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City of Culver City, California
Agenda Item Report
Meeting Date: 10/26/2009 Item Number: C-4
CITY COUNCIL AGENDA ITEM: Adoption of a Resolution Approving the Form of
and Authorizing the Execution and Delivery of a Purchase and Sale Agreement and
Related Documents with Respect to the Sale Of Culver City’s Proposition 1A
Receivable from the State of California and Directing and Authorizing Certain Other
Actions in Connection Therewith.
Contact Person/Dept.: Jeff Muir, CFO Phone Number: 310-253-6016
Fiscal Impact: Yes [X] No [] General Fund: Yes [X] No []
Public Hearing: [] Action Item: [] Attachments: [X]
Commission Action Required: Yes [] No [X] Date: _______________
Public Notification: (Email) Meetings and Agendas – City Council (10/21/09); (Email)
Fiscal and Budget Issues (10/21/09)
Department Approval:
Jeff Muir (10/01/09)
City Attorney Approval:
Carol Schwab (by H. Baker) (10/21/09)
Chief Financial Officer Approval:
Jeff Muir (10/21/09)
City Manager Approval:
Mark Scott (10/21/09)
RECOMMENDATION:
Staff recommends that the City Council adopt a resolution authorizing the execution
and delivery of a purchase and sale agreement and related documents with respect
to the sale of the City’s Proposition 1A receivable from the State to California
Statewide Communities Development Authority (“California Communities”).
BACKGROUND:
Proposition 1A was passed by California voters in 2004 to ensure local property tax
and sales tax revenues remain with local government thereby safeguarding funding
for many local programs, including: public safety, health, libraries, and parks.
Provisions can only be suspended if the Governor declares a fiscal necessity and
two-thirds of the Legislature concurs.
The emergency suspension of Proposition 1A was passed by the Legislature and
signed by the Governor on July 28, 2009 as ABX4 14 and ABX4 15 as part of the
2009-10 budget package. Under the provision thereof, the State will borrow 8% of
the amount of property tax revenue apportioned to cities, counties and special
districts. The state is required to repay those obligations plus interest by June 30,
2013.
On October 14, 2009 the Legislature passed clean-up legislation, SB 67, which
provides for a few critical changes to the enacted legislation, most notable of which
would:
• Allow financing to occur in November (as opposed to later in the year);
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• Require county auditor certification of the amount of Prop. 1A receivable prior
to November;
• Allow a tax-exempt structure;
• Identify California Communities as the only authorized issuer of the Prop. 1A
Securitized Bond;
• Allow the sale of Prop. 1A receivables between local agencies; and,
• Make revisions to the hardship mechanism.
Passage of this clean-up legislation was critical to the Securitization program.
Without SB 67, the Securitization program would not be available and agencies
would have been forced to carry the full receivable until June 2013.
DISCUSSION:
Proposition 1A Securitization Program:
Authorized under ABX4 14 and ABX4 15, the Proposition 1A Securitization Program
was instituted by California Communities to enable Local Agencies to sell their
respective Proposition 1A Receivables to California Communities. Under the
Securitization Program, California Communities will simultaneously purchase the
Prop. 1A receivables from participating agencies, issue bonds securitized by those
Prop. 1A receivables, and provide each local agency with the cash proceeds from
the bond sale in two equal installments: the first on January 15, 2010 and the
second on May 3, 2010 (to coincide with the dates that the State will be shifting
property tax from local agencies). The purchase price paid to the local agencies will
equal 100% of the amount of the property tax reduction. All transaction costs,
including issuance and interest costs, will be paid by the State of California.
Participating local agencies will have no obligation for repayment of either the
principal or interest on the bonds and no credit exposure to the State. The City’s sale
of its Prop. 1A Receivable will be irrevocable and bondholders will have no recourse
to the City if the State does not make the Prop. 1A repayment.
Proposition 1A Program Sponsor:
California Statewide Communities Development Authority, or California
Communities, is a joint powers authority sponsored by the California State
Association of Counties and the League of California Cities. While non-member
agencies may participate in this bond issuance, the member agencies of California
Communities include approximately 230 cities and 54 counties throughout California
(including Culver City).
Benefits of Participation in the Proposition 1A Securitization Program:
The benefits to the City of participation in the Proposition 1A Securitization Program
include:
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• Immediate cash relief – the sale of the City's Prop. 1A Receivable will provide
the City with 100% of its Prop. 1A Receivable in two equal installments, on
January 15, 2010 and May 3, 2010.
• Mitigates impact of 8% property tax withholding in January and May – Per
ABX4 14 and ABX4 15 and the clean-up legislation (SB 67), the State will
withhold 8% of property tax receivables due to Cities, Counties, and Special
Districts under Proposition 1A. The financing outlines bond proceeds to be
distributed to coincide with the dates that the State will be shifting property tax
from local agencies.
• All costs of financing borne by the State of California – The City will not have
to pay any interest cost or costs of issuance in connection with the bonds.
• No obligation on Bonds – The City has no obligation with respect to the
payment of either the principal or interest of the bonds, nor any reporting,
disclosure or other compliance obligations associated with the bonds.
Upon delivery of the Prop. 1A Bonds, California Communities will make available to
the City its fixed purchase price, which will equal 100% of the local agency’s
Proposition 1A Receivable (which will be certified by the County Auditor prior to
issuance of the bond). These funds may be used for any lawful purpose of the City
and are not restricted by the program.
To participate in the Program, the City Council must adopt a resolution that:
1) Authorizes the sale of the City's Proposition 1A Receivable to California
Communities for 100% of the amount of the receivable;
2) Approves the form, and directs the execution and delivery, of the Purchase
and Sale Agreement with California Communities and related documents;
3) Authorizes and directs any Authorized Officer to send, or to cause to be sent,
an irrevocable written instruction required by statute to the State Controller
notifying the State of the sale of the Proposition 1A Receivable and
instructing the disbursement of the Proposition 1A Receivable to the
Proposition 1A Bond Trustee;
4) Appoints certain City officers and officials as Authorized Officers for purposes
of signing documents; and,
5) Authorizes miscellaneous related actions and makes certain ratifications,
findings, and determinations required by law.
The City Council must also approve a Purchase and Sale Agreement that:
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1. Provides for the sale of the Proposition 1A Receivable to California
Communities;
2. Contains representations and warranties of the City to assure California
Communities that the Proposition 1A Receivable has not been previously
sold, is not encumbered, that no litigation or other actions is pending or
threatened to disrupt the transaction and that this is an arm's length "true
sale" of the Proposition 1A Receivable;
3. Provides mechanics for payment of the Purchase Price; and
4. Contains other miscellaneous provisions.
As of the writing of this report, 1,306 agencies have enrolled in the California
Communities Prop. 1A Securitization Program, of which there are approximately 57
counties, 389 cities, and 860 special districts.
FISCAL ANALYSIS:
Staff estimates that the State will “borrow” somewhere between $850,000 and
$875,000 (the exact amount will be known when the County Auditor Controller
certifies the amount for each agency). If the City does not participate in the
Securitization Program, the General Fund reserve will have to be used to cover the
shortfall. The reserve will be replenished by June 30, 2013 when the State is
required to repay the loan, with interest. The State has set the interest rate it will
pay on the receivable at 2.00%, which equates to approximately $35,000 in total
interest for the City.
If the City participates in the Securitization Program, no revenue will be lost;
therefore, no reserves will need to be used to cover the “loan” to the State. The City
will forgo the 2.00% interest that will be earned over the loan period, but will have
the funds immediately available to cover current year operational costs.
Participation in the program also mitigates the financial risk that the State may not
be able to repay the “loan” by June 2013. Through participation in the Securitization
Program, all financial risk is shifted from the City to the State.
ATTACHMENTS:
1. Proposed Resolution
MOTION:
That the City Council:
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1. Adopt a resolution authorizing the execution and delivery of a purchase and sale
agreement and related documents with respect to the sale of the City’s
Proposition 1A receivable from the State to California Statewide Communities
Development Authority; and,
2. Authorize the City Attorney to review/prepare the necessary documents; and,
3. Authorize the City Manager to execute such documents on behalf of the City.
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MEETING DATE: 10/26/09
AGENDA ITEM: A Resolution Approving The Form Of And Authorizing The
Execution And Delivery Of A Purchase And Sale Agreement And
Related Documents With Respect To The Sale Of Culver City’s
Proposition 1a Receivable From The State; And Directing And
Authorizing Certain Other Actions In Connection Therewith.
ATTACHMENTS
Pages
1. Proposed Resolution 1 - 5
RESOLUTION NO. ________________
CITY COUNCIL
OF THE
CITY OF CULVER CITY
A RESOLUTION APPROVING THE FORM OF AND AUTHORIZING THE
EXECUTION AND DELIVERY OF A PURCHASE AND SALE AGREEMENT
AND RELATED DOCUMENTS WITH RESPECT TO THE SALE OF THE
SELLER’S PROPOSITION 1A RECEIVABLE FROM THE STATE; AND
DIRECTING AND AUTHORIZING CERTAIN OTHER ACTIONS IN
CONNECTION THEREWITH
WHEREAS, pursuant to Section 25.5 of Article XIII of the California Constitution and
Chapter 14XXXX of the California Statutes of 2009 (Assembly Bill No. 15), as amended (the
“Act”), certain local agencies within the State of California (the “State”) are entitled to receive
certain payments to be made by the State on or before June 30, 2013, as reimbursement for
reductions in the percentage of the total amount of ad valorem property tax revenues allocated to
such local agencies during the State’s 2009-10 fiscal year (the “Reimbursement Payments”),
which reductions have been authorized pursuant to Sections 100.05 and 100.06 of the California
Revenue and Taxation Code;
WHEREAS, the City of Culver City, a local agency within the meaning of Section
6585(f) of the California Government Code (the “Seller”), is entitled to and has determined to
sell all right, title and interest of the Seller in and to its “Proposition 1A receivable”, as defined in
Section 6585(g) of the California Government Code (the “Proposition 1A Receivable”), namely,
the right to payment of moneys due or to become due to the Seller pursuant to Section
25.5(a)(1)(B)(iii) of Article XIII of the California Constitution and Section 100.06 of the
California Revenue and Taxation Code, in order to obtain money to fund public capital
improvements or working capital;
WHEREAS, the Seller is authorized to sell or otherwise dispose of its property as the
interests of its residents require;
WHEREAS, the California Statewide Communities Development Authority, a joint
exercise of powers authority organized and existing under the laws of the State (the
“Purchaser”), has been authorized pursuant to Section 6588(x) of the California Government
Code to purchase the Proposition 1A Receivable;
WHEREAS, the Purchaser desires to purchase the Proposition 1A Receivable and the
Seller desires to sell the Proposition 1A Receivable pursuant to a purchase and sale agreement by
and between the Seller and the Purchaser in the form presented to this City Council (the “Sale
Agreement”) for the purposes set forth herein;
WHEREAS, in order to finance the purchase price of the Proposition 1A Receivable from
the Seller and the purchase price of other Proposition 1A Receivables from other local agencies,
the Purchaser will issue its bonds (the “Bonds”) pursuant to Section 6590 of the California
Government Code and an Indenture (the “Indenture”), by and between the Purchaser and Wells
Fargo Bank, National Association, as trustee (the “Trustee”), which Bonds will be payable solely 2
from the proceeds of the Seller’s Proposition 1A Receivable and other Proposition 1A
Receivables sold to the Purchaser by local agencies in connection with the issuance of the
Bonds;
WHEREAS, the Seller acknowledges that (i) any transfer of its Proposition 1A
Receivable to the Purchaser pursuant to the Sale Agreement shall be treated as an absolute sale
and transfer of the property so transferred and not as a pledge or grant of a security interest by
City of Culver City to secure a borrowing, (ii) any such sale of its Proposition 1A Receivable to
the Purchaser shall automatically be perfected without the need for physical delivery,
recordation, filing or further act, (iii) the provisions of Division 9 (commencing with Section
9101) of the California Commercial Code and Sections 954.5 to 955.1 of the California Civil
Code, inclusive, shall not apply to the sale of its Proposition 1A Receivable, and (iv) after such
transfer, the Seller shall have no right, title, or interest in or to the Proposition 1A Receivable
sold to the Purchaser and the Proposition 1A Receivable will thereafter be owned, received, held
and disbursed only by the Purchaser or a trustee or agent appointed by the Purchaser;
WHEREAS, the Seller acknowledges that the Purchaser will grant a security interest in
the Proposition 1A Receivable to the Trustee and any credit enhancer to secure payment of the
Bonds;
WHEREAS, a portion of the proceeds of the Bonds will be used by the Purchaser to,
among other things, pay the purchase price of the Proposition 1A Receivable;
WHEREAS, the Seller will use the proceeds received from the sale of the Proposition 1A
Receivable for any lawful purpose as permitted under the applicable laws of the State;
NOW THEREFORE, the City Council of the City of Culver City hereby resolves as
follows:
Section 1. All of the recitals set forth above are true and correct, and this City
Council hereby so finds and determines.
Section 2. The Seller hereby authorizes the sale of the Proposition 1A Receivable
to the Purchaser for a price equal to the amount certified as the Initial Amount (as defined in the
Sale Agreement) by the County auditor pursuant to the Act. The form of Sale Agreement
presented to the City Council is hereby approved. An Authorized Officer (as set forth in
Appendix A of this Resolution, attached hereto and by this reference incorporated herein) is
hereby authorized and directed to execute and deliver the Sale Agreement on behalf of the Seller,
which shall be in the form presented at this meeting.
Section 3. Any Authorized Officer is hereby authorized and directed to send, or
to cause to be sent, an irrevocable written instruction to the State Controller (the “Irrevocable
Written Instruction”) notifying the State of the sale of the Proposition 1A Receivable and
instructing the disbursement pursuant to Section 6588.6(c) of California Government Code of the
Proposition 1A Receivable to the Trustee, on behalf of the Purchaser, which Irrevocable Written
Instruction shall be in the form presented at this meeting. 3
Section 4. The Authorized Officers and such other Seller officers, as appropriate,
are hereby authorized and directed, jointly and severally, to do any and all things and to execute
and deliver any and all documents, including but not limited to, if required, appropriate escrow
instructions relating to the delivery into escrow of executed documents prior to the closing of the
Bonds, and such other documents mentioned in the Sale Agreement or the Indenture, which any
of them may deem necessary or desirable in order to implement the Sale Agreement and
otherwise to carry out, give effect to and comply with the terms and intent of this Resolution; and
all such actions heretofore taken by such officers are hereby ratified, confirmed and approved.
Section 5. All consents, approvals, notices, orders, requests and other actions
permitted or required by any of the documents authorized by this Resolution, whether before or
after the sale of the Proposition 1A Receivable or the issuance of the Bonds, including without
limitation any of the foregoing that may be necessary or desirable in connection with any default
under or amendment of such documents, may be given or taken by an Authorized Officer
without further authorization by this City Council, and each Authorized Officer is hereby
authorized and directed to give any such consent, approval, notice, order or request, to execute
any necessary or appropriate documents or amendments, and to take any such action that such
Authorized Officer may deem necessary or desirable to further the purposes of this Resolution.
Section 6. The City Council acknowledges that, upon execution and delivery of
the Sale Agreement, the Seller is contractually obligated to sell the Proposition 1A Receivable to
the Purchaser pursuant to the Sale Agreement and the Seller shall not have any option to revoke
its approval of the Sale Agreement or to determine not to perform its obligations thereunder. 4
Section 7. This Resolution shall take effect from and after its adoption and
approval.
PASSED AND ADOPTED by the City Council of the City of Culver City, State
of California, this ______ day of ________________, 2009, by the following vote:
AYES:
NOES:
ABSENT:
Mayor
Attest:
City Clerk
Approved as to form :
SELLER’S COUNSEL
By
Dated:
APPENDIX A
CITY OF CULVER CITY
Authorized Officers: Mark Scott, City Manager
Jeff Muir, Chief Financial Officer
any designee of any of them, as appointed in a written certificate of
such Authorized Officer delivered to the Trustee.