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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