 Notes) and approved the execution of a number of agreements necessary to complete the issuance. In so doing, it authorized the issuance of no more than $24 million of CFD No. 1 Notes and set the maximum interest rate on the CFD No. 1 Notes at 6.00%. At its meeting on January 11, 2000, the City Council authorized increasing the CFD No. 1 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% due to rising interest rates.

In addition, at its meeting on June 15, 1999, the City Council also authorized the future issuance of Mello-Roos Bonds (CFD No. 1 Bonds) that will pay off the CFD No. 1 Notes and approved the execution of a number of agreements necessary to complete the issuance. In so doing, it authorized the issuance of no more than $25 million of CFD No. 1 Bonds and set the maximum interest rate on the CFD No. 1 Bonds at 7.00%. AMP will pay all costs associated with issuing the CFD No. 1 Bonds, as well as debt service payment on the CFD No. 1 Notes and Bonds.

Initially, the issuance of $25 million of CFD No. 1 Bonds was expected to be sufficient to finance the construction of the parking facilities. However, higher construction costs and increasing interest rates, combined with the results of a new appraisal of the mall that reduced the value to account for the payment of the Mello-Roos special tax obligation, required a larger amount of debt to fully fund construction.

State law requires that, if the value of the property paying the special tax used for debt service is less than three times the amount of bonds issued, the City Council, by a vote of four-fifths of its members, must determine there are public policy reasons to proceed. Based on a new appraisal, there was insufficient value to meet the 3:1 test. At its meeting on February 29, 2000, the City Council made findings that there are public policy reasons to authorize the issuance of bonds with a minimum 2.5:1 ratio. Even at that ratio, there was a $3.7 million shortfall.

To help meet most of this shortfall, at the February 29, 2000 meeting, the City Council also approved in concept the City’s investment in the project by purchasing approximately $2.5 million of subordinate Mello-Roos bonds (CFD No. 2 Bonds). The remainder of the shortfall will be met by having AMP receive $1.25 million of CFD No. 2 Bonds in lieu of receiving a construction management fee. All costs associated with issuing the CFD No. 2 Bonds, as well as debt service payments on these bonds, will be paid by AMP. Upon sufficient growth in mall value to meet the 2.5:1 value test, the City will issue CFD No. 1 Bonds to refinance the CFD No. 2 Bonds.

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.

To complete the proposed changes to CFD No. 1, the following actions must be taken:

The City must give notice of and hold a public hearing to consider increasing the appropriations and debt limit for CFD No. 1. State law requires a notice be published in a local newspaper at least seven-days prior to the date of the public hearing. Staff published a notice of the hearing on April 5 in the Sunnyvale Sun, setting April 25 as the date for the hearing. This meets the state law requirement. The City also notified the affected property owner by mail. During the hearing, any property owner in the proposed CFD or interested parties may protest the proposed changes to the CFD. If the owners of more than one-half of the land in the proposed CFD protest, the proceedings must be discontinued for one year.

Assuming there is no majority protest, Council can proceed to adopt the Resolution of Alteration (Attachment A). This resolution formally increases the debt limit to $36 million and raises the maximum tax rate to $6.50 per square foot for CFD No. 1. The Resolution of Alteration also makes the finding that the proposed special tax levy has not been precluded by majority protest and that all proceedings were conducted in conformity with the Mello-Roos Act.

The changes proposed in the Resolution of Alteration must be approved by two-thirds of the votes cast by property owners in CFD No. 1. The Resolution of Alteration sets forth the procedure for the election in accordance with the Mello-Roos Act. This election must be held at least 90 days after the public hearing. This waiting period may be waived with the unanimous consent of all landowners within the District. AMP, the sole landowner, has agreed to waive this requirement and the vote will be held on April 25 as soon as the Resolution of Alteration is adopted.

Assuming approval of these changes to CFD No. 1 by AMP, Council can adopt the Resolution Declaring Results of Special Election and Directing Recording of Notice of the Amended Special Tax Lien (Attachment B). The resolution declares approval of the proposed changes to CFD No. 1 by more than two-thirds vote and directs the City Clerk to record notice of the amended special tax lien with the County Recorder within 15 days.

Subsequent Actions

To take advantage of the increase in the CFD No. 1 debt limit, the City Council will be asked at a subsequent meeting to authorize the issuance of additional CFD No. 1 Notes to provide additional funds for construction. However, if feasible and advantageous, the City Council will be asked at that time to instead authorize the issuance of CFD No. 1 Bonds to refinance all or a portion of the outstanding CFD No. 1 Notes and raise additional funds for construction.

The City Council will also be asked at a subsequent meeting to authorize issuance of CFD No. 2 Bonds, which the City will purchase approximately $2.5 million, to fully fund construction of both garages. Upon sufficient increase in the value of the mall, the City Council will be asked to authorize the issuance of CFD No. 1 Bonds to refinance any remaining CFD No. 1 Notes and CFD No. 2 Bonds.

All costs of issuing the CFD No. 1 Notes and Bonds, as well as debt service payments on the CFD No. 1 Notes and Bonds, will be paid by AMP.

A notice of the public hearing was published in the Sunnyvale Sun on April 5. 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, and alter the Rate and Method of Apportionment of Special Taxes for CFD No. 1 by adopting the following resolutions set forth in Attachment A and B:

A. Increasing the Annual Appropriations Limit and Maximum Amount of Bonded Indebtedness and of Alteration of Rate and Method of Apportionment of Special Taxes and Submitting Same to Qualified Electors

Prepared by:

Management Analyst

Reviewed by:

Mary J. Bradley

Director of Finance

Approved by:

Robert S. LaSala

City Manager