CITY OF RANCHO PALOS VERDES
FINA NCE ADVISORY COMMITTEE
SEPTEMBER 30, 2003
Chair Wolowicz called the meeting to order at 7:00 PM at the City Hall Community Room, 30940 Hawthorne Boulevard, for the purpose of conducting the business pursuant to the Agenda. Roll call was answered as follows:
PRESENT: Butler, Clark (arrived at 7:25 PM) Curtis, Wallace, Wolowicz
ABSENT: McLeod (Excused), Smith (Excused)
Also present were Director of Finance and Information Technology McLean; Accounting Manager Downs; and Senior Financial Analyst Gyves.
Chair Wolowicz thanked the committee members for attending the meeting on short notice.
APPROVAL OF AGENDA
The agenda was re-ordered to address the Infrastructure Financing Update after the Approval of Agenda and before the Utility Undergrounding Assessment District – Assessment Deferral Loans Update. Hearing no objection, Chair Wolowicz so ordered the approval of the Agenda as re-ordered.
INFRASTRUCTURE FINANCING UPDATE
Director McLean distributed the Global Needs Assessment Survey "Report of Findings" dated July 2003.
Chair Wolowicz mentioned that when others have asked him about the FAC’s recommendation to remove the infrastructure related questions from the survey, he has replied that the issue was too complex to be adequately covered in a couple of sentences.
Director McLean informed the FAC that City staff interviewed and selected a Financial Advisor over the summer. There were two finalist firms and staff decided to retain Fieldman, Rolapp & Associates. Director McLean noted that Member Clark has worked with Fieldman, Rolapp & Associates in the past and is familiar with their work. Staff deliberately interviewed key staff persons from the finalist firms to ensure that all members of staff would be comfortable working with the Financial Advisor.
Director McLean noted that the project kick-off meeting has been scheduled for October 9, 2003. Director McLean expects the following persons will attend the kick-off meeting:
Director McLean explained that staff would work with the Financial Advisor to fine-tune the Matrix of Financing Alternatives (Matrix) and strategize the best approach to present Financing Alternatives to the City Council.
Chair Wolowicz inquired about scheduling the first workshop with the City Council.
Director McLean replied that Financing Alternatives would likely be presented to the FAC in December 2003 in preparation for presentation to the City Council in January 2004.
Member Butler inquired about the FAC’s role in the remainder of the project.
Director McLean explained that staff would present a refined Matrix to the FAC for their input at the December FAC meeting. Director McLean also stated his expectation that staff and the Financial Advisor will develop ideas regarding the Matrix and the FAC can help shape those ideas at the December 2003 FAC meeting, prior to the City Council workshop.
Member Butler inquired about whether the City Council workshop would be a Public Forum.
Director McLean replied affirmatively that the City Council workshop will be a public forum; and added that the City Council and the Public will be able to provide feedback regarding priorities.
Chair Wolowicz added that the City Council workshop would likely be a "presentation only" meeting. Chair Wolowicz inquired about the need for Vice-Chair McLeod and Member Clark to attend the kick-off meeting scheduled for October 9th.
Director McLean explained that the kick-off meeting should only include staff and its advisors. The Financial Advisor will first need to help develop a consensus amongst staff regarding the best approach to Infrastructure Financing.
Member Butler agreed that it is an important first step for staff to develop a unified approach to the project.
Director McLean informed the FAC that the City has retained consultants to perform the sewer cleaning and filming project, as well as the Storm Drain Master Plan Update. Director McLean further noted that staff expects the work for both projects will be performed early in 2004.
Chair Wolowicz requested that staff develop a project calendar to include anticipated work of consultants, meetings, and other project milestones. Chair Wolowicz agreed that staff should first focus on building a consensus regarding approach to the project. Chair Wolowicz expressed his desire for the FAC to be used as a sounding board throughout this project; and that he believes the last presentation to the City Council regarding Infrastructure was improved by the FAC’s input.
Member Butler inquired if staff expects that infrastructure financing will cover roads, sewers and storm drains.
Director McLean replied that the decision has not yet been made.
Member Clark expressed her pleasure to hear that Fieldman, Rolapp & Associates have been retained as the Financial Advisor to the City. Member Clark explained that she has worked with the firm before and believes they are very competent.
Director McLean informed the FAC that he believes a final Infrastructure Financing Alternatives report will be presented to City Council during Summer 2004 at the earliest.
Chair Wolowicz noted that he would like to have broad parameters of the project included in the project calendar.
Member Butler inquired about the continued existence of the FAC Infrastructure Financing Subcommittee.
Director McLean replied that the Subcommittee would continue to exist if that is the desire of the FAC.
Chair Wolowicz noted that he prefers having the Subcommittee participate in the project after the kick-off meeting of October 9th, if the Subcommittee agrees. Chair Wolowicz also noted that he would like the Subcommittee to review staff’s ideas and documents prior to the FAC’s receipt of the December FAC meeting agenda packet.
Director McLean replied that he would provide project materials to the Subcommittee prior to the December FAC meeting.
Chair Wolowicz added that he would like to have two weekends to review the agenda packet prior to the December FAC meeting.
Director McLean expressed that providing the materials that early would be difficult, but he would try to accommodate the Chair’s request.
Member Butler offered the FAC’s assistance prior to the December FAC meeting.
Chair Wolowicz offered additional "on-call" meetings of the FAC prior to the December FAC meeting.
Director McLean explained his expectation that the Matrix will not likely change much prior to the December FAC meeting. He believes a PowerPoint presentation will be developed.
Chair Wolowicz noted that this project would require dissemination of information to the public at some point in time. Chair Wolowicz inquired if the Financial Advisor will help staff develop a strategy for the Public Information Campaign.
Director McLean replied that the Financial Advisor will likely help staff select a Public Relations consultant to perform the Public Information Campaign; which may include a survey of the City’s residents.
Chair Wolowicz suggested that the Public Information Campaign is more important than the FAC’s understanding of infrastructure financing issues. Chair Wolowicz added that he was concerned that Palos Verdes Estates residents thought they were "back-doored" on that City’s recent decision to bring an infrastructure-financing proposition to the ballot.
Chair Wolowicz inquired if the City’s engineers will incorporate the City’s costs of meeting the State water run-off mandates in the Financing Alternatives project.
Director McLean replied that the issue has not yet been discussed.
After general discussion of availability, the FAC agreed to schedule the December FAC meeting for December 10, 2003.
Member Curtis inquired if the FAC will receive any Infrastructure Financing information at the November FAC meeting.
Director McLean replied that staff would not likely be prepared to offer much information regarding this project at the November FAC meeting.
After general discussion of availability, the FAC agreed to schedule the November FAC meeting for November 19, 2003.
APPROVAL OF DRAFT MINUTES FOR THE MEETING CONDUCTED JUNE 25, 2003
Chair Wolowicz requested a motion to approve the minutes as presented. Member Butler moved and Member Wallace seconded the motion. The June 25, 2003 FAC meeting minutes were approved as presented.
Member Clark asked Member Butler to clarify if property tax redistribution requires legislative action.
Member Butler replied that the City Attorney opined that legislative action would be required to modify the property tax allocation.
UTILITY UNDERGROUNDING ASSESSMENT DISTRICT – ASSESSMENT DEFERRAL LOANS UPDATE
Chair Wolowicz noted that two Homeowner’s Associations (HOA’s) are seriously considering undergrounding neighborhood utility lines. Staff has provided the FAC’s February 2002 report to the City Council to the HOA’s for background information.
Director McLean explained that the City is motivated to develop a program for assessment deferral loans. He further explained that no other California city has an assessment deferral loan program. Other cities simply direct homeowners to the State’s property tax postponement program.
Director McLean reminded the FAC that when the assessment deferral loan program was first reviewed by the FAC, age and income were considered for use as eligibility criteria. In addition, Director McLean reminded the FAC of the two loan options: The Annual Option (a commitment to fund the loan is made annually by the City) and the Deferral Fund Option (a commitment is made at the onset of the assessment and the entire stream of assessment payments are deposited on behalf of the homeowner).
Director McLean noted that since the FAC’s last review of assessment deferral loans, staff has learned that fixed income property owners will not likely participate in the formation of a Utility Undergrounding Assessment District (UUAD) unless there is a long-term commitment from the City. Director McLean further noted that staff instructed the City Attorney to research the legality of making a long-term commitment without depositing the entire stream of assessment payments. The City Attorney opined that this approach is not legal.
Director McLean reminded the FAC that City funding of assessment deferral loans would come from the General fund. Director McLean added that the City does not have the option to deposit the present value of the entire stream of payments.
Director McLean described the City’s Home Improvement Loan Program to the FAC and further explained that the City pays a consultant $24,000 annually to administer the loan program. Staff believes the assessment deferral loan program would be more complex, require more administration time and ultimately cost the City more to administer.
Chair Wolowicz inquired if this information would be reduced to writing in a report to City Council.
Director McLean replied that the information would be included in a staff report to the City Council dated October 7, 2003. Director McLean reminded the FAC that the FY03-04 adopted budget includes a reduced Capital Improvement Project program, and that the City’s financial position is now different than when the FAC first reviewed this issue. Director McLean noted that In light of the State economy and its impact on the City, staff would recommend the City Council reconsider the feasibility of offering assessment deferral loans. Director McLean further noted that staff would suggest that residents would not likely participate in the formation of a UUAD if the Annual Option for assessment deferral loans were selected by the City Council.
Director McLean further explained that based on discussions with the president of an interested HOA, there is more interest in an assessment deferral loan program than the 9% of homeowners estimated by staff based on U.S. Census information.
Director McLean offered that the recommendations to the City Council include seeking direction for inclusion of an assessment deferral loan program in the draft UUAD guidelines and instructing the FAC to attempt to develop an assessment deferral program that minimizes or eliminates the use of General funds.
Chair Wolowicz noted that he attended a meeting of one of the interest HOA’s. He discovered that many working couples with children would be interested in obtaining an assessment deferral. Chair Wolowicz suggested the City Council would need to address these residents’ desires to defer assessments to obtain the majority vote required to form a UUAD.
Member Curtis requested clarification regarding the vote needed to form a UUAD.
Director McLean replied that a vote of the homeowners within the proposed district is required to form a UUAD. Director McLean further explained that an interested HOA might be able to create a smaller UUAD than the entire HOA to enable majority passage. Director McLean added that there are currently no adopted guidelines.
Member Curtis inquired if a minority of homeowners within a proposed UUAD could dissent and still be obligated to pay the assessments.
Director McLean replied affirmatively.
Member Butler expressed his opinion that an assessment deferral loan program would only provide aid to a small percentage of people to enable utility undergrounding.
Chair Wolowicz inquired if the City can borrow money on behalf of the homeowners to pay assessments.
Director McLean stated that issuance of City debt for that purpose is not possible because there would be no City revenue stream dedicated to pay for the debt.
Member Curtis inquired if the City Council must approve formation of a UUAD.
Director McLean replied affirmatively; and explained the process to issue debt and pay it back with property tax billings using a debt vehicle such as 1915 Act bonds.
Member Curtis suggested that there should be a third recommendation to both move forward with adopting guidelines without provisions for assessment deferral loans and direct the FAC to develop a program that minimizes or eliminates the use of General funds.
Member Clark suggested that the FAC’s assignment and finalization of the guidelines could happen concurrently and asserted that the FAC’s review could take as little as one month.
Member Wallace offered that financing assessments might be possible, but not attractive due to debt discounting and negative arbitrage resulting in high interest rates.
Chair Wolowicz suggested that no UUADs would be formed without an assessment deferral loan program.
Member Clark suggested that a study be performed to prove that property values will increase if utility lines are undergrounded.
Chair Wolowicz agreed that UUAD guidelines should be finalized without consideration of assessment deferral loans holding up the process. Chair Wolowicz also suggested that the recommendations to City Council should include: 1) Release of UUAD guidelines as soon as possible without provisions for assessment deferral loans; and 2) Instruction to the FAC to perform a quick review of assessment deferral options and make a recommendation to the City Council. Chair Wolowicz also suggested that residents should be informed that infrastructure needs might require additional assessments in the next couple of years.
Director McLean offered that, subject to the City Council’s direction at the October 7, 2003 meeting, the FAC can brainstorm assessment deferral options in anticipation of agendizing the matter for the October 22, 2003 FAC meeting.
Chair Wolowicz inquired if there are any State laws preventing City Council from setting any parameters on eligibility criteria.
Director McLean replied that he would investigate the matter.
Member Curtis inquired about the City’s motivation to offered assessment deferrals.
Director McLean replied that two HOA’s have made repeated inquiries with the City and have been very patient while waiting for the City’s decision.
Member Butler suggested the FAC might need to make inquiries with the City Attorney during their potential review of assessment deferrals.
Director McLean stated that he would ask Deputy City Attorney Harris to attend the next FAC meeting; and he would ask the City’s Financial Advisor to brainstorm ideas for this project.
Chair Wolowicz agreed that the recommendations to City Council should be restructured to include the third option of finalizing UUAD guidelines without loan provisions and instruct the FAC to review assessment deferral options.
Member Butler moved and Member Curtis seconded a motion to approve staff’s recommendations to the City Council.
Director McLean added that he inquired with the City Attorney regarding the possibility of the City simply paying the homeowner’s assessment on their behalf and taking a security position on their property. The City Attorney opined that option is not legal. Director McLean suggested that perhaps the FAC should inquire if an outside lender could do this.
Chair Wolowicz encouraged Member Clark and Member Wallace to investigate the use of an outside lender prior to the October FAC meeting.
STATE BUDGET UPDATE
Senior Analyst Gyves orally updated the FAC regarding the effect of the State Budget Crisis on the City. He noted that City losses of State shared revenue include at least $600,000 of Vehicle License Fee revenue, an Educational Relief Augmentation Fund shift of $35,000, High-Technology law enforcement equipment grant funds of between $20,000 and $40,000, COPS grant monies of $14,000, Traffic Congestion Relief monies up to approximately $110,000, and State Mandated Cost Reimbursements of approximately $20,000.
In addition, Senior Analyst Gyves noted that recently a Sacramento Superior Court judge blocked the sale of $2 Billion of bonds for the State Pension fund; which could jeopardize a larger sale of $10.7 Billion of State bonds. Ultimately, if the State is unable to issue these debts, the State may lack sufficient cash flow to remand payments to local agencies, including the City.
Chair Wolowicz asked that Senior Analyst Gyves State Budget Update notes be included as an attachment to the minutes of this meeting.
REPORTS BY LIASONS
Member Wallace reported that the State reached an agreement to purchase the Ahmanson Ranch; which will decrease the amount of State funds available to use for open space purchases.
There were no public comments.
Member Curtis moved and Member Butler seconded a motion to adjourn the meeting at 9:25 PM.
Chair, Financial Advisory Committee
Kathryn Downs, Recording Secretary