HomeMy WebLinkAboutSS3 - Balboa Village Improvement Project Funding OptionSeptember 25, 2001
Study Session Item No. 3
CITY OF NEWPORT BEACH
ADMINISTRATIVE SERVICES DEPARTMENT
Resource Management Division
September 25, 2001
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Dennis Danner, Administrative Services Director A0. 4
SUBJECT: BALBOA VILLAGE IMPROVEMENT PROJECT FUNDING OPTION
DISCUSSION:
At the Council Meeting of August 14, 2001, the City Council approved the plans and
specifications for the Balboa Village Improvement Project and authorized the advertisement for
bids for Phase I construction of the Project. The total cost of the project is estimated at $7.5
million. Funding for the project will come from a variety of sources including CDBG funds, a
CDBG Section 108 loan, Off Street Parking funds, Neighborhood Enhancement funds and Gas
Tax funds for eligible street improvements. Even with these funding sources, there is a funding
shortfall of nearly $2.1 million needed to complete the project.
The purpose of this staff report is to bring the Finance Committee and City Council up to date
regarding alternatives that City staff has identified to close this funding gap. Although we have
not yet completed research and analysis of potential courses of action, it appears at this point that
there are three realistic options for providing the necessary funds to complete the project: 1) the
issuance of traditional Certificates of Participation (COPS) by the City's Public Facilities
Financing Authority on the open market, 2) the issuance of a privately placed COP through the
Public Facilities Financing Authority, or 3) the spending of a portion of the City's accumulated
cash reserves.
The issuance of traditional COPS on the open market was the financing mechanism the City used
to borrow funds for the construction of the Central Library in 1991. If the City chose this method
of financing we would need to fund, in addition to the construction funds, costs of issuance.
These costs of issuance would include: bond attorney fees, underwriter's discount, financial
advisor fees, possible bond insurance, printing costs, trustee fees, and funding for a debt service
reserve. The City would need to borrow nearly $2.45 million to secure the necessary $2.1 million
is construction funds. The issuance of COPS will require the City to pledge one or more of its
assets (such as City Hall or the Corporation Yard) as collateral for the debt. The high costs of
issuance make this method of financing the least desirable.
September 25. 2001
Pale 2
If the City chose to issue COPS through a private placement (essentially a bank loan), many of
the costs of issuance could be avoided. The City would still need to obtain a legal opinion that
the debt issue was tax exempt and a financial advisor would be hired to help with the placement,
but the total costs of this type of issuance would probably be less than $50,000. We would rely
on the City Attorney to assert that the project was a public use. Printing costs, a debt service
reserve, trustee, bond insurance and underwriter's fees would all be avoided. This method would
still require the pledge of a City asset (such as the Corporation Yard) and the City would have to
assert that total debt issuance for the Calendar Year 2002 would be less than $10.0 million -
which is the upper limit for this type of borrowing.
If either of the above two methods is selected to fund the shortfall the repayment will be an
obligation of the City's General Fund. We looked at two repayment alternatives - a five (5) year
repayment schedule and a ten (10) year repayment schedule. If it is determined that the funds
should be borrowed through the issuance of COPS, it is Staff's recommendation that the five (5)
year repayment schedule be chosen. To fund this obligation, the City Council will need to pledge
this amount as part of the City's Capital Improvement Program for the ensuing five years.
Attached for the Council's information are copies of both the five year (recommended) and ten
year amortization schedules for both the open market and private placement of the COPS.
Finally, the City could simply pay cash for the project from accumulated reserves and make the
pledge to replenish these reserves over a set period of time, i.e., five (5) years through the budget
process. With interest rates and investment opportunities dropping this may be the best
alternative.
DIRECTION:
We recommend that the Committee direct Staff to continue investigating the best way to fund
any funding shortfall in the Balboa Village Improvement Project and have the necessary funding
in place by January/February, 2002.
Amort 5 Yr Semi Annual Pmt 2:53 PM 09/18/2001
AMORTIZATION SCHEDULE
Loan Principal:
$2,150,000.00
Required Pmt
$245,656.34
Interest Rate:
5.000%
Est. Total Pmts:
$2,456,563.41
Term (Years):
5.00
Est. Totallnt
$306,563.41
Payment
Remaining
Cumulative
Payment Number
Amount
Principal
Interest
Principal
Interest
1
$245,656.34
$191,906.34
$53,750.00
$1,958,093.66
$53,750.00
2
$245,656.34
$196,704.00
$48,952.34
$1,761,389.66
$102,702.34
3
$245,656.34
$201,621.60
$44,034.74
$1,559,768.06
$146,737.08
4
$245,656.34
$206,662.14
$38,994.20
$1,353,105.92
$185,731.28
5
$245,656.34
$211,828.69
$33,827.65
$1,141,277.23
$219,558.93
6
$245,656.34
$217,124.41
$28,531.93
$924,152.82
$248,090.86
7
$245,656.34
$222,552.52
$23,103.82
$701,600.30
$271,194.68
8
$245,656.34
$228,116.33
$17,540.01
$473,483.96
$288,734.69
9
$245,656.34
$233,819.24
$11,837.10
$239,664.72
$300,571.79
10
$245,656.34
$239,664.72
$5,991.62
($0.00)
$306,563.41
Total Principal and
Interest
$2,150,000.00
$306,563.41
Page 1
Amort 5 Yr Semi Annual Pmt 2:53 PM 09/18/2001
AMORTIZATION SCHEDULE
Loan Principal:
$2,450,000.00
Required Pmt:
$279,933.97
Interest Rate:
5.000%
Est. Total Pmts:
$2,799,339.70
Term (Years):
5.00
Est. Totallnt.
$349,339.70
Payment
Remaining
Cumulative
Payment Number
Amount
Principal
Interest
Principal
Interest
1
$279,933.97
$218,683.97
$61,250.00
$2,231,316.03
$61,250.00
2
$279,933.97
$224,151.07
$55,782.90
$2,007,164.96
$117,032.90
3
$279,933.97
$229,754.85
$50,179.12
$1,777,410.12
$167,212.02
4
$279,933.97
$235,498.72
$44,435.25
$1,541,911.40
$211,647.28
5
$279,933.97
$241,386.18
$38,547.78
$1,300,525.21
$250,195.06
6
$279,933.97
$247,420.84
$32,513.13
$1,053,104.37
$282,708.19
7
$279,933.97
$253,606.36
$26,327.61
$799,498.01
$309,035.80
8
$279,933.97
$259,946.52
$19,987.45
$539,551.49
$329,023.25
9
$279,933.97
$266,445.18
$13,488.79
$273,106.31
$342,512.04
10
$279,933.97
$273,106.31
$6,827.66
($0.00)
$349,339.70
Total Principal and Interest
$2,450,000.00
$349,339.70
Page 1
Amort 10 Yr Semi Annual Pmt 2:51 PM 09/18/2001
AMORTIZATION SCHEDULE
Loan Principal.
$2,150,000.00
Required Pmt
$137,916.33
Interest Rate:
5.000%
Est. Total Pmts:
$2,758,326.54
Term (Years):
10.00
Est. Totallnt:
$608,326.54
Payment
Remaining
Cumulative
Payment Number
Amount
Principal
Interest
Principal
Interest
1
$137,916.33
$84,166.33
$53,750.00
$2,065,833.67
$53,750.00
2
$137,916.33
$86,270.48
$51,645.84
$1,979,563.19
$105,395.84
3
$137,916.33
$88,427.25
$49,489.08
$1,891,135.94
$154,884.92
4
$137,916.33
$90,637.93
$47,278.40
$1,800,498.01
$202,163.32
5
$137,916.33
$92,903.88
$45,012.45
$1,707,594.14
$247,175.77
6
$137,916.33
$95,226.47
$42,689.85
$1,612,367.66
$289,865.62
7
$137,916.33
$97,607.14
$40,309.19
$1,514,760.53
$330,174.82
8
$137,916.33
$100,047.31
$37,869.01
$1,414,713.21
$368,043.83
9
$137,916.33
$102,548.50
$35,367.83
$1,312,164.72
$403,411.66
10
$137,916.33
$105,112.21
$32,804.12
$1,207,052.51
$436,215.78
11
$137,916.33
$107,740.01
$30,176.31
$1,099,312.50
$466,392.09
12
$137,916.33
$110,433.51
$27,482.81
$988,878.98
$493,874.90
13
$137,916.33
$113,194.35
$24,721.97
$875,684.63
$518,596.88
14
$137,916.33
$116,024.21
$21,892.12
$759,660.42
$540,488.99
15
$137,916.33
$118,924.82
$18,991.51
$640,735.60
$559,480.50
16
$137,916.33
$121,897.94
$16,018.39
$518,837.66
$575,498.89
17
$137,916.33
$124,945.39
$12,970.94
$393,892.28
$588,469.83
18
$137,916.33
$128,069.02
$9,847.31
$265,823.26
$598,317.14
19
$137,916.33
$131,270.75
$6,645.58
$134,552.51
$604,962.72
20
$137,916.33
$134,552.51
$3,363.81
($0.00)
$608,326.54
Total Principal and Interest
$2,150,000.00
$608,326.54
Page 1
Amort 10 Yr Semi Annual Pmt 2:53 PM 0911812001
AMORTIZATION SCHEDULE
Loan Principal:
$2,450,000.00
Required Pmt
$157,160.47
Interest Rate:
5.000%
Est. Total Pmts:
$3,143,209.31
Term (Years):
10.00
Est. Totallnt:
$693,209.31
Payment
Remaining
Cumulative
Payment Number
Amount
Principal
Interest
Principal
Interest
1
$157,160.47
$95,910.47
$61,250.00
$2,354,089.53
$61,250.00
2
$157,160.47
$98,308.23
$58,852.24
$2,255,781.31
$120,102.24
3
$157,160.47
$100,765.93
$56,394.53
$2,155,015.37
$176,496.77
4
$157,160.47
$103,285.08
$53,875.38
$2,051,730.29
$230,372.16
5
$157,160.47
$105,867.21
$51,293.26
$1,945,863.09
$281,665.41
6
$157,160.47
$108,513.89
$48,646.58
$1,837,349.20
$330,311.99
7
$157,160.47
$111,226.74
$45,933.73
$1,726,122.46
$376,245.72
8
$157,160.47
$114,007.40
$43,153.06
$1,612,115.06
$419,398.78
9
$157,160.47
$116,857.59
$40,302.88
$1,495,257.47
$459,701.66
10
$157,160.47
$119,779.03
$37,381.44
$1,375,478.44
$497,083.09
11
$157,160.47
$122,773.50
$34,386.96
$1,252,704.94
$531,470.06
12
$157,160.47
$125,842.84
$31,317.62
$1,126,862.09
$562,787.68
13
$157,160.47
$128,988.91
$28,171.55
$997,873.18
$590,959.23
14
$157,160.47
$132,213.64
$24,946.83
$865,659.55
$615,906.06
15
$157,160.47
$135,518.98
$21,641.49
$730,140.57
$637,547.55
16
$157,160.47
$138,906.95
$18,253.51
$591,233.62
$655,801.06
17
$157,160.47
$142,379.62
$14,780.84
$448,853.99
$670,581.90
18
$157,160.47
$145,939.12
$11,221.35
$302,914.88
$681,803.25
19
$157,160.47
$149,587.59
$7,572.87
$153,327.28
$689,376.13
20
$157,160.47
$153,327.28
$3,833.18
($0.00)
$693,209.31
Total Principal and Interest
$2,450,000.00
$693,209.31
Page 1