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HomeMy WebLinkAboutMINUTES - 10192010 - SD.4RECOMMENDATION(S): ACCEPT report regarding financing the East Bay Regional Communication System Project (EBRCS Project) and the County's Credit Ratings; DIRECT the County Administrator to remove the EBRCS Project from the 2010 Lease Revenue Bonds issue; and APPROVE the use of reserves to fund Contra Costa County's share of the EBRCS Project. FISCAL IMPACT: Fiscal impact is dependent upon Financing option chosen (see Background). BACKGROUND: The East Bay Regional Communication System Project is a joint Public Safety radio communication project between the Counties of Contra Costa and Alameda, which has been approved by the Contra Costa County Supervisors in many stages and formally affirmed on October 12, 2010 (see Attachment for a detailed description of the EBRCS Project). The County Administrator recommended and the Board approved the issuance of separate series of 2010 Lease Revenue Bonds to fund the EBRCS Project and the West County Clinic, and to refinance the outstanding 1998 Lease Revenue Bonds for debt service savings. However, APPROVE OTHER RECOMMENDATION OF CNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE Action of Board On: 10/19/2010 APPROVED AS RECOMMENDED OTHER Clerks Notes: VOTE OF SUPERVISORS AYE:John Gioia, District I Supervisor Gayle B. Uilkema, District II Supervisor Susan A. Bonilla, District IV Supervisor Federal D. Glover, District V Supervisor ABSENT:Mary N. Piepho, District III Supervisor Contact: Lisa Driscoll, County Finance Director (925) 335-1023 I hereby certify that this is a true and correct copy of an action taken and entered on the minutes of the Board of Supervisors on the date shown. ATTESTED: October 19, 2010 David J. Twa, County Administrator and Clerk of the Board of Supervisors By: June McHuen, Deputy cc: County Administration, County Auditor-Controller, County Redevelopment Director, County Treasurer-Tax Collector SD. 4 To:Board of Supervisors From:David Twa, County Administrator Date:October 19, 2010 Contra Costa County Subject:East Bay Regional Communication System Project - Financing staff has continued to meet with the EBRCSA and County financing teams to explore cost saving options. Even before the creation of the East Bay Regional Communications System Authority (EBRCSA) in 2007, Contra Costa County was significantly involved in the development of an emergency communications system to be used by Contra Costa County, Alameda County and many cities and agencies in both counties. Over the last several years, EBRCSA has worked hard to develop plans for a state-of-the-art project and has prepared cost estimates based upon the evolving plans. At one point, it was estimated that the project would require over $80 million of external funding—such as bond financing—to be paid back by the users of the project. Both Alameda and Contra Costa County have been successful in acquiring grants to offset system and project costs. Representatives from both Alameda and Contra Costa Counties have been working together using Homeland Security grant funds from the Bay Area Super Urban Area Security Initiative (SUASI), Urban Area Security Initiative (UASI), State Homeland Security (SHSGP) programs, and Community Oriented Policing Services (COPS) funds to fund the infrastructure build-out while the JPA formation process moved forward. To date approximately $39 million of grant funds have been received. EBRCSA also determined that users could prepay their pro-rata portion of the project upfront rather than finance it over time. This approach has been very successful, with many of the users opting to prepay their project costs. The most recent estimate from EBRCSA is that the net portion of project costs to be funded by Contra Costa County would be only $4.9 million versus an estimated $10 million about a year ago. With the funding need having declined to $4.9 million, the County has an opportunity to finance it on a more cost effective basis than through the issuance of bonds. The true interest cost would be about 3.9%, if the County’s portion is financed with bonds, and the par amount of bonds would be about $6.2 million because a reserve fund, costs of issuance and capitalized interest, would have to be funded on top of the $4.9 million project cost. The annual debt service payment on the bonds would be about $530,000. If the County instead used available reserves to fund the projects and used the bond interest rate as the interest rate charged to the County and the users, included in the County’s portion, the annual debt service cost would be about $65,000 lower because the reserve fund, costs of issuance and capitalized interest do not need to be funded. The County’s own portion of the annual debt service would be about $135,000, with the remainder of the annual cost being paid by the other agencies involved in the project. The Sheriff’s Department, Animal Services, and the Contra Costa County Fire Protection District make-up about 25% of the radios in Contra Costa County. Contra Costa County’s prepayment share is $1,827,513 (this includes $563,612 for the Contra Costa County Fire Protection District). It is expected that the County itself will use approximately 1,300 radios, 900 radios for the Sheriff’s Department and Animal Services Department and another 400 radios for the Contra Costa County Fire Protection District. Another 3,800 radios will be used by cities and agencies in Contra Costa County. The initial estimated annual user fees to be paid by the County are $623,000 ($431,000 for Sheriff and Animal Services, and $192,000 for the Contra Costa County Fire Protection District), which amount may change as additional users participate and/or existing users add or drop radios. Prefunding the Project will reduce the radio costs to the Sheriff, Fire, and other county departments from $40 per radio, per month, to approximately $25 per radio per month (the $15 difference is the estimated debt service cost on each radio each month if bonds are issued to fund the EBRCS Project). If the County were to issue lease revenue bonds, once the bonds were paid off, in 2029, there will no longer be a debt service component to the user fees charged by EBRCSA. At that point, EBRSCA will own the Project. The chart below depicts the Pre-Pay no Pre-Pay scenario for Contra Costa. BACKGROUND: (CONT'D) No Pre-Pay Pre-Pay Department Current Radio Count Monthly Cost Annual Cost Monthly Cost Annual Cost Sheriff-Coroner 857 34,280 411,360 21,425 257,100 Contra Costa Fire 400 16,000 192,000 10,000 120,000 Animal Services 40 1,600 19,020 1,000 12,000 Total 1297 51,880 622,560 32,425 389,100 In addition, funding the project through reserves provides a more flexible vehicle than publicly issued bonds that are subject to the various covenants and administrative burdens imposed under bond documents. Further, the use of reserves for one-time project costs such as the EBRCSA project is in keeping with the County’s reserves policy regarding use of reserves and the amount of reserves used is relatively small. It would not have been recommended to use reserves if the project fund amount was the $10.0 million it was projected to be when the County first determined to use bonds as the funding vehicle. If the entire $4.9 million were financed with reserves, the County would still retain our Fund Balance Policy level above the policy targets. The Unreserved Fund Balance target is 10% (it would be at 11.1% if we used reserves for this project) and the Total Fund balance target is 5% (it would be at 8.2% if we used reserves for this project). Currently per the County's Reserve Policy, there is $11,587,000 in the Capital Reserve. The Capital Reserve is designed for capital projects and one-time uses such as the EBRCS Project. The chart below describes the impact the use of Reserves would have on our reserve ratios. Descriptions Policy Target 2009/10 Year-End Position Revised Fund Balance Net Change Unreserved Fund Balance 10%11.5%11.1%-0.4% Total Fund Balance 5%8.6%8.2%-.04% Alameda County is also currently considering options other than bonds (including using their Reserves) to pay Alameda's share of the EBRCS Project costs ($7.4 million) and possibly pre-pay or buy-out Alameda County's individual share . County Credit Update The County Administrator and other officials met with Moody’s Investors Service and Standard & Poor’s Corporation on September 24 to present a comprehensive credit update as well as to request ratings on the upcoming 2010 lease revenue bonds. Ratings were received on October 13. We are pleased to report that both rating agencies affirmed all outstanding ratings on the County, as follows: Issuer Credit Rating (this is the implied general obligation bond rating): Moody’s (Aa2); S&P (AA) Pension Obligation Bonds: Moody’s (Aa3); S&P (AA-) Lease Revenue Bonds*: Moody’s (A1); S&P (AA-) These ratings are in the “medium to high investment grade” category, meaning the County will achieve a wider audience for its bonds and a lower interest cost than if the ratings were lower. The rating analysts indicated that the County has been able to maintain its ratings because the County’s financial margins have been steady despite a challenging economic and fiscal environment. The rating agencies expect the margins have been steady despite a challenging economic and fiscal environment. The rating agencies expect the County to continue its sound performance in order for the ratings to be maintained. The current outlook on the ratings is “Stable”. * Moody’s has a two notch difference between the implied G.O. rating and the lease revenue bond rating, whereas S&P has only a one notch difference. CONSEQUENCE OF NEGATIVE ACTION: Potentially higher over-all cost of project depending upon financing method used (see Background). CHILDREN'S IMPACT STATEMENT: None. CLERK'S ADDENDUM Speaker, Joseph Partansky, resident of Concord. ATTACHMENTS October 12 - Board Action D. 4 To:Board of Supervisors From:David Twa, County Administrator Date:October 4, 2010 Contra Costa County Subject:2010 SERIES A, B, and C LEASE REVENUE BONDS RECOMMENDATION(S): HEARING, pursuant to Section 6586.5 of the Government Code of the State of California, in connection with plans by the County of Contra Costa Public Financing Authority to issue Lease Revenue Bonds (Capital Project Program) 2010 Series A and B; 1. ACKNOWLEGE and reaffirm previous approvals of projects; and2. ADOPT Resolution No. 2010/521, approving the issuance by the County of Contra Costa Public Financing Authority of Lease Revenue Bonds (Capital Projects Program), 2010 Series A, B, and C in a principal amount not to exceed $66,000,000 to finance various capital projects and a refunding of outstanding bonds for savings, authorizing the forms of and directing the execution and delivery of a Trust Agreement, Site Leases, Subleases, Bond Purchase Contracts and related financing documents; and AUTHORIZE the taking of necessary actions and the execution of necessary documents in connection therewith. 3. APPROVE OTHER RECOMMENDATION OF CNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE Action of Board On: 10/12/2010 APPROVED AS RECOMMENDED OTHER Clerks Notes: VOTE OF SUPERVISORS AYES NOES ABSENT ABSTAIN RECUSE Contact: I hereby certify that this is a true and correct copy of an action taken and entered on the minutes of the Board of Supervisors on the date shown. ATTESTED: October 12, 2010 , County Administrator and Clerk of the Board of Supervisors By: JULIE ENEA, Deputy 5 RECOMMENDATION(S): (CONT'D) FISCAL IMPACT: Estimated costs and sources of funding, including lease revenue bonds, for the projects to be financed have been previously approved by the Board of Supervisors and meet the County’s established Debt Management Policy. The uses of bond proceeds are for (1) acquisition, construction, improvement, and/or equipping of all or a portion of the West County Clinic (located at 13613 and 13585-3613 San Pablo Avenue, San Pablo) and the regional digital emergency radio communications system (Counties of Contra Costa and Alameda); and (2) the refunding the $17.4 million outstanding principal amount of the 1998 Lease Revenue Bonds Refunding Series A. There will be three series of lease revenue bonds issued: one for the clinic, one for the emergency radio communications system and one for the refunding. The amortization term for the clinic bonds is approximately 30 years, whereas the amortization term of the emergency radio communications system is approximately 19 years and the amortization term of the refunding is approximately 15 years. All series will be structured with level fiscal year debt service. The maximum aggregate principal amount for 2010 Series A, B, and C is $66.0 million, which will fund the projects, capitalized interest, reserve funds and costs of issuance of the bonds. About half of the series of bonds issued for the clinic will be “Recovery Zone Economic Development Bonds (RZEDBs),” a special bond structure allowed under the American Recovery and Reinvestment Act (ARRA). RZEDBs are taxable bonds, but the federal government provides a 45% interest cost subsidy, thereby making RZEDBs more cost effective than traditional tax exempt bonds. Net of the federal subsidy and interest earnings on a reserve fund, the net fiscal year debt service cost of the clinic bonds will be approximately $2.3 million. This cost will be borne by the Health Services Department/Hospital Enterprise Fund. The net fiscal year debt service cost for the emergency radio communications system bonds is approximately $515,000, of which about 50% is attributable to the County and the remainder paid from fees charged to other agencies using the system. The County’s portion of the debt service is to be paid from the General Fund. The net fiscal year debt service cost for the refunding is estimated to be approximately $1.6 million, representing an annual reduction of about $160,000 versus the prior bonds. The debt service on the refunding bonds will be paid from the General Fund and other County departments, a portion of which will be reimbursed by federal programs. BACKGROUND: The recommendations presented in this Board Order, if approved, will fulfill the legal obligations necessary prior to issuing Lease Revenue Bonds for the County’s 2010 Capital Projects. The proposed financing meets all of the requirements of the County’s Debt Management Policy. PUBLIC HEARING The first item before your Board is a Public Hearing. Notice was given, pursuant to Section 6586.5 of the Government Code of the State of California, that a public hearing would be held on October 12 by the Board on behalf of itself and the County of Alameda. Joint Powers Authority (JPA) law requires a public hearing be held before financing projects. The purpose of the hearing is to inform the public of what is being planned and give the public an opportunity to speak. In addition, with respect to the East Bay Regional Communication System Project, this particular public hearing is held on behalf of both Contra Costa County and Alameda County because the project will be constructed and used throughout both counties. Alameda County held a similar hearing on Tuesday, October 5, 2010. The County intends to issue fixed rate Lease Revenue Bonds to finance three County projects in three Series: 2010 Series A Lease Revenue Bonds are intended to finance a portion of the construction of a new health clinic, located at 13613 and 13585-3613 San Pablo Ave, in the City of San Pablo; 2010 Series B Bonds are intended for the acquisition of the County’s portion of an emergency communications system for Contra Costa County and Alameda County that will be managed by the East Bay Regional Communications System Authority, a JPA of which the County is a founding member; and 2010 Series C Bonds are intended to refinance outstanding 1998 lease revenue bonds for debt service savings. PROJECTS West County Clinic - The Richmond Health Center is obsolete and in need of total replacement. Its functional design reflects an outmoded approach to the delivery of healthcare. The Health Services Department, in conjunction with the reflects an outmoded approach to the delivery of healthcare. The Health Services Department, in conjunction with the General Services Department, has reviewed a variety of options over the past ten years to address these deficiencies. Options reviewed included (1) remodeling on the existing site, (2) rebuilding on the existing site, and (3) rebuilding elsewhere in Richmond (multiple locations were evaluated). All of these options proved to be either too costly or politically not acceptable. On August 6, 2009, on short notice and under considerable pressure of time, the Health Services Department submitted a proposal to the federal Health Resources and Services Administration (HRSA) for the maximum funding available, $12 million, under the Recovery Act Facilities Investment Program grant opportunity. On December 9, 2009, we learned that we had been awarded the only grant of this size in California, and one of only six of this size nationwide. The grant requires that the facility be constructed and occupied within a two-year time period (with extensions possible). The current Richmond Health Center will be replaced with a new 53,000 square foot clinic with 60 exam room and all supportive services. The clinic will be located in the City of San Pablo approximately 3 miles from the existing site. The structure is to be an outpatient facility and will include spaces for exam and treatment rooms, medical records, nurses’ stations, doctor work areas, patient registration, and ancillary services. The facility will continue to be operated by the County. The Contra Costa County Health Services Department is the largest provider of inpatient and outpatient safety-net services for the uninsured and underinsured in the County. The Richmond Health Clinic is the largest Federally Qualified health center in the County in the most economically challenged part of the County. This project has been previously approved by the Finance Committee and the Board of Supervisors in various stages. East Bay Regional Communication System (EBRCS) - EBRCS is a joint Public Safety radio communication project between the Counties of Contra Costa and Alameda. Each county will fund a portion of the acquisition, construction, site improvement, and equipping of an emergency communications system to be located in the Contra Costa and Alameda Counties and managed by the East Bay Regional Communications System Authority. The EBRCS Project is expected to provide common emergency communications equipment and service for cities, fire and police agencies and other jurisdictions within the boundaries of the two counties. This critical project has already received significant grant monies under Homeland Security and other federal and State programs. Contra Costa’s funding of its portion of the project is a key element to bringing the entire project to fruition. The East Bay Regional Communications System Authority itself may also issue bonds to assist in the financing and refinancing of the EBRCS. The public safety agencies within Alameda and Contra Costa counties currently use a combination of shared and individually-owned communications systems operating in four different frequency bands. All of the systems are in need of replacement and/or upgrading, and most are lacking the capacity needed by the agencies. There is also no interoperability between agencies operating in different frequency bands. In 2004 senior public safety officials formed a task force and began working together to develop a state of the art communications system that would provide regional interoperability, and provide a cost effective alternative to the patch work of systems currently in use in the two counties. The task force grew to include elected officials, city managers, and county administrators. The work of the task force led to the creation of the East Bay Regional Communications System Authority (EBRCSA). The EBRCSA was formed as a Joint Powers Authority (JPA) on September 11, 2007. Under California law, a JPA is viewed as an independent governmental agency with the same powers that accrue to one of the member agencies. Currently there are 36 member agencies consisting of both counties, 29 cities, 4 special districts, and the University of California. The Board of Directors is made up of 23 representatives consisting of elected officials, Police Chiefs, Fire Chiefs, and City Managers who will be responsible for the overall development, operations and funding of the system. Each board member is selected by their representative organization. Representatives from both Alameda and Contra Costa Counties have been working together using Homeland Security grant funds from the Bay Area Super Urban Area Security Initiative (SUASI), Urban Area Security Initiative (UASI), State Homeland Security (SHSGP) programs, and COPS funds to fund the infrastructure build out while the JPA formation process moved forward. To date approximately $39 million of grant funds have been received. EBRCSA System Design : The original two-county design was proposed by Motorola through a procurement process initiated by Alameda County, the system is a P-25 compliant digital trunked radio system. The EBRCSA hired CTA communications to complete a review of the original design and make recommendations as to the final design and provide cost information on the final build out of the system as well as the operating and maintenance costs. The final system design is based on CTA’s work and includes 6 simulcast cells connected through a microwave system back to the master site controller located at the Alameda County Emergency Operations Center in Dublin. The grant funds received to date have been used to develop the microwave system and purchase the master site controller, repeater site equipment, and dispatch consoles. The East Cell in Alameda County and the West Cell in Contra Costa County have been the primary focus for infrastructure. The West Cell is complete; once the testing is complete it will be available for use. The East Cell is approximately 80% complete, with completion and testing anticipated by the end of the year. Once the financing is in place the remaining sites will be completed. The full system is scheduled to be available to all system users by January 1, 2013 The January 1, 2013 date is significant as agencies that are in UHF and VHF spectrum have to complete narrow banding of their repeater site equipment and have narrow band capable radios by that time. Having the new system available will ensure that agencies will not have to spend funds narrow banding their existing infrastructure, and can instead migrate to the EBRCSA system. System Financing: In order to complete the system by the January 1, 2013 deadline, the EBRCSA Finance Committee has been working with both counties’ respective staffs to develop a financing strategy that includes a combination of grants and debt financing to fund the $30,987,000 necessary to complete the system. The strategy envisions obtaining approximately $14 million in grants over the next 4 years and financing the remaining $17 million from initial buyouts of various users and from bonds. The main body of the system will cost $23.6 million to complete and will be completed using the $17 million being financed plus $6.6 million of grants. There are several stand-alone sites that are planned to provide additional coverage that will be built using grant funds totaling $7.4 million that will be built in the following two years. Both Alameda and Contra Costa counties are in the process of issuing lease revenue bonds to fund other capital projects. The financing strategy proposes that each county will increase the size of their issuance to include funds for the EBRCSA project. It was determined based on the distribution of users that the split between the two counties would be 60% Alameda/40% Contra Costa. Alameda County will increase their issuance by $7.2 million and Contra Costa will increase its issuance by $4.8 million for a total of $12 million. In addition each County will fund capitalized interest for three years and a reserve fund. The bonds issued by the counties will mature in 2029. The EBRCSA will then sell non-public bonds to each county as the mechanism for charging EBRCSA users their pro rata share of the debt service each county must pay on its publicly issued lease revenue bonds. There are significant advantages for the EBRCSA to participate and work with the counties. Due to the size of the issuances and their credit ratings, the counties are able to receive a much lower interest rate than EBRCSA would if it went to the market on its own. In addition, because it will not be issuing public bonds, EBRCSA will not have to go through a rating process. Each user of the EBRCSA system will execute an agreement that will bind the user to a specific monthly charge per radio that it plans to operate on the system. The fees charged to users include an annual debt service component that will flow to each county for the repayment of their respective lease revenue bonds. User fees will also include the cost of operating and maintaining the system. Currently we are projecting and accounting for about 12,200 total radios. The annual debt service is estimated to be $2,066,000 and operating and maintenance costs are estimated to be $3,850,900. Due to uncertainty about the number of agencies who will join the system and the timing of when they will join, a range from $40.00 to $45.00 per month per radio is included as the estimated cost in the operating agreement. The first three years of debt service payments will be capitalized, so no user will have an out-of-pocket expense for debt service. The first out-of-pocket debt service payment will be required in FY 13/14. Should more users sign up during the two years prior to the first out-of-pocket debt service payment, the monthly fee will be adjusted to match the total user count. Contra Costa County Participation: It is expected that the County itself will use approximately 1300 radios, 900 radios for the Sheriff’s Department and Animal Services Department and another 400 radios for the Contra Costa County Fire Protection District. Another 3,800 radios will be used by cities and agencies in Contra Costa County. The initial estimated user fees to be paid by the County are $623,000 ($431,000 for Sheriff and Animal Services and $192,000 for the Contra Costa County Fire Protection District), which amount may change as additional users participate and/or existing users add or drop radios. Operating and maintenance costs may also rise over time with EBRSCA. Once the County repays its lease revenue bonds in 2029, there will no longer be a debt service component to the user fees charged by EBRCSA. At that point, EBRSCA will own the project outright and may continue to offer services to users. This project has also been approved in various stages by the Board of Supervisors. RESOLUTION NO. 2010/521 Resolution 2010/521 provides for the Board of Supervisors to approve and direct the issuance by the CCC Public Financing Authority of additional lease revenue bonds called the 2010 Series A, B and C. The Resolution authorizes the forms of and directs the execution and delivery of the trust agreement, site leases and facility subleases. These documents allow the County to pledge collateral in the form of County-owned facilities as security for new bonds as well as prescribe the terms of the bonds themselves. It should be noted that $20.7 million of par amount of the bonds will be in the form of Recovery Zone Economic Development Bonds due to the allocation Contra Costa received directly ($10.7 million ) and an additional $10 million from a competitive California Debt Allocation Committee award. award. The Resolution authorizes taking necessary actions and execution of necessary documents including the forms of the County’s Official Statement, continuing disclosure, and bond purchase agreements. RESOLUTION NO. 2010/522 The sole purpose of the Public Financing Authority is to assist the County with its bond financings. It has been in existence since 1992 and has been used for BOP and lease revenue bond financing since 1997. Resolution 2010/522 authorizes and approves the issuance and sale of the bonds and all the same forms as Resolution 2010/521 except continuing disclosure, which is solely a County obligation. The Resolution authorizes the issuance and sale of the Bonds by the Authority, in an aggregate principal amount of not to exceed $66 million for: the financing of a portion of the costs of the new West County Clinic, the financing of a portion of the EBRCS project, the refunding of the 1998 lease revenue bonds, and the funding of bond reserves, capitalized interest and the payment of bond issuance costs. CONSEQUENCE OF NEGATIVE ACTION: Inability to issue bonds and possible delay in construction of the West County Clinic. Construction delay may jeopardize Contra Costa Health Services' award of $12 million to relocate and rebuild Richmond Health Center, a plan that has been years in the making. The funds were awarded under the $787 billion American Recovery and Reinvestment Act (ARRA) in response to the severe economic recession. Funds were awarded through a competitive grant process for a one-time facility improvement opportunity to address significant and pressing capital improvement needs in health centers, including construction and renovation. The funds must be expended by December 31, 2011. CHILDREN'S IMPACT STATEMENT: None.