In 1992, the Redevelopment Agency issued $8,900,000 in Tax Allocation Refunding Bonds, Series 1992.  Bond proceeds were used to advance refund the Agency’s Central Core Redevelopment Project 1977 Bonds.  The proceeds of the 1977 Bonds were used to finance the acquisition of property for redevelopment, acquisition and relocation expenses, costs of demolition and installation of public improvements, administrative expenses and other costs incidental and related to the Project, specifically the development of the Sunnyvale Town Center regional shopping mall. 

The Series 1992 Bonds carry interest rates from 6.20% in 2004 to 6.50% in 2022.  The Agency can prepay the 1992 Bonds with no prepayment penalty.

On July 22, 2003, the Agency authorized staff to proceed with a refunding of the 1992 Bonds to reduce the annual debt service by taking advantage of a decline in interest rates since the original date of issuance.

The Agency also approved the firms of E. J. De La Rosa & Co., and Jones Hall to serve as underwriter and bond counsel, respectively.  Both firms will be paid out of the proceeds of the bonds and their payment will be contingent on the issuance of the bonds. 

Fiscal Sub Element Goal 7.1B states “Maintain sound financial practices which meet all applicable standards and direct the City’s financial resources toward meeting the City’s long term goals.”

Benefits and Structure of Refunding

Bond interest rates are at lower levels than they have been in many years, making this an opportune time to refinance.  The new bonds will be issued in an amount of approximately $7.5 million, will have the same term and maturity date as the existing bonds and are expected to bear interest at rates lower than six percent.

Issuance of the 2003 Bonds by the Agency will provide funds to:

• Refund approximately $7.2 million of outstanding 1992 Bonds.
• Fund a reserve fund (or purchase a reserve fund surety), for the 2003 Bonds.
• Pay for the costs of issuance incurred in connection with the 2003 Bonds.            

Though interest rates may change by the time the bonds are sold, net present value savings at today’s interest rates would be about $565,000 or 7.8% of the outstanding par amount of the 1992 Bonds.  The Agency’s Resolution authorizing the issuance of the 2003 Bonds, which the Agency will be asked to adopt tonight, specifies that the 2003 Bonds may only be issued if minimum net present value savings of at least 3% of the principal amount of the 1992 Bonds (approximately $217,000) are realized.

The Agency’s Tax Allocation Bonds are paid from tax increment revenues.  This revenue is derived from property taxes generated by the Agency through development activities.  At the time a development project is undertaken, the base property tax levy on the property is frozen and the full amount of incremental taxes due to increased value of the property becomes the Agency’s revenue.   The Agency’s tax increment revenue is based on development activity in the project area, which is the downtown area of the City.

The proposed 2003 Bonds will refund the Sunnyvale Redevelopment Agency’s Tax Allocation Refunding Bonds, Series 1992, so long as the minimum level of savings (3%) are achieved.  Under present market conditions, the refunding will result in first year savings of $230,000 and annual debt service savings of approximately $37,000 thereafter.  It is anticipated that the 2003 Bonds will result in a net present value savings of approximately $565,000 or 7.8% of the outstanding 1992 Bonds, if interest rates remain substantially unchanged in the next few weeks.   

Public contact was made through posting of the City Council agenda on the City’s official notice bulletin board, posting of the agenda and report on the City’s web page and the availability of the report in the Library and the City Clerk’s Office.

1. Adopt the resolution approving the issuance and sale by the Agency of the Tax Allocation Refunding Bonds to refund existing Tax Allocation Refunding Bonds, Series 1992.

2. Do not approve the issuance and sale by the Agency of the Tax Allocation Refunding Bonds to refund existing Tax Allocation Refunding Bonds, Series 1992.

Staff recommends that the City Council approve Alternative #1.