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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