HomeMy WebLinkAbout08- City Administrator CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION
From: Fred Wilson Subject: Authorization for City to
Assistant Citv Administrator participate in a pooled tax and
Dept: ORINT,ini, r revenue anticipation note (TRAN)
Ma 8 1996 ; financing program for FY 96/97 .
Date: Y r
Synopsis of Previous Council action:
6/6/94 -- Resolution #94-131 adopted City participation in TRAN program.
6/5/95 -- Resolution #95-177 adopted City participation in IRAN program.
Recommended motion:
Adopt resolution.
Signature
Contact person: Fred Wilson Phone: 5122
Supporting data attached: yes Ward:
FUNDING REQUIREMENTS: Amount: Net earnings to City - $104 ,000 to General Fund.
Source: (Acct. No.)
_)Acct. Description)
Finance:
Council Notes:
75-0262 Agenda Item No.
STAFF REPORT
The purpose of this resolution is to authorize the City's
participation in a pooled tax and revenue anticipation note (TRAN)
financing program for FY 1996-97 .
Background
The League of California Cities, along with the California State
Association of Counties, has develop a statewide cash flow
financing program that allows local governments to borrow funds and
issue notes to provide monies for anticipated cash flow deficits.
The program is being offered through the California Statewide
Communities Development Authority, a joint powers authority
established to assist California communities with financing
programs. The pool is currently made up of 14 counties, 50 cities
and 10 special districts. Locally, Rancho Cucamonga, Redlands and
Rialto are participants in the pool.
More specifically, TRANS are one year obligations designed to meet
short term cash needs and to provide operating funds to cover cash
shortfalls which arise due to the timing differential of monthly
cash receipts and disbursements through the fiscal year. An
example, property tax revenues are typically distributed to cities
twice per year in December and May. This revenue source generates
approximately $8 million per year in general funds revenues. These
payments would typically be received in two payments of
approximately $4 million each in December 1996 and May 1997. Since
the City's expenditures are typically constant every month, the
delay in receiving the property tax revenues creates a cash
shortfall in the general fund during the months preceding December
and May. The issuance of the TRAN in the amount of $8 million will
provide a source of funds to cover these periodic cashflow
deficits. In addition, TRANS borrowing rates are typically
anywhere from 1 to 2 percentage points below available reinvestment
rates and the difference between the borrowing rate and the
reinvestment rate (arbitrage) can be retained by the local
government, provided the TRAN is issued in accordance with federal
regulations.
In today's market, the TRANs rate would be approximately 4. 0%. A
conservative reinvestment rate in a one year Treasury security
would be approximately 5. 5% Assuming an issue size of $8 million,
the benefit to the City would be as follows:
.........................................................................................................................:........................................................................................................................:
Total Interest Rate at 4 . 0% $320, 000
Interest Earning at 5. 5% $440 , 000
Gross Earnings $120, 000
Less: Costs of Issuance $16 , 000
NET EARNINGS $104, 000
:........................................................................................................................:........................................................................................................................:
This is the third year of the City participation in this TRAN
program. Last year the City earned $100, 000 through this program.
The City Treasurer has reviewed this financing program and concurs
with the City's continued participation for FY 96/97 .
League of California Cities TRAN Pool
In January 1993 , the California State Aspociation of Counties and
the League of California Cities joined together to develop a Pooled
Tax and Revenue Anticipation Note Program for California
communities. Sutro and Company was competitively selected to serve
as underwriter for this program. The advantages of participating
in this pool rather than an individual financing are many. There
are, for example, reduced issuance costs because expenses are
shared by all participants. There is also standardized
documentation and credit criteria employed in the financing ds well
as a streamlined issuance process. Finally, there is the ability
to obtain a higher credit rating for the financing using the Joint
Powers Authority issuing structure.
The City's proposed TRAN will be a one year obligation dated July
1, 1996 and due on June 30, 1997. The City Treasurer has reviewed
this proposal and agrees in principle with this approach.
The attached resolution authorizes the issuance by the City of tax
and revenue anticipation notes (TRANs) in an approximate amount of
$8, 000, 000. The resolution also authorizes various financing
documentation including the attached purchase agreement. The
resolution further approves our participating in a joint powers
agreement and authorizes the City to become a member of the
California Statewide Community Development Authority.