The City Council is being asked to hold a public hearing to consider the creation of Community Facilities District No. 2 (CFD No. 2). At the conclusion of the hearing, Council will be asked to adopt the Resolution of Formation to create the Community Facilities District (CFD). American Mall Properties (AMP), the owner of Sunnyvale Town Center, will then vote to approve the levy of the special tax and the issuance of bonds. Following approval, Council will proceed with the first reading of the tax ordinance to levy the special tax.

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.

Initially, the issuance of $25 million of Mello-Roos Bonds (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 now require a larger amount of debt to fully fund construction.

To help meet the construction funding shortfall, at its meeting on February 29, 2000, the City Council approved in concept the issuance of a second series of Mello-Roos bonds (CFD No. 2 Bonds) secured in a manner similar to the debt to be issued by CFD No. 1, but with rights and remedies that can only be exercised if doing so does not impair the full and timely receipt of debt service by owners of debt issued by CFD No. 1. Furthermore, the Council agreed to purchase approximately $2.5 million of the CFD No. 2 Bonds and established, as a condition to the issuance of the $25 million of CFD No. 1 Notes, that AMP have executed an agreement with the City to receive approximately $1.25 million of CFD No. 2 Bonds in lieu of receiving a construction management fee for the construction of the two garages.

At its March 21, 2000 meeting, City Council adopted the Resolution of Intention that initiated proceedings to form CFD No. 2. Council also adopted a Resolution of Intention to Incur Bonded Indebtedness and set the maximum amount of debt that CFD No. 2 may support. The City will issue bonds on behalf of CFD No. 2 to fund a portion of the garage construction and pay a construction management fee to AMP. The debt service will be paid entirely from special taxes paid by AMP. A description of the facilities, proposed boundaries and cost estimate for the parking facilities are included in the Community Facilities District Report (CFD Report) submitted by the Director of Finance (Attachment A).

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 formation of CFD No. 2, the following actions must be taken:

The City must give notice of and hold a public hearing to consider the creation of CFD No. 2. State law requires at least a thirty-day notice period following the adoption of the Resolution of Intention before the public hearings may be scheduled. 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 establishment of the CFD or the boundaries of 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.

The City must also give notice of and hold a public hearing to determine the necessity of incurring bonded indebtedness. Following the same requirements as above, staff published a notice of the hearing on April 5 in the Sunnyvale Sun, setting April 25 as the date for the hearing. 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 types of facilities to be financed.

Assuming there is no majority protest, Council can proceed to adopt the Resolution of Formation (Attachment B). This resolution formally establishes CFD No. 2. The resolution contains all the information found in the Resolution of Intention and sets the maximum amount of debt to $5 million and the maximum special tax rate at $1.60 per square foot for CFD No. 2. The Resolution of Formation 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.

Assuming there is no protest, Council can then proceed to adopt the Resolution Determining Necessity to Incur Bonded Indebtedness (Attachment C). This resolution formally establishes the maximum amount of debt for CFD No. 2 at $5 million. The resolution contains all the information found in the Resolution of Intention to Incur Bonded Indebtedness and, in addition, makes the finding that all proceedings were conducted in conformity with the Mello-Roos Act.

After CFD No. 2 is formally created, the levy of the special tax must be approved by two-thirds of the votes cast by property owners in CFD No. 2. The Resolution Calling Special Election sets forth the procedure for the election in accordance with the Mello-Roos Act (Attachment D). 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 Formation and Resolution Determining Necessity to Incur Bonded Indebtedness are adopted.

Assuming approval of the special tax levy, Council can adopt the Resolution Declaring Results of Special Election and Directing Recording of Notice of Special Tax Lien (Attachment E). The resolution declares approval of the levy of a special tax in CFD No. 2 by more than two-thirds vote and directs the City Clerk to record notice of special tax lien with the County Recorder.

Immediately following the election results, the Council will be asked to proceed with the first reading of the tax ordinance (Attachment F). This represents official action taken by the City to impose the special tax levy on the landowners. The ordinance authorizes and levies special taxes within CFD No. 2 beginning FY 2000/01 and each fiscal year thereafter until payment in full of any bonds issued by the City for CFD No. 2. The ordinance also authorizes and directs the Director of Finance to determine the specific special tax rate and amount to be levied for the next fiscal year.

Assuming all of the above actions are completed on April 25, the Council will be asked at a subsequent meeting to approve the second reading of the tax ordinance. Further, if bonds are to be issued, the Council will be asked at a subsequent meeting to authorize the actual bond issue and approve all of the bond documents.

All costs of establishing CFD No. 2 and issuing CFD No. 2 Bonds, as well as debt service payments on the CFD No. 2 Bonds, will be paid by the affected property owner, AMP.

$2.5 million in City funds, already invested in the mall, will be reallocated to purchase CFD No. 2 Bonds. The City-owned CFD No. 2 Bonds will provide a rate of return to the City equal to approximately 7.00%. If the City chose not to purchase the CFD No. 2 Bonds, the rate of return on the City’s funds would be 5.80%, which is the average return on the City’s investment portfolio. Therefore, the City will not be earning less interest by investing the funds in the CFD No. 2 Bonds than it would otherwise earn in its own investment portfolio. The present value of the increased cash flow the City will receive is approximately $300,000.

A notice of the public hearing was published on April 5 in the Sunnyvale Sun. Public contact has also 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 proceed with the formation of CFD No. 2 by adopting the following resolutions as set forth in Attachments B through E:

1. Determining Necessity to Incur Bonded Indebtedness,
2. Calling Special Election, and
3. Declaring Results of Special Election and Directing Recording of Notice of Special Tax Lien.

B. Initiating adoption of Ordinance of the City Council Levying Special Taxes Within Community Facilities District No. 2 of the City of Sunnyvale by proceeding with first reading as set forth in Attachment F.

Prepared by:

Management Analyst

Reviewed by:

Mary J. Bradley

Director of Finance

Approved by:

Robert S. LaSala

City Manager