HomeMy WebLinkAbout1988-05-03; City Council; 9416; Hosp Grove FinancingCIT OF CARLSBAD — AGEND* BILL
rected thatincludedAB#_5
MTG.
DEPT.
>*//&
5/3/88
FIN
TITLE:
HOSP GROVE FINANCING
DEPT. rfpTj^^
CITY ATJwSi
CITY miGRr^V^
13 0)
!3 0>cd o(-1
60 C3
(3 O
•H g
O
f3 *O
cd (3
(3 cd
13
O
S-i
0) O
4-> (3
O43 -H
4-J 4-)•H O3 cu
CO
13 S-t0) ci)
O CO -H
ft (U /—>43 CO
0 4-1 CU
4-> 4J
CU O C
>-l 4-1 T-t
•H 0CO CO
01 4-1 Ol
'O (3 Ot
CU 0001 a -^43 0)4J >O •13 !-i 010) CX 3enen015-J 4-1
CX O 4J
X 43
0) CO 0)
4-1 13
CO
O 01O 43
cu
•Ho
(33
O 43U 4J
OOOO
CO
u-i
zo
oz
oo
RECOMMENDED ACTION:
1) If Council wishes to proceed with securing final financing of Hosp Grove,
direct staff to return with documents to implement Option One shown below.
2) If Council wishes to delay a decision on fiscal financing until after the
November election, direct staff to return with documents to implement Option Two
shown below.
3) If Council wishes to include the cost of improving the intersection of Marron
Road and Monroe in the long term debt issue, staff should be so directed.
ITEM EXPLANATION:
On April 21, 1987, the City Council directed staff to proceed with the
acquisition of Hosp Grove using a three-step financing plan: 1) close escrow
using a short term bank loan, 2) issue a short term note and, 3) issue long term
debt in the form of General Obligation Bonds (GO Bonds) or Certificates of
Participation (COP's) depending on the results of a proposed ballot measure to be
set before the voters in November 1987.
Subsequent to this action, Council decided not to return the question of Hosp
Grove financing to the voters, thereby eliminating the GO Bond alternative.
Staff is ready to proceed with the issuance of COP's as directed by Council last
April, however the circulation of two Citizen's Initiatives tentatively scheduled
for the November ballot have added a new twist to the previous financing plan.
The first Citizen's Initiative directs Council to change the zoning on a 12-acre
portion of the Grove property to allow commercial use and to lease this portion
to a private developer. The lease payments would then be used to offset the cost
of the debt service related to the Grove acquisition.
The second initiative establishes strict controls on the rezoning of open space.
Any change in the use of designated open space property would require a 2/3 vote
of the people. This initiative also includes a section stating that this
initiative is incompatible with the first initiative and in the event that both
receive a majority vote, the one with the most votes prevails.
In addition to the two initiatives, a recent change in Federal tax laws has
restricted the City's ability to issue tax exempt debt. The Tax Reform Act of
1986 devotes considerable text to defining "Public Purpose" and "Private
Activity" bonds. Public Purpose bonds may be sold as tax exempt. The bond
markets generally trade these bonds at interest rates 1% to 2% below taxable
bonds (Private Activity bonds). Private Activity bonds have been defined in the
Act as any bond where more than 10% of the proceeds benefit a private party and
10% or more of the debt service related to the issue is provided by a private
party.
The first initiative as presently worded effectively defines the proposed COP
issue as a taxable private purpose bond. More than 10% of the proceeds of the
Page Two of AB #
issue will benefit a private party (12 acres represents about 24% of the property
purchased). Also, more than 10% of the expected $700,000 to $750,000 annual debt
service cost would be provided by private party leases.
Because of this development, Council may want to review financing alternatives
before proceeding with the plan adopted last year. The alternatives available to
Council are listed below. A detailed description of each is attached:
1. Issue COP's by 6/30/88. The original financing plan called for the issue of
Certificates of Participation (COP's) by June 30, 1988. These COP's were to
be supported by a pledge of General Fund revenue and the Hosp Grove property.
2. Use short term financing including; a) bank financing to cover the repayment
of the existing note due 6/30/88 and issue a short term note carrying the debt
to 6/30/89 (the same process used to carry the debt through 1987-88), followed
by; b) the issuance of tax exempt or taxable COP's in 1988-89 depending on
the outcome of the November election. (Bond counsel has indicated that the
City may pursue the issue of short term notes with the caveat that even this
relatively simple process may be legally complex.)
Other alternatives involving more creative financing plans have been proposed by
a variety of financial experts. However, the question always ultimately returns
to the one of taxable vs . tax exempt debt and the differential demanded by the
market.
The City must make the selection of an alternative a high priority in order to
allow time for debt issues to be prepared before the 6/30/88 deadline.
In addition to financing the Grove acquisition, Council may wish to consider
including funding for the intersection improvements and drainage work at Marron
and Monroe in the issue. This would add about $650,000 to the issue and about
$70,000 per year to the annual debt service costs of a tax exempt issue ($90,000
per year on a taxable issue).
The present CIP calls for the construction of the improvements at Monroe and
Marron after 1997 using Traffic Impact Fee revenues. If Council elects to
contract this improvement at this time , the General Fund will be required to
carry the debt service costs .
FISCAL IMPACT:
In today's market tax exempt COP's with a Baa rating from Moody's should receive
an 8% to 8.5% interest rate. At these rates the City would pay $700,000 to
$750,000 per year in debt service. A taxable issue of the same size will demand
a higher interest rate by a factor of 1% to 2%. This increases the City's annual
debt service to approximately $860,000 per year, an increase of $160,000.
If the City Council decides to proceed with the issue of short term notes, the
cost of issuance should be approximately $30,000 to $40,000. Interest rates will
depend upon the market at time of issuance.
Page Three of AB #
The present financing plan calls for all debt service costs on long term debt to
be paid from the General Fund. The 1988-89 operating budget will reflect a
payment of $350,000 to $450,000 for first year debt service payments.
EXHIBITS:
None
ROBERT C. LADWIG
3289 Donna Drive
Carlsbad, California 92008
Nay 3, 1988
Council Members
CITY OF CARLSBAD
1200 Elm Avenue
Carlsbad, California 92008
RE: AGENDA ITEMS 10 AND 11
HOSP GROVE FINANCING AND OPEN SPACE INITIATIVE SUBCOMMITTEE
Dear Council Members:
Tonight you will be considering instructing your staff as to what
financing methods to follow for the purchase of the Grove. In
addition, you will be considering appointing a Council
subcommittee to meet with the proponents of the Open Space
Initiative. In addition to these two items, there is also a
petition being circulated for an initiative that would propose
commercial development on about 11.5 acres of Hosp Grove.
I have been concerned that we are dividing our community again
and that an argument could turn out to be very costly for the
citizens of this city. My personal feelings are that the
citizens have approved the purchase of the Grove and its
designation of open space and we should leave it like it is. I
also disagree with the Open Space Initiative as currently
presented. I have worked closely with the City's Growth
Management Plan and I see the proposed Open Space Initiative as
seriously limiting the ability for the orderly development of
this city. The Open Space Initiative, if passed, would virtually
prohibit the ability for anyone to process a Master Plan or
General Plan Amendment that would involve even slight
modifications of the existing Open Space Plan. On the issue of
the Hosp Grove financing, I understand that the Finance Director
feels that there may be a potential for losing the tax exempt
status for funding the purchase of Hosp Grove if development is
proposed. Losing that status could potentially increase the
overall cost of the Grove.
In the recent past, Carlsbad has made great strides improving the
quality of life for existing and future residents. I am
concerned that the citizens are now going to be spending a lot of
Carlsbad City Council Members
May 3, 1988
Page Two
energy on non-productive issues that could potentially seriously
impact the orderly development of Carlsbad.
I have discussed my concerns and ideas with representatives of
the Open Space Initiative group and also with a representative of
the group proposing to develop a portion of the Grove. The
individuals I talked to could not speak for the entire group, but
they all both interested in exploring my proposal, which would be
as follows:
The Council should direct the Planning staff to prepare an
interim ordinance based on existing policies, ordinances and
other regulations pertaining to the development of open space.
This could be adopted as soon as possible, perhaps as an
emergency ordinance, should the Council be able to do so with the
direction from your City Attorney. The ordinance would very
explicitly state what can and cannot be done with open space and
provide an immediate strict level of control to preserve open
space. I have discussed this briefly with your Planning Director
and he feels that the development of an ordinance, as I have
generally outlined, would be possible.
If the City Council agrees to develop the interim ordinance, it
should be done with several understandings. The first would be
that the Open Space Initiative group and the group that wants to
develop a portion of Hosp Grove agree to not put their respective
issues on the ballot. Secondly, the Council needs to direct the
staff to immediately form a Citizen's Committee to come up with
an accurate inventory of open space and guidelines for
development, if any, of open space and procedures for amendments.
This would then be turned into a permanent ordinance that would
be adopted after significant public input and public hearings.
This procedure would also provide a means for the two separate
groups to work together in developing this permanent ordinance to
achieve the goals of the citizens of this city in the protection
of our open space.
If the Council accepts this proposal, it would be important to
establish a very tight time line to adopt a permanent ordinance
well in advance of the election this Fall. As I mentioned, I did
discuss this with both proponents and they were all interested in
hearing more and, hopefully, work together for what would be best
for all the citizens of this fine city.
Carlsbad City Council Members
May 3, 1988
Page Three
Thank you for considering my request. I would be happy to answer
any specific questions.
Sincerely,
Robert C. Ladwig
RCLrkd.OOl
cc: James R. Swab, 2924 Highland Drive, Carlsbad 92008
Girard (Lefty) Anear, 1728 Calavo Court, Carlsbad 92008
Julie Fish, 2440 Lorna Lane, Carlsbad 92008
Dan Hammer, 4015 Isle Drive, Carlsbad 92008
Courtney Heineman, 2879 Woodridge Circle, Carlsbad 92008