SR-062986-6L
C/ED:EDD:EF:MB
City Council Meeting 7/29/86
~-L
JUl 2 9 't!86
(~?, Y,7,JI (' :..;.
Santa Monica, California
j
To: Mayor and City Council
From: City Staff
Subject: Recommendation to Authorize the City Manager to Execute
a Contract for a Financial Underwriter and to Retain
the Services of Bond Counsel to Prepare an Assessment
District and Bond Offering for the Third Street Mall
INTRODUCTION
This report requests authorization to retain a financial
underwriter and bond counsel to assist in the design and
preparation of an assessment district and bond offering to
finance public improvements for the Third Street Mall.
BACKGROUND
On July 8, 1986, the city Council adopted a procedural ordinance
for the establishment of assessment districts and the collection
of assessment levies and maintenance fees in the city. The
purpose of this action was to initiate the process for the
formation of an assessment district and maintenance fee for the
Third Street Mall area, pursuant to the recommendations in the
Mall Specific Plan.
Since that time, the City has taken successive steps to establish
such a district,
including the ratification of proposed
parameters for the new district and maintenance fee. Under the
proposed assessment district, the City would issue certificates
- 1 -
ftJ-L
JUl2 91 "'6
of participation to finance the recommended public improvements.
The certificates of participation would be retired through the
payment of an annual levy assessed against property owners in the
district. Maintenance and operations costs would be funded
through the enactment of an annual maintenance fee on businesses
located within the proposed district.
At this time it is necessary to enter into contract for necessary
legal and financial underwriter services in order to proceed with
the sale of such securities by the city for the funding of the
recommended pUblic improvements program.
DISCUSSION
Over the last eighteen months, the city has received technical
assistance in the development and evaluation of alternative
financing mechanisms for funding public improvements to the Third
street Mall from Rauscher pierce Refsnes, Inc., a financial
consultant and underwriting firm. This analysis has included the
evaluation of sale/leaseback and transfer of asset mechanisms,
lease revenue, tax allocation and assessment district bonds, and
the issuance of certificates of participation.
Rauscher Pierce Refsnes, Inc. has considerable experience in the
issuance of tax exempt securities, particularly in those areas
described above. Over the last year, the firm has successfully
participated in the issuance of similiar securities in California
for proj ects comparable to those proposed for the Third street
Mall, including:
- 2 -
o $90 million City of Irvine, Lease Revenue Bonds to
finance a new civic Center, parking garage, and
other capital improvements projects;
o $26.7 million City of Berkeley, Certificates of
Participation to finance various city-wide capital
improvements;
o $10.6 million city of Campbell, certificates of
Participation to finance a community center; and
o $30 million City of Oxnard, certificates of
Participation to finance a civic Center expansion
project.
The firm has also assisted various California cities in the
formation and issuance of assessment district financings
including the cities of Hercules, Redwood City, and Milpitas. As
in the case of the Third street Mall, these districts were
established in order to finance infrastructure capital
improvement projects by the prospective cities involved.
Based on negotiations with the firm and a review of the work to
date, it is recommended that Rauscher pierce Refsnes, Inc. be
retained as the City's underwriter. It is also recommended that
the firm be compensated under the terms of a bond purchase
agreement whereby they will receive an underwri ter' s discount
fee equal to two and one-half percent (2.5%) of the total
issuance amount.
- 3 -
The underwriter's discount fee would be paid from the proceeds of
the certificates of participation. The certificates would be
sold subsequent to the city Council's approval of an assessment
district for the Third street Mall and the pricing of securities
by the firm. Under the proposed terms, should the City for
whatever reason not proceed with the sale of the proposed
certificates of participation, Rauscher pierce Refsnes would
receive no compensation for services rendered, including the
amount of time and expenses that have been dedicated to the
formation of the assessment district to date.
It is staff's assessment that this fee is quite competitive,
especially given the relatively modest size of the issuance
(approximately $13.26 million), the added responsibilities and
tasks associated with the formation of the assessment district as
part of the isssuance, and the negotiated terms of payment.
Likewise, it is also necessary at this time that the City procure
the services of a bond counsel to advise the City on the sale of
securities, the retirement of any outstanding debt, and the
design of the assessment district. O'Melveny & Myers was the
original bond counsel for the issuance of the 1965 lease revenue
bonds for the development of the Mall parking structures and has
periodically advised the City as to proposed amendments to the
existing parking and improvement district. As such, senior staff
within the firm are quite familiar with the legal issues involved
and have demonstrated experience in the formation of assessment
districts and the legal structuring of financial programs such as
those contemplated for the Mall area.
- 4 -
It is recommended that the ci ty enter into an agreement with
O'Melveny & Myers for the provision of legal counsel in the sale
of securities and in the formation of an assessment district for
the Third street Mall. It is proposed that the firm be paid on
an actual time and expense basis.
It is contemplated that the
entire cost of these services will be paid from the proceeds of
the sale of the certificates of participation.
FISCAL IMPACT
Based on the analysis of the proposed financing program, it is
anticipated
that
the
City
will
issue
certificates
of
participation in the amount of approximately $13.26 million. Of
this
amount
approximately
$331,500
would
represent
the
underwriter's discount fee and an amount not to exceed $302,000
is to be used to cover the additional issuance costs associated
with the sale of the certificates, including the bond counsel's
fee. These fees are anticipated to be paid from proceeds from
the sale of the certificates of participation.
RECOMMENDATION
It is recommended that the City Council authorize the City
Manager to execute agreements pursuant to the terms in this
report with Rausher pierce Refsnes, Inc. and 0' Mel veny & Myers
for the provision of underwriter services and bond counsel,
respectively.
Prepared by: Peggy Curran, Director, Community & Economic
Development Department
Ernesto R. Flores, Manager Economic Development
- 5 -