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SR 11-14-2017 9A City Council Report City Council Meeting: November 14, 2017 Agenda Item: 9.A 1 of 4 To: Mayor and City Council From: Gigi Decavalles-Hughes, Director, Finance Department, Revenue Subject: Public Hearing and Adoption of a Resolution Approving the California Municipal Finance Authority to Issue Revenue Bonds for the Benefit of Step Up On Second Preservation, L.P. Recommended Action Staff recommends that the City Council: 1. Hold a public hearing under the requirements of the Tax and Equity Fiscal Responsibility Act (“TEFRA”) and the Internal Revenue Code of 1986, as amended; 2. Receive public comment; and 3. Adopt a resolution approving the issuance of the Bonds by the California Municipal Finance Authority (CMFA) for the benefit of Step Up On Second Preservation, L.P. (Attachment A). Executive Summary In its capacity as a member of the California Municipal Finance Authority (CMFA), a joint powers authority, Council may assist non-profit organizations and businesses with the issuance of taxable and tax-exempt bonds aimed at improving the standard of living in California. Step Up on Second Preservation, LP (Step Up), in partnership with BlueGreen Preservation & Development, LLC (the “Developer”), is requesting approval from the Council to issue CMFA Revenue Bonds in an aggregate principal amount not to exceed $15 million for the rehabilitation, improvement and equipping of a 36-unit multifamily rental housing project located at 1328 2nd Street, Santa Monica, California. This facility, generally known as Step Up on Second Apartments (the “Project”), is currently operated by Step Up on Second. The CMFA is subject to Tax and Equity Fiscal Responsibility Act (“TEFRA”) requirements, which state that the Council must hold a public hearing and adopt a resolution approving the issuance of the tax-exempt CMFA Revenue Bonds. The Bonds to be issued by the CMFA on behalf of Step Up will 2 of 4 be the sole responsibility of Step Up, and the City will have no financial, legal or moral obligation, liability, or responsibility for the repayment of the bonds. Background The CMFA was formed to assist local governments, non-profit organizations and businesses with the issuance of taxable and tax-exempt bonds aimed at improving the standard of living in California. The CMFA is a public entity, separate and apart from each member, and the debts and obligations of the CMFA do not constitute debts, liabilities or obligations of the members. The City is a member of CFMA through a joint powers agreement executed on September 14, 2010 per Council approval (Attachment B). Discussion The CMFA proposes to issue up to $15 million of tax-exempt revenue bonds for the purposes of making a loan to Step Up On Second Preservation, L.P., in partnership with BlueGreen Preservation & Development, LLC (the “Developer”) for the rehabilitation, improvement and equipping of a 36-unit multifamily rental housing project located at 1328 2nd Street, Santa Monica, California, generally known as Step Up On Second Apartments (the “Project”) and operated by Step Up. The Bonds to be issued by the CMFA on behalf of the Borrower will be the sole responsibility of the Borrower, and the City will have no financial, legal or moral obligation, liability or responsibility for the repayment of the bonds. All financing documents with respect to the issuance of the Bonds will contain clear disclaimers that the Bonds are not obligations of the City or the State of California, but are to be paid for solely from funds provided by the Borrower. The Board of Directors of the California Foundation for Stronger Communities, a California non-profit public benefit corporation (the “Foundation”), acts as the Board of Directors for the CMFA. Through its conduit issuance activities, the CMFA shares a portion of the issuance fees it receives with its member communities and donates a portion of these issuance fees to the Foundation for the support of local charities. With 3 of 4 respect to the City of Santa Monica, it is expected that a portion of the issuance fee attributable to the City will be granted by the CMFA to the City’s General Fund. The grant funds may be used for any lawful purpose of the City. The Borrower will be the beneficiary of the CMFA’s charitable donation through a 25% reduction in issuance fees. There are no costs associated with membership in the CMFA and the City will in no way become exposed to any financial liability by reason of its membership in the CMFA. In addition, participation by the City in the CMFA will not impact the City’s appropriations limits and will not constitute any type of indebtedness by the City. Outside of holding the TEFRA hearing and adopting the required resolution, no other participation or activity of the City or the City Council with respect to the issuance of the Bonds will be required. As required by law, staff published this public hearing notice in the Santa Monica Daily Press on October 30, 2017; at least 14 days prior to the hearing date. Financial Impacts and Budget Actions Approving the issuance of bonds by CMFA on behalf of the Borrower has no immediate financial, legal or budgetary impact. With respect to the City of Santa Monica, it is expected that a portion of the issuance fee will be granted by the CMFA to the City’s General Fund and will be deposited into the General Fund Miscellaneous Revenue Account (01274.404170). Prepared By: David Carr, Assistant City Treasurer Approved Forwarded to Council 4 of 4 Attachments: A. Resolution B. September 14, 2010 Staff Report REFERENCE – RESOLUTION NO. 11091 (CCS)