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Finance Highlights 2009 1117
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Finance Highlights 2009 1117
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12/3/2009 12:26:18 PM
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CM City Clerk-City Council
CM City Clerk-City Council - Document Type
Committee Highlights
Document Date (6)
11/17/2009
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_CC Agenda 2009 1207
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\City Clerk\City Council\Agenda Packets\2009\Packet 2009 1207
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Tax Allocation Bond Financing <br />Financing The complex legal and financial structure of municipal bond issues and the <br />long-term impact of bond financing require that the issuer form a team of professionals to assist <br />in both structuring and marketing the bond issue. <br />Staff has assembled a team of legal and financial professionals to assist in this process. The key <br />members of the financing team and their roles are noted below: <br />E Wagner & Associates Financial Advisor <br />Jones Hall, APLC Bond CounseUDisclosure Counsel <br />Urban Analytic, LLC Tax Increment Consultant <br />Financing Plan As currently proposed the TAB issue will have a term of no more than 15 years, <br />a par value of no greater than $8.3 million and a total interest cost of no greater than 8%. Based <br />on these parameters for the TAB issue, debt service is estimated to be approximately $1.2 <br />million annually. The debt service will be paid from housing set aside tax increment revenues <br />generated by the Joint Project Area and the West San Leandro Project area of the RDA. <br />The bonds will be "taxable" meaning that the interest paid on the bonds will be taxable income <br />to the holders of the bonds. As a result of the bonds being taxable, the interest rate paid by the <br />RDA will be approximately 1.5% to 2% greater than rates associated with anon-taxable issue. <br />A taxable issue is mandated by Federal law based on the fact that BRIDGE was able to obtain <br />9% tax credits for the project, (which is beneficial to the project overall). The 9% tax credit <br />refers to income tax credits passed on to private investors that provide financing to qualifying <br />housing projects. The public policy issue for the Federal Government is that the 9% tax credits <br />represent a significant public subsidy and that an additional subsidy provided by allowing the <br />bonds to be "non-taxable" is not warranted. <br />Typically, the RDA would issue the TABS through a competitive bid process. Generally, this is <br />the most efficient and least costly method of selling the bonds. However, due to the general <br />turmoil in financial markets and recent budget actions of the State with respect to redevelopment <br />agencies, staff is considering alternatives to a competitive bid offering. More specifically, it is <br />possible that the RDA might go to bid and have no bidders on that day, or the bids might be <br />unacceptable. <br />The primary alternative to a competitive bid is a negotiated sale. In a negotiated sale, an issuer <br />identifies an underwriter early in the process and agrees to sell the issue to that underwriter. The <br />underwriter (investment bank) starts a marketing process to sell the bonds and when comfortable <br />with a certain level of "pre-sales" agrees to purchase the entire issue. The advantage is greater <br />certainty of a successful sale. The disadvantage is that the overall interest rate maybe higher. <br />Staff plans to decide on and recommend the final and best an approach for issuing the TABS to <br />Council in December. <br />
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