City Council Meeting - FINAL (AMENDED)

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9.A.

Meeting Date:	11/05/2019
From:	Rick Tadder, Management Services Director

Information

TITLE:

Consideration and Adoption of Ordinance No. 2019-34: An ordinance of the City Council of the City of Flagstaff, relating to the financing of certain projects, specifically approving publication of notice of proposed lease of land and buildings from, and lease-purchase back of such land and buildings to, the City and request for bids in connection therewith; authorizing the acceptance of a bid with respect thereto; approving the sale and execution and delivery of Certificates of Participation in a lease-purchase agreement to provide the necessary financing therefor; approving the form and authorization the execution and delivery of necessary agreements, instruments and documents related to the sale and issuance of the certificates; delegating authority to the Management Services Director of the City to determine certain matters and terms with respect to the foregoing; and authorizing the taking of all other actions necessary to the consummation of the transactions contemplated by this ordinance and ratifying all actions taken to further this ordinance; providing for severability, authority for clerical corrections, and establishing an effective date (Certificate of Participation Debt Authorization - Municipal Court Facilities)

STAFF RECOMMENDED ACTION:

1) Read Ordinance No. 2019-34 by title only for the final time
2) City Clerk reads Ordinance no. 2019-34 by title only (if approved above)
3) Adopt Ordinance No. 2019-34

Executive Summary:

This ordinance allows for the issuance of Certificates of Participation and to enter into a lease-purchase agreement for the purpose of financing construction for the Municipal Court Facilities. An ordinance for this action is required by City Charter ARTICLE VI - FINANCE AND TAXATION, Section 5 - WHEN ACTIONS ARE TO BE TAKEN BY ORDINANCE.

Financial Impact:

Series 2019 Certificates of Participation will be issued in an amount not to exceed $4,000,000 related to the construction of the Municipal Court Facilities. The debt service payments will be made from the restricted revenues collected at the Municipal Court from Court Improvement Fees and Disposition Fees. Debt service expenditures are budgeted in the General Fund.

Policy Impact:

None

Connection to Council Goal, Regional Plan and/or Team Flagstaff Strategic Plan:

Council Goals:
Transportation and Other Public Infrastructure-Deliver quality community assets and continue to advocate and implement a highly performing multi-modal transportation system.

Regional Plan:
Goal PF.2. Provide sustainable and equitable public facilities, services, and infrastructure systems in an efficient and effective manner to serve all population areas and demographics.

Has There Been Previous Council Decision on This:

Yes. Council authorized the 2016 election in which voters approved the construction of the Municipal Court Facilities. On July 3, 2018, Council awarded a design/build contract. On March 2, 2019, Council approved Amendment #1 which included a guaranteed maximum price for hazardous waste abatement and demolition. On May 21, 2019, Council approved Amendment #2 that included a guaranteed maximum price for the construction of the court facility. On September 3, 2019, Council approved Resolution No. 2019-42, a reimbursement resolution related to the Municipal Court Facilities for an amount not to exceed $16,000,000 ($12,000,000 for General Obligation Bond debt).

Options and Alternatives:

Approve the Ordinance as written allowing the City to move forward with the issuance of Certificates of Participation and the Lease-Purchase agreements. Pros-Allows for cash flow necessary to complete voter-approved projects. Cons-Increases City indebtedness.
Recommend changes to the Ordinance modifying the issuance of either the Certificates of Participation or Lease-Purchase agreements. Pros and Cons are dependent on changes.
Do not approve the issuance of Certificates of Participation and the Lease-Purchase agreements. Pros-Delays level of debt for the City. Cons-May put the Municipal Court Facilities in a negative cash flow situation, therefore, requiring the City to find the cash flow from other sources for work completed to date.

Background and History:

The physical condition of the existing City Court building located at 15 North Beaver Street has deteriorated to a point where significant financial resources will be needed to remediate, remodel and stabilize the structure. In addition, the need exists for current and future space to ensure continued operational viability. On April 12, 2016, staff came before Council to discuss the strategy for a new City Court Facility. As noted above, staff and Council had previously agreed that the most cost-effective solution would be to design, finance and construct a new City Court Facility. At this meeting Council directed staff to return in June of 2016 to present a proposed ballot question for funding and financing of a new Municipal Court Facility. On November 8, 2016, the voters approved $12,000,000 in bonds for the construction of Municipal Court Facilities. The design of the new courthouse is completed and construction began this year.

The new City Court Facility will provide a safe and efficient Municipal building that will greatly improve the Court's operations now and into the future, enhance the staff and user experience and provide an attractive amenity to downtown Flagstaff.

Staff began the discussion with the City’s financial advisor, Stifel, Nicolaus & Company, earlier this fiscal year to determine the best method of financing the Municipal Court Fee portion of the debt. Options included revenue obligations or certificates of participation (annual appropriations). After detailed research and discussions with the financial advisor, staff chose the certificate of participation option utilizing the negotiated sale alternative with Piper Jaffray selected as the Underwriter. By using the Municipal Court Facility in this financing, staff believes we will receive a favorable market rating and interest rates. Annual debt service payments will be approximately $200,000 to $250,000, payable from the restricted court revenues described above.

Certificates of Participation (the “Certificates”) involve a lease-purchase financing mechanism that allows the City to borrow for capital projects. The Certificates represent undivided proportionate interests in lease payments (the “Lease Payments”) to be made by the City under a Lease-Purchase Agreement, expected to be dated as of December 1, 2019, by and between a trustee bank, as lessor (the “Trustee”), and the City, as lessee. The property which will be the subject of the Lease-Purchase Agreement (the “Leased Property”) will be provided for by a Ground Lease, expected to be dated as of December 1, 2019, by and between the City, as lessor, and the Trustee, as lessee. The Certificates are expected to be executed by the Trustee, in its separate capacity as trustee, pursuant to a Trust Agreement, to be dated as of December 1, 2019, between the City and the Trustee. Under the Trust Agreement, the right to receive the Lease Payments will be assigned to the Trustee.

The Certificates will be payable solely from the Lease Payments. The City’s obligation to pay the Lease Payments will be subject to annual appropriation – no funds or revenues of the City will be pledged to make the Lease Payments. If the City fails to appropriate for the Lease Payments, the Trustee will take possession of the Leased Property and exercise remedies provided in the Trust Agreement, including re-leasing or selling its leasehold interest in the Leased Property and applying any proceeds from such re-leasing or selling to payments due on the Certificates. Under such circumstances, possession of the Leased Property would be returned to the City at the expiration of the term of the Ground Lease, currently set for July 1, 2044.

The Trust Agreement allows for the issuance of additional certificates of participation under certain circumstances to expand or improve the Leased Property or to refund the Certificates.

Community Benefits and Considerations:

As part of the planning process for delivering new Municipal Court Facilities, staff developed the project funding plan. The initial funding plan was as follows:

Funding Source	Amount
Voter-Approved Bonds, November 2016	$ 12,000,000
Court Fees	2,080,000
Prior Sale of Property	520,000
Redevelopment Fund-General Fund	500,000
Capital Funding Transfer - General Fund	400,000
Sale of Existing Court Property	2,000,000
Capital Financing	4,000,000
Total	$ 21,500,000

The current Municipal Court Facilities construction is for $19,500,000 which does not including the funding from the sale of the existing Municipal Court property. The City will hold the existing property as surface parking and is in the process of developing a downtown master plan. This location may be considered as a future parking facility.

This Ordinance is related to the $4,000,000 in capital financing which will be in the form of a lease-purchase agreement.

Expanded Options and Alternatives:

The process to construct a Municipal Court Facility was voted on by the public involved: Consult, Involve, Collaborate and Empower.

The process to authorize the issuance of indebtedness is to Inform the public.

Attachments
Ord. 2019-34
Ordinance Exhibit
Draft Preliminary Offering Statement (POS)
Draft Ground Lease
Draft Lease Purchase Agreement
Draft Trust Agreement
Draft Certificate Purchase Agreement