HomeMy WebLinkAboutPFC2 - Review of Annual Financial Statements<C SEW Pp�T
CITY OF
O �
z NEWPORT BEACH
i FO City Council Staff Report
< RN
August 9, 2016
PFC Agenda Item No. 2
TO: HONORABLE CHAIR AND BOARD OF DIRECTORS OF THE
PUBLIC FACILITIES CORPORATION
FROM: Finance Department
Dan Matusiewicz, Finance Director/Treasurer
949-644-3123, danm(a-)_newportbeachca.gov
PREPARED BY: Trevor Power, Senior Accountant
TITLE: Review of Annual Financial Statements
ABSTRACT:
The Bylaws of the Newport Beach Public Facilities Corporation call for an annual meeting of the
Board of Directors. The Bylaws also specify that the Chief Financial Officer shall maintain
adequate financial records concerning the receipts and disbursements of the Corporation and
the Board of Directors are entitled inspect the associated financial records upon request. The
attached financial statements represent the financial position and financial activities of the
corporation for the year ended June 30, 2016.
RECOMMENDATION:
Receive and file the financial report.
FUNDING REQUIREMENTS:
There are no funding requirements associated with this action.
DISCUSSION:
The Newport Beach Public Facilities Corporation ("Corporation") was created to assist the City
in financing the acquisition and construction of public facilities. The City Council sits as the
Board of Directors of the Corporation, with the City Manager serving as President, the City Clerk
serving as Secretary, and the City Treasurer serving as Chief Financial Officer. Normally, the
Mayor serves as Chairperson of the Board, with the Mayor Pro -Tem serving as Vice -
Chairperson.
The issuance of Certificates of Participation (COPs) are a common and efficient way to finance
public facilities. In 1992, the City issued $7.5 million of COPs to finance the construction of the
Central Library. In 2010, the City issued approximately $126.7 million of new COPs. Of this
financing, $122.8 million was used for the Civic Center project and $3.9 million was used to
refinance the remaining balance of the Central Library COPs.
PFC2-1
Review of Annual Financial Statements
August 9, 2016
Page 2
The main sources of revenues of the Corporation are lease payments from the City and Federal
Build America Bond (BAB) Interest Subsidy payments; both of which are pledged for the sole
use of paying interest and principal on the COPs. The Corporation has assigned its rights to
receive and collect these payments to a trustee who makes the semi-annual debt service
payments to the bond holders. Therefore, the lease and BAB subsidy payments are received
directly by the Trustee. The debt is an obligation of the City, not the Corporation.
During the year, the trustee received lease payments from the City totaling $8.2 million and
Federal Build America Bond (BAB) Interest Subsidy of $2.4 million. Together with investment
earnings, there were sufficient resources necessary to satisfy the annual debt service
requirement of $10.6 million. The table below illustrates the remaining debt service payment
and balance on the COPs:
Year Ending
2010 COP Debt Service
June 30
Principal
Interest
Total
Balance
2017
3,060,000
7,465,417
10,525,417
$ 110,595,000
2018
3,185,000
7,340,517
10,525,517
107,410,000
2019
3,310,000
7,204,077
10,514,077
104,100,000
2020
3,405,000
7,052,048
10,457,048
100,695,000
2021
3,065,000
6,895,351
9,960,351
97,630,000
2022-2025
13,340,000
25,799,083
39,139,083
84,290,000
2026-2029
15,760,000
21,911,692
37,671,692
68,530,000
2030-2033
18,850,000
17,014,346
35,864,346
49,680,000
2034-2037
22,580,000
11,099,290
33,679,290
27,100,000
2038-2041
27,100,000
3,995,443
31,095,443
-
$ 113,655,000
$ 115,777,264
$ 229,432,264
* Remaining interest before considering federal interest subsidy.
Interest remaining net of
expected federal
subidy amounts to
$78.1 million.
Originally, the total BAB Subsidy payments were expected to equal 35 percent of total interest
payable on the 2010B Certificates, which would have totaled $53.3 million. However, due to
sequestration, we are now expecting total BAB subsidy payments to be approximately 32
percent of total interest payable, which we are now expecting to total $50.0 million. Before
considering the federal interest subsidy, total interest on the project and refinancing amounts to
$155.3 million. Interest, net of the revised federal subsidy, is expected to be $105.3 million in
total for the project and refinancing. The outstanding principal of the obligation was $113.7
million as of June 30, 2016. After the July 1, 2016, debt service payment, the remaining
principal balance is now $110.6 million.
ENVIRONMENTAL REVIEW:
Staff recommends the Board of Directors of the Public Facilities Corporation 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.
PFC2-2
Review of Annual Financial Statements
August 9, 2016
Page 3
NOTICING:
The agenda item has been noticed according to the Brown Act (72 hours in advance of the
meeting at which the Board of Directors considers the item).
ATTACHMENT:
Attachment A — Financial Statements
PFC2-3
Attachment A
Financial Statements
PFC2-4
NEWPORT BEACH PUBLIC FACILITIES CORPORATION
Comparative Statement of Revenues,
Expenditures and Changes in Fund Balances
June 30, 2016 and 2015
PFC2-5
2016
2015
Revenues:
Lease revenues
$ 8,235,838
$ 8,237,395
Investment income
191
168
Federal interest subsidy
2,362,802
2,350,127
Total revenues
10,598,831
10,587,690
Expenditures:
Debt service:
Principal
2,940,000
2,860,000
Interest and fiscal charges
7,591,299
7,691,862
Total expenditures
10,531,299
10,551,862
Excess (deficiency) of revenues
over expenditures
67,532
35,828
Fund balance, beginning
7,937,223
7,901,395
Fund balance, ending
$ 8,004,755
$ 7,937,223
PFC2-5
NEWPORT BEACH PUBLIC FACILITIES CORPORATION
Comparative Balance Sheet
June 30, 2016 and 2015
Assets
Cash with fiscal agent
Total Assets
Liabilities and Fund Balances
Liabilities:
Accounts payable
Total Liabilities
2016
$ 8,004,755
2015
$ 7,937,223
$ 8,004,755 $ 7,937,223
Fund balances:
Nonspendable - -
Restricted for:
Debt Service 8,004,755 7,937,223
Committed - -
Assigned - -
Unassigned - -
Total fund balance 8,004,755 7,937,223
Total liabilities and fund balance $ 8,004,755 $ 7,937,223
PFC2-6
NEWPORT BEACH PUBLIC FACILITIES CORPORATION
Notes to Basic Financial Statements
June 30, 2016
1. Reporting Entity
The Newport Beach Public Facilities Corporation ("Corporation") was formed on March 9, 1992,
for the purpose of assisting the City of Newport Beach ("City") in the financing of public
improvements, including a public library and most recently the new civic center project. The
Corporation is governed by a Board of Directors that is comprised of the seven City Council
Members of the City. The Corporation's financial data and transactions are included in the debt
service fund in the City's financial statements. The City's debt service fund is used solely to
account for the activities of the Corporation and contains no other City debt financing activities.
2. Certificates of Participation
In Fiscal Year 2010-2011, the City issued $20,085,000 of Series 2010A (Tax Exempt) and
$106,575,000 of Series 2010B (Federally Taxable Direct Pay Build America Bonds) Certificates
of Participation. The 2010A Certificates were issued to prepay the $3,990,000 principal
outstanding on the 1998 Library Certificates of Participation. The refunding was undertaken to
reduce total debt service payments and resulted in a net present value savings of $429,500.
Accordingly, the 1998 Library Certificates have been defeased pursuant to the defeasance
provisions of the 1998 Trust Agreement. The remaining proceeds from the Series 2010A
Certificates were used to finance the acquisition, improvement and equipping of the Civic
Center Project. The Series 2010B Certificates were issued to provide additional financing for the
Civic Center Project. The proceeds of the Certificates were applied to pay certain costs of
issuance incurred in connection with the Certificates.
Lease Payments
The City leases certain real property and all improvements to the Corporation pursuant to a Site
Lease. The City subleases the real property from the Corporation pursuant to a Lease/Purchase
Agreement, making lease payments to the Corporation for rental of the real property that are
sufficient to make the semi-annual payments on the Certificates of Participation. Pursuant to an
Assignment Agreement, the Corporation assigned their rights to receive the City's lease
payments to a trustee. Therefore, the lease payments made by the City are paid directly to a
trustee who makes the semi-annual payments on the Certificates of Participation.
The lease payments began January 1, 2011, and are in amounts sufficient to cover the payment
of principal and interest of the Certificates. Interest on the Certificates is payable semiannually
on January 1 and July 1 of each year. The 2010A Certificates carry interest rates from 2.00
percent to 4.00 percent, while the 2010B Certificates interest rates range from 4.45 percent to
7.17 percent. The City has designated the Series 2010B Certificates as "Build America Bonds"
(BABs) under the provisions of the American Recovery and Reinvestment Act of 2009. Thus,
the City receives refundable credits from the United States Treasury on the interest paid on the
2010B Certificates. As of June 30, 2016, the City has received $13,511,608 of BABs Subsidy
from the United States Treasury. Principal payments are payable annually on July 1 of each
year. Principal payments for the Series 2010A, which commenced July 1, 2011, and continue
through July 1, 2019, range from $410,000 to $3,185,000. The future principal payments for the
PFC2-7
NEWPORT BEACH PUBLIC FACILITIES CORPORATION
Notes to Basic Financial Statements
June 30, 2016
Series 2010B Certificates, which commence July 1, 2018, and are payable through July 1,
2040, range from $2,900,000 to $7,245,000.
The table below illustrates the remaining debt service payment and balance on the COPs:
Year Ending
2010 COP Debt Service
June 30
Principal
Interest
Total
Balance
2017
3,060,000
7,465,417
10,525,417
$ 110,595,000
2018
3,185,000
7,340,517
10,525,517
107,410,000
2019
3,310,000
7,204,077
10, 514, 077
104,100, 000
2020
3,405,000
7,052,048
10,457,048
100,695,000
2021
3,065,000
6,895,351
9,960,351
97, 630, 000
2022-2025
13,340,000
25,799,083
39,139,083
84,290,000
2026-2029
15, 760, 000
21, 911, 692
37, 671, 692
68, 530, 000
2030-2033
18, 850, 000
17, 014, 346
35, 864, 346
49, 680, 000
2034-2037
22, 580, 000
11, 099, 290
33, 679, 290
27,100, 000
2038-2041
27,100, 000
3,995,443
31, 095, 443
-
$ 113,655,000
$ 115,777,264
$ 229,432,264
" Remaining interest before considering federal interest subsidy.
Interest remaining net of
expected federal
subidy amounts to
$78.1 million.
Originally, the total BAB Subsidy payments were expected to equal 35 percent of total interest
payable on the 2010B Certificates which would have totaled $53.3 million. However, due to
sequestration, we are now expecting total BAB Subsidy payments to be approximately 32
percent of total interest payable, which we are now expecting to total $50.0 million. Before
considering the federal interest subsidy, total interest on the project and refinancing amounts to
$155.3 million. Interest, net of the revised federal subsidy, is expected to be $105.3 million in
total for the project and refinancing. The outstanding principal of the obligation was $113.7
million as of June 30, 2016. After the July 1, 2016, debt service payment, the remaining
principal balance is now $110.6 million.
PFC2-8