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Home My WebLink About1987-04-21; City Council; 8859-4; Hosp Grove Financing4B#n?! ~EPT.FTI\I MTG. a-?i-w RECOMMENDED ACTION: TITLE: HOSP GROVE FINANCING The City Council should direct staff to return with documents necessary to implement a short term inter-fund loan and long term financing package using Certificates of Participation. ITEM EXPLANATION At the meeting of March 17, 1987, the City Council directed staff to prepare specific plans for the purchase of Hosp Grove using a combination of short term and long term financing. Council indicated that their intent is to purchase Hosp Grove on or before 3une 1, 1987, using short term financing which will be replaced before December 1, 1987 by a form of long term debt. Short Term Financing Staff recommends that Council adopt the following short term funding approach. Purchase Hosp Grove using cash held by the City in various funds as shown below: General CaDital Construction $2.0 million Sewer Construct ion Fund 4.4 million TOTAL purchase price 56.4 million These funds would be repaid, plus interest, upon the issue of long term debt within six months of the purchase of Hosp Grove. Interest would be calculated at the average rate of earnings on the City investment portfolio. Staff is recommending the use of only $2 million of General Capital Construction funds to allow Council some flexibility in funding other necessary capital improvements. General Capital Construction funds could be made available for other projects during this interim funding period. short term financing period, the City would repay these funds in the amounts shown plus interest of approximately $240,000. A balance of approximately $1.6 million of At the end of the six month Staff is continuing to investigate the possibility of issuing Bond Anticipation Notes as a method of raising short term capital. Anticipation Notes (BAN'S) could provide Council with a low cost means of borrowing money in the short term debt market thereby avoiding the need for inter- fund present Council with the documents necessary for the issuance of BAN'S as soon as possible. Bond loans. Should this prove to be a viable alternative staff will PAGE 2 OF AB # fa.?-*? Long Term Financing The staff has identified two long term funding methods using certificates of participation as the form of debt used to purchase the Grove. 1. Issue certificates of participation for the entire grove - $6.4 mill ion. The City may issue certificates of participation in the name of the City of Carlsbad for this purchase. the pledge of general fund reserves for repayment. several underwriters, the City may be able to get an attractive rate through the pledge of general fund revenues without having to encumber the Safety Center property. ) These COP's could be guaranteed through (According to The City would form a separate financing agency or non-profit corporation which would issue bonds or COP's secured by a lease agreement with the City of Carlsbad. obligation would be guaranteed by a pledge of City general fund revenues. The payment of the lease 2. Issue Certificates of Participation for the amount of funds loaned from the Sewer Construction fund - $4.4 million. The issue of COP's in the amount of $4.4 million will reduce the total amount of annual debt service payments. The portion of the Grove paid for from General Capital Construction funds would not be repaid as part of this issue. In either case, staff is recommending that Council include the first years interest payment in the total bond or COP issue. This delays the effect of annual debt service repayment one year giving the City time to build up reserves or plan for the added cash flow burden. Repayment Methods The City Council has several alternatives available for providing funding for the annual debt service payments. Debt Service payments will be $700,000 per year if the full purchase price and one years interest is funded through the debt issue. to $500,000 per year if the total issue is sized to only repay a loan from the sewer fund. Payments would be $450,000 Funds for this repayment could be made available through the following methods: 1. General Fund Operations - Reduce general fund operations to provide for debt service payments. 2. Public Facilities Fees - Increase the PFF to include debt repayment costs. 3. Redevelopment Agency - Repay Redevelopment Agency debt to City. 4. Revenue Enhancements - Raise Transient Occupancy Taxes, business license taxes or utility users taxes. Staff is recommending that Council budget for the payment of debt service costs from the General fund and that Council consider methods for increasing revenues to reduce the effect of this obligation. Further, staff is recommending that Council structure the COP issue in a way which will minimize the cost in early years of repayment. The staff also recommends that the City Council consider supporting a portion of the annual debt service costs from the Public Facilities Fee fund. This way requires an increase in the present PFF fee. FISCAL IMPACT The effect of this purchase has been described in detail in previous agenda bills. If Council approves the staff recommendation, the General fund will support the debt service payments. (due in 1988-89) from the debt issue proceeds. interest and principal costs beginning in 1989-90. would be about $700,000 per year based on a level annual debt payment schedule. The City will pay the first years interest The General fund would pay Annual debt service costs EXHIBITS Exhibit A - Supplemental Information Hosp Grove Financing. Exhibit A CITY OF CARLSBAD Supplemental Information Hosp Grove Financing DEBT SERVICE REPAYMENT OPTIONS 1. 2. 3* 4. General fund budget reduct ions The City may fund the repayment of debt through the reduction of general fund operations. It is difficult if not impossible to list precise program reductions that would be called for if the General fund is required to pay all debt service costs. The effect of these reductions can be mitigated by a) delaying the first interest payment to 1989-90 and b) structuring the debt issue to allow lower repayments during the early years of the issue. Public Facilities Fees combined with General fund reductions If the City Council finds that all or part of the Grove satisfies a public need related to growth, the PFF could be used as a source of funds for the repayment of debt. The split between PFF and General fund would depend on the proportion of the Grove allocated to meetinq the City's infrastructure standards. Redevelopment Aqency funds The City Council could take action to begin repayment of more than $3.5 million in loans to the Redevelopment Aqency. $450,000 per year for 20 years from the Agency. The City could receive about Revenue enhancements The staff has previously outlined possible sources of additional tax revenue which could be used to reduce the negative effect of debt service payments on the general fund. These are: Possible Annual Revenue Increase Transient Occupancy Taxes 1% = $200,000 Increase the Business License tax 25% = 125,000 Create a utility users tax 1% = 400,000 All of these require a majority vote of the people to be enacted. . -- SHORT TERM FINANCING PLAN General Capital Sewer Construction Construction Fund Fund Original purchase 6/1/8 $2,000,000 $4,400,000 Repayment from debt issue 12/1/87 Original purchase price $2,000,000 $4 400,000 Interest - 6 mo P 7.5% 75,000 165,000 TOTAL repayment $2,075,000 $4 565,000 LONG TERM FINANCING PLANS 1. Finance entire purchase price with COP's (20 years): Purchase price $6.4 million First year interest 0.7 million Repayment of interest for short term loan .2 million TOTAL debt issue $7.3 million Debt issue costs .4 million Total $6,400,000 $6,400,000 240 000 $6,640,000 Annual Debt Service Payments: 1987-88 1988-89 1989-90 and thereafter From capitalized interest --- $700.000 From operations 2. Available cash plus COP'S for $4.4 million Total debt required $4.4 million First year's interest .5 million Repayment of interest on short term loan .2 million TOTAL debt issue $5.1 million Debt issue costs $ .3 million --- $700,000 Annual Debt Service Payments: -- 1987-88 1988-89 1989-90 and thereafter From capitalized interest --- $475,000 From operations --e --- - --- $475,000