MEETING DATE:
SEPTEMBER 12, 2017
SUBJECT:
Title
RESOLUTION NO. SA 2017-021 - REQUEST FOR AUTHORIZATION AND APPROVAL BY THE BOARD OF THE SUCCESSOR AGENCY TO THE SAN MARCOS REDEVELOPMENT AGENCY TO REFUND CERTAIN OUTSTANDING HOUSING SET-ASIDE TAX ALLOCATION BONDS, SERIES 2010
Body
Recommendation
Recommendation
ADOPT a resolution of the Board of the Successor Agency to the San Marcos Redevelopment Agency (“Successor Agency”) approving the issuance of refunding bonds in order to refund certain outstanding bonds and financial obligations of the former San Marcos Redevelopment Agency, approving the execution and delivery of an Indenture of Trust and other related documents.
Body
Board or Commission Action
Not applicable
Relevant Council Strategic Theme
Planning for the Future
Good Governance
Relevant Department Goal
Not applicable
Introduction
The former San Marcos Redevelopment Agency issued its $52,805,000 Housing Set-Aside Tax Allocation Bonds, Series 2010 (Taxable) (the “Prior Bonds”) for affordable housing and associated purposes. Staff and consultants estimate that refinancing of the Prior Bonds will reduce the collective debt service by approximately $14.07 million through October 1, 2030, based on market conditions as of August 8, 2017.
The dissolution law provides that such refinancings are subject to the approval of the Successor Agency, Oversight Board, and the Department of Finance. The proposed action starts this process. If these Prior Bonds are refinanced, any savings accrued will increase the amount of residual property tax (previously known as tax increment) available for distribution to the taxing entities.
Discussion
As the City Council will recall, redevelopment agencies were dissolved by the passage of ABx1 26 by the California Legislature. The California Supreme Court upheld the dissolution statute in December of 2011, and the dissolution occurred effective February 1, 2012. AB 1484, follow-up legislation to supplement and clarify various provisions, was passed in June of 2012. That statute added Health & Safety Code section 34177.5, subsection (a)(1) which includes language that permits successor agencies to refund bonds to effect savings. That section provides that a successor agency has the authority, right and power to:
(1) For the purpose of issuing bonds or incurring other indebtedness to refund the bonds or other indebtedness of its former redevelopment agency or of the successor agency to provide savings to the successor agency, provided that (A) the total interest cost to maturity on the refunding bonds or other indebtedness plus the principal amount of the refunding bonds or other indebtedness shall not exceed the total remaining interest cost to maturity on the bonds or other indebtedness to be refunded plus the remaining principal of the bonds or other indebtedness to be refunded, and (B) the principal amount of the funding bonds or other indebtedness shall not exceed the amount required to defease the refunded bonds or other indebtedness, to establish customary debt service reserves, and to pay related costs of issuance. If the foregoing conditions are satisfied, the initial principal amount of the refunding bonds or other indebtedness may be greater than the outstanding principal amount of the bonds or other indebtedness to be refunded. The successor agency may pledge to the refunding bond or other indebtedness the revenues pledged to the bonds or other indebtedness being refunded, and that pledge, when made in connection with the issuance of such refunding bonds or other indebtedness, shall have the same lien priority as the pledge of the bonds or other obligations to be refunded, and shall be valid, binding, and enforceable in accordance with its terms.
As provided by AB 1484, a successor agency is not able to issue bonds that would increase the overall indebtedness associated with the previous issuances, or provide additional proceeds to be expended, but it can issue bonds to refund and effectuate cost savings as proposed. By refunding certain eligible bond issues, the debt service payments will be reduced and the taxing entities will receive additional revenues. Staff has identified such an opportunity which is presented in this agenda report.
Prior to the dissolution of the Redevelopment Agency, the former San Marcos Redevelopment Agency issued the Prior Bonds to finance affordable housing and associated purposes. The current outstanding principal amount of the Prior Bonds is $45,770,000 with interest rates ranging from 6.125% to 8.5%. It is anticipated that the refunding of the Prior Bonds will produce an annual average reduction in bond payments of $1,082,272. This will result in an average annual increase of $175,423 in property tax revenues to the City. This same reduction in annual bond payments frees up additional property tax revenues for distribution to the affected taxing entities. The City and the San Marcos Fire Protection District are two of the taxing entities that will benefit from these savings. Other taxing entities include, but are not limited to, the County, schools (K-12, community colleges and County Office of Education), the County Library, Palomar Pomerado Health, Vallecitos Water District and Vista Irrigation District.
AB 1484 permits successor agencies to refund outstanding bonds and other obligations of a former redevelopment agency which requires the approval of the Successor Agency, Oversight Board and the California Department of Finance. Because the impact of the refunding would be to reduce the interest costs associated with the Prior Bonds, it is anticipated that Department of Finance will not object to the action. Successor agencies throughout the state have successfully refunded outstanding debt and the Successor Agency completed a similar refinancing in 2015, refunding nine outstanding financial obligations.
The first step in moving forward with the refunding bonds is to adopt the attached resolution directing the Successor Agency to undertake proceedings for the issuance and sale of the Successor Agency to the San Marcos Redevelopment Agency Taxable Tax Allocation Refunding Bonds, Series 2017 (the “Refunding Bonds”) to refund the Prior Bonds, approve the required legal documents and authorize all of the necessary actions relating to the proposed refinancing. Subsequent to the adoption of the resolution by the Successor Agency, the Oversight Board has a meeting scheduled for September 14, 2017, for their adoption of the required resolution accompanied by the Successor Agency resolution and the indenture of trust, escrow agreement, debt service savings analysis and the bond purchase agreement. Once the Oversight Board has approved their resolution, they are required to be forwarded to the California Department of Finance who has up to sixty days to approve the Oversight Board resolution.
Refunding Process
It is anticipated that the refunding will take approximately 4 months to complete. The key milestones to complete the refunding are identified below:
• Successor Agency approving resolution to refund the Prior Bonds and approving legal documents (Tonight’s Action)
• Oversight Board’s approval of Successor Agency action to issue the Refunding Bonds and make determination of savings (September 14, 2017)
• Submission of resolutions of both the Successor Agency and Oversight Board and all the related documents to the Department of Finance (September 15, 2017)
• Secure underlying credit ratings and debt service reserve fund surety (November 2017)
• Receive Department of Finance’s Approval (November 2017)
• Successor Agency approval of the Preliminary Official Statement and remaining financing documents (November 2017)
• Negotiated sale of Bonds (November 2017)
• Bond Closing (December 2017)
• Defeasance and redemption of outstanding 2010 Bonds (October 2020)
Fiscal Impact
The fiscal impact of the issuance of refunding bonds will result in the average annual reduction in bond payments of approximately $1,082,272. This same reduction in annual bond payments frees up additional property tax revenues for distribution to affected taxing entities. This will result in an average annual increase of $175,423 in property tax revenues to the City and San Marcos Fire Protection District starting in 2018 and continuing through the final maturity in 2030, as a result of the refunding. These are estimated savings based on current market conditions as of August 8, 2017 and are subject to change.
Attachment(s)
Resolution Approving Issuance of Refunding Bonds
Debt Service Savings Analysis Report
First Supplemental Indenture of Trust
Escrow Deposit and Trust Agreement
Bond Purchase Agreement
Prepared by: Roque Chiriboga, Fiscal Services/Debt Manager
Reviewed by: Laura Rocha, Finance Director
Approved by: Jack Griffin, City Manager