ExhibitsEXHIBITS
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~~~~~---j 10300 Torre Avenue
„ -,._;'.y Cupertino, CA 95014-3255
Telephone (408) 777-3220
Fax (408) 777-3366
CUPERTINO
DEPARTMENT OF ADMINISTRATIVE SERVICES
MEMORANDUM
DATE: October 20, 2009
TO: City Council
FROM: Carol Atwood
CC: Dave Knapp, Carol Korade
SUBJECT: Recommendation to cancel the special meeting of October 20th, 2009 due to
lack of business.
BACKGROUND
On July 28, 2009, Governor Arnold Schwarzenegger signed the 2009-10 California State
Budget in which cities, counties and special districts were required to lend property tax
revenues to the State, with the promise of repayment in three years. Cupertino's amount
approximated $1.4 million dollars which w:~s funded from General Fund reserves
($915,000) and the Equipment Replacement fund reserve.
As part of the budget package, and to lessen the hardship on entities not as well prepared to
handle this loan to the State, local governments were given the opportunity to receive the
monies borrowed upfront through a securitization financing offered by California
Communities, a joint powers authority sponsored by the League of Californian Cities and
the California State Association of Counties (CSAC). The plan is that California
Communities will issue bonds securitizing the suture payments by the State and remit the
proceeds of the bonds to the local governments who opt to participate. The State will then
repay the bondholders the outstanding bonds including interest costs. Key points include:
/ The purchase price paid to local agen~:ies will be 100% of the amount of the
property tax reduction without interest;
/ There are no costs of issuance to participating local agencies. All interest and bond
issue costs will be paid for by the State;
/ Participating agencies have no obligation on the bonds and no credit exposure to the
State;
/ Each interested agency must execute the agreement by November 6th (which is why
we have called a special meeting tonight: immediately after the regularly scheduled
City Council meeting);
PRINTED ON REC"GEED PAPER
/ Repayment proceeds to agencies will be mailed or wired on January 15th, 2010
(50%) and May 3rd, 2010 (50%).
Sounds too good to be true, which is why a~, of October 13, 2009, approximately 1125
agencies have enrolled in the program (57 counties, 354 cities and 714 special districts).
As I write this recommendation, I am trying; to understand the motivation behind this
program. The goal of California Communities is fairly clear, provide a means for agencies
that do not have these funds to be made wholes and avoid financial problems state wide. I
am still unable, however, to understand why the; State would agree to such a program. They
currently have approximately 8% of California agencies property tax for three years at an
annual cost of 2%. The bonds to be issued will be at a higher interest rate than 2%, thus the
State has signed up for higher financing co;~ts -out of the goodness of their hearts?
Hum....
In addition, the legal paperwork accompanying this process is complex and gives us no
recourse if California Communities does not rnake the required payments. Payment to us
would be contingent on the bond issuance process and we would have to go after the
trustee, Wells Fargo Bank, if not paid.
Finally, Cupertino is in a different situation than most of the State. We budgeted for this
scenario, we do not need the funds for ongoing programs at this time and the interest rate at
2% is higher than our current average investment portfolio rate. By keeping the loan with
the State, we know who and what we are dealing with and, if the State borrows again in
three years, we will have a large amount of the funds already on hand to re-lend.
RECOMMENDATION
We recommend canceling the special meeting of October 20th, 2009, due to lack of
business. We do not plan to participate in the; Proposition 1 A Securitization Program. If
additional information comes to the forefront tJ1at would change our position, we will bring
this back to City Council.
Submitted and Approved for submission by:
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Carol A. Atwood
Director of Administrative Services