Item 8 - Update on City Bond Issues for 1995
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AGENDA REPORT SUMMARY
TO: Honorable Mayor and Members of the City Council
FROM: James l. Bowersox, City Man~ -t
INITIATED BY: John D. Fitch, Assistant City Managef1rlt
Peggy A. Stewart, Director of Administrative services~~~
DATE: December 19, 1995
SUBJECl': Update On City Bond Issues for 1995
ABSTRACf
In 1995 the City completed four bond issues: refunding of the 1986 Certificates of
Participation, refunding of the Poway Royal Certificates of Participation, 1990
Refunding of the 1975 General Obligation Bonds, and issuance of 1995 Water Revenue
Bonds. This report provides information on the outcome of each of those issuances.
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ENVIRONMENTAL REVIEW
Environmental review is not required for this agenda item according to CEQA 9uidelines.
FISCAL IMPACf
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Each of the refunding issues resulted in lower debt service payments for the City.
Issuance of the water revenue bonds resulted in debt service levels which can be met
under the current water rate structure.
ADDITIONAL PUBLIC NOTIFICATION AND CORRESPONDENCE
None
RECOMMENDATION
It is recommended that the City Council receive and file this report.
ACfION
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AGENDA REPORT
CITY OF POW A Y
TO: Honorable Mayor and Members of the City Council
FROM: James L. Bowersox, City Ma~ ,~
INITIATED BY: John D. Fitch, Assistant City Manage~\\
Peggy A. Stewart, Director of Administ ative Services
DATE: December 19, 1995
SUBJECT: Update on City Bond Issues for 1995
BACKGROUND
At the start of 1995, the City's outstanding debt included three general obligation
bond issues which originally totaled $10.9 million, an outstanding general
obligation fire protection improvement bond of $1.9 million, the Poway Royal Mobile
Home Park Certificates of Participation bond issue of $32 million, and the $9.3
million 19B6 Certificates of Participation issue. Due to favorable market
conditions, the City was able to restructure this debt resulting in a substantial
reduction in debt service costs over the life of the issues. -
Further, the Water Treatment Facility Upgrade Project warranted a new issue of
$3,380,000 of water revenue bonds.
FINDINGS
In the sprin9 of 1995, the Council authorized the refunding of the 1986 Certificates
of Participation, which were originally issued to fund the construction of the
Performin9 Arts Center, the swimming pool and Valle Verde Park, at a par amount of
-$9.3 million and the Poway Royal Mobile Home Park Certificates of Participation at a
par amount of $32 million. On July 6, 1995, the City closed on the refunding of the
1986 Certificates of Participation. The total principal amount of the refunded
bonds was $9,315,000. The bonds were issued at a true interest cost of 5.743%. We
achieved a net present value savings of $749,531 for an 8% net present value
savings. This will result in an average annual debt service savings of
approximately $77,000 r~r year through the year 2011, at which time the bonds will
be paid.
The reissuing of the 1986 COP's was insured by Financial Security Assurance. This
allowed the City to obtain a AAA rating, and we were able to issue the bonds at 5.7%
interest. Without the bond insurance, the interest would have been approximately
one-half percent higher--or 6.3%. In order to obtain the bond insurance, the City
substituted City Hall, fire stations, and the Public Services Operations building as
security for the bonds in place of the Performing Arts Center, the swimming pool,
and Valle Verde Park.
ACTION:
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Agenda Report
December 19, 1995
Page 2
On September 6. 1995. the City closed on the refunding of the Poway Royal Mobile
Home Park Certificates of Participation. With this refunding, the City obtained a
total true interest cost of 6.355% compared to 7.428% for the original issue. The
total amount of the refunding was $31,770,000 and resulted in a total net present
value savings of $352,000. As a part of this refunding, the City restructured the
debt service schedule. We were able to reduce the total debt service payments
between February 1996 and August 2005 by $3.6 million. Thereafter, the debt service
between February 2006 and February 2024 increases by approximately $100,000 per
year. From August 2024 to final payment in August 2028, an additional $10.8 million
in debt service will be paid due to the length of the maturity on the bonds. The
substantial debt service savings in the early years will help reduce rent increases
and eliminate operating shortfalls previously projected for those years.
On October 25, 1995, the City issued $3,380,000 in Poway Public Financing Authority
Water Revenue Bonds. The bonds provided fundin9 towards the upgrade of the water
treatment plant. The total cost of the project is estimated to be $8,700,000 of
which $2,915,300 will come from the proceeds of the bonds. The bonds were sold ~ a
negotiated basis to Grigsby Brandford. The resulting bonds have been structured as
20-year fixed rate debt at a true interest cost of 5.475%. Annual debt service
payments will be approximately $276,000 a year which was incorporated into the water
rates established for fiscal year 1995-96.
The final bond issue occurred on November 21, 1995 with the issuance of the 1995
General Obligation Refunding 80nds. Under this refunding plan, the City will
utilize debt service reserves and sinking fund reserves to redeem 1970 and 1972
General Obligation Water Bonds and 1978 Fire Protection Bonds. This will result in
.n average annual debt service savings of $525,000 over the next six years. The
outstanding 1975 General Obligation Water Bonds, with an outstanding principal of
$5.17 million at an interest rate of 7.5%, were refunded at a total true interest
cost of 4.7% and a net present value savings of $515,495--or 9.97% of the refunding
principal. Given that the 1995-96 tax rate has already been set at .06022% to cover
the normal debt service payment, the City will collect more tax revenue this fiscal
year than needed. The 1995 refunding bonds have therefore been structured with a
large principal payment on June 1, 1995. This principal payment has the effect of
applying the 1995-96 overcollection to the lowest cost part of the refunding in the
same fiscal year it is received. Beginning in fiscal year 1996-97, the debt service
on the 1995 refunding bonds will drop to a level annual debt service payment of
between $545,000 and $550,000 a year. The estimated tax rate to cover the new debt
service will be .02000%. This means that the taxes per $100,000 of assessed
valuation will drop from $60 to $20. For example, the taxes on a $200,000 home for
the combined general obligation bonds would drop from $120 to $40.
ENVIRONMENTAL REVIEW
Environmental review is not required for this agenda item according to CEQA
guidelines.
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Agenda Report
December 19, 1995
Page 3
FISCAL IMPACT
Each of the refunding issues resulted in lower debt service payments for the City.
Issuance of the Water Revenue Bonds resulted in debt service levels which can be met
under the current water rate structure.
ADDITIONAL PUBLIC NOTIFICATION AND CORRESPONDENCE
None
RECOMMENDATION
It is recommended that the City Council receive and file this report.
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