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HomeMy WebLinkAbout14 - Authorization to Issue Obligations by the California Municipal Finance Authority for an Additional Loan Benefiting Harbor Day SchoolQ �EwPpRT CITY OF s NEWPORT BEACH `q44:09 City Council Staff Report October 25, 2022 Agenda Item No. 14 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Michael Gomez, Acting Finance Director/Treasurer - 949-644-3124, mgomez@newportbeachca.gov PREPARED BY: Michael Gomez, Acting Finance Director/Treasurer mgomez@newportbeachca.gov PHONE: 949-644-3124 TITLE: Resolution No. 2022-75: Authorization to Issue Obligations by the California Municipal Finance Authority for an Additional Loan Benefiting Harbor Day School ABSTRACT - The California Municipal Finance Authority (CMFA) is a joint exercise of powers authority (JPA) used to assist private developers in the financing of economic development, housing and charitable activities throughout California. Harbor Day School is seeking tax-exempt financing through CMFA for the construction of a project located within the boundaries of the City of Newport Beach. Before moving forward with the financing, the Tax Equity and Fiscal Responsibility Act (TEFRA) tax law requires the local jurisdiction where the project will take place to: 1) hold a public hearing to allow members of the public and the governing board the ability to comment and approve or disapprove the issuance of bonds for the project; and 2) adopt a resolution approving the proposed tax-exempt financing. Any project not approved by the local jurisdiction will not be financed through the CMFA. The City of Newport Beach will have no financial or legal obligation, liability or responsibility for the project or the repayment of the bonds for the financing of the project. RECOMMENDATION: a) Conduct the public hearing under the requirements of the Tax and Equity Fiscal Responsibility Act and the Internal Revenue Code of 1986, as amended; b) Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; and c) Adopt Resolution No. 2022-75, A Resolution of the City Council of the City of Newport Beach, California, Approving the Making of One or More Loans in a Principle Amount Not to Exceed $5, 000, 000 for the Purpose of Financing the Additional Costs of Certain Improvements to Harbor Day School and Certain Other Matters Relating Thereto. 14-1 Resolution No. 2022-75: Authorization to Issue Obligations by the California Municipal Finance Authority for an Additional Loan Benefiting Harbor Day School October 25, 2022 Page 2 DISCUSSION: The CMFA was created on January 1, 2004 pursuant to a joint exercise of powers agreement to promote economic, cultural and community development, through the financing of economic development and charitable activities throughout California. The CMFA assists local governments, non-profit organizations and businesses with the issuance of taxable and tax-exempt bonds aimed at improving the standard of living in California. To date, over 300 municipalities, including the City of Newport Beach (City), have become members of the CMFA. Harbor Day School, a California nonprofit public benefit corporation and an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, requested that the CMFA serve as the municipal issuer of certain tax-exempt loans by Farmers & Merchants Bank (Lender) to the CMFA, in a principal amount not -to -exceed $55,000,000 pursuant to one or more loan agreements among the Lender, the CMFA and Harbor Day School. Pursuant to the loan agreements, the CMFA lent the proceeds of the loans to the school to finance the costs of the demolition of the school's existing facilities and the construction of a new, approximately 100,000-square-foot campus including several buildings, and all associated design, engineering and planning costs. The loan also includes related capital project costs and paying related expenses incurred with respect to the loans. The owner and operator of the facilities is Harbor Day School. The school is located at 3443 Pacific View Drive, Corona del Mar. On April 28, 2020, the City Council held a public hearing and approved Resolution No. 2020-39, which approved the making of the loans, and on June 2, 2020, the CMFA, the Lender and Harbor Day School entered into two loan agreements pursuant to which up to $50,000,000 was lent to the school for the project. Construction on the project began in 2020. As a result of additional construction costs, the school now needs to execute a First Amendment to Loan Agreement with the Lender and the CMFA for the purpose of borrowing an additional $5,000,000 on a tax-exempt basis (additional loan) in order to complete the project. Although the City's prior TEFRA hearing and approval was in an amount sufficient to cover the additional loan, under TEFRA, such additional authorization has expired and Harbor Day School needs new approvals from the City for the additional loan. In order for all or a portion of the additional loan to qualify as tax-exempt, the City must conduct a public TEFRA hearing to provide the community with an opportunity to speak in favor of or against the use of a tax-exempt loan for the additional financing of the project. Prior to the hearing, reasonable public notice must be provided. Following the close of the TEFRA hearing, an "applicable elected representative" of the governmental unit hosting the project must provide its approval of the additional loan for the financing of the project. 14-2 Resolution No. 2022-75: Authorization to Issue Obligations by the California Municipal Finance Authority for an Additional Loan Benefiting Harbor Day School October 25, 2022 Page 3 The additional loan to be issued by the CMFA will be the sole responsibility of Harbor Day School, and the City will have no financial, legal obligation, liability or responsibility for the project or the repayment of the additional loan. All financing documents will contain clear disclaimers that the additional loan is not an obligation of the City or the State of California but is to be paid for solely from funds provided by Harbor Day School. The Board of Directors of the California Foundation for Stronger Communities, a California non-profit public benefit corporation (Foundation), acts as the Board of Directors for the CMFA. Through its conduit issuance activities, the CMFA shares a portion of the issuance fees it receives with its member communities and donates a portion of these issuance fees to the Foundation for the support of local charities. With respect to the City of Newport Beach, it is expected that 25% of the issuance fee will be granted by the CMFA to the general fund of the City. Such grant may be used for any lawful purpose of the City. Harbor Day School will be the beneficiary of the charitable donation through a 25% reduction in issuance fees. FISCAL IMPACT: No City funding is required by this action. The CMFA fee sharing is intended to cover City staff time. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this action is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. NOTICING: This agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENT: Attachment A — Resolution No. 2022-75 14-3 Attachment A Resolution No. 2022-75 14-4 RESOLUTION NO. 2022-75 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA APPROVING THE MAKING OF ONE OR MORE LOANS IN A PRINCIPAL AMOUNT NOT TO EXCEED $5,000,000 FOR THE PURPOSE OF FINANCING THE ADDITIONAL COSTS OF CERTAIN IMPROVEMENTS TO HARBOR DAY SCHOOL AND CERTAIN OTHER MATTERS RELATING THERETO WHEREAS, on April 28, 2020, after a public hearing under the requirements of the Tax and Equity Fiscal Responsibility Act (TEFRA) and the Internal Revenue Code of 1986, as amended ("Code"), the City of Newport Beach ("City") adopted Resolution No. 2020-39, which approved the making of one or more loans in the aggregate principal amount of not to exceed $55,000,000 ("Loans") by Farmers and Merchants Bank ("Lender") to the California Municipal Finance Authority ("Authority") for the purposes of the Harbor Day School, a California nonprofit public benefit corporation ("School"), located at 3443 Pacific View Drive, Corona del Mar, California, financing the costs of the demolition of its existing facilities and the construction of a new, approximately 100,000 square foot campus, which will include several buildings, and all associated design, engineering and planning costs related thereto, and related capital project costs ("Facilities"), and paying related expenses incurred in connection with the making of the Loans, WHEREAS, City's approval of the Loans was required by Section 147(f) of the Code, since the School desired to finance the Facilities with tax-exempt bond issuances and the Facilities are located within the City's territorial jurisdiction; WHEREAS, on June 2, 2020, Loans in an amount of $50,000,000 were made available to the School; WHEREAS, as a result of increased construction costs for the Facilities, the School needs to borrow an additional $5,000,000 ("Additional Loan") and the School desires for all or a portion of the Additional Loan to be underwritten by tax-exempt bonds; WHEREAS, the Additional Loan also requires a TEFRA hearing and the City's approval in accordance with Section 147(f) of the Code; 14-5 Resolution No. 2022- Page 2 of 3 WHEREAS, the City Council ("City Council") is the elected legislative body of the City and is one of the applicable elected representatives required to approve the making of the Additional Loan under Section 147(f) of the Code and the requirements of Section 4 of the Joint Exercise of Powers Agreement Relating to the California Municipal Finance Authority, dated as of January 1, 2004 ("Agreement"); and WHEREAS, a public hearing regarding the making of the Additional Loan was held by the City Council on October 25, 2022, in the City Council Chambers, located at 100 Civic Center Drive, Newport Beach, California. A notice of time, place and purpose of the hearing was given in accordance with California Government Code Section 54950 et seq. ("Ralph M. Brown Act"), and Section 147(f) of the Code. NOW, THEREFORE, the City Council of the City of Newport Beach does hereby resolve as follows: Section 1: The City Council hereby approves the making of the Additional Loan by the Lender. It is the purpose and intent of the City Council that this resolution constitute approval of the making of the Additional Loan by the Lender, for the purposes of Section 147(f) of the Code by the applicable elected representative of the governmental unit having jurisdiction over the area in which the Facilities are located, in accordance with said Section 147(f) and Section 4 of the Agreement. The City shall have no responsibility or liability whatsoever with respect to the Additional Loan. Section 2: The officers of the City are hereby authorized and directed, jointly and severally, to do any and all things and to execute and deliver any and all documents which they deem necessary or advisable in order to carry out, give effect to and comply with the terms and intent of this resolution and the financing transaction approved hereby. Section 3: The recitals provided in this resolution are true and correct and are incorporated into the operative part of this resolution. Section 4: If any section, subsection, sentence, clause or phrase of this resolution is, for any reason, held to be invalid or unconstitutional, such decision shall not affect the validity or constitutionality of the remaining portions of this resolution. The City Council hereby declares that it would have passed this resolution, and each section, subsection, sentence, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared invalid or unconstitutional. 14-6 Resolution No. 2022- Page 3 of 3 Section 5: The City Council finds the adoption of this resolution is exempt from environmental review under the California Environmental Quality Act ("CEQA") pursuant to Section 15302 of the CEQA Guidelines, California Code of Regulations, Title 14, Division 6, Chapter 3, because it has no potential to have a significant effect on the environment. The project includes the demolition and reconstruction of an existing private school facility where the new structures will be located on the same site as the structures replaced and will have substantially the same purpose and capacity as the structures replaced. Section 6: This resolution shall take effect immediately upon its adoption by the City Council, and the City Clerk shall certify the vote adopting the resolution. ADOPTED this 25th day of October, 2022. Kevin Muldoon Mayor ATTEST: LEILANI I. BROWN City Clerk APPR VED AS TO FORM: 7�' (-, /(C"� Aaron C. Harp City Attorney 14-7