The URL can be used to link to this page

Home My WebLink About07 - Phase II of the Newport Center Branch Library Financing Alternatives/Z Og STUDY SESSION NO.___ PHASE II OF THE f1E'.dPO"T CENTER BRANCH LIBRARY FI ANCING ALTERIIATIVES OCTOBER 1975 CITY OF NEWPORT BEACH OFFICE OF THE CITY MANAGER October 14, 1975 TO: MAYOR AND CITY COUNCIL FROM: City Manager SUBJECT: PHASE II OF THE NEWPORT CENTER BRANCH LIBRARY FINANCING ALTERNATIVES I. HISTORY On February 25, 1974, after approximately 10 months review and study, the City Council adopted the "Future Library Service Policy." This policy states that the Newport Beach library system is based on a library branch concept and that a Newport Center branch library is needed to provide facilities for the current and projected population for the Bluffs, Spy Glass Hill, Harbor View Hills, and adjacent resi- dential communities. Since the northeast area of Newport Beach is the fastest growing area in the City, the subject policy concluded that "a library should be built in this area as soon as possible." It is in- teresting to note that "Newport Tomorrow", a public opinion survey (pg. 63), gave a high priority to the extension of public library facili- ties. On October 29, 1974, the City Council met with members of the Library Board and directed the staff to: (1) conduct a site plane study for the proposed Newport Center branch library; and (2) prepare a report showing methods available to the City to finance the library facility. Both of these reports are now complete and have been reviewed by the City Council and Library Board. The site plane study isolated a parcel above the Jamboree Police Facility and just off of Santa Barbara Drive. Attached as Exhibit "I", you will find a reduced map showing the approximate area of the proposed library site. The required land area will depend upon the approved size of the building, but for purposes of this report it is assumed that two acres will be required. On January 27, 1975, the report was submitted to the City Council en- titled "Newport Center Branch Library Financing Alternatives." This report reviewed alternatives available to the City for capitalizing the project and the M. & 0. demands. The purpose of the current report is to list the most promising alternatives for financing the structure if the Council desires to proceed. II. CONSTRUCTION ALTERNATIVES General Obligation Bonds Section 43600 through 43638 of the Government Code permits a city to issue General Obligation Bonds for any municipal improvement such as a library building. General Obligation Bonds are authorized by the favor- able vote of at least two-thirds of the electors voting at a city-wide election. The bonds can be retired from any source of revenue that is available to the city, but historically they are retired by an increase in the tax rate which is indirectly authorized by the favorable bond election. These types of bonds have the greatest security of any type of bonds issued by a city, and for this reason the interest rates on today's market are between 6% and 7%. On April 30, 1975, the Moulton Niguel Water District issued 3.1 million dollars of General Obligation - 2 - Bonds carrying an interest rate of 7.87%. On July 17, 1975, the City of San Diego issued 13.5 million dollars in G.O. Tax Anticipation Notes carrying an interest rate of 4.16%. As illustrated, the rate, therefore, could fluctuate theoretically three percentage points, but the latest estimate from a prominent municipal financing consultant places the anticipated rate for Newport Beach between 6% to 7%. Assum- ing a rate of 6 1/2% on a 20-year Bond, the average yearly demand for principal and interest per 1.0 million dollars would be $89,000. One note of caution should be emphasized at this point. The National League of Cities sent out a report dated September 12, 1975, concerning Municipal Bonds. This report stated, "There is an emerging consensus among public finance experts that a New York City default will have a crippling effect on the municipal bond market, thus seriously impair- ing the ability of the cities to borrow at reasonable interest rates. The fear of a New York City default has sent the Bond Buyer Index for 20 years (Aa-A) bonds to 7.20%. These near historic rates of interest are likely to continue upward as long as the New York City crisis persists." Public Authority Financing A Joint Powers Agreement can be executed by two or more public agencies for the purpose of exercising any power common to the contracting par- ties. This action is authorized by the legislature or governing bodies of the contracting parties. The Agreement sets forth the purpose of the power or powers to be ex- ercised and provides for the manner in which these powers will be ef- fected. The Agreement also provides for the creation of the agency (Public Authority), its governing board, conduct of meetings, financial - 3 - affairs, bonding powers, disposition of assets and general operating procedures. An agency (Public Authority) created under a Joint Powers Agreement is given the power to issue revenue bonds under Section 5545 of the Govern- ment Code of the State of California. This section provides that the entity may issue such bonds by resolution of its governing board if it has. the power to acquire, construct, maintain, or operate the following: (a) . . (b) (c } any othert public buildings. A library is considered "other public buildings" and can, there- fore, be constructed by this method. In actual practice , once it i, s determined that a -given project will qualify as .a project that can be undertaken by a public authority, severa items must be acted upon 1 The land involved must be identified and a 1egal.-description prepared. 2. Bond counsel and financing consultants should be retained to draft the basic legal documents, coordinate the actions of the participating agencies and the public authority and en- hance the marketability of the securities. The basic legal documents required.to develop an effective financing plan are: I. The joint powers agreement creating the public authority and providing for its powers and the issuance of bonds, 2. A ground lease between the public authority and one or more _4- of the contracting parties concerning the land involved. 3. A building (financing) lease of the completed facilities from the public authority to one or more of the. participating agencies. 4. An indenture (Resolution of Issuance) setting forth the terms and. conditions of bonds and covenants of the public authority. In addition to the above -named documents,, other items must be considered.. These include the retention of a trustee, the providing of various types of insurance, determinations as to the total amount of funds required, proper construction documents, and certain steps to improve the market- ability of the bonds. A sequence of actions to develop this type of financing plan and the estimated time required for each step are as follows: Estimated Sequence Action to be Taken . Number Tim Reg red `C I Joint Powers Agreement prepared and executed. Croiund . l ease and bui l di ng - ( f nanci ng) lease prepared 1 to 2 months Public Authority formed. II .,Final .: pl ans. and specifications prepared Preliminary estimate by architects and financing consultants upon total sum of money needed for project. Architects deliver final plans Concurrent with I City Engineer and appropriate County officer make plan check. Plans forwarded to City Council and Board of Supervisors for approval, III Plans advertised for bid. 30 days IV Resolution of Issuance of Bonds prepared. Concurrent with III V After receipt of construction bids, amount of bond issue fixed and authority bonds advertised for bid, 45 days _ 5 _ Sequence Estimated Number Action to be Taken Time Required VI After receipt of bond bids, bonds and construction contract awarded, bonds printed and delivered - 30 days closing held. VII Construction started. The interest rate for this type of financing should be between 7% to 8%. Assuming a 7 112% interest on a twenty year bond, the average yearly demand for interest and principal per 1.0 million dollars would be $104,000. A thirty year bond would carry a yearly demand of $84,670. The authority can purchase the land as well as construct the building. An informal contact has been made with the Orange County Librarian con- cerning the willingness of the County of Orange to participate with the City of Newport Beach in a Joint Powers arrangement. The first point made by the librarian was that the concept would have to be approved by the Board of Supervisors. He did indicate, however, that there is a Precedent for such an agreement. The County and the City of Fullerton are signators to an agreement after it was proposed by the City of Fullerton and approved by the County. For purposes of this report it is assumed, therefore, that the County of Orange would be willing to join with the City of Newport Beach in the creation of a Joint Powers Agreement. Attached as Exhibit "2" you will find a copy of the letter from the Orange County Librarian. Miscellaneous Methods The Irvine Company indicated a willingness at one time to build the facility for lease to the City. The interest required, because they are not immune from taxation as is the City, would be 12%. It is be- lieved that either the General Obligation Bond method or the Public - 6 - Authority Financing method would be more advantageous to the City be- cause of the lower interest rate. The City i s assured through January of 1977 approximately $224,000 per year from General Revenue Sharing Funds. The City Council , after con- ducting the public hearing on December 18, 1972 on the use of these funds, voted to uti 1 i ze then in Capital ro Improvement rams to con- P programs struct high priority projects. The fi rs.t project was the Jamboree t Police Facility. Other high priority projects were P ark and open space P P and public works improvements, such as storm drains, bulkheads, sewers and street improvements, Libraries, as such, were not s eci fi cal l P y mentioned but the City Council could amend the Revenue Sharing plan to include library construction'. The earl amount, however, would make yearly it i mpossi b.l e . to capitalize the J ro 'ect w.i th Revenue Sharing funds, P 9 B;u.i l di.n Excise Tax, - Retirement of : Bond Debt During November of 1974, the Finance Director prepared a report showing n P g the revenues and expenditures of the Building. Excise Tax. Fund from 1964 to 1,9.74 Over this ten year period, the City had collected � 2 391 5000 and had spent . $1 ,98;3,000. A breakdown of the 'exP endi tures in the three authorize categories are Parks $ 9275973,82 46.78/ Fire 875 5006.97 44.10/ Library 180 5858.92 9.12010 $-15983 5839.71 100 00 / These figures were used by the City Council to justify adoption ti on of the policy permitting a greater percentage of use of these funds by the Library Department. If the City Council desires, the General Obligation 7_ Bond issue or the Public Authority financing issue could be re- tired in part or in whole from Building Excise Tax revenues. Cur- rently, there is $106,000 (Plus $100,000 being held in reserve until the Community Development Block Grant Project is finalized) balance in this fund and the City anticipates receiving approximately $200,000 per year through 1990. III. MAINTENANCE AND OPERATION EXPENSES The conclusions reached in the initial Library Financing Alternative report is believed to still be valid. This report concluded that the Library Tax rate would have to be increased by 3.98¢ to the maxi- mum 15¢ Charter limit to maintain a structure approximating 14,000 square feet. Possibly the Council would wish to review the prior report again. IV. COST OF LAND An appraisal has been received on the parcel shown on Exhibit 1". The appraisal will be submitted to the Council in a separate document rather than in the context of this report. In reviewing the appraisal it should be kept in mind that the City will require approximately 86,000 square feet, or two acres, to accommodate a two-story, 30,000 square foot building. A summary of the appraisal and conditions of sale by The Irvine Company are as follows: -- 1. The highest and best use value of the subject parcel is $4.25 per sq. ft. 2. The Irvine Company will sell the parcel to the City of Newport Beach for $3.25 per sq. ft., with the understanding that the sale will carry the following conditions: -- - 8 - a) A 20/ down payment. b) The balance to be paid over a four period eri od at y 7/ interest on the unpaid balance. c) The sale terms will be subject to the approval of The Irvine Company Board of Directors. d) The Irvine Company reserves the right to review and approve the plans and specifications to assure compati fto bi.l i ty with surrounding buildings and landscaping, To illustrate the cash demand upon the City, assuming the purchase of 86,,000 square feet I. Cost of Land - $2799500 2. Payment at close of escrow - $559900 3. Balance of payment to be spread over a four-year period - - $223,600 40 First year principal and interest $719552 Second year pri nci pal and interest 679639 _ . Third year principal and interest 63,726 Fourth year principal and interest 599813 ` If the project is, capitalized using either a G.O. Bond Issue or a Joint Powers Agreement, the land can be purchased at any time from the proceeds of the bonds to be sold. DL P64Z RLW:mm ROBERT L. WYNN Attachments 1 & 2 _9_ SUMMARY OF GENERAL OBLIGATION AND JOINT POWERS CHARACTERISTICS 1. Authorization to issue bonds 2. Interest Rate 3. Time Frame 4. Retirement Periods 5. Interdependence on other agencies G.O. J.P. 66 2/3 favorable vote Action of Board of Directors 6 1 /2% + - i 1/2% + - 4 - 6 months 4 - 6 months 20 30 years 20 30 years No other agency involved Orange County SEE MAP so. �� V AG g' Af 99 � STY r Q Q49Z a Q WN it 290. W r C H-UL Z 2'71 � L V /�s� 4 -H- COH VL PROPOSED S I TE'-`, I LOT ,rc- ,a ..,�® COH-�UL t ` SEE MAP NO. 4 t SEE MAP 4NO. ;. r I ABEAC-ri -CALl FOOLADOPTED 8Y . 124 N T6ot. �o. 1-2465�129 5l% RIOTIN N WPORT R-A ADRICULTURAL• R901DENTIAL DISTRICT C-M olmo IEORH000 COMMMUM.AL.. DI!STIUCT MMFACTUlRIN4 DISTRICT REVISIONS • M-MA CONTROLLED IM Qi14TRICT At1TIt04R LOCATIONS ATL� R-! $I at MU LY olrmCT - C-4 LUJITED COMMERCI • MMTIPLE ACSIC AIe CISMCT pep,ra -# R-g DUft-EX RESIDENTIAL DISTRICT C-{ LI9KT COMUERCIAL DISTRICT M COMMMBNC OR. `N* DISTRICT R-3 RESTIMCTED MULTIPLE RESIDENTIAL C-E f3€J gm C4Y� DWRICT Z COMII}MINS OR `z,. D1S'TIRICT MAP NO. I IOD 0 I00 M 3OO WJLTIPLE RESIDENTIAL 01$'I'RRICT I 'Ig " 9 CQIdhliNl!!a OR t• SSIFIEO DISTRICT SCALE 1N FEES' 4 DISTRIC'T U � t .A - m H H "Dow Ir 04. it *1kL 19 W ORANGE COUNTY PUBLIC LIBRARY July 31 1975 HARRY M. ROWE, JR. COUNTY LIBRARIAN TELEPHONE: 532-7841 AREA CODE 714 4.31 CITY DRIVE SOUTH . ORANGE, CALIFORNIA 92668 Mrs. Dorothea Sheely, City Librarian Ci ty of Newport Beach 2005 D.-over Drive Newport Beach, California 92660 Dear Dorothea: My knowledge and thoughts on a Joint Powers Agreement between the City of Newport Beach and the County of Orange are as foleft lows: I Such an agreement would have to be between the City and the County. Thus the Board of Supervisors is the deciding agency for the County. 2.- There is a precedent for such an agreement. The County an..d the City of Fullerton are now in such an agreement. It.was proposed by the City of Fullerton and approved by the County. The purpose was to, provide that city with the legal means t.o establish an authority and through the authority sell the fin- ance bonds necessary to build the Fullerton Public Library main building. 3 The authority is composed of appointees made. by both the City and county. 4 - The respons * ibility for retiring the bonds lies sole with the City of Fullerton. The County has no resp . onsibility to pay off the bonds. 5 - In order that .the County receive some benefit in its "Silent partner" role, the agreement provides that residents of the Orange County Public Library service area may use the Fuller- ton Public Library at no fee for as long as the bonds are being paid off. While this may seem an unimportant benefit -to - the County in light of the same benefit coming from membership in the San- tiago. Library Systems we felt that it did several important things for the County: SHE ELY --2- Ju1 v 31 , 1975 a -- It insured orange County Public Library use of . Ful - 1 erton should Santiago ever cease to exist. b- It gave us a Regional size library in the north county area for 30 years. We did not have to build such a large and expensive facility in say Brea or La Habra when Fullerton's was ours to use. c It gave evidence to both City and County of the good will that can and does exist among librarians and between City and County governments. 6 _ At the same time the Board of Supervisors approved the agreement wi th Ful 1 erton , they extended the same offer of approval to Hunt- ington Beach. at that ci ty' s request. Where Ful l erton chose to go the. route, Hunti ngton Beach never cane up wi th an agreement, choos- ing to finance in another way. 7 .. The Supervisor of the Third District at that time was M.r. Phillips. I know that the then president of the Fullerton Public Li* *brary Board of Trustees.. Mrs. Dorothy Osborne, took the idea of a joint powers agreement to Mr. Phi 1 1 i ps ' and got his support first. It would seem to me that shout d your ci ty wi sh to pursue thi s i dea any further, your City Manager, Mayor, Board Chai rma.n or whomever has the responsi bi 1 i ty, contact Mr. Rio 1 ey, your supervi sor. Pl ease feel free to. cal 1 me should you, have any furthe.r�. questions . Sincerely, Harry Rowe,. dr. nw Im I SR Y July 30, 1975 4W qm WSW Wo 00 1.& Mr M Harr y. Ruate QOran( ra ry �le Coun-ty Li ra D-1, rector -y Drive South OrUnge., California 92668 Dear Harry,, Ye.ste,rday, our City tvlanagelr, Robert L. Wynn, and I vier dism's-4sing 31 -r t',',�e pro'ected Neawport Center Lib-'VINIry, financing alternatNes fo The s i to has bee., vi I dc--.%tem i ned and at present i s bei ng ap*n-tral sed 0 Utflolzinq a Joint Powe--,,rs Agw.-lee;'5-tent ba-tween Cranam Coulnt�v Libr"ary and the-2.-, C"Ity of N-EtArport as a pul0lic aut'noritis ml-Ahod of f F I' ncln - tn.. ' n- library., hiras been suggested, Weo amm.. solic.-Ating you, nag :1 opinot'lon at this tillfle, before researching her sources* I ax-a looking. forward to hearing -,Ir"rma you at your earliest co'ivenience,, Sincerely Dorothea Sheely C%Ity Ubrarloan 2005 Dover Drive Newport Beach, Calif. DS M440 cc.,, Vjr,, Robert Wynn, Ci.ty Manager