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Home My WebLink About32 - Charter Amendment to Impose Restriction on Debt IssuanceP0 m CITY OF z NEWPORT BEACH City Council Staff Report June 14, 2016 Agenda Item No. 32 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Dave Kiff, City Manager - 949-644-3001, dkiff@newportbeachca.gov PREPARED BY: Dan Matusiewicz, Finance Director, danm@newportbeachca.gov PHONE: 949-644-3123 TITLE: Charter Amendment to Impose Restrictions on Debt Issuance ABSTRACT: On May 24, 2016, Council Member Peotter asked that the Council consider whether to amend the City Charter to limit certain types of debt, including non -callable debt, and to require majority voter approval of certain non -GO Bond debt that incurs debt beyond certain thresholds of annual revenue. Council Member Peotter's request at the May 24th meeting was to have the Finance Committee review these concepts, with a stated goal of making the November 2016 Presidential Election ballot. ;619I►�il►�il��l7_��[�1� a) Determine that the 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 it will not result in a physical change to the environment, directly or indirectly; and b) Direct that the Finance Committee review and report back on a possible City Charter amendment relating to non -GO debt and call provisions. FUNDING REQUIREMENTS: There is no fiscal impact associated with Finance Committee review of this item. DISCUSSION: At the May 24, 2016 Council Meeting, Council Member Scott Peotter requested the Council discuss referring a proposed Charter Amendment imposing certain debt procedures and restrictions to Finance Committee for review and consideration. This request passed on a 4-3 vote. Section 1109 of the Newport Beach City Charter restricts the issuance of certain General Obligation (GO) debt (as does the California Constitution). GO Bonds reflect 32-1 Charter Amendment to Impose Restrictions on Debt Issuance June 14, 2016 Page 2 backing by the full faith and credit of the City of Newport Beach and its General Fund, and involve an additional levy on the local property tax base to pay for debt service. In the charter's case, GO Bonds cannot be issued without 2/3rds voter approval and cannot exceed fifteen percent (15%) of Newport Beach's assessed valuation. Mr. Peotter has suggested that other types of debt — non -GO debt not backed by the full faith and credit of the City of Newport Beach and/or that does not cause an increase to the local property tax levy to repay it — be subject to key percentage thresholds or majority voter approval. These thresholds that would apply without majority voter approval would be: • A single debt issuance cannot exceed 25% of the annual revenue for the fund that would pay debt service on the debt; and • Total outstanding non -GO debt (all issuances) could not exceed 50% of the annual revenue for the fund or funds that would pay debt service on the debt; and • Instruments with call provisions of more than five (5) years would not be allowed. A Council or debt initiative that wished to exceed any of these thresholds or limitations would require majority voter approval at an upcoming election. The proposed call provisions would also require majority voter approval as a separate ballot question. With the concurrence of the City Council, the proposal would be referred to Finance Committee for review and comment. The Finance Committee recommendation would return to Council for further consideration. As of the date of this Council meeting (June 14, 2016), the timelines within the November 2016 Presidential election ballot calendar are rapidly upon us (see Attachment B). Appropriate and thorough review of this measure, if it were to make that ballot, may be challenging between now and the Orange County Registrar of Voters' timelines for city -initiated ballot measures. 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: The 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). 32-2 Charter Amendment to Impose Restrictions on Debt Issuance June 14, 2016 Page 3 ATTACHMENTS: Attachment A — Draft Charter Amendment Attachment B — OC Registrar of Voters Calendar of Events 32-3 ATTACHMENT A Draft of Mr. Peotter's proposed Charter Amendment (underline is an addition to text, stroke vat is a replacement/deletion) Section 1109 Bonded Debt Lomot Limitations on Debt A. General Obligation Bonds. The City shall not incur an indebtedness evidenced by general obligation bonds which shall in the aggregate exceed the sum of fifteen percent 15% of the total assessed valuation, for purposes of City taxation, of all the real and personal property within the City. No bonded indebtedness which shall constitute a general obligation of the City may be created unless authorized by the affirmative votes of two-thirds of the electors voting on such proposition at any election at which the question is submitted to the electors and unless in full compliance with the provisions of the State Constitution and of this Charter. Any General Obligation Bonds issued under this section must be callable at par within five (5) years of the date of issuance unless the City has received majority voter approval for a longer call provision from the electors as a separate item to be voted on when the electors consider the measure. B. Other Debt. On or after January 1, 2017, the City (or on behalf of any entity created and controlled by the City) may not issue Other Debt if the total amount of Other Debt outstanding exceeds fifty percent (50%) of the annual revenue of the fund that is used to pay the Other Debt's debt service. The City may not issue Other Debt if a singular issuance of Other Debt exceeds twenty-five percent (25%) of the annual revenue of the fund that is used to pay the Other Debt's debt service. This Section's limitations relating to annual revenue percentages shall not apply to Other Debt authorized by majority voter approval of the electors voting on such proposition at anv election at which the auestion is submitted to the electors. Any Other Debt issued under this Section must be callable at par within five (5) years of the date of issuance unless the City has received majority voter approval for a longer call provision from the electors as a separate item to be voted on when the electors consider the measure. For the purposes of this Section, "Other Debt" shall exclude General Obligation Bonds but shall include, but not be limited to, Certificates of Participation, Revenue Bonds, or any similar debt instruments issued by the City or a City -created entity that does not constitute a general obligation of the City or cause an increase in the local property tax levy. The refinancing of existing General Obligation Bonds or Other Debt is exempt from this Section. 32-4 ATTACHMENT B November 8, 2016 Calendar of Events for Orange County Cities August 12, 2016 Last day to consolidate with the General Election. Resolution pertaining to a measure (E-88) must be to the Registrar of Voters by August 12, 2016. If you wish to have a full text October 24, 2016 printed in the sample ballot, the Registrar of Voters must have the full text by August (E-15) 12, 2016. August 12, 2016 Last day for filing direct argument, a city attorney impartial analysis and a fiscal impact (E-88)* statement (if applicable). If your Council passes a Resolution prior to August 12, November 2, 2016 2016, adjust the date accordingly. August 13, 2016 Public Review period for the measure text, impartial analysis, direct measurement, and through fiscal impact statement, if applicable. Measure documents will be posted on the August 22, 2016 Registrar of Voters website. (E-87 — 78) Election Day. Polls open 7:00 a.m. to 8:00 p.m. August 15, 2016 Registrar of Voters will email measure letter designations to cities that have measures (E-85) on the ballot. August 22, 2016 Last day for filing of rebuttal arguments. If direct arguments are due prior to August 12, (E-78) 2016, the rebuttals must be filed 10 days after the direct arguments. August 23, 2016 Public Review period for rebuttal arguments. All changes due to court action(s) must be through finalized by September 1, 2016, 5:00 p.m., to be included in the Registrar of Voters' September 1, 2016 sample ballot pamphlet. (E-77 — 68) September 29, 2016 Sample Ballot Pamphlet mailing begins approximately this date. Mailing completed (E-40) by October 18, 2016. October 7, 2016 Polling places within your city will be available on the Elections Official Partnership (E-29 website. October 10, 2016** First day vote -by -mail ballots are available. All vote -by -mail ballots will be issued (E-29) through the Registrar of Voters' office. If you receive requests at your City Hall, please forward to Registrar of Voters. October 18, 2016 Last day to mail sample ballots. (E-21) October 24, 2016 Last day to register to vote for the November 8, 2016 General Election. (E-15) November 1, 2016 Last day to apply for regular vote -by -mail ballots. (E-7) November 2, 2016 Emergency vote -by -mail ballots issued at Registrar of Voters' office. through November 8, 2016 (E-6 — 0) November 8, 2016 Election Day. Polls open 7:00 a.m. to 8:00 p.m. (E-0) 32-5