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Home My WebLink About22-Finance CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION From: Barbara Pachon, Director of Finance Subject: Authorization for City to participate in a pooled tax and revenue anticipation note (TRAN) financing program for FY 97/98 Dept: Finance r Date: May 20, 1997 fl?/GtUJL 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 TRAN program. 5/20/96 - Resolution #96-112 adopted City participation in TRAN program. Recommended Motion: Adopt resolution fJ;Jlo;i~ Contact person: Barbara Pachon Phone 5242 Supporting data attached: Yes Ward: FUNDING REQUIREMENTS: Amount: Net earnings to City - $100.000 to General Fund (estimated) Source:(Acct. No.) 001-000-4505 (Acct. Description) Interest income Finance~~4-/\ __ Council Notes: Res 97- / b5 Agenda Item No. ~~ {pJ 17 ;~ CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION 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 1997-98. Backqround 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 related revenues are typically distributed to cities twice per year in December and April. This revenue source generates approximately $7.5 million per year in general funds revenues. These payments would typically be received in two payments of approximately $3.75 million each in December 1997 and April 1998. Since the City's expenditures are typically constant every month, the delay in receiving the property tax related revenues creates a cash shortfall in the general fund during the months preceding December and April. The issuance of the TRAN in the amount of $7.5 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 4.5%. A conservative reinvestment rate in a one-year Treasury security would be approximately 6.0% Assuming an issue size of $7.5 million, the benefit to the City would be as follows: 75-0264 . STAFF REPORT PAGE - 2 NET EARNINGS $338,000 $450.000 $112,000 $18.000 $94,000 Total Interest Rate at 4.5% Interest Earnina at 6.0% Gross Earnings Less: Costs of Issuance This is the fourth year of the City participation in this TRAN program. Last year the City earned $112,000 through this program. The City Treasurer has reviewed this financing program and concurs with the City's continued participation for FY 97/98. Leaaue of California Cities TRAN Pool In January 1993, the California State Association 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 as 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, 1997 and due on June 30, 1998. 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 $7,500,000. 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.