25B - AGMT GAS TAX REFUNDING - Laserfiche WebLink

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Agreement with Urban Futures & BBK September 3, 2019 Page 2 Gas Tax revenue is $8.5 million, and the annual debt service paid is $4.2 million or 49.3% of the revenue. After the debt was issued in 2007, the State Controller's Office issued guidelines that included a prohibition on installment financings for permitted capital projects. On July 25, 2019, due to the combined efforts of various bond consultants, the State Controller's Office issued a letter to the City (see Exhibit 1) indicating the 2007 COPs are considered lawfully issued, any refunding for debt service savings will not be considered a new debt issue, and debt service payments on the refunding obligations will be treated as eligible expenditures by the State Controller. Current interest rates are closer to 3.2% and conservatively estimated, a refunding could save more than $0.5 million per year in debt service costs, for a potential total of $10.7 million in savings over the remaining life of the debt. Current Potential Interest Rates Varies 4% to 5% 3.2% Remaining Interest Cost $31,208,158 $20,500,000 Portion of Gas Tax revenue used for debt service 49.3% 43.5% Actual savings will depend on the market interest rates in effect at the time the 2019 bonds are priced, which is expected in November 2019. The proposed refunding is in compliance with the City's Debt Management Policy adopted February 2018, including the requirement for a refunding to generate a minimum net present value savings of 3% of the outstanding principal (3% of 55,940,000 is $1,678,200). The City Council can choose to reprogram the annual savings for other eligible street maintenance expenditures, such as a systematic median improvement program. At this time, staff recommends moving forward with a refunding of the 2007 COPs utilizing Urban Futures, Inc (UFI) as Financial Advisor, and Best Best & Krieger, LLP (BBK) as both Bond Counsel and Disclosure Counsel. Both parties were selected due to their prior work with the refunding of the Tax Allocation Bonds (TABS) in November2018. Both parties went through a competitive bidding process at the time and are being recommended for the refunding of the COPS. UFI, in particular, was instrumental in obtaining the State Controller's approval for the refinancing to take place. Both parties have been at the forefront of refinancing Gas Tax bonds for other agencies and are the most experienced in dealing with the specialized and limited Gas Tax transactions in the state. Proposed agreements are provided as Exhibits 2 and 3, respectively. Proposed debt documents will be presented to the City Council for consideration of approval before any refunding debt is issued. 25B-2