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SR 11-13-2018 9A City Council Report City Council Meeting: November 13, 2018 Agenda Item: 9.A 1 of 3 To: Mayor and City Council From: Gigi Decavalles-Hughes, Director, Finance Department, Revenue Subject: Public Hearing and Resolution Reapproving the California Municipal Finance Authority (CMFA) to Issue Revenue Bonds for Step Up On Second 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; and 2. Adopt a resolution approving the issuance of the Bonds by the CMFA for the benefit of Step Up On Second Preservation, L.P. Executive Summary As a member of the California Municipal Finance Authority (CMFA), the City Council may issue taxable and tax-exempt bonds to non-profit organizations and businesses that aim to improve the standard of living in California. While this does not obligate the City financially in any way, it is the mechanism imposed by the Federal government to verify that projects meet a legitimate public purpose in order to have t he advantage of exemption from Federal taxes. On November 14, 2017, Council held a Tax and Equity Fiscal Responsibility Act (TEFRA) hearing and approved issuance of California Municipal Finance Authority Revenue Bonds in an aggregate principal amount not to exceed $15,000,000 for the acquisition, rehabilitation, improvement and equipping of a 36 -unit multifamily rental housing project at 1328 2nd Street, a facility known as Step Up On Second Apartments (the “Project”) and currently operated by Step Up On Second. However, approvals through TEFRA hearings expire after one year, and due to unforeseen project delays, issuance of bonds will not be completed by the one -year expiration date. Therefore, Council must provide approval for the issuance of the bonds again. 2 of 3 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. or a partnership created by BlueGreen Preservation & Development, LLC (the “Developer”), co nsisting of at least the Developer or a related person to the Developer and one or more limited partners. The funds would be used for the acquisition, rehabilitation, improvement, and equipping of a 36-unit multifamily rental housing project located at 1328 2nd Street, Santa Monica, California. 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 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 general fund of the City. Such grant 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. 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. 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 C ity’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 3 of 3 of the City or the City Council with respect to the issuance of the Bonds will be required. As required by law, staff published a public hearing notice in The Santa Monica Daily Press on October 26, 2018; 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 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 (01800004.415290). Prepared By: David Carr, Assistant City Treasurer Approved Forwarded to Council Attachments: A. November 14, 2017 Staff Report (Web link) B. Reso - Finance - Step Up on Second City Council Meeting: November 13, 2018 Santa Monica, California RESOLUTION NUMBER ______________ (CCS) (City Council Series) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA APPROVING THE ISSUANCE OF THE CALIFORNIA MUNICIPAL FINANCE AUTHORITY MULTIFAMILY HOUSING REVENUE BONDS IN AN AGGREGATE PRINCIPAL AMOUNT NOT TO EXCEED $15,000,000 FOR THE PURPOSE OF FINANCING OR REFINANCING THE ACQUISITION, REHABILITATION, IMPROVEMENT AND EQUIPPING OF STEP UP ON SECOND APARTMENTS AND CERTAIN OTHER MATTERS RELATING THERETO WHEREAS, the California Municipal Finance Authority (the "Authority") was formed under a Joint Exercise of Powers Agreement Relating to the California Municipal Finance Authority, dated as of January 1, 2004 (the "Agreement"), among certain local agencies in accordance with the provisions of the California Joint Exercise of Powers Act, California Government Code section 6500 et seq.; and WHEREAS, on or about September 14, 2010, the City Council of the City of Santa Monica (the "City Council") adopted Resolution Number 10526 (CCS) directing the approval, authorization and execution of the Agreement; and WHEREAS, Step Up On Second Preservation, L.P. (the "Borrower") or a partnership created by BlueGreen Preservation & Development, LLC (the "Developer") and consisting of at least the Developer or a related person to the Developer and one or more limited partners, has requested that the Authority adopt a plan of financing for 2 the issuance of one or more series of bonds issued from time to time, including bonds issued to refund such revenue bonds in one or more series from time to time, in an aggregate principal amount not to exceed $15,000,000 (the "Bonds") for the acquisition, 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; and WHEREAS, pursuant to Section 147(f) of the Internal Revenue Code of 1986 (the "Code"), the issuance of the Bonds by the Authority must be approved by the City of Santa Monica (the "City") because the Project is locate d within the territorial limits of the City; and WHEREAS, the City Council is the elected legislative body of the City and is one of the "applicable elected representatives" required to approve the issuance of the Bonds under Section 147(f) of the Code; and WHEREAS, the Authority has requested that the City Council approve the issuance of the Bonds by the Authority in order to satisfy the public approval requirement of Section 147(f) of the Code and the requirements of Section 4 of the Agreement among certain local agencies, including the City; and WHEREAS, pursuant to Section 147(f) of the Code, the City Council has, following notice duly given, held a public hearing on November 13, 2018 regarding the issuance of the Bonds, and now desires to approve the issuance of the Bonds by the Authority. 3 NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SANTA MONICA DOES RESOLVE AS FOLLOWS: SECTION 1. The City Council hereby approves the issuance of the Bonds by the Authority. It is the purpose and intent of the City Council that this resolution constitute approval of the issuance of the Bonds by the Authority by the applicable elected representative of the governmental unit having jurisdiction over the area in which the Project is located, in accordance with Section 147(f) of the Code and Section 4 of the Agreement. SECTION 2. The issuance of the Bonds shall be subject to the approval of the Authority of all financing documents relating thereto to which the Authority is a party. The City shall have no responsibility or liability whatsoever with respect to the Bonds. SECTION 3. The adoption of this Resolution shall not obligate the City or any department thereof to (1) provide any financing to acquire or construct the Project or any refinancing of the Project; (2) approve any application or take any other action in connection with any planning approval, permit or other action necessary for the acquisition, construction, rehabilitation, installation or operation of the Project; (3) make any contribution or advance any funds whatsoever to the Authority; or (4) take any further action with respect to the Authority or its membership therein. SECTION 4. The City Manager, or his or her designee, is hereby authorized and directed, jointly and severally, to do any and all things and to execute and deliver any and all documents which they deem necessary or advisable in order to carry out, give effect to 4 and comply with the terms and intent of this resoluti on and the financing transaction approved hereby. SECTION 5. The City Clerk shall certify to the adoption of this resolution, and thenceforth and thereafter the same shall be in full force and effect. APPROVED AS TO FORM: __________________________ LANE DILG City Attorney REFERENCE: Resolution No. 11149 (CCS)