MEETING DATE:
May 14, 2024
SUBJECT:
Title
RESOLUTION NOS. 2024-9290 & SMPFA 2024-014 - AUTHORIZING SPECIAL TAX REFUNDING BONDS FOR CERTAIN IMPROVEMENT AREAS OF COMMUNITY FACILITIES DISTRICT NO. 99-01 (SAN ELIJO HILLS) AND OTHER ACTIONS IN CONNECTION THEREWITH
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Recommendation
Recommendation
ADOPT a resolution authorizing the issuance of Special Tax Refunding Bonds by the City of San Marcos Community Facilities District No. 99-01 (San Elijo Hills) ("CFD 99-01") for 17 Improvement Areas and the form of separate Fiscal Agent Agreement for each Series, a Bond Purchase Agreement, Escrow Deposit and Trust Agreements, a Preliminary Official Statement, pertaining to the defeasance and redemption of certain Special Tax Refunding Bonds of the CFD 99-01 for each of the 17 Improvement Area (the “2014 Special Tax Refunding Bonds”) and the San Marcos Public Financing Authority Special Tax Revenue Refunding Bonds, Series 2014A, AND ADOPT a resolution authorizing the issuance of bonds by the San Marcos Public Financing Authority (the "Authority") to purchase the Special Tax Refunding Bonds by the City of San Marcos Community Facilities District No. 99-01 (San Elijo Hills) ("CFD 99-01") for 17 Improvement Areas (each an "Improvement Area" and, collectively, the "Improvement Areas") and approving the forms of an Indenture of Trust, a Bond Purchase Agreement, an Escrow Deposit and Trust Agreement and a Preliminary Official Statement and authorizing other actions in connection therewith
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Board or Commission Action
Not Applicable
Relevant Council Strategic Theme (If not applicable, please state not applicable below)
Good Governance
Relevant Department Goal
Not Applicable
Executive Summary
In 2014, the Authority issued its $32,395,000 San Marcos Public Financing Authority Special Tax Revenue Refunding Bonds, Series 2014A (The "2014A Bonds") to finance the acquisition of several series of the City of San Marcos CFD No. 99-01 Special Tax Refunding Bonds for 17 Improvement Areas issued by CFD No. 99-01(the “2014 Special Tax Refunding Bonds”) and the City of San Marcos CFD No. 91-01 Special Tax Refunding Bonds, the proceeds of which refunded the outstanding 2004 Bonds and provided savings to residents.
Since then, all properties within the 17 Improvement Areas have been fully developed and sold to individual homeowners. The construction and sale of these units has created a diversity of property ownership as well as increased property values. The combination of diversified ownership, increased property values and low municipal bond interest rates has created an opportunity to refund (refinance) the 2014 Bonds. Said refunding would impact approximately 1,526 residential units owned by individual homeowners within 17 Improvement Areas of CFD No. 99-01 (San Elijo Hills). The refunding of the 2014 Bonds will result in lower annual special tax levies beginning in FY 2024-25 and throughout the life of the bonds.
The proposed refunding will be the City's eleventh bond issue in which refunding bonds are issued with the intention of generating savings and tax relief for property owners within the boundaries of the City's Community Facilities Districts affected by the refunding. City staff is continuously looking for opportunities to ease taxpayer burden by refunding bonds and is careful in the way initial bond issues are structured to ensure that tax relief can be generated as quickly as possible.
Discussion
In 2014, the Authority issued its $32,395,000 San Marcos Public Financing Authority Special Tax Revenue Refunding Bonds, Series 2014A (The "2014A Bonds") to finance the acquisition of several series of the City of San Marcos CFD No. 99-01 Special Tax Refunding Bonds for 17 Improvement Areas(the “2014 Special Tax Refunding Bonds”) and the City of San Marcos CFD No. 91-01 Special Tax Refunding Bonds, the proceeds of which refunded the outstanding 2004 Bonds and provided savings to residents.
The combination of diversified ownership, increased property values and low municipal bond interest rates has created an opportunity to refund (refinance) the 2014 Bonds. The proposed refunding will consist of one series of tax-exempt bonds issued by the Authority (the "2024 Bonds"). The proceeds of the 2024 Bonds will be used to acquire 17 series of special tax refunding bonds issued by CFD No. 99-01 for the Improvement Areas (the "2024 Special Tax Refunding Bonds"). The proceeds of the Special Tax Refunding Bonds will be used to refund the 2014 Bonds. It is anticipated that Standard and Poor's will assign the proposed 2024 Bonds a credit rating on May 10, 2024. Additionally, the attached resolution authorizes staff with the assistance of the City's Municipal Advisor and Underwriter to seek quotes for bond insurance and a reserve fund surety.
The interest rates for the 2024 Bonds (approximately $17.240 million) are anticipated to be substantially lower than the interest rates on the outstanding 2014 bonds. The reduction in such borrowing costs will, in turn, result in a reduction of special taxes to be levied in the 17 Improvement Areas. Projections reflecting April 10, 2024 market conditions plus a 15 basis points cushion estimates net present value savings of approximately
$1.507 million dollars, or 7.00% of the par amount of bonds to be refunded, without extending the term of the bonds from their original maturity date of September 1, 2038.
Council should note that due to daily changes in interest rates, the actual level of savings cannot be determined until the 2024 Bonds have been priced and sold. The pricing date is tentatively set for May 30, 2024. City Council's adopted Debt Issuance, Management and Post Issuance Compliance Policy (the "Debt Policy") states a current refunding of bonds shall strive to achieve a net present value savings of 3% or higher, but allows for flexibility due to market conditions and other mitigating factors. Based upon current market conditions it is anticipated that present value savings will be approximately 7%.
Before the City Council is a resolution acting for itself and as the legislative body for CFD 99-01, authorizes and provides for the issuance of the 2024 Bonds, and approves the form of the Preliminary Official Statement and various other documents relating to the refinancing.
A brief description of the documents being approved is provided below:
Fiscal Agent Agreement: Seventeen series of the 2024 Special Tax Refunding Bonds will be issued pursuant to separate Fiscal Agent Agreements for each Improvement Area, by and between CFD No. 99-01 and U.S. Bank Trust Company, National Association, as Fiscal Agent. The Fiscal Agent Agreements describe, amongst other things, the terms of the 2024 Special Tax Refunding Bonds, redemption provisions, defeasance provisions and security provisions. The security for each series of 2024 Special Tax Refunding Bonds will be the special taxes levied within the respective Improvement Area for which the 2024 Special Tax Refunding Bonds were issued and certain funds and moneys described in each Fiscal Agent Agreement.
Bond Purchase Agreement: The Authority will sell the 2024 Bonds to Stifel, Nicolaus & Company, Incorporated (the "Underwriter") pursuant to the terms of a Bond Purchase Agreement between the CFD No. 99-01 and the Underwriter. The Authority will utilize the proceeds of such sale to purchase the 2024 Special Tax Refunding Bonds. The parameter set forth in the resolution includes a not-to-exceed principal amount of $20,000,000, a not to exceed True Interest Cost of 4.0% and Underwriter’s Discount of 1.0%.
Escrow Deposit and Trust Agreements: U.S. Bank Trust Company, National Association will be acting as Escrow Agent and will provide services for the defeasance and redemption of the 2014A Bonds and each 2014 Special Tax Refunding Bond.
Indenture of Trust: Is by and between the Authority and U.S. Bank, as Trustee. The Indenture establishes the terms and conditions pertaining to the issuance, sale and administration of the 2024 Bonds.
Preliminary Official Statement: The 2024 Bonds will also be sold through distribution of the Preliminary Official Statement and the Official Statement to investors. The Official Statement describes the 2024 Bonds, the relative risks associated with the purchase and other necessary information pertinent to investors. This includes representations related to the security and finances of the City.
The City and CFD No. 99-01 are required to review the Official Statement and make sure it provides to bondholders all material information relevant to the 2024 Bonds and does not omit anything relevant to a bondholder's decision to purchase the 2024 Bonds. The Preliminary Official Statement is included with this report. Material found within the Official Statement is subject to Rule 15c2-12 of the Securities Exchange Act of 1934 (the "Rule") and other laws regulating material misstatements and omissions.
Continuing Disclosure Agreement: CFD No. 99-01 will enter into a continuing disclosure agreement for the purpose of assisting the Underwriter in complying with the Rule. 30 Three Sixty Public Finance, Inc. will serve as Dissemination Agent thereunder.
Copies of the various documents relating to the 2024 Bonds and the 2024 Special Tax Refunding Bonds were provided to the City Council in an electronic format, and are on file with the City Clerk, and are available for public inspection during normal business hours.
Environmental Review
The proposed action does not constitute a “project” as defined under Section 15378 of the California Environmental Quality Act Guidelines (California Code of Regulations, Title 14, Division 6, Chapter 3, Sections 15000 - 15387), and is therefore not subject to environmental review pursuant to Guidelines Section 15060(c)(3).
Fiscal Impact
Approval of the attached resolution will have no fiscal impact to the City's General Fund. However, it is estimated that issuance of the 2024 Bonds will generate approximately $1.507 million of net present value savings for the taxpayers in the 17 Improvement Areas of CFD 99-01 starting in FY 2024-25.
Attachment(s)
Attachment 1: Resolution No. 2024-XXXX
Attachment 2: Resolution No. SMPFA 2024-XXX
Attachment 3: Map of CFD 99-01
Attachment 4: Fiscal Agent Agreement
Attachment 5: Bond Purchase Agreement
Attachment 6: Escrow Deposit and Trust Agreement
Attachment 7: Preliminary Official Statement
Continuing Disclosure Agreement (Appendix D of the Preliminary Official Statement)
Attachment 8: Indenture of Trust
Prepared by: Jeffrey Jorgenson, Senior Accountant
Submitted and Reviewed by: Donna Apar, Finance Director
Approved by: Michelle Bender, City Manager