Loading...
HomeMy WebLinkAbout1987-03-17; City Council; 8859-3; Hosp Grove Financing Alternatives- CI' OF CARLSBAD - AGENC- BILL AB#3v59 -. -7 MTG. 3/17/87 DEPT. FIN TITLE: HOSP GROVE FINANCING ALTERNATIVES IDEPT. HB. "7 CITY MGR.~ RECOMMENDED ACTION: Council should elect one of the proposed methods of financing the Grove purchase and direct staff to return with a detailed financing plan and necessary documents. ITEM EXPLANATION: On February 24, 1987, the City Council received the Hosp Grove Task Force's report regarding financing alternatives for the purchase of Hosp Grove which included many of the staff's recommendations as well as several new financing methods. Although most if not all of the funding alternatives presented in the Task Force's report are viable options, all have varying effects on the City's present and future ability to fund operations and capital projects. Any of the available funding options will require the City Council to make choices as to the priority of funding operations or capital projects. For example: Cash Purchase - Uses funds that would have been available for use on other high priority projects. - Interfund loans must be repaid on a short time period - Funds for repayment of loans must be made available from to avoid conflict with planned CIP expenditures. the operating budget or year-end surplus (if a surplus remains at year end). - Budget reductions may be necessary. Debt Purchase - Annual appropriations of debt service funds will be necessary to satisfy bond covenants. fund money. operating budget or year end surplus (if a surplus remains at year end). - Debt service payments will have first claim on general - Funds for repayment must be made available from the - Budget reductions may be necessary. Staff recommends that Council consider one of three options utilizing the above methods of financing this purchase: . Cash purchase using interfund loans as described in funding alternative 2 of the Task Force rpeort. Combination cash and debt purchase using some or all available general capital construction and revenue sharing funds and debt in the form of bonds or COP's with a 20-year life. Debt purchase using bonds or COP'S to finance the purchase as described in option 5 of the Task Force report. . . -2- AGENDA BILL NO. 8854 -3 The effects on the City's financial position and cash flow are shown in the following table: Cash and Unobligated cash required Debt required Interfund loans required Total Purchase Price Debt Issue Costs Interest TOTAL Annual debt repayment from General Fund revenues Repayment period Cash Purchase Debt Purchase $3.6 million* $3.6 million* -- 2.8 million $2.8 million $ -- $6.4 million $6.4 million -- 0.2 million $0.5 million $2.6 million $6.9 million $9.2 million $680,000 $280,000 5 years 20 years Debt Purchase -- $ 6.4 million $ -- $ 6.4 million 0.4 million $ 6.8 million $13.6 million $642,000 20 years * $3.6 million represents estimated funds available at June 30, 1987 based on assuming that a surplus of $500,000 is available from the General Fund to help support this acquisition. This number has been reduced from $3.9 million due to Council actions appropriating funds for various projects. Council must understand that as of this date, the City's General Fund budget for fiscal year 1987-88 is not balanced. Any addition of financing costs into the 87-88 General Fund budget will require reductions in service levels in some areas. a -3- AGENDA BILL NO. 8B- -3 FISCAL IMPACT: The fiscal impact of this purchase varies depending on the method of financing selected by the Council. In summary, there are basically two methods of paying for the Grove acquisition: two concepts are described below: cash and debt. These Cash Purchase The cash purchase of the Grove depends on the accumulation of approximately $6.4 in cash in one fund in a very short period of time. This can be done in one of two ways: 1. Unobligated general capital construction and revenue sharing fund cash, plus loans from other funds. 2. Unobligated general capital construction and revenue sharing fund cash, plus repayment of debt from the redevelopment agency. The use of interfund loans depends on the ability of the sewer construction fund to loan sufficient cash to bring total available funds up to $6.4 million. from the sewer construction fund. This range is based on the total funds available in the general capital construction fund at June 30, 1987 or today. If the purchase is deferred to the end of the fiscal year, approximately $3.6 million will be available in the general capital constnnction and revenue sharing funds. (This number has declined from the $3.9 million discussed earlier this year due to Council actions appropriating funds for various capital profects.) If the purchase is made prior to June 20,1987, the sewer fund will be called upon to provide additional funding of up to $700,000. This will require a loan of $2.8 million to $3.5 million Any loan from the sewer fund must be repaid as rapidly as possible to avoid conflict with sewer projects scheduled for funding from sewer fees. In no event should repayment take longer than five years. Annual payments would total $650,000 to $850,000 for five years depending on the total amount of the loan required and the interest rate applied to the loan. This repayment would be made from year-end surplus funds and/or reductions in the City's operating budget. Debt Purchase Under a debt purchase option the City would issue GO bonds or certificates of participation (COP'S) with a term of up to 20 years. If COP's are used the City would enter into a sale/lease back agreement and sell a major city asset that has a value exceeding the amount of debt issued. The Public Safety Center is the prime candidate for this type of financing. The City must pledge general fund revenues to the repayment of the debt. The bond or COP holder has first claim to general fund revenues. This requires that the City budget for the debt service costs as part of the regular budget process each year. Reductions in services could be necessary to fund the debt service payments. 3 L -4- AGENDA BILL NO. s8sv - 3 Additional Considerations Revenue increases - the Council may consider increasing revenue as a means of raising funds to fhance loan repayments or debt service costs. The Task Force report outlines three possible tax increases that could be used to raise additional revenue: 1. Transient Occupancy Tax - Each 1% increase in the TOT will provide approximately $200,000 in additional revenue to the City. 2. Utility Users Tax - Each 1% of utility users tax applied to SDG&E bills would raise approximately $400,000. 3. Business License Tax - A 50% increase in business license taxes would raise approximately $220,000. Early purchase of Grove property - The property owner has indicated a willingness to discount the price of the Grove if the City wishes to close escrow sooner than June 1, 1987. The City could realize a real decrease in total acquisition costs if a satisfactory discount rate can be agreed upon by both parties. EXHIBITS : 1. Hosp Grove Financing Task For'ce report dated 2/14/87. 4 * - - CI OF CARLSBAD - AGENI BILL u $4 0 a al &I al c u a $ 2 3 0 u h co I e N I N MTG. 2/24/87 DEPT. REPORT OF HOSP GROVE FINANCING TASK FORCE DEPT. HD. CITY A&Lq CITY MGa RECOMMENDED ACTION: No action is required. Council may wish to receive the report from the Committee and discuss funding alternatives. ITEM EXPLANATION On January 27, 1987, the City Council appointed the Hosp Grove Financing Task Force and directed this group to review alternatives for the purchase of Hosp Grove and report back to the Council at the meeting of February 24, 1987. In order to accomplish this assignment the task force held five meetings in a period of 11 days investigating issues of municipal finance, policy, planning and budgeting. The task force has developed 10 financing alternatives that may provide some guidance to the City Council in the purchase of Hosp Grove should the ballot measure receive voter approval in March. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Seek voter approval of general obligation bonds. Cash purchase using unobligated general capital construction fund money and a loan from the sewer construction fund. Revenue enhancement measures and issuance of COPs for the purchase of part or all of the Grove backed by a pledge of general fund revenue (transient occupancy tax, business license tax, utility users tax). Mello-Roos Assessment District. Salellease back of the Public Safety Center or other City asset using COPS. Redevelopment repayment of debt to the City in one lump payment of Redevelopment repayment of debt to the City in annual payments of $3.5 million. approximately $450,000 used to support certificates of participation (COPs) for the purchase of part of the Grove. Grove. for acquisition of Hosp Grove. Revising the public facilities fee (PFF) policies to include Hosp Revise park-in-lieu policies to allow the use of park-in-lieu funds 1988 Parks Bond Act. The task force was directed to review funding alternatives for the purchase of Hosp Grove and report to the City Council. The City Council has not directed the task force to provide recommendations. Therefore, no financing option has been recommended over any other. The list of options has not been prioritized, however, the task force believes that the concept of using general obligation bonds for an acquisition of this type is the most reasonable financing method. All methods or sources of financing on the list are possible, some with more difficulty than others. FISCAL IMPACT The fiscal impact of each alternative is shown in the attached report. EXHIBITS 1. Letter from Hosp Grove Financing Task Force to City Council, dated 2/11/87. 2. Report of the Hosp Grove Financing Task Force dated 2/11/87. ".-- HOSP GROVE FINANCING TASK FORCE Margaret Brownley Kip McBane Tom Erwin Margie Monroy Willa Fabian Mike O'Gara Elaine Lyttleton Pat White February 11, 1987 City Council City of Carlsbad 1200 Elm Avenue Carlsbad, CA 92008 An eight-member citizens committee was appointed by the City Council on January 17, 1987, to investigate financing alternatives for the purchase of Hosp Grove and report to the City Council the results of this review on February 24, 1987. The charge resulted in five public meetings covering apprxomately fifteen hours during the eleven-day period between January 29 and February 9, 1987. To help the Committee with the task at hand, at lease five members of City staff, F'rank Mannen, Phil Carter, John Cahill and especially Jim Elliott and Ray Patchett devoted countless hours during the two week period in preparation for meetings and education of Committee members in basic municipal finance and the peculiarities of the Carlsbad system. The job was very well done and for this the Committee extends its heartfelt appreciation. Although time constraints imposed for the completion of this report placed limits on the depth of our investigation, the Committee was able to prepare a report which discusses ten alternative methods of financing the purchase of Hosp Grove. There are, of course, many more combinations and/or permutations of those alternatives. operating and/or capital improvement budgets than others. alternatives reported on do suggest certain scenerios which could provide for the necessary financing without impacting other essential capital projects or the operating standards of the City. Our report also describes several related concerns which were raised during the meetings and which may deserve your further consideration. Some methods would have more impact on the City's Combinations of the Members of the Committee are to be complimented for their diligence and faithful attendance and participation in this project. The Committee is pleased to present this report to you for your consideration. KIP K. McBANE Chairman FEBRUARY 11, 1987 TO : CITY COUNCIL FROM : Hosp Grove Financing Task Force REPORT ON REVIEW OF FINANCING ALTERNATIVES On January 27, 1987, the City Council appointed the Hosp Grove Financing Task Force and directed this group to review alternatives for the purchase of Hosp Grove and report back to the Council at the meeting of February 24, 1987. in a period of 11 days investigating issues of municipal finance, policy, planning and budgeting. In order to accomplish this assignment the task force held five meetings Financing Alternatives The task force has developed 10 financing alternatives that may provide some guidance to the City Council in the purchase of Hosp Grove should the ballot measure receive voter approval in March. These alternatives are listed below: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Seek voter approval of general obligation bonds. Cash purchase using unobligated general capital construction fund money and a loan from the sewer construction fund. Revenue enhancement measures and issuance of COPs for the purchase of part or all of the Grove backed by a pledge of general fund revenue (transient occupancy tax, business license tax, utility users tax). Mello-Roos Assessment District. Sale/Lease back of the Public Safety Center or other City asset using COPs. Redevelopment repayment of debt to the City in one lump payment of $3.5 million. Redevelopment repayment of debt to the City in annual payments of approximately $450,000 used to support certificates of participation (COPs) for the purchase of part of the Grove. Revising the public facilities fee (PFF) policies to include Hosp Grove. Revise park-in-lieu policies to allow the use of park-in-lieu funds for acquisition of Hosp Grove. 1988 Parks Bond Act. 7 -2- The task force has not prepared a recommendation for Council. the consensus of the task force is that general obligation bonds are the most desirable method for financing the Grove. Council may wish to consider placing a general obligation bond issue on the June or November ballot. The filing deadline for such a measure would be March 6, 1987, for the June ballot, and September 1, 1987, for the November ballot. However, The possibility of using assessment districts under the 1913/1915 Acts was discussed by the task force and rejected as too complex and, although theoretically possible, not practical for this project. In addition to the alternatives listed, the City Council may consider using various combinations of alternatives to provide the most flexible financing package possible. For example, the City may wish to use the unobligated cash to purchase a portion of the Grove and debt in the form of COPS supported by annual loans to the general fund from restricted funds, additional revenue generated by new taxes or fees, public facilities fee revenue or current general fund revenues to finance the remaining purchase. Council might chose to include funds for Hosp Grove in a City Wide, open-space acquisition bond aimed at acquiring significant open-space parcels in each quadrant of Carlsbad. The task force has also discussed the possibility of using community fund raising programs and private donations as a method of supporting a portion of the Grove acquisition cost. The City Council may wish to pursue the possibility of fund raising through publically sponsored events or programs such as selling square foot parcels of the Grove to citizens, civic groups and businesses or sponsoring donation drives. The County of San diego Parks Department has expressed interest in contribu- ting to the Hosp Grove purchase with funds from the 1986 State Bond Act (Prop 43). This and all other opportunities for outside funds should be pursued. A summary of each financing method is attached to this report. Additional Findings 1. Possible Extension of Acquisition Period - The City Council may wish to consider meeting with the developer and property owner to negotiate an extension to the acquisition period. This would allow Council time to issue debt instruments or call for a June or November election where the general obligation bond issue could be placed before the voters. interim financing might be required, and alternative financing must be provided in case the bond fails.) (Should Council call a bond election, 8 -3- 2. Maintenance Costs - The task force believes that the City Council should clearly understand the issue of maintenance cost of the the Grove following acquisition. The staff has indicated that the recommended level of maintenance, two caretakers assigned full time to Grove maintenance, would cost approx- imately $65,000 per year. Since the present 27 acres of Grove property owned by the City currently receives a very low maintenance effort, establishing a Grove maintenance staff represents a new program. Although the task force agrees with the concept of maintaining the Grove property after acquisition, it appears that the exact cost and level of service has not been well established and should receive additional attention from the City Council. 3. Source of Funds - The task force recognizes that present uncommitted funds would cover approximately one-half of the purchase price of the Grove, and that the balance would have to be financed. The task force recognizes the need to find additional revenues or reduced expenses if operating surpluses are not adequate to cover financing costs and debt repayment. 4. City Operating Budget - During this process, the task force did not have sufficient time to review the City's operating budget in detail. However, the group does believe that the City Council should consider a careful evaluation of the City's operating budget and the rate of growth in City service costs. FY 87-88 department requests have come in and are approximately $4 million in excess of projected revenue. reviewed to verify that current costs for services on a per capita basis is not significantly higher than in cities similar to Carlsbad. This review may reveal areas where service costs should be reduced, thereby freeing funds for other purposes. In addition, the City Council should consider a review of development-related costs and services to investigate the apparent shortfall between the revenue and expense of providing these services. City services should be 5. Use of Surplus City Property - It appears to the task force that the City has an inventory of surplus real estate that could be put to use through lease agreement or sale. The staff has previously investigated this alternative source of revenue and reported that, although there is an inventory of surplus or unused property and that lease arrangements are under discussion, the potential for revenue generation from these parcels is not a short-term opportunity The task force believes that the City Council should not overlook this revenue source when funding long-range capital programs. -4- Summarv The task force was directed to review funding alternatives for the purchase of Hosp Grove and report to the City Council. directed the task force to provide recommendations. Therefore, no financing option has been recommended over any other. been prioritized, however, the task force believes that the concept of using general obligation bonds for an acquisition of this type is the most reasonable financing method. All methods or sources of financing on the list are possible, some with more difficulty than others. the City Council has not The list of options has not The chairman of the task force will be available at the February 24 Council meeting to respond to any questions Council may have. KIP K. McBANE, Chairman MARGARET BROWNLEY TOM ERWIN WILLA FABIAN ELAINE LYTTLETON MARGIE MONROY MIKE O'GARA PAT WHITE x rl 01 m Ll 01 > a x E m P) C 0 \ N u 0 a, u 0 x u rl Ll : 9 a PI 4 J w L4 m 0) m a a m 4 LI a u 0 4J m 2) m 0 U n C 9) .a P)o > om LIC 0 -4 a a4 m> 00 xu a OLl U P)>. mu 4 0-i "8 U P) 0 u a m 0 X 0 U a Y .rl rl h 4 rl 0 4 W .PI a C 9) a a 01 E 0 Jl LI 0 W ooc VI m-.r am u.u uu ao4 001 Ud m UW 04c 5 PI JJ u m PI U C z -4 U U d * Y 4 m 0 Y C a ?! m 0 9 2' 0 -4 4 .t Cd v) u4c 644 u LI. u L#u- c 0-Y 44 ruuu CLIJ u4cm CLu LI w >u JU w VI COLI3 W I1 I I1 I1 I II II u P) ua m OE n ww 0 .d .Y nu. ow -1 x a! d 3 VI m U 0 0 a- " I I1 I I Ill I II I I N P) a m w 0 m Y w u p: 0 E x cn 4 E W 3 0 p: W pc rn 0 3: I N I Y h II) a 0 U tQ 4 a U f x Y .rl u b U c 0 b b Y e Y U x Y W * VI U a 3 P ml a 5 Y 4 Io m Wl -rw. UQa LI 0' awbl 4 m .4 Q 1 11 a r D 0 Y W 4 U r) 0 U n V rl u 4 d op a Ir ml Y a W 4 U rl rl 4 a :: y1 U 4 rl 0 n a e. m> no eo rlb rl > Y e OD b m .A a I11 > Q 4 a 4 a ! 'I. 0 Y C al E, n a 5 A 0 0 C .d Y L! U 0 U U Y TJ n W 0 Ill 11 W bl 4 3 cr e bl. a U 0 ablc -44 Jam QC b u 2 .: aou E>4 U .. -- hum I I Y 4 d u' a a W W 2 0 0 alu O GO uc & IIIII a. I m I I3 FUNDING ALTERNATIVE #I -- General obligation bonds Assumptions 0 A general obligation bond ballot measure could be placed before the voters in June or November 1987 (requires 2/3 vote). 0 The developer will work with the City to allow the necessary time and/or method of transfer to enable the use of bond financing. 0 General obligation bonds are the least expensive and most practical means of long-term financing for the Grove purchase. Discussion In November 1986, the City Council placed a general obligation bond issue on the ballot asking the voters to approve the issuance of GO bonds for the purchase of Hosp Grove. This issue received 64% of the vote thereby failing to receive approval by a slim margin. The general obligation bond issue is still considered to be the best means for financing Hosp Grove because it spreads the burden for repayment of debt among all residents and businesses. A city-wide open-space acquisition bond could be used to pay for not only Hosp Grove, but significant open-space parcels in each quadrant of Carlsbad. This might help to mitigate the difficulty of getting a 2/3 vote. To use general obligation bonds the City must find satisfactory answers to questions surrounding the Hosp Grove purchase. First, if the March ballot measure passes, should the City Council seek a means of acquiring the Grove which would allow the issue of general obligation bonds at a later date to finance the purchase? Second, if general obligation bond financing is sought and fails, what alternative method of financing the purchase will be used? Neither of these questions can be satisfactorily answered for the task force at this time. However, the task force believes that the City Council should continue to seek voter approval of a GO bond for this purchase. The last day to file documents for the June 2nd election is March 6. The last day to file documents for the November 3rd election is September 1st. -- FUNDING ALTERNATIVE #1 (cont'd) Advantages - General obligation bonds are a simple form of City debt and are easier and less expensive to sell than other types of bonds. - Guaranteed income stream for the repayment of bonds. - More closely matches the life of the financing with the - Spreads burden for repayment over all present and future - Does not impact other capital projects or draw support. life of the asset. taxpayers. Disadvantages - Requires additional time to make June or November ballot. - Requires 2/3 vote. - Short time between election (March 3) and required filing - Requires voter approval after commitment to purchase has date (March 6) for the June election. been made. Fiscal Impact Acquisition cost of Grove $6.4 million Debt issue costs $ .3 million Interest (20 years @ 6.8%) * $5.8 million Total Cost $12.5 million Annual debt service costs would be about $625,000 * General obligation bonds should be priced slightly below other types of debt because of the very secure nature of the bonds. FUNDING ALTERNATIVE #2 -- Cash purchase using interfund loan and general capital construction fund unobligated balances. Assumptions 0 The general capital construction and revenue sharing funds can provide approximately $3.9 million in unobligated funds for the purchase of Hosp Grove. a The sewer construction fund can provide a loan of up to $2.5 million to the general capital construction fund to support the purchase of Hosp Grove. 0 Any loan made from the sewer fund must be repaid within five years to avoid any conflict with needed sewer improvements. 0 Repayment of a loan from the sewer fund will be made from the general fund surplus or other sources at the end of each fiscal year. Sufficient surplus will be available each year for th5s repayment. 0 Interest must be charged on any interfund loan at a rate competitive with the rate earned by the City on the investment portfolio. Discussion The City may loan cash not currently required to meet immediate needs to other City funds requiring cash flow assistance. The sewer construction fund has an unappropriated balance of about $1.7 million and funds appropriated for the expansion of the Encina Water Pollution Control Facility five years or more in the future of about $1.3 million for a total available balance of $3 million. These funds could be made available for loan to the general capital construction fund for a period not to exceed five years. This money combined with the unobligated funds in the general capital construction fund (approximately $3.9 million) would provide sufficient funding for the cash purchase of Hosp Grove. An additional $200,000 can be made available for this acquisition by recovering excess appropriations from projects which have been recently completed. The Finance Director has indicated that interfund loans are discouraged. The City Attorney has indicated that the City would be compelled to establish a fixed repayment schedule and to appropriate funds each year for the repayment of the loan. Advantages Provides cash for the purchase of Hosp Grove. Allows the City Council to set repqment schedules and interest rates. Allows City Council to Control payback period. Does not require Goter approval Does not require the issue of debt. Could be combined with other alternatives to provide low cost short-term interim financing prior to issuance of long-term debt. lb FUNDING ALTERNATIVE #2 (cont'd) Disadvantaaes - Possible conflict if not paid back in timely manner. - No secure revenue source available for the repayment of loans. - Could require the reduction of general fund services if no additional revenue is generated, expenses are not reduced and an insufficient year-end surplus exists. projects. - Uses funds that could be allocated to other capital Fiscal Impact Cost of Grove acquisition: General Capital Construction Fund and Revenue Sharing Funds $3.9 million Sewer Construction Fund $2.5 million Total Cash Purchase Price $6.4 million Interest Costs (assuming repayment over 5 years @ 7%) $548,000 Total Acquisition $6.9 million FUNDING ALTERNATIVE #3 -- Revenue Enhancement measures using tax increases or new tax sources. Assumptions 0 Voters would approve general tax increases. 0 General tax revenue would be deposited into the general fund . a The general fund would support debt service payments for the purchase of Hosp Grove. Discussion Increase in the transient occupancy tax (TOT) and business license tax could be used to create sufficient revenue to support a bond issue of the size needed to purchase Hosp Grove. An increase in the TOT from 6% to 8% would provide about $450,000 per year in additional revenue at current occupancy and room-rate levels. A business license tax increase is more difficult to evaluate, but $50,000 to $100,000 could be raised through a 25% increase in fees and about $225,000 would result from a 50% increase in license taxes. Both of these actions would require approval of a majority of voters. The present distribution of transient occupancy tax rates across San Diego County is as follows: 6% - 8 cities 7% - 2 cities 8% - 8 cities (and county) 10% - 1 city The City could consider implementing utility users tax that may be imposed on electricity, gas, cable television, telephone or water bills based on a percentage of the billing. According to the League of California Cities, utility users taxes are collected by about 100 cities ranging up to 10% of the bill. The average rate is approximately 7%. If a utility users tax were imposed on electric and gas sales, each 1% of tax would raise about $400,000 in revenue. A utility users tax also requires a majority vote for approval. Any tax increase must be carefully isolated from any decisions to support the Hosp Grove purchase. designated for a particular use it becomes a special tax under Article XI11 A of the Constitution and requires a 2/3 vote for approval. If a tax is specifically FUNDING ALTERNATIVE #3 (cont'd) Advantages - TOT tax burden is placed on transient population. - All tax sources provide a reliable source of revenue for - General tax increases require a majority vote, not 2/3. the general fund. Disadvantages - Increasing taxes is often politically difficult. - Economic variations in tourism, business or utility rates - Revenue cannot be specifically linked to Hosp Grove - Tax increases in TOT or business licenses may adversely - Utility users taxes increase utility costs to Carlsbad can affect revenue. purchase. affect the local business community. residents and businesses. Fiscal ImPact If Council elects to finance the Grove acquisition through a debt issue supported by increased general fund revenue, the cost of the Grove acquisition will depend on the amount of debt issued, term and interest rates. Cost of Acquisition Minimum Maximum Debt Debt Certiciates of Participation $2.5 million $ 4.0 million Debt issue costs 0.2 million 0.3 million Interest costs (20 years @ 7%) 2.6 million 4.1 million Available cashbalance 3.9 million 2.4 million Total acquisition cost $9.2 million $10.8 million Annual debt service payments would range from $250,000 to $400,000. 19 FUNDING ALTERNATIVE #4 -- Mello-Roos Assessment District Assumptions 0 A Mello-Roos District encompassing the entire City or less than entire City may be formed. 0 A method of benefit spread can be found. 0 A 2/3 vote of residents of the district can be accomplished. 0 The developer will allow the City the necessary time to form a district to support the purchase,and a method of transfer of property from the City to the district can be found. - Discussion The City Council may begin the process of forming a Mello-Roos Assessment District. The boundaries must be set and some determination of the method of benefit assessment must be established. The Council must then place the question of approving a district before the residents of the district. If the district is approved, bonds may be issued and benefits assessed to the parcels within the district. A City-wide Mello-Roos District could also be formed for the purpose of acquiring open space or parks in all quadrants of the City. assessments could be equalized thereby eliminating the difficulty related to benefit spread. Through this method each area would benefit and This course of action would require Council to identify additional open space parcels across Carlsbad and to form a district. Advantages - Provides guaranteed income stream for bond repayment. - Low interest rates. Disadvantaqes - Requires 2/3 vote for district formation. - Administration of assessments after first year is - Level of benefit is difficult to set for Hosp Grove. - complex on large districts. May reduce developer respohsibility for providing open space facilities. FUNDING ALTERNATIVE #4 (cont'd) Fiscal Impact If the Mello-Roos District is limited to Hosp Grove Acquisition, the costs of debt issuance and purchase should be approximately as shown below: Cost of Grove Acquisition $6.4 million Debt Issue Costs $ .4 million Interest (20 yrs @ 7% $6.8 million Total Cost: $13.6 million (Assuming no reserve fund) annual debt service payments would be about $640,000. FUNDING ALTERNATIVE #5 -- Sale/Lease Back of Public Safety Center or other City assets using Certificates of Participation (COPS) Assumptions 0 The City may enter into a sale/lease back agreement using the Safety Center or other City-owned facilities as the leased assets. 0 Revenue for the support of this COP issue would be made available from a combination of existing City sources and revenue enhancing measures such as tax increases, Redevelop- ment repayment of debt, general fund reduction or public facility fee increases. 0 Between $3 million and $12 million in debt could be issued thereby creating additional funds for other capital projects. Discussion Under a sale/lease back certificate of participation, the City sells an asset to another entity and simultaneously agrees to lease the asset back over time. The other entity issues certificates of participation (very similar to bonds) to raise funds for the purchase. The holders of the COPS then share in the lease revenue stream paid by the City. At the end of the agreed upon period (typically 20 to 30 years), the asset reverts to the City. If the City can raise up to $12 million using this financing method, up to $6.4 million could be earmarked for the purchase of Hosp Grove. Any remaining funds could be used to support other projects. Repayment of the debt is typically backed by the pledge of some revenue source. If no specific source is available, the seneral fund is expected to pledge enough revenue to make the debt service payments. Debt service costs on an issue of $3 million to $6 million would cost $300,000 to $600,000 per year. Debt service on the full $12 million issue would be $1.2 million per year. Financing capital assets over a period of 20 years is often used by cities as a means of matching the payment for an asset with its useful life. A pay-as-you-go capital program as was used to construct the Safety Center causes current residents to pay for facilities used by future residents. Using debt to finance capital assets provides a means for matching the user with the repayment of the debt. FUNDING ALTERNATIVE #5 (cont'd) The City has several assets that could be considered for sale/ lease back, including: -Public Safety Center -City Hall -City Library -Fire Stations These assets could be used to support a COP issue of even more than $12 million if all assets were combined. Advantaaes - In a favorable interest market it is reasonable to issue - Provides funds for Hosp Grove and other projects from - Properly backed COPS are easy to sell. - No voter approval required for debt issue. - debt. unrestricted source. More closely matches costs and benefits of Public Safety Center and Grove purchase for current residents by spreading burden of payment over all present and future taxpayers. Disadvantaues - No revenue source readily available for repayment of debt - No debt financing would be used in the construction of the - If no new revenue sources are created, reductions will be without enhancement. building. required in general fund operations. Fiscal Impact The fiscal impact of using debt will vary depending on the proportion of the Grove acquired with debt. If we assume that the entire purchase is debt financed, the costs will be as follows: Minimum Maximum Cost of Acquisition: Debt Debt Certificates of Participation $2.5 million $ 6.4 million Debt issue costs 0.2 million 0.4 million Interest (20 years @ 7%) 2.6 million 6.8 million Available cash balance 3.9 million -0- Total acquisition costs $9.2 million $13.6 million Annual debt service payments would range from $250,000 to $640,000. a3 FUNDING ALTERNATIVE #6 -- Redevelopment repayment of $3.5 loan from general fund and general capital construction fund in one lump sum. Assumptions - Tax increment revenue will be $1.3 million or more in 1987-88 and all following years. The Redevelopment Agency will issue tax increment bonds in the very near future. The $3.5 million debt to the City will be repaid in a lump sum from the proceeds of this bond sale. The remaining tax increment bond proceeds will be sufficient to fund the Senior Citizens' Center and Elm Avenue Streetscape project. (Based on a $10 million tax increment bond.) The City will dedicate all or part of this repayment to the purchase of Hosp Grove. Discussion The Redevelopment Agency currently owes the City approximately $3.5 million (as of June 30, 1986) loaned to the Agency to fund operations and projects. This loan would normally be repaid when the Agency's tax increment revenue grew to a point where a bond issue could be supported. The Redevelopment Agency's annual revenue for future fiscal years will be in excess of $1 million per year. This level should be sufficient to support a tax increment bond of approximately $10 million. If the Agency issues $10 million in debt, the following projects could be supported: Senior Citizens' Center $3.5 to $4.0 million Elm Avenue Streetscape $2.5 million Repayment of Loans from City $3.5 million The City may then dedicate the revenue received from the repayment of this debt to the purchase of Hosp Grove. A total of approximately $2.9 million would be required from the City's general capital construction fund or other funds to bring the total funds available for the purchase of the Grove to $6.4 million. FUNDING ALTERNATIVE #6 (cont'd) Advantages - Provides cash for the construction of Elm Avenue - Provides for cash purchase of Hosp Grove. - Provides funding in a relatively short period. - No inter-fund loans or other forms of debt are required. - No reductions in operating budgets are required. - Reduces agency's cost of financing. Streetscape and Seniors' Center. Disadvantages - Removes $3.5 million from the downtown area that could - Depends on Redevelopment issuing debt in the very near - Reduces the City's interest revenue by eliminating a note be used to support other projects. future. that is earning 10% interest. Fiscal Impact Cost of Grove Acquisition - Cash Purchase Redevelopment Payments $3.5 million General Capital Construction Funds $2.9 million Total Cost $6.4 million FUNDING ALTERNATIVE #.7 -- Redevelopment repayment of $3.5 million loan from the general fund and general capital construction fund over a 20-year period at a rate of approximatley $450,000 per year. The City then issues certificates of participation of up to $4.5 million using the loan repayments as security for the debt. Assumptions 8 Tax increment revenue will be $1.3 million or more in 1987-88 and all following years. 0 The City will set a loan repayment schedule with the Agency based on a 20-year period. 0 Remaining tax increment funds will be sufficient to fund the Senior Citizens' Center and Elm Avenue Streetscape projects. (Based on a $5.5 million tax increment bond issue. ) 0 The City will dedicate all or part of the repayment revenue to the debt service of certificates of participation issued for the purchase of Hosp Grove. Discussion The Redevelopment Agency currently owes the City approximately $3.5 million loaned to the Agency to fund operations and projects. As the Agency's tax increment revenue rises the Agency has the ability to repay these loans as either lump sum through the issue of tax increment bonds or over time directly from the tax increment revenue. If the time payment option is selected, the Agency could be required to pay approximately $450,000 per year for a period of 20 years. This repayment creates a stream of income the City can use as the support for a certificate of participation of up to $4.5 million. The proceeds of this COP could then be used along with existing City cash for the purchase of Hosp Grove as shown below: Proceeds from COP $4.5 million General Capital Constructin Fund $1.9 million Total Hosp Grove Purchase $6.4 million This loan repayment schedule would require that the Agency dedicate a portion of its annual tax increment revenue to the City rather than issuing tax increment bonds. If $450,000 per year were dedicated to the City, approximately $550,000 will remain for the support of tax increment bonds. This gives the Agency the ability to issue about $5.5 million in debt. FUNDING ALTERNATIVE #7 (cont'd) If the Agency issues bonds tota projects could be funded: Senior Citizens' Center Elm Avenue Streetscape Total ing $5.5 million, the following $3.0 million $2.5 million $5.5 million Advantages - Provides revenue stream for the support of certificates - Provides funding in a relatively short period of time. - No interfund loans are required. - No reductions in operating budgets are required. - Reduces Agency's cost of financing. of participation. Disadvantaaes - Requires dedication of tax increment funds that could be - Reduces the possible size of a tax increment bond issue used to support downtown programs. that may cause conflict with Senior Citizens or Streetscape project . Fiscal ImDact Cost of Grave Acquisition Minimum Maximum Debt Debt Certificates of Participation $2.5 million $ 4.5 million Debt issue costs 0.2 million 0.4 million Interest (20 years @ 7%) 2.6 million 4.6 million Available cash balance 3.9 million 1.9 million Total acquisition costs $9.2 million $11.4 million Annual debt service payments would range from $250,000 to $470,000. FUNDING ALTERNATIVE #8 - Revise the Public Facilities Fee System and policies to include Hosp Grove as a qualified project. Assumptions 0 The acquisition of Hosp Grove could help the City meet open space or park standards. 0 Small vest-pocket parks, school grounds and steep slope areas (including those in Hosp Grove) do not meet the current requirements of community parks and should not be included when evaluating compliance with park standards. 0 Present policies related to public facilities fees can be modified to allow additional requirements for parks or open space in the N/W quadrant or City wide. 0 Public facilities fees could be modified to provide sufficient revenue over time to support a cash purchase or debt service payments. 0 Hosp Grove can qualify as a community park by defining community parks broadly and eliminating any requirement that community parks be active in nature. Discussion the City established the public facilities fee in 1979 based on the following premise. The existing infrastructure may support current levels of service to the present population, however, new facilities to support the needs of new residents must be provided by development as it occurs. The public facilities fee was designed to allow developers to pay for their share of future improvements as development occurs. The City then set standards for selected municipal services based on projected buildout populations and desired service levels and established a monitoring program to measure compliance with standards. Under the PFF there is no standard for open space, however, a park standard does exist. The City Council could revise this standard to include Hosp Grove as a park or special resource area on a quadrant or city-wide basis, or create an open-space standard. To fully support the acquisition of the Grove using debt (COPS) the PFF would have to be increased from the present 2.5% to about 2.9% (based on a $6.4 million purchase price funded through the issue of certificates of participation over 20 years). If only the cash purchase price is considered, the required PFF would be 2.7%. (Note - actual PFF fees would have to be evaluated by the Research and Analysis Group before a new rate could be set by Council. ) FUNDING ALTERNATIVE #8 (cont'd) Advantages - PFF provides an income stream over time supporting debt payments. - The cost of acquisition is born by new residents and builders, not current residents, matching the need to provide more parks and to preserve open-space to the demands created by growth. - Properly backed COPS are easy to sell. disadvantages - PFF is dependent upon development activity for revenue. - No open space standard presently exists within the public Total revenue will rise and fall with development. facilities fee. City-wide open space standards are included in the Growth Management Plan. - Open space has been the responsibility of the developer at time of development not the City or Public Facility Fees. - Shifts in community parks standards could cause a change in the number of acres of park land required City wide. - Dedicating PFF revenue to debt service payments eliminates the ability to do other projects by committing a stream of funds for 20 years. Fiscal Impact If the Public Facilities Fee is used as a source of debt service payments, the fee would have to be increased by as much as 0.4% from 2.5% to 2.9%. Acquisition costs would be similar to other purchases financed by debt. Minimum Maximum Cost of Acquisition Debt Debt Certiciates of Participation $2.5 million $ 6.4 million 0.2 million 0.4 million Debt issue costs Interest (20 years @ 7%) 2.6 million 6.8 million Available cash balances 3.9 million -0- Total Acquisition Cost $9.2 million $13.6 million Total annual debt service payments would range from $255,000 to $640,000. I FUNDING ALTERNATIVE #9 -- Revise the Park-in-Lieu policies to allow the use of PIL funds for the acquisition of Hosp Grove. Assumptions 0 The acquisition of Hosp Grove can assist the City in meeting park standards set for community parks in the northwest quadrant or northern half of the City. 0 The City Council may redraw the Park-in-Lieu boundaries as necessary to provide adequate parks for the population of Carlsbad. 0 The City Council may loan funds from one park district to another. 0 A total of $2.5 million has been allocated from funds held for the northeast quadrant for the acquisition of community park land. Since no park site has been selected in the N/E quadrant, these funds could be made available for loan to the northwest quadrant. 0 The Council will consider eliminating small vest-pocket parks, school grounds and steep slope areas (including those in Hosp Grove) from meeting the requirements for community parks in the Growth Management Plan and in the General Plan. Discussion The City is authorized to collect Park-in-Lieu (PIL) fees by the State Subdivision Map Act. Under this act the developers may be required to dedicate park land or pay a fee to the City which is then restricted for purchases of park property that will serve the development paying the fee. The City is divided into four park districts bounded by El Camino Real and Palomar Airport Road. Fees collected within these districts must be used for the benefit of the respective district. Although the northwest quadrant has little or no funds available, the northeast quadrant has $2.5 million allocated to the purchase of a community park site in this area. No park site has been selected in the northeast quadrant at this time. The City Council has the ability to redefine both park district boundaries and the benefit derived from parks within or near a district. By either modifying the boundary between the northwest and northeast quadrants or considering the benefit of Hosp Grove as a community park serving the northwest and northeast quadrants, the $2.5 million presently allocated to park purchase in the northeast quadrant could be used as part of the funding for the acquisition of the Grove. Under present procedures, commercial property is excluded from PIL charges. If commercial property could be included in the PIL formula based on the concept that the daytime work force and hotel guests require park land in a manner similar to the residents, funds from PIL fees could be increased. FUNDING ALTERNATIVE #9 (cont'd) If these funds cannot be included in the acquisition of the Grove because of lack of benefit to the northeast quadrant, the northeast quadrant could loan these funds to the northwest quadrant to temporarily defray purchase costs. quadrant would be obligated to repay this loan as soon as funds become available. The northwest The Finance Director has indicated that a loan of this type must be made on the basis of the northwest quadrant's ability to repay the loan soon enough to avoid conflict with park development plans in the northeast quadrant. Due to the limited amount of development that may occur in the northwest quadrant in the near future, (unless there is a major expansion or redevelopment project in the mall or village area), the City would have to consider assisting the repayment of this loan frcm other city funds. Advantages - Using the $2.5 million from PIL funds with the $3.9 million of unobligated City funds provides a total of $6.4 million for the Grove acquisition. - Providing Hosp Grove as a community park will help the City meet park standards in the northwest quadrant. Disadvantages - A loan to the northwest quadrant may be difficult to repay from development within the quadrant. from other City funds may be required. - The loan of $2.5 million from the northeast quadrant to the Hosp Grove acquisition may defer the purchase of community park land in the northeast quadrant. Additional assistance Fiscal ImDact Cost of Grove acquisition: General Capital Construction Fund Park-in-Lieu Funds and Revenue Sharing Funds Total Cash Purchase Price Interest Costs (assuming repayment over 5 years @ 7%) Total Acquisition $3.9 million $2.5 million $6.4 million $548,600 $6.9 million FUNDING ALTERNATIVE #lo -- 1988 Parks Bond Act Assumptions 0 The Bond Act will qualify for the 1988 ballot. 0 The Bond Act willbe passed by the voters. 0 The City will receive an allocation from the bond act for Hosp Grove. 0 The City can find a method to acquire Hosp Grove following the March election which will guarantee that the property will be available for bond act funding in 1988. Discussion Citizens of the State of California are circulating an initiative petition that would place a new Parks Bond Act on the November ballot in 1988. This initiative could provide funding of up to $35 million for San Diego County park land acquisition. Supporters of this initiative have specifically singled out Hosp Grove for funding in the north county area due to its environmental importance. The task force hasbeen told that between $1 million and the full purchase price of the Grove could be included in the distribution of funds from the bond issue. The City would have to find a method of acquiring the Grove property that would allow ail or part of the property-to be late;-purchased by bond act funds. ' Advantages - The bond act provides an independent source of funds that could reduce the City's total cost. Disadvantages - The initiative has not qualified for the ballot yet. - Commitments of funds to Carlsbad are not firm. - Voter approval is required. - Funds are not available until 1988. - No agreement exists with the developer to delay purchase to 1988. FUNDING ALTERNATIVE #IO (cont'd) Fiscal Impact The fiscal impact of receiving a grant from the 1988 Parks Bond Act in late 1988 is difficult to assess. The total benefit to the City will depend upon 1) passage of the measure, and 2) ultimate grants to the City. Assuming the measure passes, the City should get $1 million to $6.4 million to offset the cost of the Grove acquisition. It is likely that the City will have been forced to elect another funding alternative prior to 1988. Therefore, the total cost to the City will depend upon the financing method selected. 33 I TO: Carlsbad City Council RE: Status of Hosp Grove FROM: Dan Hammer, Friends of Hosp Grove DATE: March 24, 1987 In order to dispel the current unease and uncertainty about the status of Hosp Grove, Friends of Hosp Grove respectfully asks the Council to direct Staff to take the following steps: 1. Dispose of the Hosp Grove referendum and attendant lawsuit by adding the 53 acres being purchased to the existing Hasp Grove Community Park and classifying the entire forest as a passive natural community park or special resource area. 2. Dispose of the EIR lawsuit by decertifying the EIR for development in Hosp Grove. 3. Incorporate a deed restriction into the transfer of Hosp Grove to the City to assure that the property is used for open space, not future development. 4. Narrow the field of financing options and set a definite date for a final decision. If Council decides to seek a G.O. bond for Hosp Grove, with or without other projects included, then voters should be given a clear choice between funding alternatives. An alternative financing plan should be firmly in place well before any bond election. A vote against the bond would be in effect a vote in favor of the alternate plan. cc: City Manager, City Attorney, City Clerk .. c c .. _. E 0 z ..