CC 4-2-19 #16 Financial Forecast & Financing Options PresentationUpdated Financial Forecast
& Capital Financing Options
April 2, 2019
Need of FY19/20 & FY20/21-24/25 Capital Improvement
Programs
Review of Various Budget Reserves and Policies
Updated Financial Forecast
Additional Revenue Options -General Fund
Financing Options -Capital Improvements
Total Road Improvement Program (T.R.I.P.)
Appendix 25
Presentation Outline
3
Need of FY19/20 Capital Improvement Program
Projects that Improve Health & Safety Conditions
•Lowest cost estimate -$13M FY19/20; $24M FY20/21-24/25
Projects with Grant Funding or Grant Eligible
•$8.7M FY19/20; $1.2M FY20/21-24/25
Projects with Cost Savings / Efficiencies
•$2.3M FY19/20; $25M FY20/21-24/25
Other Projects
$1.7M FY19/20; $38M FY20/21-24/25
Grant/External Funding FY19/20 -$6.8M; $5.4M FY20/21-24/25
TOTAL FY19/20 -$19M; $82.8M FY20/21-24/25
4
Review of Various Budget Reserves and Policies
Budget Reserves (Capital Infrastructure Only)
•Capital Reserve $30M
Budget Reserve Policies
•Capital Reserve $5M
•9 Year History Amount of Annual Funding into Capital
Reserves: $61M includes current balance of $30M
Debt Balance of Previously Completed Civic Center Projects:
•Total balance currently $38M ($57M original issuance), annual
debt payment $3.17M, to be fully paid off July 1, 2030
Updated Long-Term Financial
Forecast for General Fund
5
6
Review & Update of General Fund Forecast
Ensure general level of reconciliation
between the financial data in budget
categories and CAFR
Isolate and remove one-time revenues &
expenses that obfuscate annual ongoing
operational costs
Disaggregate revenue & expense categories
to ensure data driven by appropriate indexes
Develop and apply indexes to drive each
budget revenue and expense category
Create graphical outputs of measurements
and metrics that facilitate understanding and
insight about General Fund’s projected
financial condition over forecast period
What is a “Baseline”
Forecast?
Neutral, fiscal assessment and
decision-making tool that
establishes a common
understanding of the status quo:
“If the City makes no changes to
its organization or operations,
and there are no significant
external economic impacts to the
City, what is the predicted
financial condition of the General
Fund over the next ten years?”
Developing a Baseline Forecast Model
7
Key Assumptions/Drivers -General Fund Forecast
Sales Tax and Property Tax indexes are
generally moderate to conservative –adjusted
downward from mix of variables
TOT and Franchise Fee indexes use adjusted
historical trendline predictions
Full-time Salary index set at 2.5% per year;
Employee Benefit levels assumed to remain
same with applicable indices
Law Enforcement Contract is indexed based on
current contract provisions (CPI + 2%)
CalPERS –UAL payments follow current
schedule; Normal Cost ratio reflect known
adjustments (does not include any predication
of additional CalPERS losses or adjustments)
Revenue and expense assumptions become
less reliable in years 3 to 5; for some indices in
years 5 to 10 ratios are constant or trendline
Forecasts –Indexing the Drivers
Indexes primarily derived from local,
regional and state economic indicators,
adjusted where appropriate for:
•City revenue and expense history (if
strong correlation between data and
trendline);
•Local economic or city operational
particularities (e.g., sales tax base
composition, development cycles,
service delivery model (contract vs.
in-house).
Under/over performance of regional,
state or national economy affects these
indexes and underlying assumptions.
-$40,000,000
-$20,000,000
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
Total Revenues Adj. Baseline
Revenues
Total Expenses Adj. Baseline
Expenses
FY2019 -Adjustments for One-Time Revenues & Expenses
Baseline Forecast -General Fund
8
Baseline Forecast –FY 2019 Adjustments
$86 million $81 million
$102 million
$79 million
9
Baseline Forecast –Net Revenues and Expenses
$(10,000,000)
$10,000,000
$30,000,000
$50,000,000
$70,000,000
$90,000,000
$110,000,000
Net Revenues & Expenses
Baseline Forecast -General Fund
Revenues Expenses
10
Baseline Forecast –Revenue Detail
$(10,000,000)
$10,000,000
$30,000,000
$50,000,000
$70,000,000
$90,000,000
$110,000,000
$130,000,000
Revenue Composition
Baseline Forecast -General Fund
Sales Tax Property Tax Transient Occupancy Tax
Utility Tax Franchise Fees Charges for Service
All Other Revenues (One-Time Revenues)
11
Baseline Forecast –Expense Details
$(30,000,000)
$(10,000,000)
$10,000,000
$30,000,000
$50,000,000
$70,000,000
$90,000,000
$110,000,000
$130,000,000
Expense Composition
Baseline Forecast -General Fund
Employee Compensation Employee Benefits Materials
Contract Services Cost Allocation Transfers Out
All Other Expenses (One-Time Expenses)
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
Annual Growth Rate -Revenues & Expenses
Baseline Forecast -General Fund
Revenues - Annual Growth Rate Expenses - Annual Growth Rate
CPI - Avg. State/County
12
Baseline Forecast –Aggregate Growth Rates
TOT –New Hyatt Hotel
CalPERS –Discount
Rate Adjustment to 7%CalPERS –UAL Amortization
Base Fully Paid
13
Baseline Forecast –Key Drivers Analysis
4 KEY DRIVERS - REVENUES
% Difference
from CPI
-0.35%
0.26%
-1.69%
1.97%
-3.04%
4.97%
-0.04%
TOTAL BASELINE REVENUES 100%2.65%$81,113,033
$23,766,000
$14,861,821
$8,252,000
$3,200,000Utility Users Tax (UUT)
Category Forecast 10-
Year AAGR
29%
18%
10%
4%
3.26%
1.30%
Property Tax
Transient Occupancy Tax (TOT)
% of Total
Revenues
Total Amount
FY 2019
Sales Tax - Business & Industry*
Health Benefits $2,182,188 3%5.99%3.00%
$12,663,360 16%5.35%2.36%
CalPERS (UAL & Normal Cost)$4,459,744 5%4.56%1.56%
100%2.93%-0.06%
Law Enforcement Services
$16,665,113 21%2.14%-0.85%Salaries - Full Time
4 KEY DRIVERS - EXPENSES
Category Total Amount
FY 2019
% of Total
Expenses
Forecast 10-
Year AAGR
% Difference
from CPI
TOTAL BASELINE EXPENSES $79,097,539
* Net of Sales Tax Sharing Agreements
14
Baseline Forecast –Operating Surplus/(Deficit)
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
Annual Operating Surplus/(Deficit)
Baseline Forecast -General Fund
15
Baseline Forecast –Fund Balance & Reserves
$(5,000,000)
$5,000,000
$15,000,000
$25,000,000
$35,000,000
$45,000,000
$55,000,000
Year End Fund Balance & Allocation to Reserves
Baseline Forecast -General Fund
PERS Trust Economic Uncertainty
Unassigned (Committed)Sustainability Reserve
Uncommitted Capital Reserve Transfer
Annual Operating Surplus/(Deficit)
Additional Revenue Options
General Fund
16
17
General Fund Revenue Options –4 Basic Criteria
1.Adequacy and Certainty
•sustainably generates annual needed revenue
•not subject to significant variation
2.Equity and Fairness
•fiscal burden appropriately spread
•proportionate to surrounding communities
•does not highly skew economic incentives
3.Transparency
•information on revenue/tax system and how operates easy to
find/understand
4.Simplicity
•does not require multiple ballot measures (voter confusion and fatigue)
•not highly burdensome, costly or complicated to administer (by city or
payors)
18
General Fund Revenue Options –Not Evaluated in this Study
Revenue Option Reason
Business License Tax City is separately studying an employer-based business license tax.
Documentary and
Property Transfer Tax
Only charter cities can increase this tax beyond the statutory rate of
$0.55 per $1,000 of property value (counties assess equal amount).
Benefit Assessment
District/Area
Requires careful documentation/evidence that every parcel within
district receives a “special benefit” over-and-above the benefit the
public generally enjoys from use of the revenue. Few established
since laws changed in 1996 to make process difficult and complex.
Economic Growth
City is primarily built-out. No remaining large tracts of land. Expansion
of tax base will come through redevelopment, densification and
intensification of uses. Slow and long-term growth strategy.
General Fund Cost
Recovery
City recently updated cost allocation plan (CAP). City is in process of
updating user fees this spring.
19
General Fund Revenue Options –Local Tax Measures
General Tax Special Tax
Purpose Revenues can be used for any city
government purpose
Revenues can only be used for
purposes specified in tax measure
Vote
Required Majority Vote (50% + 1)2/3 Vote (66.67%)
Election
Timing
Only allowed on ballot during city’s
regular, general elections (biennial
November election in even years),
unless City Council unanimously
declares fiscal emergency*
Can be on ballot at regular, general
elections or City Council can call a
special election*
Sunset
Option Yes Yes
Advisory
Measure Yes (non-binding)N/A
* New revenues not received until 2 quarters after election
20
Transaction and Use Tax (TUT)
Basics of a TUT
•Functionally similar to state Sales and
Use Tax (SUT) with important
differences:
SUT –Point of Sale
Where did transaction occur?
TUT –Point of Delivery/Use
Where did Buyer receive goods
or put them to use?
•2018 -84% sales tax measures (69 in
total) approved
•Current Countywide Rate = 9.0%
Santa Clara Countywide
Base Rate 9.00%
State Sales Tax 6.25%
Bradley-Burns Statewide
Local Share 1.00%
Santa Clara County Transit District 0.50%
Santa Clara County Valley
Transportation Authority 0.50%
Santa Clara VTA BART O&M
Transactions and Use Tax 0.125%
Santa Clara County Retail Transaction
and Use Tax 0.125%
Silicon Valley Transportation Solutions
Tax (Santa Clara TA) 0.50%
21
Transaction & Use Tax (TUT)
•Available Options for Cupertino
•Statewide Cap (default) = 9.25%
•Countywide Rate = 9.00%
•Max. TUT in Cupertino + 0.25%
•City TUT + Countywide Rate = 9.25%
•Additional Annual Revenue (est.)
•@ 0.25% = $4 million annually
•Excludes over 90% business-to-
business sales (67% of City’s net
sales tax from 2 large multi-nationals)
•Realization rate on most of remaining
40% is assumed close to 100% due to
type of businesses (plus additional
est. revenues from auto sales)
City/Area Rate*
Santa Clara Countywide 9.0%
Campbell 9.25%
Los Gatos 9.125%
San Jose 9.25%
San Mateo Countywide 8.75%
Belmont 9.25%
Burlingame 9.0%
East Palo Alto 9.25%
Redwood City 9.25%
San Mateo 9.0%
South San Francisco 9.25%
San Francisco 8.50%
Alameda Countywide 9.25%
*Effective Rates as of April 1, 2019
22
Transaction & Use Tax (TUT)
Pros:
0.25% maximum increase keeps City fairly proportional to
surrounding areas
Consumption tax -burden spread across residents, businesses and
visitors
Sales tax revenue growth continues to be strong in the City (but see
below)
Cons:
o Sales tax strongly correlated with overall economic trends (1%
decline in GDP = 0.90% decline in sales tax)
o TUT not applicable to business-to-business sales when purchaser
located outside the City
o Affects up to 60% of sales tax base (net of tax sharing agreements)
23
Utility Users Tax (UUT)
Basics of a UUT
•Percentage tax based on the
consumption of utility services: electricity,
gas, water, sewer, refuse, telephone
(including mobile and long distance), and
cable television
•Can establish different rate for residential
and commercial
•2002 to 2018 –Approval of New or
Increased UUT (general purpose)
With Advisory –4 of 6 approved
Without Advisory –30 of 49 approved
Statewide Facts on UUTs*
•Over 155 cities throughout
state have a UUT
•Rates range from 1% to 11%
•Statewide mean rate = 5.4%
•On average, UUT provides
15% of General Fund revenue
(3% to 4% in Cupertino)
•All UUTs in state are currently
levied for general purpose
(majority vote)
*Data as of 2017 –CaliforniaCityFinance.com
24
Utility User Tax (UUT)
•Current City UUT = 2.40%
•Additional Annual Revenue (est.)
•@ 3.0% = $800,000
•@ 4.0% = $2.1 million
•@ 5.0% = $3.5 million
•City’s UUT modernized in 2009 to
ensure application to changing
telecommunications services
•Trendline for UUT growth is flat with
potential for slight negative growth
(due to water conservation, solar
generation, etc.), but volatility is less
than other economic-sensitive revs.
City/Area Rate*
Santa Clara County
Los Altos 3.5%
Mountain View 3.0%
Palo Alto 5.0%
San Jose 5.0%
San Mateo County
Daly City 5.0%
East Palo Alto 5.0%
Menlo Park 1.0%
Pacifica 6.5%
Portola Valley 4.5%
Redwood City 5.0%
San Francisco 7.5%
Alameda –9 Cities 3.25 to 7.5%
*Rates as of FY 2018
25
Utility & User Tax (UUT)
Pros:
Can establish different rates for residential vs. commercial
Less volatility than other economic-sensitive revs. –but see below
City built-out with largely white-collar industry so not as strong a
deterrent to business compared to other regions
Cons:
o Baseline UUT revenues are forecasted to be flat or slightly decline -
less likely to keep pace with key expense drivers
o Historic voter approval rates are lower (60%) but advisory measure
may help
o Doubling of existing rate to 5.0% puts City at top of range in region
(equal with Daly City, Palo Alto, Redwood City, San Jose)
26
Transient Occupancy Tax (TOT)
Basics of a TOT
•Authorized under Revenue and Tax Code
s. 7280 (stays of 30 days or less)
imposed on occupant based on room rate
•If add-on for tourism promotion –converts
general tax into special tax
•TOT has been called a “painless” tax –
paid by non-residents –but can impact
future hotel growth if disproportionate
•2018 –43 TOT measures on ballot with
38 approved (88%)
•2016 –23 TOT measures on ballot with
14 approved (61%)
Statewide Facts on TOTs *
•Most cities and counties have
a TOT (over 480 total)
•Rates range from 3.5% to
15.5% (Palo Alto)
•Statewide mean rate = 9.8%
•On average, TOT provides
7% of General Fund revenue
(about 10% in Cupertino)
*Data as of 2017 –CaliforniaCityFinance.com
27
Transient Occupancy Tax (TOT)
•Current City TOT = 12.0%
•Additional Annual Revenue (est.)*
•@ 13.0% = $850,000
•@ 14.0% = $1.7 million
•@ 15.0% = $2.5 million
•Recent Trends in City’s TOT
•Estimates include new hotels
•City’s TOT ordinance recently updated
to improve collection from short-term
rentals (e.g., Airbnb, VRBO, etc.) –
increase in City revs. est. $350,000
•Trendline for TOT growth is more
positive than other taxes, but total
revenue generation is less
City/Area Rate*
Santa Clara County
Santa Clara 9.5%
Los Gatos, Mountain View,
San Jose, Saratoga 10.0%
Los Altos, Morgan Hill 11.0%
Campbell, Sunnyvale 12.0 -12.5%
Los Altos, Milpitas 14.0%
Palo Alto 15.5%
San Mateo County
Belmont, Brisbane,
Burlingame, Colma, East Palo
Alto, Foster City, Menlo Park,
Millbrae, Pacifica, Redwood
City, San Bruno, San Mateo
12.0%
Daly City 13.0%
San Carlos, South SF 14.0%
San Francisco 14.0%
*Rates as of FY 2018
28
Transient Occupancy Tax (TOT)
Pros:
Paid by non-residents
Recent TOT measures in 2016 and 2018 have high approval rates
(61% and 88% respectively)
Trendline points to stronger growth in TOT revenue compared to
other local taxes
Cons:
o Total revenue from 1% to 3% increase in TOT may not be sufficient to
help General Fund avoid operating deficits in long-term
o City is currently in middle of regional TOT rates @ 12%, but adding
3% would place it second only to Palo Alto for the region (and make it
one of the highest in state)
29
Parcel Tax
Basics of a Parcel Tax
•Non-ad valorem (non-value based) tax on
parcels of property
•Methodology: Either a flat rate per-parcel
or a variable rate depending on the size,
use, or number of units on the parcel
•Can establish different rate schedules
for residential & commercial prop. but
methodology must be same
•Can include inflationary index (revenue
stream keeps pace with rising costs)
•Voter approval required: 2/3 vote required
(funds restricted to specified purposes)
•Can be placed on ballot at general or
special election; can include sunset date
Statewide Facts -Parcel Tax
•Parcel tax used most often by
school districts for capital
financing (only majority vote)
•Most commonly methodology:
flat rate per parcel
•53% of non-school parcel taxes
approved from 2003-2018
30
Parcel Tax
•No current City parcel tax
•City’s clean water and storm
protection assessments are prop.
related fees (not taxes)
•Cupertino Union School Dist. –flat
$250 per parcel tax (expires 2022)
•2008 to 2018 –proposed parcel
tax measures in region
•16 non-school parcel taxes on ballot
in Santa Clara & San Mateo counties
•81% approved
•All for special purposes: libraries,
roads, police, water and open space
•Typically small flat rate
City/Area Rate/yr.*
Santa Clara County
Santa Clara -Libraries $34 parcel
Santa Clara –Open Space $24 parcel
San Jose –Libraries $30 parcel
North County -Libraries $76 parcel
Santa Clara Water Dist.$54 parcel
El Matador -Roads $350-$750 parcel
San Mateo County
E. Palo Alto –Office Space $2.50 sf
Portola Valley –Roads $950 parcel
Highlands –Police $65 parcel
San Mateo –Police & Fire $65 parcel
Atherton –Police $750 parcel*
*Not renewed in 2017
31
Parcel Tax
•Additional Annual Revenue (est.)
Flat Rate per Parcel by Type of Use
Parcel Type # of Parcels Per Parcel Tax Annual Revs. (est.)
Residential 15,838 $200 $3.2 million
Multi-Family 79 $400 $31,000
Commercial/Office/Ind.473 $600 $284,000
Total $3.5 million
Variable Rate per SF by Type of Use
Parcel Type (avg. annual cost)Total Acres Per SF Tax Rate Annual Revs. (est.)
SFR –5,000 sf &condos ($72)159 $0.015 $104,000
SFR –5,000 to 10,000 sf ($111 )1,510 “$987,000
SFR –10,000 to 17,500 sf ($170)420 “$274,000
SFR –Over 17,500 sf ($418)460 “$301,000
Multi-Family ($3,600)79 $0.05 $130,680
Commercial/Office/Ind.($3,700)473 $0.05 $1.8 million
Total $3.6 million
32
Parcel Tax
Pros:
City can define specific purpose(s) for revenues (2/3 approval): parks,
libraries, police, etc.
Tax revenue not impacted by overall economic trends (non-ad
valorem), plus inflationary index help revs. keep pace with rising costs
Flexibility is designing tax structure –allocation between types of
property uses and applicable tax rates
Cons:
o Requires 2/3 approval of electorate –usually dependent on strength of
community support for specific purpose of tax
o Flat parcel tax often considered very regressive
o Amount of tax required to generate $3 to $4 million may require per
parcel levy significantly greater than most other parcel taxes approved
in the region
Financing Options for Capital
Improvements
33
34
General Obligation Bonds vs. Certificates of Participation
General Obligation Bonds Certificates of Participation
Mechanics Levy special ad valorem property
tax dedicated to pay debt service on
General Obligation Bonds
•Requires 2/3 vote
•No collateral required
•Only 43% (14 total) of GO bond
measures approved in 2018
Lease-leaseback structure
•No voter approval required
•Secured by use & occupancy of
leasable City assets
•Value of leasable City assets must
be greater or equal to borrowing
amount
Payment
source
Special ad valorem property tax
•Distinct from general prop. tax
•Tax revenues pledged/dedicated
to repay bond (cannot be used
for other purposes)
Appropriations from the General Fund
•Supported by all GF revenues
•Tax revenues from TUT, TOT, UUT
or Parcel Tax not pledged/dedicated
to repay bond but strengthen credit
Bond term Typically 30-years maximum;
shorter terms based on policy pref.
Useful life of project
Credit Strength of credit dependent on
nature of tax base, local economy,
income levels, etc.
Similar to a general obligation credit
with additional risk from factors that
affect General Fund operating balance
35
Certificates of Participation (COPs)
1.City leases an asset to
Corporation for nominal
amount (~$1)
2.Corporation then “rents” asset
back, with value amortized
over time
3.City’s lease payments for
“rental” used to pay debt
service
4.Requires “use and
occupancy” of leased asset
5.Trustee can re-enter and
re-let asset if issuer doesn’t
make payments
Property Lease
Corporation leases property
back to City; City makes semi-
annual lease payments to
Corporation; Corporation
assigns its rights to lease
payments to Trustee
Corp.
COP
Owners
Site Lease
City leases property to Corporation
City
Trust Agreement
Trustee uses lease
payments to pay debt
service
Remedies: Trustee
can re-enter and
re-let leased property
Trustee
Underwriter
Project funds available at closing
Investors purchase COPs;
Underwriter delivers
purchase price at closing
Lease of Properties
Flow of Lease
Payments
Funds at closing
36
Certificates of Participation (COPs)
•COPs are not bonds; each COP represents a proportional interest in lease payments to
be made by the City under a Lease Agreement
•City leases an existing unencumbered City-owned real property asset (e.g., City Hall,
Corporation Yard, etc.) to a Nonprofit Corporation under a Site Lease
•Nonprofit Corporation leases City-owned property back to City under a Lease Agreement
•Corporation assigns lease and lease payments along with its rights and obligations to a
Trustee who executes the certificates
•Requires approval of legal documents by City Council and Nonprofit Corporation
•COP proceeds can be used for the City’s project list; City must have a reasonable
expectation of using proceeds within 3 years of issuance under Federal tax law
•COPs are a liability to the General Fund, but are not subject to the Constitutional Debt
Limit and voter approval
•Requires use and occupancy of leased property
•Requires leasable assets of value greater than or equal to borrowing amount
37
Financing Team Members
Issuer
•Selects financing team
•Determines borrowing needs
and key parameters of debt
•Authorizes issuance of debt
Underwriter
•Underwrites certificates
•Structures financing, sets
prices, sells certificates to
investors
Municipal Advisor
•Solicits and evaluates proposals for
other financing team members
•Leads rating process
•Advises issuer on pricing, terms,
etc.
Bond Counsel
•Provides legal advice to issuer
on financing and drafts
primary bond documents
Disclosure Counsel
•Prepares Official Statement
describing the security and its
risks for investors
Trustee/Fiscal Agent
•Commercial bank who
administers payments and
redemptions
•May hold funds in trust on
behalf of certificate owners
Rating Agency
•Provides credit rating for the
certificates, if applicable
38
Public Offering Timeline
Date Activity Participants
Week 1 Draft Debt Management Policy (if necessary)
Select Nonprofit Corporation as counterparty to lease
Issue underwriter and bond/disclosure counsel RFP’s
MA/City
City
MA
Week 3 City Council meeting to approve Debt Management Policy City
Week 3 Underwriter and bond/disclosure counsel RFP’s due UW/BC/DC
Week 3 Selection of underwriter and bond/disclosure counsel City/MA
Week 4 Kick-off meeting
Determination of leased asset(s)
All
City
Week 6 First draft of legal documents distributed BC
Week 7 Conference call to discuss legal documents All
Week 8 First draft of POS and BPA distributed
Second draft of legal documents distributed
DC/UWC
BC
Week 9 Conference call to discuss legal documents, POS and BPA All
Week 10 2nd draft of POS distributed
Submit CDIAC report about upcoming issuance
Submit staff reports, Resolutions, POS and legal documents for Council Meeting
DC
BC
MA/BC/City
Week 10 First draft of credit presentation distributed
Revised draft of legal documents and BPA distributed
MA/UW
BC
Week 11 Conference call to discuss POS and credit presentation All
Week 12 City Council and Nonprofit Corporation meetings to approve documents and financing All
Week 12 Revised draft of credit presentation and POS distributed
Distribute documents and seismic forms to S&P
MA/UW/DC
MA
Week 12 Finalize credit presentation MA/UW
Week 13 “Dry run” of credit presentation
Meeting with S&P
Due diligence call
Final comments on POS
All
All
All
DC
Week 14 Receive S&P rating
Post POS
City/MA
DC
Week 15 Pre-pricing
Pricing
UW/MA/City
Week 17 Pre-closing
Closing
All
39
Refunding and New Money COPs Issued in April 2020
Refunding New Money
Series 2012 Wrapped Level
Par $24,850,000 $27,345,000 $27,180,000
Refunded Par $29,300,000 ----
True Interest Cost 2.55%4.28%4.13%
Dated Date 4/7/2020 4/7/2020 4/7/2020
Final Maturity 11/1/2030 11/1/2050 11/1/2050
Average Life 6.004 22.665 19.437
Project Fund --$30,000,000 $30,000,000
NPV Savings ($)$518,202 ----
NPV Savings (%)1.77%----
Avg. Annual Savings $196,620 ----
Total Savings $2,162,824 ----
Avg. Annual Debt Service $2,933,715 $1,881,743 $1,728,626
Total Debt Service $32,270,870 $58,334,025 $53,587,402
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
$5.0
2020202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050Debt Service ($ in Millions)Refunding Debt Service Wrapped Debt Service Level Debt Service
Assumes a “AA” category rating, no debt service reserve fund, and interest rates 60 basis points above market conditions as of March 6, 2019.
Debt Service Schedules
Year Refunding Wrapped Level
2020 $2,617,720 $774,775 $991,502
2021 2,962,400 1,367,250 1,753,650
2022 2,964,000 1,367,250 1,752,250
2023 2,968,500 1,367,250 1,751,000
2024 2,968,000 1,367,250 1,753,750
2025 2,967,500 1,367,250 1,755,250
2026 2,961,750 1,367,250 1,750,500
2027 2,965,750 1,367,250 1,754,750
2028 2,968,750 1,367,250 1,752,500
2029 2,965,500 1,367,250 1,754,000
2030 2,961,000 1,367,250 1,754,000
2031 2,192,250 1,752,500
2032 2,196,000 1,754,500
2033 2,192,500 1,754,750
2034 2,192,000 1,753,250
2035 2,194,250 1,755,000
2036 2,194,000 1,754,750
2037 2,196,250 1,752,500
2038 2,195,750 1,753,250
2039 2,192,500 1,751,750
2040 2,196,500 1,753,000
2041 2,192,250 1,751,750
2042 2,195,000 1,753,000
2043 2,194,250 1,751,500
2044 2,195,000 1,752,250
2045 2,197,000 1,755,000
2046 2,195,000 1,754,500
2047 2,194,000 1,750,750
2048 2,193,750 1,753,750
2049 2,194,000 1,753,000
2050 2,194,500 1,753,500
40
$30 Million COPs (level) –Impact to Baseline Forecast
Impact on Annual Operating Budget
•$1.5 million annual net cost
•Increases structural imbalance
between revenues/expenses
•Annual operating deficit develops
within 10-Year Forecast
$30 million for
Capital Projects
41
$30 Million COPs (level) –Impact to Baseline Forecast
$30 million for
Capital Projects
Impact on Fund Balance & Reserves
•Uncommitted fund balance begins
declining mid-forecast
•Reserves fully funded in forecast +
annual Capital Reserve transfer
•End of forecast –close to hitting
reserves
Appendix
42
43
Regulatory Disclosures
Disclosure of Conflicts of Interest and Legal or Disciplinary Events. Pursuant to Municipal Securities Rulemaking Board
(“MSRB”) Rule G-42, on Duties of Non-Solicitor Municipal Advisors, Municipal Advisors are required to make certain written
disclosures to clients and potential clients which include, amongst other things, Conflicts of Interest and any Legal or Disciplinary
events of Urban Futures, Inc. (“UFI”) and its associated persons.
Conflicts of Interest. Compensation. UFI represents that in connection with the issuance of municipal securities, UFI may receive
compensation from an Issuer or Obligated Person for services rendered, which compensation is contingent upon the successful
closing of a transaction and/or is based on the size of a transaction. Consistent with the requirements of MSRB Rule G-42, UFI
hereby discloses that such contingent and/or transactional compensation may present a potential conflict of interest regarding UFI’s
ability to provide unbiased advice to enter into such transaction. This conflict of interest will not impair UFI’s ability to render
unbiased and competent advice or to fulfill its fiduciary duty to the Issuer.
It should be noted that other forms of compensation (i.e. hourly or fixed fee based) may also present a potential conflict of interest
regarding UFI’s ability to provide advice regarding a municipal security transaction. These other potential conflicts of interest will not
impair UFI’s ability to render unbiased and competent advice or to fulfill its fiduciary duty to the Issuer.
Other Municipal Advisor Relationships. UFI serves a wide variety of other clients that may from time to time have interests that could
have a direct or indirect impact on the interests of another UFI client. These other clients may, from time to time and depending on
the specific circumstances, have competing interests. In acting in the interests of its various clients, UFI could potentially face a
conflict of interest arising from these competing client interests. UFI fulfills its regulatory duty and mitigates such conflicts through
dealing honestly and with the utmost good faith with its clients.
If UFI becomes aware of any additional potential or actual conflict of interest after this disclosure, UFI will disclose the detailed
information in writing to the issuer or obligated person in a timely manner.
Legal or Disciplinary Events. UFI does not have any legal events or disciplinary history on UFI’s Form MA and Form MA-I, which
includes information about any criminal actions, regulatory actions, investigations, terminations, judgments, liens, civil judicial
actions, customer complaints, arbitrations and civil litigation. The Issuer may electronically access UFI’s most recent Form MA and
each most recent Form MA-I filed with the Commission at the following website:
www.sec.gov/edgar/searchedgar/companysearch.html.
There have been no material changes to a legal or disciplinary event disclosure on any Form MA or Form MA-I filed with the SEC. If
any material legal or regulatory action is brought against UFI, UFI will provide complete disclosure to the Issuer in detail allowing the
Issuer to evaluate UFI, its management and personnel.
Total Road Improvement Program
(T.R.I.P.)
44
45
T.R.I.P. Program Overview
•Total Road Improvement Program (T.R.I.P.) was created in 2007 for local agencies to
finance eligible street projects by issuing Certificates of Participation
–Secured only by local transportation sales tax revenues (installment sale structure)
–General Fund revenues not pledged (no leased assets required and no voter approval)
–Each agency responsible only for own payments
•All street improvements that are “capital”
facilities can be financed through T.R.I.P.
–General street maintenance cannot be financed
Program Highlights
League of CA Cities and CSAC sponsored
−Team selected through RFP process
Potential for economies of scale
−Lower issuance costs if issued through a
pooled financing
−Larger pool size creates greater investor
demand; may lower costs
Streamlined documentation
−Draft docs can be provided within 24 Hours
Streamlined approval process
−Draft staff reports and presentations are
readily available
−One resolution adopted by Council
•T.R.I.P. COPs have been issued for 15 cities
throughout Monterey, Los Angeles, Riverside,
Orange and San Bernardino Counties
–Funded over $200 million of transportation-
related projects throughout California
–Most recent financing used Measure X funds for
the City of Salinas
46
T.R.I.P. Program Benefits
•Experienced team already hired through Request for Proposal (RFP) process
•No General Fund exposure
•No voter approval required
•No leased assets required
•Flexible financing terms
•Potential for economies of scale
•Tested and proven program
–15 local agencies throughout CA; >$200 million of transportation projects funded
–Proven market reception, seamless rating process & project approval
•Post-closing disclosure compliance
–Annual disclosure assisted by dissemination agent and municipal advisor
47
Overview of Credit, Revenue Pledge, & Structure
•Installment sale structure
•Sole pledge of transportation sales
tax revenues
•Up to 150% debt service coverage
•Typical S&P rating: “A” category
–City of Salinas received an “A+” rating in June
2018
•To date, all T.R.I.P. transactions have qualified for “AA”
municipal bond insurance
•Typical transaction timeframe: ~3 months
•Cupertino has estimated bonding capacity of $12.3
million (assuming ~$1.14 million of annual local return)
–Average annual debt service of $755,000 through
2047
Measure B Funds
(1/2 cent sales tax sunsetting in 2047)
Investors
Certificates of
Participation
(COPs)
Installment
Sale
Agreement
48
Program Timing
Total Road Improvement Program (TRIP)
•From start (kick-off call or meeting) to finish (receipt of funds), a typical transaction can take
approximately 3 months
Date Action Responsibility
MONTH 1
(Application Period;
City Approval)
Kick-Off Call/Meeting All
Distribute 1st Drafts of Bond Documents
(Board Resolution, Indenture, Installment Sales Agreement, etc.)
BC
Distribute 1st Draft of Preliminary Official Statement (POS) UWC
Submit Documents & Staff Report for City Council Meeting City
City Approval of Documents City
Conference Call to Review Documents All
MONTH 2
(Finalize Documents,
POS; Credit Package)
Draft of CSCDA Staff Report Distributed Conduit Issuer
2nd Draft of Documents and POS Distributed BC; UWC
Conference Call to Review Documents All
Deadline to Submit Docs & Staff Report for Board Package Conduit Issuer
Issuer Board Approval Conduit Issuer
3rd Draft of POS Distributed (if Necessary) UWC
Send Credit Package to Rating Agency; Bond Insurer UW
Rating Agency Credit Rating Call All
MONTH 3
(Credit Rating; Price/Close
Bonds; Receive Funds)
Receive Credit Rating All
Receive Bond Insurance Bid All
Print/Post POS UW
Pre-Market Bonds to Investors UW
Pre-Pricing Call UW
Pricing Call UW
Pre-Closing All
Closing (Funds Delivered) All
Acronyms: Conduit Issuer; City of San Ramon (City); Bond Counsel (BC); Underwriter’s Counsel (UWC); Underwriter (UW); Municipal Advisor (MA)
49
T.R.I.P. Case Study –City of Salinas
•Salinas was the first city in Monterey County to issue COPs backed by
new countywide Measure X funds passed by voters in 2016
–Finance plan included funding for various street improvement
programs intended to mitigate traffic, ensure pedestrian safety,
update intersections and facilitate future growth
–Key projects include Boronda Road, Alisal Street and Laurel Drive
•Salinas issued $37.5M of COPs in June 2018
–Generated more than $40.6 million in project proceeds
–1.64x coverage on Measure X revenues
–Received “A+” underlying S&P rating
–Validation completed in May 2018
•Salinas took advantage of the market to lock in favorable interest rates
and construction prices
–City achieved an interest rate of 3.59% (30 years)
–City received strong bids for bond insurance and a surety to
maximize proceeds
$37,500,000
Certificates of Participation, Series 2018B
S&P Underlying Rating A+
Insured Rating AGM (AA)
10 Year Treasury 2.90%
10 Year MMD 2.47%
Maturity Coupon Yield
2019 4.00%1.51%
2020 4.00%1.65%
2021 4.00%1.77%
2022 5.00%1.88%
2023 5.00%2.00%
2024 5.00%2.13%
2025 4.00%2.24%
2026 4.00%2.37%
2027 5.00%2.47%
2028 5.00%2.55%
2029 5.00%2.64%
2030 4.00%2.83%
2031 5.00%2.81%
2032 5.00%2.85%
2033 5.00%2.92%
2034 5.00%2.96%
2035 5.00%3.00%
2036 5.00%3.03%
2037 5.00%3.05%
2038 5.00%3.07%
2041 5.00%3.15%
2046 3.50%3.70%
CSCDA - City of Salinas
(T.R.I.P. Total Road Improvement Program)