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HomeMy WebLinkAboutSS2 - 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, A/, 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 Page 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 6 Yr Send Annual Pmt 2:53 PM 0911612001 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. Total Int. $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 6 $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 a $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 6 Yr Semi Annual Pmt 2:63 PM 09/19/2001 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 $55,762.90 $2,007,164.96 $117,032.90 3 $279,933.97 $229,754.65 $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 $260,195.06 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 2:53 PM 09118/2001 AMORTIZATION SCHEDULE Loan Principal: $2,150,000.00 Required Pmt: $137,916.33 Interest Rate: Term (Years): lyment Number 5.000% 10.00 Payment Amount Est. Total Pmts: Est. Totallnt. Principal $2,758,326.54 $608,326.54 Interest Remalning Principal Cumulative Interest 1 $137,916.33 $84,165.33 $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 2:51 PM 0911=001 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