Item 4.2 - Approval of Agreement for Financial Advisor ServicesOF POt��Y
City of Poway
�C- Tyr,,TH'C � COUNCIL AGENDA REPORT
i
DATE: December 2, 2014
APPROVED
APPROVED AS AMENDED
O
(SEE MINUTES)
DENIED
O
REMOVED
O
CONTINUED
RESOLUTION NO.
TO: Honorable Mayor and Members of the City Council
Honorable Chairman and Members of the Successor Agency
to the Poway Redevelopment Agency
FROM: Daniel Singer, City Manager /Executive Director Gld.
INITIATED BY: Scott Edwards, Director of Administrative Services
Peter Moote, Assistant Director of Administrative Servic4tk-.,
Andrew White, Finance Managerad'---
SUBJECT: Approval of Agreement for Financial Advisor Services
Summary:
The City and Successor Agency engage the services of a financial advisor to assist with
management of the City and Successor Agency debt, and the development of financing
alternatives for a variety of projects. It is recommended that the City Council authorize
the attached agreement (Attachment 1) with KNN Public Finance to serve as the City's
financial advisor.
Recommended Action:
Authorize the City Manager to enter into an agreement with KNN Public Finance for
financial advisor services.
Background:
Since 2010, the City, former Redevelopment Agency, and Successor Agency have
utilized the services of Magis Advisors to provide financial advisor services. The City's
procurement policy limits the terms of engagements for professional services to five
years or less, where practical. In August 2014, the City solicited proposals for financial
advisor services from qualified firms.
1 of 15 December 2, 2014 Item #4.2
Financial Advisor Services
December 2, 2014
Page 2
Services to be provided include:
• As- needed financial advice regarding market conditions and trends, financial
products, credit and credit analysis, third -party alternative financing, and special
facility financing.
• Review of the City's long -range financing strategy, particularly with respect to its
capital improvement program.
• Assist the City with potential refundings and new money issues, including but not
limited to, analyses and evaluations of underwriter proposals, financing structure,
pricing, rating and insurance proposals, reserve fund (re)investment, assistance
with preparation and review of related documents, and coordination of financing
team and schedules.
• Development of a Debt Policy establishing the principles, controls, and guidelines
for issuance and management of City debt.
• Participate in rating agency presentations.
• Assist with the preparation of a Request for Proposals and serve on an evaluation
committee for selection of underwriting firms for the City's potential refundings and
new money issues.
Findings:
Six qualified firms responded to the City's request for
services. Based upon the short- listed proposals, the
services assuming a three -year engagement and three
in the following table.
Financial Advisor Services
proposals for financial advisor
maximum projected fees for
potential financings are shown
Proposed Cost for Three -Year Agreement with Three Financings (Maximum Projected)
In addition to evaluating the firms' proposals, the evaluation team conducted in -depth
interviews with principal staff of the four short- listed firms. With the evaluation process
completed, it is recommended that KNN Public Finance (KNN) be engaged as the City's
financial advisor.
2 of 15 December 2, 2014 Item #4.2
Financial Advisor Services
December 2, 2014
Page 3
In support of this selection, the California Debt and Investment Advisory Commission
recently reported that, for the months of January through June 2013, KNN ranked 1st in
the total dollar value of bond deals completed and 3rd in the number of completed bond
deals. For the months of January through June 2014, KNN Public Finance ranked 3rd
in the total dollar value of bond deals completed and 5th in the number of completed
bond deals. KNN's consistent high rankings indicate they have the prerequisite
experience as a financial advisor on all sizes of bond issuances.
Mark Young and David Brodsly, Managing Directors, along with Assistant Vice
President Sujay Umashankar, would serve as the principal staff assigned to Poway.
Together, this group would bring extensive experience to the City's finance team,
particularly in the areas of expertise applicable to the City's financial program needs
over the immediate and near term.
The City anticipates using KNN's proposed fixed -fee schedule for most transactional
services, including new bond issues and refundings, as specified in Attachment 2 (from
the firm's proposal). Use of fixed -fee structures for the City's prior transactions has
proven to be cost - effective, and services are paid as part of the costs of issuance. Fees
for non - transactional work are to be quoted on a task - specific basis using the proposed
fee schedule, to include assistance with ongoing bond disclosure reporting and long-
term financial planning. KNN has agreed to include development of the City's debt
policy should the City proceed as anticipated with the refunding of eligible Successor
Agency debt in the first year of engagement.
Fiscal Impact:
Under the agreement, fees for transactional services are paid as part of the costs of
issuance. Non - transactional work and policy development will be funded on an as-
needed basis, using task - specific quotes.
Environmental Review:
This item is not subject to CEQA review.
Public Notification:
KNN Public Finance has been notified of this report
Attachments:
1. Agreement with KNN Public Finance, Inc. for Financial Advisor Services
2. Fee Schedule from Proposal (full proposal available in the City Clerk's
Office)
3 of 15 December 2, 2014 Item #4.2
City of Poway
AGREEMENT FOR CONSULTANT
SERVICES
This Agreement, entered into this 3rd day of December, 2014 by and between the
CITY OF POWAY (hereinafter referred to as "City ") and KNN Public Finance, Inc.
(hereinafter referred to as "Consultant ").
RECITALS
WHEREAS, City desires to obtain the services of a private consultant to perform
Financial Advisor Services; and
WHEREAS, Consultant is a Financial Advisor and has represented that
Consultant possesses the necessary qualifications to provide such services; and
WHEREAS, City has authorized the preparation of an agreement to retain the
services of Consultant as hereinafter set forth.
NOW, THEREFORE, IT IS MUTUALLY AGREED THAT CITY DOES HEREBY
RETAIN CONSULTANT ON THE FOLLOWING TERMS AND CONDITIONS:
1. Scope of Services.
Consultant shall provide services as described in Exhibit "A" entitled
"Special Provisions" attached hereto and made a part hereof.
2. Compensation and Reimbursement.
City shall compensate and reimburse Consultant as provided in Exhibit "A"
entitled "Special Provisions" attached hereto and made a part hereof.
3. Term of Agreement.
The term of this Agreement shall be as described on Exhibit "A" entitled
"Special Provisions" attached hereto and made a part hereof.
4. Termination.
This Agreement may be terminated with or without cause by City.
Termination without cause shall be effective only upon 60 -day written notice to
Consultant. During said 60 -day period Consultant shall perform all consulting services
in accordance with this Agreement. This Agreement may be terminated by City for
cause in the event of a material breach of this Agreement, misrepresentation by
Consultant in connection with the formation of this Agreement or the performance of
services, or the failure to perform services as directed by City. Termination for cause
shall be effected by delivery of written notice of termination to Consultant. Such
termination shall be effective upon delivery of said notice.
4 of 15 Attachment 1 December 2, 2014 Item #4.2
Financial Advisor Services Agreement
Page 12
5. Confidential Relationship.
City may from time to time communicate to Consultant certain information
to enable Consultant to effectively perform the services. Consultant shall treat all such
information as confidential, whether or not so identified, and shall not disclose any part
thereof without the prior written consent of the City. Consultant shall limit the use and
circulation of such information, even within its own organization, to the extent necessary
to perform the services. The foregoing obligation of this Paragraph 5, however, shall
not apply to any part of the information that (i) has been disclosed in publicly available
sources of information; (ii) is, through no fault of Consultant, hereafter disclosed in
publicly available sources of information; (iii) is now in the possession of Consultant
without any obligation of confidentiality; or (iv) has been or is hereafter rightfully
disclosed to Consultant by a third party, but only to the extent that the use or disclosure
thereof has been or is rightfully authorized by that third party.
Consultant shall not disclose any reports, recommendations, conclusions
or other results of the services or the existence of the subject matter of this contract
without the prior written consent of the City. In its performance hereunder, Consultant
shall comply with all legal obligations it may now or hereafter have respecting the
information or other property of any other person, firm or corporation.
6. Office Space and Clerical Support.
Consultant shall provide its own office space and clerical support at its
sole cost and expense.
7. Covenant Against Contingent Fees.
Consultant declares that it has not employed or retained any company or
person, other than a bona fide employee working for Consultant, to solicit or secure this
Agreement, that it has not paid or agreed to pay any company or person, other than a
bona fide employee, any fee, commission, percentage, brokerage fee, gift or any other
consideration, contingent upon or resulting from the award or making of the Agreement.
For breach of violation of this warranty, City shall have the right to annul this Agreement
without liability, or, at its sole discretion, to deduct from the Agreement price or
consideration, or otherwise recover the full amount of such fee, commission,
percentage, brokerage fee, gift or contingent fee.
8. Ownership of Documents.
All memoranda, reports, plans, specifications, maps and other documents
prepared or obtained under the terms of this Agreement shall be the property of City
and shall be delivered to City by Consultant upon demand.
5 of 15 Attachment 1 December 2, 2014 Item #4.2
Financial Advisor Services Agreement
Page 13
9. Conflict of Interest and Political Reform Act Obligations.
During the term of this Agreement Consultant shall not act as consultant
or perform services of any kind for any person or entity whose interests conflict in any
way with those of the City of Poway. Consultant shall at all times comply with the terms
of the Political Reform Act and the local conflict of interest ordinance. Consultant shall
immediately disqualify itself and shall not use its official position to influence in any way
any matter coming before the City in which the Consultant has a financial interest as
defined in Government Code Section 87103. Consultant represents that it has no
knowledge of any financial interests which would require it to disqualify itself from any
matter on which it might perform services for the City.
"Consultant" means an individual who, pursuant to a contract with a state
or local agency:
(A) Makes a governmental decision whether to:
1. Approve a rate, rule or regulation;
2. Adopt or enforce a law;
3. Issue, deny, suspend, or revoke any permit, license,
application, certificate, approval, order, or similar
authorization or entitlement;
4. Authorize the City to enter into, modify, or renew a contract
provided it is the type of contract that requires City approval;
5. Grant City approval to a contract that requires City approval
and to which the City is a party, or to the specifications for
such a contract;
6. Grant City approval to a plan, design, report, study, or similar
item;
7. Adopt, or grant City approval of, policies, standards, or
guidelines for the City, or for any subdivision thereof; or
(B) Serves in a staff capacity with the City and in that capacity participates in
making a governmental decision as defined in Regulation 18702.2 or
performs the same or substantially all the same duties for the City that
would otherwise be performed by an individual holding a position specified
in the City's Conflict of Interest Code.
6 of 15 Attachment 1 December 2, 2014 Item #4.2
Financial Advisor Services Agreement
Page 14
DISCLOSURE DETERMINATION:
❑ 1. Consultant/Contractor will not be "making a government decision"
or "serving in a staff capacity" as defined in Sections A and B
above.
No disclosure required.
❑ 2. Consultant/Contractor will be "making a government decision" or
"serving in a staff capacity" as defined in Sections A and B above.
As a result, Consultant/Contractor shall be required to file a
Statement of Economic Interest with the City Clerk of the City of
Poway in a timely manner as required by law.
DEPARTMENT DIRECTOR
10. No Assignments.
Neither any part nor all of this Agreement may be assigned or
subcontracted, except as otherwise specifically provided herein, or to which City, in its
sole discretion, consents to in advance thereof in writing. Any assignment or
subcontracting in violation of this provision shall be void.
11. Maintenance of Records.
Consultant shall maintain all books, documents, papers, employee time
sheets, accounting records, and other evidence pertaining to costs incurred and shall
make such materials available at its office at all reasonable times during the contract
period and for three (3) years from the date of final payment under this Agreement, for
inspection by City and copies thereof shall be furnished, if requested.
12. Independent Contractor.
At all times during the term of this Agreement, Consultant shall be an
independent contractor and shall not be an employee of the City of Poway. City shall
have the right to control Consultant only insofar as the results of Consultant's services
rendered pursuant to this Agreement; however, City shall not have the right to control
the means by which Consultant accomplishes such services.
13. Licenses, Permits, Etc.
Consultant represents and declares to City that it has all licenses, permits,
qualifications, and approvals of whatever nature that are legally required to practice its
profession. Consultant represents and warrants to City that Consultant shall, at its sole
cost and expense, keep in effect at all times during the term of this Agreement, any
license, permit, or approval which is legally required for Consultant to practice its
profession.
7 of 15 Attachment 1 December 2, 2014 Item #4.2
Financial Advisor Services Agreement
Page 15
14. Consultant's Insurance.
Consultant shall provide insurance as set forth in Exhibit "A" entitled
"Special Provisions" attached hereto and made a part hereof.
15. Liabili .
Notwithstanding any other provision contained in this Agreement,
Consultant shall be responsible for all injuries to persons and for all damage to real or
personal property of City or others, caused by or resulting from the wrongful act or
negligent acts, errors, or omissions of itself, its employees, or its agents during the
progress of, or in connection with, the rendition of services hereunder. Consultant shall
hold harmless and indemnify City, and all officers and employees of City from all costs
and claims for damages to real or personal property, or personal injury to any third
party, including reasonable attorney fees resulting from the negligent performance of
Consultant, its employees, or its agents, under this Agreement.
16. Consultant Not an Agent.
Except as City may specify in writing, Consultant shall have no authority,
expressed or implied, to act on behalf of City in any capacity whatsoever as an agent.
Consultant shall have no authority, expressed or implied, pursuant to this Agreement to
bind City to any obligation whatsoever.
17. Personnel.
Consultant shall assign qualified and certified personnel to perform
requested services. The City shall have the right to review and disapprove personnel
for assignment to Poway projects.
City shall have the unrestricted right to order the removal of any person(s)
assigned by Consultant by giving oral or written notice to Consultant to such effect.
Consultant's personnel shall at all times comply with City's drug and
alcohol policies then in effect.
18. Notices.
Notices shall be given as described on Exhibit "A" entitled "Special
Provisions" attached hereto and made a part hereof.
8 of 15 Attachment 1 December 2, 2014 Item #4.2
Financial Advisor Services Agreement
Page 16
19. Arbitration.
In the event of a dispute between City and Consultant concerning the
terms of this Agreement or its performance, the parties agree to submit such dispute to
arbitration before the American Arbitration Association or other mutually acceptable
arbitrator. In the event that the subject of such arbitration is compensation claimed by
Consultant in the event of termination, Consultant's damages shall be limited to
compensation for the 60 -day period for which Consultant would have been entitled to
receive compensation if terminated without cause. In the event of arbitration, each
party shall bear its own attorneys' fees and costs incurred.
20. Gender.
Whether referred to in the masculine, feminine, or as "it," "Consultant"
shall mean the individual or corporate consultant and any and all employees of
consultant providing services hereunder.
21. Counterparts.
This Agreement (and any amendments) may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which, together, shall
constitute one and the same instrument. Documents delivered by telephonic facsimile
transmission shall be valid and binding.
22. Entire Agreement.
This Agreement shall constitute the entire understanding between
Consultant and City relating to the terms and conditions of the services to be performed
by Consultant.
23. Pension Reform Act of 2013
At all times during the term of the Agreement with the City, no officer,
director, shareholder, member, partner, employee, or contractor, providing services to
the City, will be a "retired annuitant," under the City's retirement system, ineligible for
temporary employment under section 7522.56 of the California Government Code,
which was added as a part of the Pension Reform Act of 2013. For the purposes of this
statement a "retired annuitant" is a person retired from the California Public Employees'
Retirement System ( "CalPERS "). Any retired annuitant proposed to provide work on
behalf of the City must be eligible for appointment under the Pension Reform Act of
2013, and any other applicable laws, without any adverse financial impact to the City.
9 of 15 Attachment 1 December 2, 2014 Item #4.2
Financial Advisor Services Agreement
Page 17
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the date first above written.
City of Poway
Approved as to form:
Office of the City Attorney
Dated:
Its: Morgan Foley, City Attorney
Dated:
M
Its: Daniel Singer, City Manager
Consultant
Company Name: KNN Public Finance, Inc.
Dated:
0
Its:
10 of 15 Attachment 1 December 2, 2014 Item #4.2
Financial Advisor Services Agreement
Page 18
"SPECIAL PROVISIONS"
EXHIBIT "A"
A. Scope of Services.
Consultant agrees to perform consulting services as required by City, and
shall provide the necessary qualified personnel to perform the services as described in
Consultant's Proposal for Financial Advisor Services dated August 25, 2014, attached
to this agreement and made a part of herein.
B. Compensation and Reimbursement.
City shall pay Consultant as enumerated in Consultant's Proposal for
Financial Advisor Services dated August 25, 2014. Consultant's fee shall include and
Consultant shall be responsible for the payment of all federal, state, and local taxes of
any kind which are attributable to the compensation received.
In addition to said consulting fee, Consultant shall be reimbursed for all
reasonable expenses, including lodging, telephone, and travel (air, auto, rail)
necessarily incurred in performance of the services. Consultant shall bill City for such
expenses as incurred, referencing this Agreement. All expenses shall be itemized and
supported by receipts for amounts in excess of Twenty -Five Dollars ($25.00).
Statements for reimbursement of expenses shall be paid within ten (10) days of
approval by City. All air travel shall be billed at coach or special fare rates. Only
lodging outside San Diego County shall be reimbursable. Consultant shall receive prior
authorization for air travel and lodging expenses. All other expenses shall be
reimbursed in accordance with City's cash disbursement policies in effect at the time
incurred.
C. Term of Agreement.
This Agreement shall be effective from the period commencing December
3, 2014 and remain in effect until terminated as provided in the section of this
Agreement entitled "Termination." Upon expiration or termination of this Agreement,
Consultant shall return to City any and all equipment, documents or materials and all
copies made thereof which Consultant received from City or produced for City for the
purposes of this Agreement.
11 of 15 Attachment 1 December 2, 2014 Item #4.2
Financial Advisor Services Agreement
Page 19
D. Consultant's Insurance.
1. Coverages:
Consultant shall obtain and maintain during the life of this Agreement all of
the following insurance coverages:
(a). Comprehensive General Liability, including premises- operations,
products /completed, broad form property damage, and blanket contractual liability with
the following coverages:
General Liability: $500,000 per person per occurrence /.......... $1,000,000 aggregate
per occurrence /$500,000 property damage per occurrence
(b) Automobile Liability, including owned, hired, and non -owned vehicles with the
following insurance coverages:
Auto Liability: $ 500,000 per person per occurrence/ ............. $1,000,000 aggregate
per occurrence /$100,000 property damage per occurrence
(c) Consultant shall obtain and maintain, during the life of the Agreement, a policy
of Professional Errors and Omissions Liability Insurance with policy limits of not less
than $1,000,000.00 combined single limits, per claim and annual aggregate.
(d) Workers' Compensation insurance in statutory amount. All of the
endorsements which are required above shall be obtained for the policy of Workers'
Compensation insurance.
2. Endorsements:
Endorsements shall be obtained so that each policy contains the following three
provisions:
(a) Additional Insured. (Not required for Professional Errors and Omissions
Liability Insurance or Workers' Compensation.)
"City of Poway and its elected and appointed boards, officers, agents, and
employees are additional insureds with respect to this subject project and contract with
City."
(b) Notice.
"Said policy shall not terminate, nor shall it be canceled, until thirty (30) days after
written notice is given to City."
12 of 15 Attachment 1 December 2, 2014 Item #4.2
Financial Advisor Services Agreement
Page 110
(c) Primary Coverage.
"The policy provides primary coverage to City and its elected and appointed boards,
officers, agents, and employees. It is not secondary or in any way subordinate to any
other insurance or coverage maintained by City."
3. Insurance Certificates:
Consultant shall provide City certificates of insurance showing the insurance
coverages described in the paragraphs above, in a form and content approved by City,
prior to beginning work under this Agreement.
E. Notices.
All notices, billings and payments hereunder shall be in writing and sent to
the following addresses:
To City:
Scott Edwards
Director of Administrative Services
City of Poway
13325 Civic Center Drive
P.O. Box 789
Poway, CA 92074
To Consultant:
Mark Young
KNN Public Finance
5757 W. Century Blvd., Suite 700
Los Angeles, CA 90045
13 of 15 Attachment 1 December 2, 2014 Item #4.2
r�
Neither KNN nor any members of the firm have been the subject of a SEC, FINRA, MSRB, federal,
state or local government inquiry or investigation associated with the sale, purchase, marketing or other
activities related to the securities industry.
Neither KNN nor any members of the firm are subject to any threatened or pending litigation or
sanctions, nor have they been during the past five years.
F-1 K. Cost Proposal and Reimbursement for "Out-of-
Pocket" Expenses
f Present a concise list of the scope of services and the n ork products thatyour fztrn proposes to provide. Given your
Li proposed scope of'sen-iees and work products, discuss yourproposed fee ai angerrrent based on each of the following
a t ves.
F-1
a. Compensation on a f ved annual cost, payable niontbly.
i
b. Corrrpensation on a time and expense basis, with a list of hourly billing rates for theproposedpersonnel and any
proposed increc�res in such rates during the term of the contract, and the types of rrimbursahle expenses 744th proposed
i charges.
F c. Compensation on a fully contingent basis for specific financing issue r.
i
Fees will be subject to adjustment based upon assignment by the Director ofAdministraive Semites of mare than one
f irrr to a single project. Expenses such as travel postage, reproduction and related costs necessarily incurred as
F Financial Advisor are to be reflected in item K 1 Cost Proposal. Such eenres u i11 not be eligiGle for reimbursement
` ' unless othennse determined 15 the Director- ofAdrzrinistrative Senices and approved by the City in advance.
Any costs incurred by Financial Advisor which are not specifically provided for herein shall be the expense of
1� Financial Advisor: Any orrrissions or aznbigidiies zvill he construed most favorable to the Cif,.
A concise list of the scope of services and work products can be found in "Financial Advisory
Services Provided" within Section D starting on page 5.
L,
a. Compensation on a fixed annual cost, payable monthly.
Because the specific needs of the City are not clear to us, it is difficult to propose a specific fixed cost
proposal. We recommend that you view any such proposal as indicative, and a starting point in
discussions. We are confident that, should the City desire a retainer -based program, that we would
reach a mutually agreeable arrangement.
If the City desired to pay a retainer for the issuance of one financing, financing planning, policy, and
other non - transaction services, we would recommend an annual fee of $70,000.
b. Compensation on a time and expense basis.
The following represent our standard hourly charges. We would be willing to negotiate not to exceed
Emits on specific assignments. We would propose annual escalation of fees by 3% a year. Our
reimbursable expenses would be limited to third -party expenses such as conference call charges. We
14 of 15 Attachment 2 December 2, 2014 Item #4.2
would not anticipate being reimbursed for in -state travel. We do charge a $550 per transaction expense
charge to reimburse us for Bloomberg and TM3 information services.
Hourly Rates
Title
Hourly Fee
Managing Director
$345
Vice President
$300
AVP /Senior Associate
$275
Associate
$245
Analyst
$200
We have flexibility in our fee schedule, and stand ready to negotiate whatever reasonable compensation
approach and amounts the City deems appropriate.
C. Compensation on a fully contingent basis for spec financing issues:
The specific fees would be negotiated based on the complexity of the transaction and the length of time
from initiation to closing.
Fixed Fees
Issuance Type
Fined Fee
General Obligation
$40,000
Enterprise Revenue Bonds
.$45,000
certificates of Participation/Lease Revenue
$50,000
Bonds
Refunding Tax Allocation Bonds
$60,000
Special Assessment Bonds
$70,000
Mello -Roos Bonds
$80,000
L. Potential Conflict of Interest
You sbould advise the City of *at!+ potential conflict knoune fr_yyouur firm and di_reslsr bon; if seketed,youur farm mould
address any concerto raised by sucli potential cotyNct.
We are aware of no conflicts of interests in representing the City of Poway as Financial Advisor. KNN
serves exclusively as a financial advisor, and neither it nor its parent would underwrite the City of
Poway's obligations. To monitor potential conflicts with new clients, we rely on an institutional
framework of strong governance and peer review practices. We have succeeded at creating a business
15 of 15 Attachment 2 December 2, 2014 Item #4.2