CDC - Item 2B - Minutes 12-11-06• •
MINUTES OF THE SPECIAL MEETING
ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION
December 11, 2006
Chairman Taylor called the special meeting of the Rosemead Community Development
Commission to order at 7:00 p.m. in the conference room of City Hall, 8838 E. Valley
Boulevard, Rosemead, California.
Present: Commissioners Clark, Imperial, Tran, Chairman Taylor
Absent: Vice-Chairman Nunez (excused)
1. PUBLIC COMMENTS FROM THE AUDIENCE - None
2. MATTERS FOR DISCUSSION AND ACTION
A. Bond Refinance Discussion
The potential savings structure for the proposed refunding bond issue will
be discussed.
Recommendation: That the Community Development Commission
approve Option #2 (Up-Front Savings structure) for the refunding bond
issue as recommended by Piper Jaffray.
Mayor Taylor explained he wanted clarification as to why Option 1 was chosen over
Option 2 and thus requested the Special Meeting. He felt the Commission should make
the final determination rather than staff.
Executive Director Lazzaretto introduced Steven Gortler from Piper Jaffray, to explain
why staff recommended the option they did. Mr. Gortler explained there are two different
ways of taking advantage of lower interest rates. Both options would yield a savings to
the City of approximately $2.7 million in today's dollars; the savings would be of equal
value on an overall basis when adjusted for inflation. Option 1 is estimated to yield a
savings of $5.1 million and Option 2 is expected to yield a savings of $3.9 million.
Although the aggregate savings at a consistent savings of $190,000 per year is higher
with Option 1, Mr. Gortler pointed out after inflation, annual savings won't be worth the
same when bonds mature in 27 years. Mr. Gortler summarized the options:
Option 1) Taking the amount currently owed on previous bonds and refunding it would
reduce the annual payment the City is obligated to pay each year by $190,000 because
interest rates are currently better. When bonds were initially issued, interest rates were
5.6%. The refunded bonds will have an interest rate of 4.5%.
Option 2) Most of the savings are realized in the early years of the bond; during the last
10 years, very few savings are realized. It offers more flexibility to finance new projects
as the Redevelopment Plan that is currently in effect limits the agency's ability to issue
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debt until June of 2023. As Mr. Gortler explained it, the City would save $250,000
between now and 2023 and a lesser amount for the rest of the period. It supports an
additional $1 million in debt, if the agency so chooses.
Mr. Gortler asserted that he and his firm are neutral as far which option is chosen. The
benefit in present value terms for both options is very similar. The difference is in the
timing of the savings realized and the flexibility afforded to the Commission to take on
additional debt of $1 million. He stated that if the Commission wants to preserve its
maximum ability to borrow money in the future, then Option 2 should be chosen; if that
is not a priority, both are equivalent.
Commissioner Clark asked if Pipper Jaffray will get a different fee if one option is
chosen over another.
Mr. Gortler reported only an additional $870 would be charged by his firm if the City
decided to go with Option 2. He restated their neutrality on the matter.
Executive Director Lazzaretto summarized why staff recommended Option 2, as it
would provide a stronger income stream earlier and allow the Commission to make
improvements quicker. In addition, he commented that a larger savings at the end of
the bond term will not be worth the same in today's dollars.
Deputy City Manager Chi indicated that Option 2 is about $69,000 more expensive in
net current dollars than Option 1, but the City would gain more flexibility.
Chairman Taylor and Commissioner Clark asked for clarification about state laws which
affect Commission bonds.
Mr. Gortler explained that under the provisions of AB1069, agencies can refund debt
and use tax increment to pay debt until June of 2023. Agencies cannot issue new
bonds that mature past 2023. As such, Option 1 allows the City to maximize the
availability of tax increment revenues between now and 2023; it maximizes available
dollars between now and then gives the City the opportunity to borrow more money, but
doesn't obligate additional borrowing. Laws were summarized as follows:
AB 1290 was passed in 1994, sunsets redevelopment agencies, limits refinancing of
bonds, created a new set of guidelines and limits the opportunity to use tax increment to
pay debt until 2023.
AB 1069 was created to give agencies the ability to do refunding, but did not authorize
bond maturity extension past 2033.
The Rosemead CDC Redevelopment Plan sets 2023 as the deadline to issue new
money bonds.
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Chairman Taylor indicated he had a hard time justifying the lower savings to the City
and higher amount paid in interest to bond holders with Option 2. In addition, that
option would cost an additional $60,000 and the City would only gain the opportunity to
borrow an additional million and would still have to repay that debt and pay interest. He
indicated it was a waste of time to think of a bond issue of a million dollars. For these
reasons, he stated he could not support Option 2 and would vote for Option 1.
CDC Deputy Executive Director Saeki stated that both options will result in savings for
the City.
Commissioner Tran made a motion to approve Option 1, with a second by Chairman
Taylor. Vote resulted:
Yes: Clark, Imperial, Taylor, Tran
No: None
Abstain: None
Absent: Nunez
3. ADJOURNMENT
The next regular meeting is scheduled for December 19, 2006 at 7:45 pm.
Respectfully submitted: APPROVED:
Commission Secretary
CHAIRMAN
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