City of Culver City, California
City Council Agenda Item Report
RECOMMENDATION:
Staff recommends the City Council approve a $9,000,000 loan to the Culver City
Redevelopment Agency (the “Agency”) for the purpose of bond reallocation, and
consider loan options and terms.
BACKGROUND/DISCUSSION:
Over the past few years, the Agency has acquired a number of properties
throughout the City in furtherance of the Redevelopment Plan. While a number of
the properties were purchased with tax increment funds, several properties were
purchased with bond funds due to the anticipated project/proforma structure.
Tax exempt bond funds were utilized to purchase the properties at
Washington/Centinela with the expectation that the residual land value would not
result in a return greater than five percent ($1.5 million) of the total bond issuance
($28 million). The Agency also acquired properties at Washington/National with tax
exempt bond funds with the expectation that any portion of the residual land value
that exceeded the available return (after Washington Centinela) would be applied to
public infrastructure improvements (sidewalks, paseos, right of way, traffic
improvements, etc.) related to the project.
Due to the upcoming five year anniversary related to the 2002 bonds and
scope/schedule alterations for both projects, it has become necessary to reallocate
unrestricted monies to the bond funds by June 24, 2007. This action will allow the
Agency to remain flexible in its future use and disposition of the properties. To
remain flexible, staff has investigated a number of mechanisms in which to borrow
Meeting Date: 05/29/07 Item Number: J-2
AGENDA ITEM: Joint Item to Authorize a Loan From the City of Culver City to the
Culver City Redevelopment Agency for Bond Reallocation.
Contact Person/Dept.: Todd Tipton/CDD Phone Number: 310-253-5700
Fiscal Impact: Yes [X] No [] General Fund: Yes [X] No []
Public Hearing: [] Action Item: [X] Attachments: [X]
Public Notification: Master Notification List (05/24/07).
Department Approval:
Todd Tipton (05/10/07)
City Attorney Approval:
Carol Schwab (by H. Iker) (05/16/07)
City Controller Approval:
Marlee Chang (5/21/07)
City Manager Approval:
Jerry B. Fulwood (05/23/07) City of Culver City, California
City Council Agenda Item Report
cash to replenish the bond funds for Washington Centinela (approximately
$9,000,000). These options include placing deeds of trust on Agency owned
property with an outside/private lender, selling/converting Certificates of Participation
for taxable bonds, or a loan from the City. In reviewing these options, Agency and
City staff have determined that the optimal course of action at this time would be to
pursue a loan from the City. This loan would not only be a strategic investment
opportunity for the City, earning market interest rate in a range from 4 - 6%, but
would also allow for ease in transfer and management between the entities. Loan
repayment would be derived from future property sales or increases in tax
increment.
It is proposed the funds for the $9,000,000 loan be allocated from the City’s general
fund reserve. This allocation would represent approximately 1/3 of the current
reserve. To this end, fail safe measures would need to be considered in the unlikely
event that the City would require these funds be returned prior to the loan repayment
date. Two options would be to borrow against Agency owned property as well as
selling/converting to taxable bonds.
Throughout this loan period the objective of Agency staff will be shifted to finalize
projects with land assets prior to researching or assembling new projects or
properties. It is important to note, however, that Agency’s direction to specific
projects or land sales may impact the rate at which the loan is repaid, and new
Agency initiated projects are brought forth for consideration.
FISCAL ANALYSIS:
In structuring this loan, the Agency Treasurer has spoken with several broker
dealers regarding market interest rates. The rates currently range from 5.135% to
5.33% for a four year investment with no call for either one to two years, with the
possibility of a full payback continuous after one or two years. Interest would be
payable every six months. In addition, it is recommended that the Agency pay a
slightly higher fee since the City has experienced an interest loss due to keeping
these funds available for this potential opportunity.
To this end, staff is recommending this loan be constructed to the following terms:
Loan term: Up to four years (to allow for tax increment increases to buffer
property sales that may take longer than anticipated.)
Semi annual repayment schedules (July and January)
Fixed rate (approximately 5%, market bearing)
No penalty for early repayment
City has right to call loan at any time. City of Culver City, California
City Council Agenda Item Report
In regards to repayment amounts, staff has provided principal/interest models for the
Council’s consideration (Exhibit A). The first model represents principal and interest
assuming 4%, 5% and 6% simple interest (compounded bi-annually). The second
model reflects an interest only structure. At this time, staff recommends that the
Agency approve the principal with the 5% interest model.
With this model, the City could earn up to $1,012,500 in interest payments by the
completion of the loan in 2011 which is comparable to interest earning that City
would otherwise receive.
EXHIBIT:
Exhibit A: Principal/Interest ratio models for repayment
MOTION:
That the City Council:
1) Approve a loan to the Redevelopment Agency for $9,000,000 to replenish bond
funds for properties purchased for the Washington/Centinela project for a four
year term, and;
2) Approve a principal/interest repayment model at 5% to engage for the length of
the loan.
3) Authorize the City Attorney to prepare/review the necessary documents and
authorize the City Manager to execute these documents on behalf of the City.
ATTACHMENT COVER SHEET
Meeting Date: May 29, 2007
Item: Consideration of a City Loan to the Redevelopment Agency.
Attachments:
Pages
1. Exhibit 'A' — Principle/Interest ratio modelPrinciple and Interest
Outstanding
Principle
$9,000,000
Principle
Payment
Interest
Payment (4%)
2007-08 Jan, $7,875,000 $1,125,000 $180,000
2008-09 July $6,750,000 $1,125,000 $157,500
Jan. $5,625,000 $1,125,000 $135,000
2009-10 July $4,500,000 $1,125,000 $112,500
Jan. $3,375,000 $1,125,000 $90,000
2010-11 July $2,250,000 $1,125,000 $67,500
Jan. $1,125,000 $1,125,000 $45,000
2011-12 July $0 $1,125,000 $22,500
Total $9,000,000 $810,000
Outstanding Principle Interest
Principle Payment Payment (5%)
$9,000,000
2007-08 Jan. $7,875,000 $1,125,000 $225,000
2008-09 July $6,750,000 $1,125,000 $196,875
Jan. $5,625,000 $1,125,000 $168,750
2009-10 July $4,500,000 $1,125,000 $140,625
Jan. $3,375,000 $1,125,000 $112,500
2010-11 July $2,250,000 $1,125,000 $84,375
Jan. $1,125,000 $1,125,000 $56,250
2011-12 July $0 $1,125,000 $28,125
Total $9,000,000 $1,012,500
Outstanding Principle Interest
Principle Payment Payment (8%)
$9,000,000
2007-08 Jan. $7,875,000 $1,125,000 $270,000
2008-09 July $6,750,000 $1,125,000 $236,250
Jan. $5,625,000 $1,125,000 $202,500
2009-10 July $4,500,000 $1,125,000 $168,750
Jan. $3,375,000 $1,125,000 $135,000
2010-11 July $2,250,000 $1,125,000 $101,250
Jan. $1,125,000 $1,125,000 $67,500
2011-12 July $0 $1,125,000 $33,750
Total $9,000,000 $1,215,000
Interest Only
Pay interest only for the life of the loan, with the total principle amount
due at the end of the loan period.
Principle Interest
Payment Paymen! (4%)
2007-08 Jan,
$0 $180,000
2008-09 July $0 $180,000
Jan. $0 $180,000
2009-10 July $0 $180,000
Jan. $0 $100,000
2010-11 July $0 $180,000
Jan. $0 $180,000
2011-12 July $9,000,000 $180,000
Total $9,000,000 $1,440,000
Principle Interest
Payment Paymenl (5%)
2007-08 Jan. $0 $225,000
2008-09 July $0 $225,000
Jan. $0 $22,5,000
2009-10 July $0 $225,000
Jan. $0 $225,000
2010-11 July $0 $225,000
Jan. $0 $225,000
2011-12 July $9,000,000 $22;5,000
Total $9,000,000 $1,800,000
Principle Interest
Payment Paynnen1 (6%)
2007-08 Jan. $0 $270,000
2008-09 July $0 $2710,000
Jan. $0 $27.0,000
2009-10 July $0 $270,000
Jan. $0 $2710,000
2010-11 July $0 $270,000
Jan. $0 $279,000
2011-12 July $9,000,000 $2710,000
Total $9,000,000 $2,16,0,000