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HomeMy WebLinkAbout07 - CDBG Section 108 Loan Security Agreement & ResolutionCITY OF NEWPORT BEACH COMMUNITY AND ECONOMIC Hearing Date: July 23, 2002 DEVELOPMENT ,i PLANNING DEPARTMENT Agenda Item No.: 7 3300 NEWPORT BOULEVARD Staff Person: Daniel R. Trimble `Oa NEWPORT BEACH, CA 92658 (949) 644 -3230 (949) 644 -3200; FAX (949) 644 -3229 REPORT TO THE MAYOR AND CITY COUNCIL SUBJECT: Community Development Block Grant Section 108 Loan Security Agreement and Resolution SUMMARY: As part of the Section 108 Loan approval, the U.S. Department of Housing and Urban Development (HUD) has required that the City provide some form of security for the repayment of the loan in the event CDGB funds cease to be available for repayment. Since the City is using General Fund reserves as security for the loan, HUD is requiring the approval of the attached security agreement and resolution acknowledging such pledge. SUGGESTED ACTION: 1. Approve the Section 108 Loan Security Agreement pledging City General Funds as security for repayment of the note, in the event that CDBG funds are not available to make the payment on the loan, and 2. Approve the Resolution 2002 -_ as a required attachment to the Security Agreement. Background In September 2001, the City Council approved a resolution authorizing the City Manager to submit an application for a Section 108 loan to the U.S. Department of Housing and Urban Development (HUD). The application requested a loan in the amount of $2,400,000 that will be used to complete capital improvements within Balboa Village. As part of the application submittal, the City indicated that General Fund reserves would be used as additional security on the loan. These funds would be used to repay the loan only in the event that the City no longer receives an annual allocation of Community Development Block Grant (CDBG) funds. The CDBG program is currently in its 28' year of existence. Based on the history of the CDBG Program, staff does not believe that the program will cease to exist during the life of the loan (20 years). In June 2002, HUD contacted the City to determine if it was interested in participating in the next public offering, which would be held on August 8, 2002. Mark Briggs and Associates, our Section 108 Loan consultant, advised staff that due to the 40 -year low interest rates, it would be beneficial for the City to participate in the August sale. In order to participate in the August sale, HUD is requesting that the City execute the security agreement prior to the public offering. In addition, HUD is requesting that the City Council approve a Resolution pledging City General Funds as security for repayment of the note, in the event that CDBG funds are not available to make the payment on the loan. Even though the public offering will not be held until August 8, 2002, HUD has requested that they receive the properly executed documents by the close of business on July 25, 2002. HUD has imposed a number of conditions on the loan. Section 15 of the security agreement stipulates the conditions that must be met by the City in order to participate in the offering and draw down the loan funds. A full copy the security agreement is available in the City Clerks office. Additionally, the City Attorney has reviewed and approved the security agreement. The interest rate on the "Note" will not be determined until the public offering date. The City's Section 108 Loan consultant estimates that the final interest rate will be somewhere between 5.5% and 6.0 %. Conclusion This action is intended to satisfy HUD's requirements for participation in the public offering of trust certificates guaranteed under Section 108 of the Housing and Community Development Act of 1974, as amended, and enable the City to draw down the Section 108 loan funds. Submitted by: SHARONZ. WOOD Assistant City Manager Resolution 2002- Prepared by: DANIEL R. TRIMBLE Associate Planner F:I USBRSWLNMamaICDBGIFy10 0 /- 2 0 0211 081Section 108 Loan Report.dw Page 2 CITY OF NEWPORT BEACH OFFICE OF THE CITY ATTORNEY P.O. BOX 1768, NEWPORT BEACH, CA 92658 -8915 (949) 644 -3131 July 22, 2002 U.S. Department of Housing and Urban Development Attn: Paul Webster, Director Financial Management Division 451 Seventh St., S.W.,.Room 7180 Washington, DC 20400 Dear Paul Webster. The undersigned, be duly licensed and in good standing to practice law in the State of California, is legal counsel to the City of Newport Beach ( "Borrower). As such, I have represented the Borrower regarding that certain promissory note, referred to as Note No. B -00 -MC -06 -0546, in the Aggregate Principal Amount of $2,400.000.00 ( "Note "), to be executed by the Borrower payable to the order of the Registered Holder thereof, and to be the guaranteed by the Secretary of Housing and Urban Development ( "HUD ") under Section 108 of the Housing and Community Development Act of 1974, as amended, 42 U.S.C. 5308 ( "Section 108 "). The Note will be included in a trust created by HUD (together with other Section 108 Notes issued by other borrowers), and trust certificates based on the trust will be sold in the Series 2002 -A public offering by underwriters selected by HUD. HUD's guarantee of the Note will be governed by the Contract for Loan Guarantee Assistance under Section 108 between the Borrower and HUD (the "Contract "), in which the Borrower pledges Community Development Block Grants pursuant to 24 CFR 570.705 (b) (2), as well as any other security specified in the Contract, as security for HUD's guarantee. In my capacity as legal counsel, I have made an examination and investigation of all such matters of fact and questions of law as I consider the necessary or advisable to enable me to render the opinion hereafter set forth. Specifically, and without limiting the generality of the foregoing, I have examined: 1. Article 11, Section 5 of the California Constitution; 2. Section 200 of the City Charter, 3. A Resolution of the governing body of Borrower dated July 23, 2002 authorizing Borrower to enter this transaction, and authorizing the City Manager to execute the Note and Contract and to execute on behalf of Borrower all documents necessary or desirable to accomplish the transaction; 3300 Newport Boulevard, Newport Beach Paul Webster July 22, 2002 Page 2 4. The Contract; 5. The Note; and 6. The Trust Agreement, the Amended and Restated Master Fiscal Agency Agreement, and the form of .Supplement of the Trust Agreement to be executed by the Secretary. of HUD for the closing of the public offering. Based on the foregoing investigation and authorities, I am of the opinion that: 1. Borrowed has authorized, in accordance with California Constitution and City Charter, the transaction, including issuance of the Note, the pledge of grant funds, and the execution of all documents necessary or desirable to accomplish the transaction. 2. Borrower has authorized Homer Bludau, in his capacity as City Manager, to execute the Contract, the Note and all of the documents necessary or desirable to accomplish the transaction. 3. The Note and the Contract have been duly executed by the aforementioned authorized representative of the Borrower, and upon delivery thereof, due execution of the Contract and Guarantee on behalf of HUD; and receipt of the loan proceeds on behalf of the Borrower, the Note and Contract shall be valid, binding and enforceable obligations of the Borrower. 4. The pledge of present and future Community Development Block Grants by the Borrower pursuant to 24 CFR 570.705 (b) (2) and the Contract is valid. q Paul Webster July 22, 2002 Page 3 There is no outstanding, or to my knowledge threatened, action, suit, proceeding, investigation or litigation by or against the Borrower that will affect the validity of the Note or the security therefore. " City Attorney for the City of Newport Beach DKO:cp F:\ users\ cat \shared\cp\Cyndi \BobMetteMMMHU D.doc a J Resolution No. 2002- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH AUTHORIZING THE CITY MANAGER TO SUBMIT THE FINAL SECTION 108 LOAN GUARANTEE DOCUMENTS TO THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT AND TO USE ITS ANNUAL CDBG ALLOCATION AS THE CITY'S PRIMARY SOURCE OF COLLATERAL FOR THE REPAYMENT OF THE SECTION 108 FUNDS AND USE THE CITY'S UNRESERVED GENERAL FUND RESERVES AS SECONDARY SOURCE OF COLLATERAL. WHEREAS, the City of Newport Beach has determined that a high priority exists for public facility improvements on a portion of the Balboa Peninsula in order to stimulate economic revitalization and residential neighborhood improvements and that the implementation of the Balboa Village Pedestrian and Streetscape Improvement Plan is an activity that meets these priorities; and WHEREAS, the proposed project is included in the City's adopted One Year Action Plan of the Consolidated Plan; and WHEREAS, the Section 108 Loan Guarantee program, implemented by the United States Department of Housing and Urban Development (HUD), is designed to provide funds to assist with these types of projects; and WHEREAS, the City is requesting a total of $2.4 million in Section 108 Loan Guarantee funds to assist with the implementation of the Balboa Village Pedestrian and Streetscape Improvement Project; and WHEREAS, the City Manager was authorized under Resolution No. 2001 -75 to submit the initial Section 108 Loan Guarantee application and amendments thereto and all understandings and assurances contained therein, and to act in connection with the application to provide such additional information as may be required; and WHEREAS, HUD requires City Council approval of security agreement; and WHEREAS, the City's primary source of collateral for the repayment of the Section 108 funds will be the City's annual CDBG allocation. The secondary source of collateral for the repayment of the Section 108 funds will be the City's unreserved general fund reserves. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Newport Beach as follows: SECTION 1. The City hereby certifies and assures with respect to its application for a loan guarantee pursuant to Section 108 of the Housing and Community Development Act of 1974, as amended, that it possesses the legal authority to make the pledge of grants required under 24 CFR 570.705 (b) (2). SECTION 2. As a prerequisite for submission of the application to HUD, the City certified that it has: (a) Furnished citizens with information required by Section 570.704 (a)(2)(i) of Title I of the Housing and Community Development Act of 1974, as amended; (C (b) Held at least one public hearing, on August 14, 2001, to obtain the views of citizens on community development and housing needs; and (c) Prepared an application in accordance with Section 570.704(a)(1)(iv) of Title l of the Housing and Community Development Act of 1974, as amended, and made the application available to the public. SECTION 3. The City has and will continue to follow a detailed citizen participation plan that meets the requirements described in Section 570.704(a)(2) of Title I of the Housing and Community Development Act of 1974, as amended. SECTION 4. The City has and will continue to affirmatively further fair housing, and the guaranteed loan funds will be administered in compliance with: (a) Title VI of the Civil Rights Act of 1964 (Public Law 88 -352, 42 U.S.C. 2000d et seq.); and (b) The Fair Housing Act (42 U.S.C. 3601 -20). SECTION 5. The City will expend in the aggregate, at least 70 percent of all CDBG funds, as defined in Section 570.303 (e) of Title 1 of The Housing and Community Development Act of 1974, as amended, during the one, two, or three consecutive years specified by the City for its CDBG program on activities which benefit low /moderate income persons, as described in criteria in Section 570.208 (a) of the Act. SECTION 6. The City hereby assures and certifies with respect to its application for a loan guarantee pursuant to Section 108 of the Housing and Community Development Act 1974, as amended that it has made efforts to obtain financing for the activities described herein without the use of such guarantee, that it will maintain documentation of such efforts for the term of the loan guarantee, and that it cannot complete such financing consistent with the timely execution of the program plans without such guarantee. SECTION 7. The City hereby assures and certifies that it will use its annual CDBG allocation as the primary source of collateral for the repayment of the Section Loan 108 funds. The secondary source of collateral for the repayment of the Section 108 funds will be the City's unreserved general fund reserves. This Resolution shall be effective immediately upon its adoption. Adopted this_ day of July 2002 Mayor ATTEST: City Clerk q