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Home My WebLink AboutMINUTES - 06141988 - 2.8 TO: BOARD OF SUPERVISORS FROM: HARVEY E. BRAGDON, DIRECTOR OF COMMUNITY DEVELOPMENT +♦ DATE: June 7, 198 l.rl.� i 8 ra Costa SUBJECT: Selection of Financial Advisors Courty SPECIFIC REQUEST(S) OR RECOMMENDATIONS(S) & BACKGROUND AND JUSTIFICATION RECOMMENDATIONS Accept report of Director of Community Development outlining procedures used to select investment bankers and bond counsel for various capital markets financings, and the creation of a capital financing division within the Community Development Department. FISCAL IMPACT None. BACKGROUND/REASONS FOR RECOMMENDATIONS The Board of Supervisors has delegated to the Community Development Department a wide variety of capital financing responsibilities. Investment bankers and bond counsel services are generally required to execute these financings. Procedures being used, or proposed to be used have been requested and are provided. The need of the County to access the capital markets for a wide variety of housing, economic development, community development, and infrastrucure purposes appears to be growing. The County would be well-served by taking a pro-active position of preparing for these financing ventures. An integrated capital financing division within the Community Development Department would provide an organizational response that would allow the County to both respond to and anticipate capital financing opportunities. The additional capital financing functions described in the report would be assigned to the Redevelopment and Economic Division of the Community Development Department, which already serves in this capacity in many of the financing areas identified. CONTINUED ON ATTACHMENT: YES SIGNA RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF ETOKIU COMMITTEE APPROVE OTHER SIGNATURE(S) : ACTION OF BOARD ON ,lune 14, 1988 APPROVED AS RECOMMENDED x OTHER x REFERRED to Finance Committee for review. VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A x UNANIMOUS (ABSENT ) TRUE AND CORRECT COPY OF AN AYES: NOES: ACTION TAKEN AND ENTERED ON THE ABSENT: ABSTAIN: MINUTES OF THE BOARD OF SUPERVISORS ON THE DATE SHOWN. cc: Community Development (Orig. ) ATTESTED County Administrator IL BATCHELOR, CLERK OF Finance Committee THE BOARD OF SUPERVISORS QAND COUNTY ADMINISTRATOR BY DEPUTY ra25:finadv.bo Jk:krc CONTRA COSTA COUNTY COMMUNITY DEVELOPMENT DEPARTMENT DATE: June 1, 1988 TO: Board of SuperviA FROM: Harvey E. Bragdo ---�� Director of Comm4SUBJECT: Capital Financino Select Advisors and an Organizational Approach to Implement Capital Financings -------------------------------------------------------------------------- The Community Development Department is involved in a wide variety of hous- ing, economic development, redevelopment, and infrastructure financings. The purpose of this memorandum is to review existing and proposed procedures to secure investment banking and legal services necessary to execute such financings, and to propose an institutional arrangement that can consistently implement the procedures as well as provide the County with a focused and pro-active capacity to respond to existing emerging .capital financing opportunities. I. PROCEDURES .F.OR.RETAINI.NG. _I.NU.ESTMENT BANKERS AND BOND COUNSEL The Board of Supervisors has delegated to the Community Development Depart- ment a wide variety of capital financing responsibilities. The participants, legal requirements, and type of security vary tremendously, therefore the timing and frequency of issues will vary and qualifications of financial advisors will vary. It is apparent that no single set of policies of proce- dures should cover all financings. The context in which the County is considering its procedures of retaining investment bankers and bond counsel must recognize that financing techniques are evolving in response to complex local government needs and complex restrictions due to changes in tax law. First and foremost it must be recognized that investment and bond counsel are in a personal services business in which trust and understanding of local needs and policies are critical . Randomly moving from firm to firm can result in difficulties and inefficiencies to the County in structuring its financings. Further, as new concepts emerge, particularly in this post tax reform era, it is important to have access to advisors independent of actual transactions in order for the County to evaluate its financing alternatives. A. Single Family Mortgage Revenue Bonds It has been the practice of the department to periodically solicit proposals from underwriters and financial advisors. The most recent process was in 1987. Because of the high cost and time commitment on the part of staff and within the financial community, we have conducted such solicitations approxi- mately every three years. The ability of localities to issue single family bonds expires December 31, 1988. Should authority be extended it would, of course, be appropriate to conduct a formal solicitation. Recommended Policy-Investment Bankers: Maintain procedure of formally soliciting proposals from investment bankers every three years. The County has used one firm as bond counsel on its single family mortgage bond financings. This has paid off in terms of cost, savings and consistency in programs and program documents, and enhanced program credibility. Because of the special client-counsel relationship it would be in the in- terest of the County to maintain said relations through 1988, often which authority to issue such bonds would have to be renewed by Congress. Recommended Policy-Bond Counsel : Maintain relationship with present bond counsel , through 1988, thereafter establish a procedure of formally soliciting proposals from bond counsel as level of financing dictates. B. Multifamily Mortgage Revenue Bonds The County has used many underwriters on its multifamily mortgage bond financings. This has occurred because of both the Board's desire for an open process, and the realities of the market place with respect to such bonds. The adopted policy of the Board should be maintained. Recommended Policy-Investment Bankers: Generally, retain two or more underwriters (exempt small financings, private placements, or small institutionally sold financings) ; said firms and their role must be acceptable to and designated by the Board of Supervisors or their designate; and financing participants (developers and lenders) may suggest firms to the Director of Community Development for inclusion in the financing. The County has utilized primarily one firm for its multi-family bond trans- actions. The same comments that were made with the single family discussions apply here. Recommended Policy-Bond Counsel : Maintain relationship with present bond counsel , consistent with performance standards being met. C. Industrial Development Bonds These financings tend to be either private placements or are similar to multi-family bond issues with business relationships having to be respected. No underwriter is required for private placements. For publicly sold bonds, the use of a policy similar to the multifamily bonds would be appropriate. Recommended Policy-.Investment Banker: Generally, retain two or more underwriters (exempt small financings, private placements, or small institutionally sold financings) ; said firms and their role must be acceptable to and designated by the Board of Supervisors or their designate; and financing participants (developers and lenders) may suggest firms to the Director of Community Development for inclusion in the financing. In its industrial development bond financings the County has used different bond counsel firms based on the particular needs of the financing and/or business relationships within the market place. Because they are relatively infrequent it is suggested that maintaining a list of qualified firms would be appropriate. Selection from the qualified list would be based on needs, business relationships, cost, and prior performance. Periodically, the qualified list would be recreated. Recommended Policy-Bond Counsel : Establish a procedure of formally soliciting qualifications from law firms who have experience and have rendered opinions with respect to industrial development bonds; estab- lish a list of qualified firms based on review of responses; review qualified firms list every three years; select from the qualified firms list based on the particular needs of the financing; and periodically reassess or reestablish the qualified firms list: as,,- performance and/or level of financing activity dictates. D. Redevelopment Tax Allocation Notes The County Redevelopment Agency recently went through a solicitation process for both financial advisors and bond counsel . New issue financings are competitively bid, therefore, the investment banking firm underwriting the issue is not determined up-front. Recommended Policy-Financial Advisors and Bond Counsel : Maintain procedure of formally solicitating proposals from financial advisors and bond counsel periodically as performance and/or level of financing activity dictates. E. Mello-Roos Community Facility Bonds The lead time and the amount of work that must be performed on a contingent basis requires selection of advisors and counsel very early in the proceed- ings. In our opinion few, if any, firms will be interested in working with the County if no commitment is made to them prior to establishment of the District. Recommended Policy -Financial Advisors & Bond Counsel : Establish a procedure of formally soliciting qualifications from law firms and underwriters/financial advisors who have experience with Mello-Roos financings; establish a list of qualified firms based on review of responses; select from the qualified firms list based on the particular needs of the financing; and periodically reassess qualified firms list as performance and/or level of financing activity dictates. F. Assessment District Financings The County has used a variety of investment baking firms. The number of assessment district financings varies from year-to-year. Assessment district financings can take on the characteristics of a private purpose bond issue when a single developer or group of developers are proposing such a financing approach, therefore it is important to have a flexible approach. Recommended Policy-Investment Bankers: Establish a procedure of formal- ly soliciting proposal from investment bankers; establish a list of qualified firms based on a review of responses; select, on a rotation basis, if possible and reasonable from the qualified firms list consis- tent with the needs of the financing; and periodically review the need for additional solicitations as performance level of financing activity, or specific financing needs evolve. The County has utilized primarily one firm for its Assessment District Financings. The firm provides legal services as well as administrative services that substantially benefit Public Works, Clerk of the Board, and Auditors office staff. Recommended Policy-Bond Counsel : Maintain relationship with present bond counsel , consistent with performance standards being met. G. Other Infrastructure Financings The County may be engaged in additional capital financing using special dedicated revenues (1/2 cent sales tax, etc. ) . It would be appropriate to establish an open process with respect to retention of financial advisors/underwriters and bond counsel at the earliest possible time. Recommended Policy-Investment Bankers/Financial Advisors and Bond Counsel : Establish a procedure of formally soliciting proposals from financial advisors/underwirters and bond counsel as soon as appropriate; establish a list of qualified firms based on a review of responses; select, from the qualified firms list based on the particular needs of the financing; and periodically review the need for additional solici- tations as performance, level of financing activity, or specific financ- ing needs evolve. II . A RECOMMENDED ORGANIZATIONAL APPROACH TO IMPLEMENT CAPITAL FINANCINGS Capital financing is set in an environment of increasing public demands, diminished fiscal capacity at all levels of government, and more recently reduction in local governments access to the private capital markets due to the restriction in the use of tax exempt bonds. The result of these converg- ing demands and limitations it that new financing options must be explored. These techniques will stress creativity and innovation, and public/private partnerships. The interests of the County will be well served by taking a pro-active position to develop and coordinate County capital financing programs. Key aspects to the pro-active posture are preparing the County so that it is ready to capitalize on opportunities, and to manage the financings and the structuring process so that they accomplish their expressed purpose more efficiently. An integrated capital financing division within the Community Development Department could also provide focus to long range planning and capital improvements planning processes. An integrated capital financing division within the Community Development Department would be responsible for guiding financing initiatives in the areas of infrastructure, facilities (non-Public Facilities Corporation projects) ; housing, economic development, and redevelopment. Many of the responsibilities are already within the Redevelopment and Housing Division of the Department. This division would receive the additional work assignments and would work with the wide variety of agencies and County departments to implement financings and to conduct or arrange for necessary financial administration. A capital financing division would be a resource for line and operating departments and agencies who have little or no expertise in capital markets financing, but who do have expertise in their particular program area. A team concept will best serve the interests of the County across the broad scope of financing possibilities. Functional areas of a capital financing division would include: 1. Creative Capital , Housing and Economic Development Financing via: a. tax exempt bonds (See Appendix A) b. taxable bonds c. lease purchase and d. privatization alternatives 2. Capital Improvements Planning. 3. Negotiating partnerships with private sector parties, and 4. Special Project/Program Financings The proposal makes a good deal of sense given the increasing complexity and resultant focus required to initiate efficient and effective County financing program. The Community Development Department is the appropriate location for such a division given the scope of activities in which we are involved and the existing experience departmental staff have in coordinating such financ- ings. Appendix A Tax Exempt Financing Opportunities 1. Infrastructure Financings, including: a. Assessment District b. Mello-Roos c: Integrated Financing Districts 2. Redevelopment Bonds 3. Tax Allocation Bonds 4. Public Facility 5. Certificates of Participation (non-Public Facilities Corporation) 6. Housing 7. Industrial Development 8. General Obligation 9. Water and Sewer 10. Schools JK:krc rd.capfin.mem