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Home My WebLink About; ; 1967 Building Authority Financing Report; 1967-10-03r FINANCING REPORT CITY OF CARLSBAD BUILDING AUTHORITY L J October 3, 1967 William L. Fieldman & Associates Suite 1174 Kirkeby Center 10889 Wilshire Boulevard Los Angeles, California 90024 INTRODUCTION The City of Carlsbad plans the construction of new City Administrative Offices in the near future. The Building will be financed with the proceeds of Revenue Bonds issued by the Carlsbad Building Authority formed under a Joint Powers Agreement between the County of San Diego and the City. In order to assist the City and the Authority, the law firm of Rutan & Tucker, Santa Ana, California, has been retained as special Bond Counsel, Weber & Edwards, A. I. A., architects, of San Diego have designed the structure, and William L. Fieldman & Associates, Los Angeles, will provide financial consultant services. This report was prepared in accordance with the employment agreement between the City and the Financial Consultant, dated September 19, 1967. It will include the following: 1. A description of the proposed method of financing. 2. An analysis of estimated interest costs which the Authority will have to pay on its obligations. - 1 - Detailed recommendations as to the technical features of the Authority*s bond issue, including an analysis of costs required to be funded or paid in cash over and above actual costs of construction. - 2 - METHOD OF FINANCING As heretofore stated, the City Administrative Offices will toe financed and constructed by the Carlsbad Building Authority, a public corporation created by a Joint Exercise of Powers Agreement between the City of Carlsbad and the County of San Diego. The Authority is (or will be) a separate entity formed pursuant to Article I, Chapter 5, Division 7, Title I of the Government Code of the State of California which relates to the joint exercise of powers common to public agencies. In order to obtain funds for construction, professional fees and other incidental costs, the Authority will sell its revenue bonds in an amount sufficient to accomplish its purpose. The amount and details of the bonds will be dis- cussed below. The bonds are secured by rents payable by the City of Carlsbad to the Authority, in accordance with the terms of a lease for the Facility which will remain in effect so long as any bonds are outstanding. The City will pay to the Authority an annual rent which will be at least sufficient to pay principal and interest on the Authority's bonds when due. - 3 - Basically, the procedural steps leading up to the issuance of the bonds are: 1. Creation of the Authority by the execution of the Joint Exercise of Powers Agreement between the City of Carlsbad and the County of San Diego. 2. Execution of a Ground Lease between the City and the Authority for the site on which the Facility will be built. The term of the lease will be not shorter than the term of the bonds. 3. Execution of a Facilities Lease between the Authority and the City whereby the City agrees to lease the Administrative Offices for a term to coincide with the term of the bonds at an annual rental sufficient to pay principal and interest on the Authority's bonds and all other costs of the Authority. NOTE: Upon termination of the Joint Powers Agreement and after retirement of Authority debt, title to the Facility will automatically vest in the City. - 4 - 4. Call for construction bids. 5. Sale of Authority Revenue Bonds. It is contemplated that bids for the bonds will be received on December 5, 1967 and that construction will commence shortly thereafter with completion anticipated by July 1, 1968. - 5 - PROJECT COSTS In a letter dated September 5, 1967 the architects estimated costs for the Project as follows: Base Building $208,000 Heating and Air Conditioning 38,000 Electrical 35,000 Plumbing 25,700 Landscape and Sprinkler 9,000 Architect and Engineer 29,600 Alternate #1 10,000 Carpet and Drapes 17,000 Council Chamber Seating 4,140 Total $376,440 In addition to the above, money must be provided for furniture and fixtures and for certain costs necessary for the successful financing. These items, and estimated costs pertaining thereto, are: Furniture and Fixtures $ 35,000 Professional Fees (Legal & Financial) 12,750 Title Insurance Policy 1,470 Printing & Issuing Expense 2,500 Working Capital Fund 1,500 Trustee Fee 1,500 Total $ 54,720 - 6 - Two additional items must be taken into account, the amount of which will depend on the size of the bond issue. 1. Interest During Construction. The architect estimates it will take six months to complete the Facility. During this time the Authority will have borrowed money but will have no income with which to pay interest on its loan. It is customary to capitalize interest requirements until such time as the City occupies the Facility and makes its first rent payment to the Authority. Interest cost is estimated at approximately five and one-quarter per cent (-5%%) per annum. 2. Bond Reserve Fund. In order to make the bonds salable at a reasonable interest rate, it is necessary to provide additional security for the bondholder in the form of a Reserve Fund. This is a sum which customarily is funded and which is set aside out of the bond proceeds and used solely for the payment of principal and interest in the event there is an insufficiency of funds from other sources for such purpose. It is recommended that an amount equal to six months debt service be capitalized. - 7 - If all of the foregoing costs were funded, the Authority would have to issue an estimated $460,000 bonds as follows: Construction, including 3% contingency $376,440 Furniture & Fixtures 35,000 Professional Fees 12,750 Title Insurance 1,470 Printing & Issuing Expense 2,500 Working Capital Fund 1,500 Trustee Fee 1,500 Interest During Construction (6 months @ 5k %) 12,075 Bond Reserve Fund 16,765 Total $460,000 It is understood that the City will have funds available either from the General Fund or from the sale of the present City Hall site which may be used as a cash contribution to the Project. A logical use of such funds would be to pay in cash all expenses other than actual construction and related bond costs. This approach would result in a bond issue of approximately $402,000 and a cash contribution as follows: Bond Issue Construction, including 3% contingency $376,440 Interest During Construction 10,550 Bond Reserve Fund (approximately 6 mos. debt service) 14,810 Total $402,000 - 8 - Cash Contribution Furniture & Fixtures $ 35,000 Professional Fees 12,750 Title Insurance 1,470 Printing & Issuing Expense 2,500 Working Capital Fund 1,500 Trustee Fee 1,500 Total $ 54,720 In connection with both of the foregoing estimated amounts of bonds required, it should be noted that the actual amount of bonds will be based on a firm construction bid and will be fixed after the bids have been received and evaluated. Regardless of which of the foregoing financing plans is ultimately adopted, it is recommended that the bonds be amortized over a period not to exceed twenty-five years. At an estimated interest cost of five and one-quarter per cent (53g%) this would result in annual principal and interest costs of approximately $33,442 on the $460,000 issue and $29,225 on the $402,000 issue. Based on the net assessed valuation of the City for 1967-1968 of $38,632,900. as listed on Page 5 of the Fiscal Budget - 1967-1968, these - 9 - annual amounts required for debt service will result in ad valorem tax rates of 8.6 cents or 7.5 cents, respectively, per $100 assessed valuation. Obviously, as the City grows in assessed value, the ad valorem tax rate to finance the bonds would decrease. For planning purposes, it is expected that the first rental payment will be payable at the time the City takes possession of the Facility, which is anticipated for July 1, 1968. The manner in which the bonds should be retired has been carefully reviewed and discussions on the subject have been held with several major bond underwriters. It is recommended that the issue consist of serial and term bonds with the term bonds callable by lot out of a mandatory sinking fund starting in 1979. Bonds maturing prior to 1979 should not be callable. Term bonds should be callable from the sinking fund at par, and at premiums if called with funds from other sources. These technical details will be incorporated in the Resolution of Issuance which will be submitted for approval in accordance with the timetable recommended by Special Bond Counsel. ********* - 10 -