To: Honorable Mayor and Members of City Council
From: Liz Habkirk, Assistant City Manager
Prepared By: Heather Ippoliti, Interim Finance Director
TITLE:
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Overview of the Municipal Bond Financing Process
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RECOMMENDED ACTION:
Recommendation
Receive presentation on the municipal financing process and the disclosure obligations of elected officials and staff under federal securities law.
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DISCUSSION:
At the direction of City Council, City staff has been in discussions with the Napa Valley Unified School District (the “District”) regarding the potential acquisition of the Harvest Middle School site. While negotiations with the District are still in progress, if an agreement is reached, it is anticipated that the City may need to finance a portion of the acquisition cost and associated improvements through the issuance of General Fund lease revenue bonds.
In preparation for a potential financing, staff engaged the City’s financing team earlier this year to begin preliminary work. As part of this effort, staff and the financing team have developed a presentation outlining the municipal bond financing process generally and explaining the disclosure responsibilities of elected officials and staff under federal securities laws.
If the site acquisition is pursued and financing is needed, this would be the City’s first General Fund financing in many years (1991). The City’s most recent publicly offered municipal bond issuance occurred in 2017 on behalf of Community Facilities District No. 2017-1 (Gasser Soscol Gateway). Given the time since the last bond issuance and the most recent general fund financing, staff believe this training will be beneficial for the City Council.
Presentation Overview
Cities and public agencies frequently use bonds to finance infrastructure and other capital improvements that provide long-term public benefits. Because these projects often involve high up-front costs, borrowing through the issuance of municipal bonds allows agencies to spread the cost over time and align repayment with the useful life of the asset. In California, financings from a city’s General Fund are structured as lease financing. Lease revenue bonds also provide a way for a local agency to indirectly leverage a local sales tax measure.
The presentation covers the following topics:
WHAT IS A MUNICIPAL BOND? A municipal bond is a debt instrument issued by a city, county, special district, or joint powers authority to finance public capital projects. The issuer borrows money from investors and repays the debt over time with interest. Repayment sources vary depending on the type of bond and may include taxes, lease payments, enterprise revenues, or other pledged revenues.
KEY STEPS IN A MUNICIPAL BOND FINANCING
• Identify Capital Needs and Funding Sources
• Engage the Financing Team
• City Council Approval Action
• Structure the Financing
• Prepare Legal/Disclosure Documents
• Credit Rating and Sale Strategy
• Bond Sale and Closing
• Post-Issuance Compliance
OVERVIEW OF LEASE REVENUE BONDS. Lease revenue bonds are a common financing tool for California cities and are often used for projects with broad public support. Lease revenue bonds involve the City leasing an asset to a nonprofit or joint powers authority (JPA), which then subleases it back to the City. The City makes lease payments from its General Fund that pays the debt service, with payments only required for actual use and occupancy of the leased asset. Because this type of financing is a lease, it is not subject to voter approval, but it does require City Council approval.
DISCLOSURE TRAINING. This training provides an overview of the legal and disclosure obligations of municipal bond issuers under federal securities laws. The training emphasizes the importance of accurate and complete disclosures in the Official Statement (“OS”) and continuing disclosure reports to avoid misleading investors, and it references lessons from past enforcement actions against municipal issuers by the Securities and Exchange Commission (e.g., Orange County and City of San Diego).
FINANCIAL IMPACTS:
There are no financial impacts with receiving this presentation and training.
CEQA:
The Interim Finance Director has determined that the Recommended Action described in this Agenda Report is not subject to CEQA, pursuant to CEQA Guidelines Section 15060(c).
DOCUMENTS ATTACHED:
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NOTIFICATION:
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