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Home My WebLink About32 - OASIS Senior Center FundingCITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No- 39 January 13, 2009 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Administrative Services Department Dennis C. Danner, Administrative Services Director (949) 644 -3123 or ddanner(&citty.newport- beach.ca.us .Dan Matusiewicz, Finance Officer (949) 644 -3126 or dmatusie (a -city.newport- beach.ca.us SUBJECT: DISCUSSION OF OASIS SENIOR CENTER FUNDING ISSUE: What method of funding should be utilized for the construction of the new OASIS Senior Center? RECOMMENDATION: Discuss the alternatives for the funding of the construction of the new OASIS Senior Center. Provide staff direction regarding timing of specific decision points. DISCUSSION: Background: The City has been planning for several years to replace the current OASIS Senior Center located in Corona del Mar. The project costs of the new Senior Center were originally estimated at approximately $20.0 million. As part of the planning process for the new Senior Center, a fundraising effort was begun with the goal of raising half of the estimated project costs, or $10.0 million. The City has committed to funding the other half of the project costs. In addition to the funds pledged by the Irvine Company through the North Newport Center development agreement ($5.6 million), the fund raising efforts and hard work of the Friends of OASIS securing pledges from Hoag Memorial Hospital Presbyterian, and other generous pledges and donations from several hundred individuals and organizations have enabled the Friends to reach their fundraising goal of $4.4 million ($10.0 million total). Many of these donations and contributions will be made over a period of time — up to five years in some instances. It is anticipated that a construction contract for the Center will be issued by March, 2009 and that the construction of the facility will take up to 18 months to complete. OASIS Senior Center Funding January 13, 2009 Page 2 The City Council, Finance Committee has discussed on at least two occasions the funding of this project. There are a number of options for funding the City's commitment of $10.0 million as well as covering any donations or contributions that will be received over the next several years. These options include: • Using City cash reserves in its facility replacement account for all needed funding of the project. • Issuing some type of debt (probably Certificates of Participation) for the needed funding of the project. Using a combination of cash reserves and debt issuance for the needed funding for the project. Staff recommends taking a "wait and see" posture regarding the amount and timing of any debt issuance at this time, for four reasons: The current turmoil in the financial markets makes this an uncertain time to issue municipal debt instruments. Even though the 30 -Year US Treasury bond yield (a key benchmark for municipal bonds) is currently very low, municipal bond yields have become disconnected from this benchmark and are trading significantly higher than US Treasuries, adversely impacting the interest rates the City might otherwise expect to pay. 2. The City anticipates additional facilities financing requirements in the near future, such as City Hall, Sunset Ridge Park, and Marinapark. There may be an opportunity to reduce costs of issuance by consolidating debt funding for various portions of these projects. 3. Sufficient funds are on hand in the Facilities Replacement Reserve so that cash flow needs for the OASIS project could be met without debt financing if necessary. 4. In anticipation of the City's funding contribution for the project, as well as the possible need to cover any delay in receiving private donations and contributions, the City Council recently passed a reimbursement resolution with a "not to exceed" amount of $25.0 million. This enables the City to reimburse itself for any interim cash expenditures on the project from the proceeds of a future debt issuance. There is no question that debt issuance will be required to accomplish the Facilities Replacement Program within a realistic time - frame, but changing circumstances will affect the optimum timing and magnitude of each debt issuance. Staff recommends that as the program progresses, the City Council Finance Committee be kept apprised of OASIS Senior Center Funding January 13, 2009 Page 3 changes in market conditions and when decisions regarding financing need to be made. However, no immediate debt issuance is required. In the interim, staff will prepare "shelf ready" financing documents so that if market conditions improve and municipal bond interest rates become more attractive in the near future, the City will be able to react quickly if necessary. No obligation is created by preparing the financing documents. The City Council will have the opportunity to review, discuss and vote on any proposed financing (including the amount) at the time it is proposed. Environmental Review: There is no required environmental review for this item. Public Notice: This agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council will discuss this item). Funding Availability: Funding availability is the subject of this Agenda item. Alternatives: Discuss the alternatives itemized in this Agenda item. Prepared by: Dan Matusiewicz Finance Officer Submitted by: Dennis C. Danner Administrative Services Director N FIELDMAN ROLAPP S. 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City of Newport Beach Market Update, 1/12/2009 �4 v n r,6 N' 1•bki Market Update, 1/12/2009 ' -ll If UN's` Rate % 6.50 MM M11] Long Term Municipal Rates, 11/6/2008 - 1/9/2009 o% ^ ^ \ ^9�ooe ^ ^�a \ryooe ^ry \ ^ \ryooe ^ry \a \ryooe ^rye \ryaoa ^ry \ ^ry�oo� ^� \ ^ ^�oow ^ry\ryry�ooe ^ry\�o�oom o ^ \ob \oA 2 Current Market Considerations C nii lfu N��` • As indicated in the previous slide, long -term municipal bond interest rates the City would pay in today's market could be approximately 5.50 % -5.80% (5.75 — 6.00 %) *. • The "cost" of using cash remains relatively inexpensive in today's market based on forgone yields: ➢5 -year US Treasury: 1.47% (2.50%)* i3-year US Treasury: 1.07% (1.60%)* i3-month LIBOR: 1.15% (2.50 1/o)* iFederal Funds Rate: '0.05% (1.00%)* *Rates on 11/6/2008 3 .1;.11 Prr GJ r i Municipal Market Conditions (11/6/2008) Rate —Bond Buyer Municipal Bond Index (30 -Year) September& —30 -Year US Treasury Bond October 2008 Downgrades of Ambac/MBIA; Subprime Mortgage & Bear Sterns Rescue; Credit Crisis Begins UBS exits Munis More "Normal' Municipal Bond to Treasury Relationship o� o� o� 0� o� 00 00 00 0� orb o0 oe o� ^, \ry0\ p \e�6\ t' \,yb\ 6 \�'L\ \��y\ \rye\ o, \ ^�\ o \ ^.�\ ^ \ ^a\ \ ^�\ 0 \V 'S \ry 'S \ryo ^ \ry0 of \,yo O+ \,yo 4 \,P 141P ^ \�o o \�O Z. 6.50 6.00 5.50 5.00 4.50 4.00 ti\1Z1 ^\O 0 Municipal Market Conditions (1/12/2009) Lehman Brothers Rate % collapse; AIG and _ bank rescues _ Fed Cuts rates to 6.50 —Bond Buyer Municipal Bond pp a rox. 0 %; slew of Index (30 -Year) Downgrades of poor economic and 6.00 —30 -Year US Treasur y Bond employment data; Bear Sterns Rescue; Municipal bonds UBS exits Munis rally strongly in 5.50 — early 2009 after Subprime Mortgage & Cr large -scale sell-off edit Crisis Begins 5.00 in mid - December 4.50 More "Normal' 4.00 Municipal Bond to .� 3.50 3.00 2.50 ' W 1 A A A A 1 A A 1 A 1 1 \ryo9\�o^ry1 oo ^\o ^ \�o \9 \6b\9\�% \o \oo0 \o \ 9\ � \000 \oo ^\o�o �o�0906o��o41 14�o�a�oA\o aago � o \ ^^^o\o� i