TITLE
Recommendation to adopt resolution authorizing the issuance of Tax and Revenue Anticipation Notes in an amount not to exceed $30 million, and authorize City Manager to execute all necessary documents. (Citywide)
DISCUSSION
The Tax and Revenue Anticipation Note (TRAN) is a cash management tool used by public agencies to fund cash flow needs during a fiscal year. It is typically issued at the beginning of a fiscal year and matures within 13 months. In no case may a TRAN be outstanding for more than 15 months. A TRAN enables public agencies that receive revenues sporadically throughout the year (e.g., property taxes, property tax in-lieu of vehicle license fees and property tax in-lieu of sales tax) to have the cash on hand needed for expenditures while awaiting the receipt of these revenues. The City annually issues a TRAN and repays it within 13 months. For FY 12, the City expects to receive the proceeds from this issuance on October 3, 2011 and will repay the principal on September 28, 2012.
Due to the State's "Triple Flip" legislation and property tax in-lieu of Vehicle License Fee (VLF) initiatives, which have dramatically changed the timing of the City's sales tax and VLF revenue receipts, the need for an annual TRAN has continued. The General Fund is expected to experience short-term cash needs prior to the receipt of the City's first major property tax payments in December and the General Fund's property tax in-lieu payments in January. To bridge this projected cash need, the attached Resolution provides for the issuance of a TRAN in an amount not to exceed $30 million. The amount the City is borrowing in FY 12 is reduced from prior years because the City will not be prepaying its CalPERS obligation and will not be borrowing operating cash for the Redevelopment Agency. The TRAN will be sold through a negotiated sale, where the City will negotiate with bidders to sell the bonds at the best price.
This matter was reviewed by Assistant City Attorney Heather A. Mahood on August 4, 2011 and Budget Management Officer Victoria Bell on August 8, 2011.
TIMING CONSIDERATIONS
The first property tax payments are due to be received from the County of Los Angeles on December 20, 2011, and the property tax in-lieu payments on January 20, 2012. The TRAN proceeds will be needed to meet the City's cash needs prior to those dates. Once approved by the City Council, the financing schedule requires approximately two weeks to finalize legal documents, advertise the transaction and arrange for the electronic bidding service. Therefore, City Council action on this matter is requested on August 23, 2011.
FISCAL IMPACT
This transaction will provide the required cash flow to meet the timing of obligations in the City's General Fund. TRANs are tax-exempt notes and, until needed, the proceeds are invested in taxable investments, which may generate a higher market interest rate. As long as the projected cash flow needs are met, the City is permitted to keep, rather than rebate, positive interest earnings. The interest income will partially offset the costs of issuance and interest expense associated with the TRAN. The Department of Financial Management has worked with the City's Financial Advisor, Public Financial Management; Bond Counsel, Kutak Rock; and one rating agency (Moody's) on this issuance.
As of the week ending July 29, 2011, TRAN interest costs were estimated to be approximately 0.40 percent. It is anticipated that the reinvested proceeds from the TRAN will earn approximately 0.55 percent, with the principal amount of the note being repaid by September 28, 2012. The cost of issuance for this transaction is estimated at $300,000, which includes legal, underwriting and related fees, with the final cost dependent on the TRAN amount and prevailing market conditions at the time of pricing. There are no local jobs impacted by this action.
SUGGESTED ACTION
Approve recommendation.
BODY
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LONG BEACH PROVIDING FOR THE ISSUANCE OF 2011-2012 TAX AND REVENUE ANTICIPATION NOTES OF THE CITY OF LONG BEACH, CALIFORNIA.
Respectfully Submitted,
JOHN GROSS
DIRECTOR OF FINANCIAL MANAGEMENT
APPROVED:
PATRICK H. WEST
CITY MANAGER