HomeMy WebLinkAbout101-Council Authorizaiton Report.pdf SARATOGA CITY COUNCIL
MEETING DATE: June 1, 2011 AGENDA ITEM:
DEPARTMENT: Finance & Administrative Services CITY MANAGER: Dave Anderson
PREPARED BY: Mary Furey DIRECTOR: Mary Furey
SUBJECT: Council authorization to refund the City of Saratoga’s 2001 General Obligation Bonds
RECOMMENDED ACTION: Council to review report and consider adopting the attached resolution to authorize the refunding of the
2001 General Obligation (GO) Bonds.
BACKGROUND INFORMATION:
In 2001, the City of Saratoga issued $15,000,000 of voter-approved General Obligation (GO) Bonds to
improve, renovate, and expand the Saratoga Community Library Building. GO Bonds are tax-exempt
debt obligations secured by the City’s power and statutory authority to levy ad valorem taxes on real and
personal property located within city boundaries, for payment of the principal and interest due. The City
administers the payments on the bond debt, but does not receive revenue or expend any City funds for
this obligation. After almost ten years of payment, the debt principal balance is $12,235,000, as shown
on the attached debt schedule.
The 30 year GO Bonds were issued at competitive interest rates at the time (ranging between 5 - 6%);
however, with current interest rates at historic lows, the outstanding bond debt could be reissued at far
lower rates today, estimated to save Saratoga taxpayers about $1.4 million in debt service payments.
On August 1, 2010 the bonds became eligible for redemption. From August 1, 2010 through July 31, 2011, the redemption price is equal to the principal amount plus a 1% premium (approximately $126,500). As of August 1, 2011, the premium is eliminated and the bond redemption price is equal to the principal amount.
In January 2011, Council directed staff to obtain Financial Advisor services from Public Financial
Management, LLC (PFM) to negotiate the refunding of the City’s 2001 General Obligation Bond.
Subsequently, PFM obtained Bond Counsel to prepare required legal documents such as the paying agent
agreement, the continuing disclosure certificate, the Preliminary Official Statement, and other needed
documents for the bond offering. PFM will set the date of sale; accept bids from various underwriters;
determine the lowest net interest costs; and then work with the Bond Counsel and Underwriter to
complete the required documents and bond sale.
REPORT SUMMARY:
With the time required to complete the refunding process, PFM has scheduled the bond sale to occur in
mid-July. The bonds will then be held in escrow for issuance on August 1st. This time frame will allow
for completion of the sale as timely as possible while avoiding the 1% bond premium, as well as aligning
the refunded bond debt service dates with the current bond.
Under the most recent refunding analysis provided by PFM (May 25, 2011), the estimated savings total
$1,90 million over twenty years, with a net present value of $1,45 million. As the actual sale date is six
weeks away, interest rates will fluctuate and the savings may be either higher or lower. Under current
circumstances, rates are not expected to change significantly. However, the attached resolution includes
conservative parameters to provide for upward rate movement. Within the resolution, the Maximum Par
Amount is set at $13 million, the Maximum True Interest Cost is set at 5%, and the Maximum Underwriter’s Discount is set at 1%. The actual bond parameters will be established through the competitive bid process. Overall, the refunding is expected to gross more than 5% in savings for City residents.
FISCAL IMPACTS: Refunding the 2001 General Obligation Bonds will result in approximate $75,000 of annual debt service
payment savings to Saratoga property owners. While refunding will increase the bond par by an
estimated $140,000 for the reissuance, residents will receive an overall reduction of slightly more than
$1.90 million in interest payments over the remaining twenty years of the bond term under a refunding
analysis prepared on May 25, 2011. This equates to approximately $1.45 million net present value. As
the bond refunding is fully self-funded, there will be no fiscal impact to the City.
CONSEQUENCES OF NOT FOLLOWING RECOMMENDED ACTION:
The City would not refund the General Obligation Bonds and obtain debt service payment reductions for
Saratoga property owners.
ALTERNATIVE ACTION:
Direct staff to delay refunding the General Obligation Bonds.
FOLLOW UP ACTION:
Financial Advisor to proceed with bond refunding.
ADVERTISING, NOTICING AND PUBLIC CONTACT: Pursuant to Government Code 54954.2, this item was properly posted as a City Council agenda item and
included in the packet made available on the City’s website in advance of the meeting. A copy of the
agenda packet is also made available at the Saratoga Branch Library each Monday in advance of the
Council meeting.
ATTACHMENTS:
Attachment A – Current bond debt schedule
Attachment B – May 25, 2011 Refunding Analysis
Attachment C – Preliminary Official Statement
Attachment D – Council resolution approving the refunding of the 2001 General Obligation Bonds
Attachment A
August August February Fiscal Year Bond
Fiscal Interest Annual Interest Interest Annual Debt Principal
Year Rate Principal Payment Payment Interest Service Balance @ YE
Initial Bond Offering at May 9, 2001 - - 15,000,000
2001/02 5.000%- - 588,942 588,942 588,942 15,000,000
2002/03 5.000%60,000 392,628 391,128 783,756 843,756 14,940,000
2003/04 5.000%245,000 391,128 385,003 776,131 1,021,131 14,695,000
2004/05 5.000%255,000 385,003 378,628 763,631 1,018,631 14,440,000
2005/06 5.000%270,000 378,628 371,878 750,506 1,020,506 14,170,000
2006/07 5.000%280,000 371,878 364,878 736,756 1,016,756 13,890,000
2007/08 6.000%295,000 364,878 356,028 720,906 1,015,906 13,595,000
2008/09 6.000%310,000 356,028 346,728 702,756 1,012,756 13,285,000
2009/10 6.000%330,000 346,728 336,828 683,556 1,013,556 12,955,000
2010/11 6.000%350,000 336,828 326,328 663,156 1,013,156 12,605,000
2011/12 6.000%370,000 326,328 315,228 641,556 1,011,556 12,235,000
2012/13 5.000%395,000 315,228 305,353 620,581 1,015,581 11,840,000
2013/14 5.000%415,000 305,353 294,978 600,331 1,015,331 11,425,000
2014/15 5.000%435,000 294,978 284,103 579,081 1,014,081 10,990,000
2015/16 5.000%455,000 284,103 272,728 556,831 1,011,831 10,535,000
2016/17 5.000%440,000 272,728 261,728 534,456 974,456 10,095,000
2017/18 5.000%460,000 261,728 250,228 511,956 971,956 9,635,000
2018/19 5.000%485,000 250,228 238,103 488,331 973,331 9,150,000
2019/20 5.000%510,000 238,103 225,353 463,456 973,456 8,640,000
2020/21 5.125%535,000 225,353 211,644 436,997 971,997 8,105,000
2021/22 5.125%565,000 211,644 197,166 408,809 973,809 7,540,000
2022/23 5.125%590,000 197,166 182,047 379,213 969,213 6,950,000
2023/24 5.125%625,000 182,047 166,031 348,078 973,078 6,325,000
2024/25 5.250%655,000 166,031 148,838 314,869 969,869 5,670,000
2025/26 5.250%690,000 148,838 130,725 279,563 969,563 4,980,000
2026/27 5.250%730,000 130,725 111,563 242,288 972,288 4,250,000
2027/28 5.250%765,000 111,563 91,481 203,044 968,044 3,485,000
2028/29 5.250%805,000 91,481 70,350 161,831 966,831 2,680,000
2029/30 5.250%850,000 70,350 48,038 118,388 968,388 1,830,000
2030/31 5.250%890,000 48,038 24,675 72,713 962,713 940,000
2031/32 5.250%940,000 24,675 - 24,675 964,675 -
TOTALS 15,000,000 7,480,416 7,676,730 15,157,146 30,157,146
Total Bond Principal 15,000,000
Total Bond Interest 15,157,146
Total Cost of Bond 30,157,146
City of Saratoga
2001 Series General Obligation Bonds
Debt Schedule