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Resolution 2000-73 . . RESOLUTION NO. 2000-73 A RESOLUTION OF THE OTY COUNCIL OF THE CITY OF GILROY APPROVING GOALS AND POLICIES FOR LAND-SECURED FINANCINGS RESOLVED by the City Council (the "Council") of the City of Gilroy (the "City"), County of Santa Clara, , State of California, that 1. Authority. This Council is intending to consider the conduct of proceedings under the Mello-Roos Community Facilities Act of 1982, as amended, being sections 53311 and following of the California Government Code (the" Act"). 2. Goals and Policies. Under the Act, and prior to the institution of any proceedings thereunder, this Council must adopt goals and policies as provided in the Act and there is on file with the City Oerk certain goals and policies (the "Goals and Policies"). 3. Approval. The Goals and Policies are hereby found to meet the requirements of the Act and are hereby adopted by this Council for this City for purposes of compliance with the Act, subject to further amendment by this Council as may be required from time to time. 4. Effective Date. This resolution and the Goals and Policies shall be effective from and after the date of the adoption of this resolution by this Council. PASSED AND ADOPTED this 17th day of November, 2000, by the following vote: AYES: COUNCILMEMBERS:, MORALES, PINHEIRO, VELASCO, SPRINGER NOES: COUNCILMEMBERS: NONE ABSENT: COUNCILMEMBERS: G. ARELLANO, P. ARELLANO, SUDOL APPROVED: --7A.~ ~ Thomas W. Springer, yor A~/2 ~u<i::u~~ Rhonda Pel1m City Oerk RESOLUTION NO. 2000-73 -1- . , . . CITY OF GILROY, COUNTY OF SANTA CLARA, STATE OF CALIFORNIA POLICIES AND PROCEDURES FOR LAND SECURED FINANCINGS . I. GENERAL. The purpose of these Policies and Procedures (the "Policies") is to provide guidance and conditions for the conduct by the City of proceedings and the issuance of bonds for public financings secured by land. The Policies are intended to be general in nahrre and the specific details will depend on the nature of each particular financing. The Policies are applicable to special assessment and to special tax financings and are intended to comply with Section 53312.7 (a) of the Government Code. The Policies are subject to amendment by the City at any time. II. KINDS OF PROJECTS-PRIORITIES. A. New Development. Except as otherwise provided, only those public improvements that benefit not only the particular development, but also the City at large will be considered for financing. Such improvements include trunk water, sanitary and stonn sewer and related facilities, freeway interchanges, bridges, major collector or "spine" streets, including related .landscaping and lighting. Unless an exception is specifically approved by the City Council based on the other provisions of those Policies, in-tract utilities, streets, landscaping and lighting serving individual properties will not be financed in new development. Finally, the acquisition of rights-of-way, lands and easements for public improvements for new development will not be financed without specific authorization by the Council. . B. Existing Development. The restrictions of IT A above shall not apply if the City Council shall determine that the public necessity requires the improvements. Such improvements include the installation, construction, replacement or renovation of domestic water, sanitary sewer and stonn drainage systems, pedestrian walkways, paths and/or overcrossings and the improvement of streets to correct unsafe conditions. Priority will be given for improvements required for public health and safety, such as sanitary sewer, safe drinking water and stonn drainage facilities. C. Combined. Projects containing both new and existing development will separately apply the above to each type, with priority given to projects affecting existing development. D. School Facilities. School facilities will not be financed except under appropriate joint exercise of powers agreements created between the City and school districts. III. APPLICATION FOR FINANCING. A. Filing. Any person seeking to use land-secured financing (an "Applicant") must first file a written application (the "Application") with the City's Administrative Services Director (the "Director"). The Application must: 1. Identify the applicant and identify his or her relationship to the project (owner, developer, etc.); 2. Specify the kinds of public improvements sought to be financed, the proposed method of provision (See vm hereof) and an estimate of the costs (excluding any financing costs); . . . . 3. Provide an explanation of why any part of the request differs from these Policies, if at all; 4. If a particular kind of financing is requested (e.g. Mello-Roos), the reasons for it; and 5. Be accompanied by the required Deposit (see below). B. Deposit. The costs of processing an application and, if approved the proceedings for land-secured financings shall be borne by the Applicant unless otherwise waived as provided herein. The estimated costs are called the "Deposit." The rules for the Deposit are: 1. The Deposit must be submitted with the application. The Deposit may be waived only by the City Council and only for improvements under II B above. No action shall be taken on the Application unless and until the Deposit is made. 2. The Deposit shall be sufficient to cover City staff time and the costs of non-contingent outside consultants retained for the financing, recordings, filings, duplication, mailing and messenger costs. In general, the Deposit shall not be less than $30,000 and may be more, as required by the City. 3. The Deposit shall be increased upon demand of the City if at any time the City determines that the amount remaining is not sufficient. If the additional amount is not paid within ten (10) business days of the mailing of a written demand by the City to the applicant, the City shall cease all activities with respect to the financing unless and until the additional amount is paid. 4. The Deposit and any additional amounts shall be held by the City in a trust account, separate from all other funds of the City and used only for the costs of the financing. The City shall not be required to invest the trust account or to assure any rate of return if funds in the account are invested. Any interest earnings on the account shall be retained in the account and be used for the costs of the financing. Any unused balance remaining in the trust account shall be returned to the applicant. The use of the Deposit and/or establishment of the trust account shall in no way be construed as requiring the City to issue land-secured indebtedness or to provide reimbursement from the proceeds thereof for expended portions of the Deposit. C. Financing Team. The City shall select all consultants to be retained by the City for the financing, including, but not limited to, appraiser, bond counsel, bond paying, fiscal agent or trustee, disclosure counsel, engineer of work, financial advisor, special tax consultant and underwriter. Providers of letters of credit, surety bonds or other credit enhancements are also subject to City approval. Consultants, including legal counsel, to any financing team member and the Applicant (except disclosure counsel retained directly by the City) shall be chosen and paid by such member and not from the proceeds of the financing. The City shall designate one City official as the contact person for contacts with the members of the financing team. D. Processing the Application. Upon filing the Application, the Director shall review the Application for completeness, return it if not and if it is complete will convene a meeting of financing team to discuss the Application. This first meeting is the "Initial Review" and its results will be given to the Applicant in writing, detailing what changes or other requirements, if any, must be made and/or met for the City to continue to process the -2- . . . . financing, including any increases in the Deposit for additional work required to process the Application. If the Applicant wishes to proceed and comply with any conditions of the Initial Review, he or she must inform the City in writing. Before commencing any financing proceedings, a second "Final Review" will be held with the Applicant, City and Financing Team representatives to cover any final conditions, including Economic Viability Review (below). IV. ECONOMIC VIABILITY REVIEW-CREDIT QUALlTY- A. General. While the kind of bonds or other indebtedness generally issued will not require City contingent or direct liability and will be secured only by land, defaults in land- secured financings will potentially adversely affect financial market perceptions, and, thus, the City wishes to avoid, to the extent possible, defaults in land-secured financings. To help assure that goal, and as part of the Application process, the City will review each proposal on its own merits and on its own facts and circumstances for economic viability and the criteria contained in this Part IV for evaluating the credit quality of the financing. B. Required Information. The City will (unless clearly unnecessary under the circumstances) require each of the following as a condition of processing an Application. Failure to supply any required information in a timely manner shall be cause for the City to cease processing the Application: 1. Title Evidence. The Applicant must submit a current (not older than three months) CL T A or AL T A lender's title insurance policy or preliminary title evidence showing the vesting of title to the land that will secure the financing and showing the interests of any lenders, creditors, etc., as well as any easements, rights of way or other encumbrances that may impact the value of the land. The title evidence will also be used to verify ownership for any owner's petition for the financing. The Applicant will supply copies of any documents related to the title evidence as requested by the City. 2. Financial Information. Any Applicant or other owner of property within the proposed financing district who will be responsible for 20% or more of annual debt service on bonds shall submit financial statements (preferably audited) for the current and two prior fiscal years, together with other financial information requested by the City's financial advisor and/or underwriter as part required financing due diligence. Updated financial information will be required as a part of bond sale activities. 3. Equity Participation. The City will take into account the degree of the Applicant's (or other major owner's) equity contribution as of the time of Application and any possible increases through the anticipated date of bond sale. 4. Administrative Approvals. The Applicant must furnish information as to the completeness of the approval process, including, but not limited to environmental clearances, land use planning approvals, rights to capacity or ability to use water, sewer and storm drainage facilities, availability of special permits (Army Corps of Engineers, California Fish and Game, Cal- Trans, Division of Dam Safety, etc.). Failure or inability to obtain any approval deemed necessary by the City shall be cause for delaying or suspending the Application or proceedings, including any bond sale activities. 5. Value of Land. The Applicant must submit evidence that the value of the land that will secure the bond issue is at least three times the amount of bonds to be sold and any overlapping special assessment and/or community facilities bonded debt on the property as of the anticipated date of sale of the bonds under the Application. The evidence may consist of: -3- . . a. Full cash value as shown on the most current ad valorem assessment roll for the property; or b. An appraisal performed by an appraiser retained by the City and consistent with Attachment A hereto, which Attachment contains definitions, standards and assumptions to be used for such appraisals. . C. Sufficiency of Revenues. In determining whether the financing which is the subject of the Application is viable, the Applicant must demonstrate that the annual amount of debt service is reasonable for kind of property in its final, developed state. For commercial or industrial property, comparable numbers for similar uses shall be provided. For residential property, the maximum annual debt service for the expected financing, together with all other charges collected or to be collected on the annual tax bill for each developed parcel shall not exceed two percent (2%) of such parcel's expected assessed value. Based on these criteria, bond issues and, hence, financings, shall be sized accordingly. Apart from this basic rule, the following shall also apply: 1. Administrative Expenses. Anticipated annual revenues to be collected on the tax roll shall take into account the City's estimates of annual administrative costs, including, as appropriate, costs of bond registration, arbitrage and rebate calculation, preparation and up-dates of debt collection schedules and special tax computations. 2. Residential Properties. For residential properties only, the following special considerations apply: . a. Debt service (including administrative expenses) shall be substantially level throughout the life of a bond issue, so substantial increases in debt service because of issuance of additional phases of bonds or "backloading" debt service to later years shall not be permitted. b. Special taxes for community facilities districts may escalate not more than two percent (2%) per year. c. Prepayments of assessments or, if permitted, special taxes, shall not be done at the expense of the City or the financing district. V. DISTRICT PROCEEDINGS. A. Petition. For new development projects, a petition meeting the requirements of the applicable authorizing law will be required. The Applicant is urged to obtain unanimous waivers of cash payment (for assessment districts) or election waiting period (for community facilities districts). The Applicant must specify in the Application any reasonably expected impediments to obtaining petitions, including from co-owners and/or lenders of record (where required). Waiver of the petition shall be made only upon showing of extraordinary hardship. For existing development, petitions are preferred, but may be waived, depending on the nature of the project and degree of public importance. B. Representatives. The City and the Applicant shall each designate a representative for each financing district proceedings. The representatives shall be responsible for coordinating the activities of their respective interests and shall be the spokespersons for each such interest The purpose of this requirement is to avoid duplication of effort and misunderstandings from failure to communicate effectively. In the case of the City, it allows the City's consultants to report to a single official who will, in turn, communicate with other staff members. -4- . . . . C. Time Schedule. The final schedule of events for any proceeding shall determined by the City, in consultation with its financing team and the Applicant. Any changes will require approval by the appropriate City official. Time schedules will (unless specific exceptions are allowed) observe established Council meeting schedules and agenda deadlines. To the extent possible, financings will be scheduled to allow debt service to be placed on the tax rolls with a minimum of capitalized interest. VI. FINANCING TERMS A. Limited Obligation. Unless specifically found to be required for particular kind of financing, bonds issued for land secured financings shall be limited obligations, payable solely from special assessments or taxes or other identified sources other than general funds or revenues of the City and do not require the use of such general funds or revenues to replenish any reserves or to bid at any foreclosure sale. B. Debt Service. Except for commercial or industrial property financings with no residential components, debt service shall be substantially level throughout the life of the bond issue. Phased bond issuance shall not result in increased debt service to existing residential homeowners. Unless determined to be specifically required, debt service shall not exceed twenty-five (25 years) from the date of bond issuance. C. Bond Redemption. Maximum redemption premiums shall not exceed three percent (3%). No call provisions shall not exceed five (5) years and no provision shall be made restrict the ability of the City to refund any bond issue. Provision shall be made to allow redemption of bonds at par (without premium) with surplus construction funds. Provision shall be made to allow the City to purchase bonds on the open market at par plus accrued interest, in lieu of redemption of bonds. D. Reserve Funds. A reserve fund shall be required (unless specifically exempted for cause) for every land-secured financing. The reserve fund will be sized by the City with the advice of the financing team, and, for tax-exempt financings, will not exceed maximums prescribed by applicable federal tax law. Reserve fund earnings beyond maximum reserve fund size should be used to credit debt service and may be used to pay applicable rebate obligations under federal tax law. E. Capitalized Interest. The City, with the advice of the financing team, will determine, on a case by case basis, the amount of capitalized interest for a particular financing. The amount of such interest will be determined based on factors such as the length of the construction period, the earliest date upon which tax roll collection may commence and the amount such interest will add to the total amount of the financing, taking into account the restrictions on value to lien expressed herein and the ability of the owner(s) to defray the debt service. F. Foreclosure Covenants. Every land-secured financing bond issuance document shall provide for the judicial foreclosure of delinquent payments of assessments or special taxes. Such covenants may vary with particular financings, but shall at the minimum provide for the institution of foreclosure not more than 150 days from April 10 of a calendar year and shall authorize the City Attorney or delegate thereof to commence foreclosure without further Council action upon notification of a delinquency. Provision may be made to allow deferral of foreclosure in the event the City advances funds to the reserve fund to maintain any specific reserve requirement. -5- . . G. Discounts. In competitive bond sales, the amount of discount shall be determined by the City with the advice of its financial advisor. In negotiated sales, it shall be the burden of the underwriter to justify its discount as competitive and such justification must take into account any other compensation being paid to the underwriter. Original issue discount will be allowed only if the City determines that it results in a lower true interest cost and will not adversely affect the ability to construct the public improvements. VII. DISCLOSURES . A. General. As a minimum, any disclosures mandated by applicable state law shall apply to each financing district to inform prospective purchasers of their obligations under the financing districts. In addition, there may be additional requirements mandated by the City for particular kinds of financings on a case-by-case basis. B. Forms. The City may prescribe specific forms to be used to disclose the existence and extent of obligations imposed by financing districts. VIII. PERFORMING THE WORK A. General. Facilities being financed may be provided by either the construction of them by a developer or other person and acquired ("Acquisition") or by public contract let by the City or other public agency ("Construction") or, in appropriate cases, both. . B. Acquisition. Acquisition will be permitted only for improvements or facilities to be constructed entirely upon land owned or controlled by the Applicant and then dedicated or sold to the City or other public agency. Priority will be given to "turn-key" projects that do not require advances as work progresses. Components will be acquired only if the City determines that such acquisition is to the economic advantage of the City. Any work performed by Acquisition must be done under any prevailing wage applicable to the City and the Applicant shall be responsible for such compliance. In Acquisition projects, the City will allow for construction overhead, management and related costs of not to exceed 3 % of the contract amount. All Acquisition will be done by suitable agreement which shall provide for adequate retentions, performance bonds and which shall not be assigned to the Applicant or any private lender. C. Construction. Construction will be required for any work done on public lands or public rights-of-way and for projects involving existing development. The usually applicable public bidding rules of the City shall apply and any financing time schedule shall take into account a suitable period for the preparation of plans and specifications, bidding and notices thereof and bid opening. Mandatory bid hold periods shall take into account any applicable cash payment or comparable financing preparation periods. -6- . , . , . . I, RHONDA PELLIN, City Clerk of the City of Gilroy, do hereby certify that the attached Resolution No. 2000-73 is an original resolution, duly adopted by the Council of the City of Gilroy at a regular meeting of said Council held on the 17th day of November, 2000, at which meeting a quorum was present. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the Official Seal of the City of Gilroy this 5th day of January, 2001, (Seal)