HomeMy WebLinkAbout2019-09-13; Responses to Questions from the Aug. 29 2019 Public Financing Symposium; | Lukey, Elaine| Rocha, Laura|To th~ members of the:
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Carlsbad
Memo ID# 2019102
Council Memorandum
Sept. 13, 2019
To:
From:
Re:
Honorable Mayor Hall and Members of the ~y~ncil
Elaine Lukey, Chief Operations Officer r_ _
Laura Rocha, Deputy City Manager, Administrative Services
Responses to Questions from the Aug. 29, 2019, Public Financing Symposium
Agenda Item No. 1-Informational Symposium on Public Financing of City Infrastructure and
Services
Question 1: Please provide more history on how the city purchased Hosp Grove utilizing
Certificates of Participation.
Answer: 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 (COPs).
Hosp Grove was purchased by the city in 1987 with a short-term bank loan. This loan was
paid off with the issuance of the 1987 short-term notes issued by the tity in the amount
of $6,555,000. At that time, the city was still in need of permanent financing for the
acquisition of Hosp Grove.
The type of bonds to be selected (GO Bonds or COPs) for the long-term financing
depended on the .results of a proposed ballot measure planned to be set before the
voters in November 1987; General Obligation Bonds require a vote of the community
while COPs do not. Before the date of the general election in 1987, the City Council
decided not to return the question of Hosp Grove financing to the voters, thereby
eliminating the General Obligation Bond option.
Under a sale/lease back Certificate of Participation (COP) issue, 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 to raise funds for the purchase. No voter
approval is required to issue COPs. 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 city ownership. This type of financing more closely aligns costs
City Manager's Office
1200 Carlsbad Village Drive I Carlsbad, CA 92008 I 760-434-2820 t
Honorable Mayor Hall and Members of the City Council
Sept. 13, 2019
Page 2
and benefits for current residents by spreading the burden of payment to present and
future taxpayers.
In 1988, the city formed the Carlsbad Public Improvement Corporation, (Corporation), a
nonprofit public benefit corporation organized and existing under the laws of the State of
California for charitable purposes. The Corporation is empowered to assist the city in
financing public projects.
The individuals who act as members of the City Council of the City of Carlsbad are the
Board of Directors of the Corporation. Each member of the City Council is a member of
the Board of Directors of the Corporation as long as the member remains on the City
Council.
The first action of the Public Improvement Corporation in 1988 was to assist in the
permanent financing of Hosp Grove through the issuance of certificates of participation
(COPs) for the refunding (payoff) of the 1987 short-term notes. Certificates of
Participation in the amount of $8,690,000 were issued on June 1, 1988, with a scheduled
maturity date of Aug. 1, 2008 (20-year term). The 1987 short-term notes were paid off in
full with these proceeds and the remaining cash was used for Hosp Grove improvement
costs.
The city and the Public Improvement Corporation entered into a lease agreement on June
1, 1988 with the city as the lessee and the Public Improvement Corporation as the lessor.
All lease payments on the COP issue were paid via annual payments made from General
Fund city revenues (and secured by a pledge of the Hosp Grove property) from the City of
Carlsbad to the Carlsbad Public Improvement Corporation. These lease payments were
equal to the annual debt payments due on the COP issue. The Public Improvement
Corporation accepted the annual lease payments from the city and paid the annual debt
payments as scheduled until the bonds reached maturity in 2008.
Although currently not utilized, the Carlsbad Public Improvement Corporation is still an
active nonprofit corporation and could be used in the future for possible financing of
public city projects.
cc: Scott Chadwick, City Manager
Celia Brewer, City Attorney