TITLE
Recommendation to receive supporting documentation into the record and conclude the public hearing regarding the issuance of bonds by the Long Beach Bond Finance Authority, in an amount not to exceed
$45,000,000, the proceeds of which will be used to purchase the Redevelopment Agency's tax allocation bonds; and adopt a resolution of the City Council making findings with respect to, and approving the issuance of bonds by, the Long Beach Bond Finance Authority and approving the issuance and sale of bonds by the Redevelopment Agency of the City of Long Beach to the Long Beach Bond Finance Authority. (Citywide)
DISCUSSION
Staff recommends that the City Council authorize a restructuring of a 2002
Redevelopment Agency bond issue that would reduce the North Long Beach Project
Area's debt service payments in future years and produce approximately $300,000 in
additional funds for the Downtown Project Area. The restructuring would not provide
new funds for the North Long Beach Project Area at this time.
The City's Department of Financial Management regularly reviews the Redevelopment
Agency's (Agency) existing bonded indebtedness in order to assess interest rate levels,
determine debt service savings thresholds, and review existing covenants and capacity.
When practical, staff will recommend refunding (refinancing) certain bonds in order to
take advantage of lower interest rates. Interest rates for municipal bonds recently fell to
their lowest level in twenty years. An opportunity now exists to reduce debt service by
restructuring existing tax allocation bonds for the North Long Beach and Downtown
Redevelopment Project Areas originally issued in 2002.
In recent weeks, interest rates on municipal bonds have risen and fallen unpredictably.
On some days, prevailing interest rates have been sufficiently low that restructuring
some North Long Beach and Downtown bonds would result in significant savings
(Exhibit A). On other days, interest rates have risen to a level that would not permit
savings. Staff proposes that the City Council authorize a bond sale and allow staff to
wait for the opportune moment to issue them. Because interest rates have recently
been volatile, the bonds might be issued at higher or lower interest rates than predicted
in this staff letter. If interest rates begin a long-term upward movement, the bonds may
not be issued at all.
In addition to the restructuring, staff proposes that the Agency enter into agreements
with the Long Beach Bond Finance Authority (Authority) to allow the Authority to issue
new bonds and use a portion of the proceeds to provide funds for new Agency projects
and programs. The details of the proposed bond issue are described in the Preliminary
Official Statement (Exhibit B).
The total size of the actual anticipated bond issue by the Authority to provide additional
funds to the Agency and to allow for a restructuring of existing Agency North Long
Beach and Downtown bonds is estimated to be approximately $42.5 million. However,
authority for a larger amount, $45 million, is requested to cover additional costs that
could result from movements in interest rates between the date of City Council
authorization and the date of the eventual sale of bonds. This estimated bond issue
amount consists of $40.9 million for bond refinancing, $300,000 for new projects in the
Downtown Project Area, $900,000 for payment of bond insurance premium costs, and
$440,000 for other costs of issuance.
Use of Bond Proceeds
The proposed use of the bond proceeds is discussed below and in Exhibit A.
Refunding Existing Bonds
The Agency's 2002 Series Bonds were issued when interest rates were higher than
current interest rates. Staff recommends using $40.9 million in Authority bond proceeds
to partially refund the 2002 Series Bonds for the Downtown and North Long Beach
Project Areas.
New Projects and Programs
Staff proposes that the Authority use up to $300,000 from the bond proceeds for new
projects and programs in the Downtown Redevelopment Project Area.
Bond Insurance and Other Costs of Issuance
When the bonds are issued, debt service reserve accounts to be held by bond trustees
must be funded, and fees to the Agency's financial advisors and legal advisors, bond
insurance premiums and other costs of bond issuance must be paid. These costs of
issuance will be paid from the Authority bond proceeds and are estimated to total $1.34
million. Costs of issuance are shown by project area in Exhibit A.
Use of Bond Proceeds in Each Redevelopment Project Area
The bond issuance will include bonds for the North Long Beach and Downtown
Redevelopment Project Areas, and the provision of additional funds for the Downtown Redevelopment Project Area. Exhibit A provides estimates of the potential reduction in debt service on the 2002 bonds that could be generated through the sale of bonds based on current interest rates and assumptions regarding the requirements of bond insurers. Changing bond market conditions could alter the level of debt service reduction for the North Long Beach bonds, and the amount of funds available for projects in the Downtown Project Area from the sale of the proposed bonds.
North Loncl Beach Redevelopment Proiect Area Staff proposes that the Authority issue bonds in respect of the North Long Beach Redevelopment Project Area that will provide over $1 .O million in present value savings to the Agency.
Downtown Redevelopment Proiect Area Bonds of the Authority for the Downtown Redevelopment Project Area can be issued that will net bond proceeds of approximately $300,000. Staff recommends that the estimated remaining $300,000 of proceeds be designated for use on downtown public works projects to be identified and budgeted in the future.
Joint Powers Authority
Staff proposes to use the Long Beach Bond Finance Authority for the proposed bond
issue. The Authority is a separate legal entity formed by the City and Agency. The
Authority can issue a single series of bonds to the public to restructure bonds for both redevelopment project areas. If the Authority were not used, the Agency would be required to issue separate refunding bonds to the public for North Long Beach and
Downtown. The higher cost of issuing separate bonds to the public for each project
area would reduce the amount of savings available for use. Issuing a single series of
bonds to the public significantly reduces issuance costs and creates a bond structure
that is more attractive to investors than two separate bond issues.
Financial Security
Restructuring the North Long Beach and Downtown bonds will not increase the amount of debt service that either project area pays each year, nor will the issuance extend the final maturity of the existing bonds. The restructuring will reduce future debt service payments paid by the North Project Area.
Public Review
The Agency discussed and approved the proposed bond issues in a noticed public
meeting on July 11, 2005. Due to the need to authorize the issuance of bonds quickly
to capture the current interest rate market, this matter was not presented to the North
Project Area Committee.
This letter was reviewed by Assistant City Attorney Heather Mahood on July 6, 2005,
and by Budget Management Officer David Wodynski on July 8,2005.
TIMING CONSIDERATIONS
Although interest rates have reached historic lows, they are unpredictable and can rise
without notice. Staff requests City Council approval of the issuance of bonds on July
19, 2005, as a delay could result in the bonds being issued at a higher interest rate,
which would directly affect the amount of projected savings.
FISCAL IMPACT
The Agency would be solely responsible for debt service payments. The City's General
Fund would not be obligated to contribute to bond payments. The Agency's property tax
increment from the North Long Beach and Downtown project areas would pay the debt
service for the proposed bond issuance. The North Long Beach and Downtown
Redevelopment Project Areas are only restructuring existing bonds, the project areas'
annual debt service currently being paid on the outstanding bonds would not increase,
and the final maturity of the bonds would not change. The debt service payments for
the North Project Area would decrease in future years as a result of the restructuring.
SUGGESTED ACTION
Approve recommendation.
BODY
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF LONG BEACH MAKING FINDINGS WITH
RESPECT TO AND APPROVING THE ISSUANCE OF
BONDS BY THE LONG BEACH BOND FINANCE
AUTHORITY
Respectfully Submitted,
CRAIG BECK
ACTING DIRECTOR OF COMMUNITY DEVELOPMENT
MICHAEL KILLEBREW
DIRECTOR OF FINANCIAL MANAGEMENT