Resolution No. 7744r
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RESOLUTION NO. 7744
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF VERNON AUTHORIZING THE ISSUANCE OF
DEBT SECURITIES TO FINANCE CERTAIN COSTS
RELATING TO THE ACQUISITION, CONSTRUCTION,
AND IMPROVEMENT OF ELECTRICAL GENERATION,
DISTRIBUTION, AND RELATED FACILITIES
WHEREAS, the City Council has approved and adopted the
Strategic Direction for Resource Procurement and Portfolio
Management, prepared by the Utilities Department, (the "Strategic
Direction"), for calendar year 2001;
WHEREAS, the Utilities Department has recommended, in the
Strategic Direction, that a portion of the City's future energy
requirements be satisfied by the development, acquisition,
construction and improvement of electrical generation assets and
related facilities, which may include, without limitation,
improvements to the City's local electric, gas and water distribution-
systems and the acquisition of required environmental assets (the
"Project");
WHEREAS, the City expects to issue debt securities to
finance the costs of the Project on a permanent basis (the "Debt");
WHEREAS, the City expects to expend moneys (other than
moneys derived from the issuance of the Debt) on expenditures
relating to the costs of the Project prior to the issuance of the
Debt, which expenditures will be properly chargeable to a capital
account under general federal income tax principles;
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WHEREAS, the City reasonably expects to reimburse certain
of such capital expenditures with the proceeds of the Debt;
WHEREAS, the City expects that the maximum principal amount
of the Debt which will be issued to pay for the costs of the Project
(and related issuance costs) will not exceed $175,000,000; and
WHEREAS, this Resolution is intended to be a "declaration
of official intent" in accordance with Section 1 150-2 of the
Department of Treasury Regulations of the United States of America.
NOW, THEREFORE`, BE IT RESOLVED BY THE CITY COUNCIL OF THE
CITY OF VERNON AS FOLLOWS
SECTION 1: The City Council of the City of Vernon does
hereby find and determine that the recitals contained hereinabove are
true and correct,
SECTION 2: The City Council declares, in accordance with
Section'1.150-2 of the Regulations issued by the Treasury Department
of the United States of America, its intention to issue Debt in a
principal amount not to exceed $175,000,000, the proceeds of which
will be used to pay for the 'costs of the Project, (and related
issuance costs); including the reimbursement to the City for certain
capital expenditures relating to the Project made prior to the
issuance of the Debt.
SECTION 3: The City shall,_, at the time of reimbursement of
certain: capital expenditures relating to the Project, evidence the
reimbursement in a writing which identifies the allocation of the
proceeds of the Debt to the City for the purpose of reimbursing the
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City for the capital expenditures made prior to the issuance of the
Debt.
SECTION 4: The City expects to make the reimbursement
allocation no later than eighteen (18) months after the later of (i)
the date on which the earliest original expenditure is paid or (ii)
the date on which the Project is placed in service (or abandoned),
but in noeventlater than three (3) years after the date on which
the earliest original expenditure is paid.
SECTION 5: The City shall not, within one (1) year of the
reimbursement allocation, use the proceeds of the Debt received in
the reimbursement allocation in a manner that will result in the
creation of replacement proceeds of the Debt or another debt
securities issue (as, for example, the City will not pledge or use
the proceeds received, for the payment of debt service on the Debt or
another debt securities issue; except that the proceeds of the Debt
can be deposited in a bona fide debt service fund).
SECTION 6: The City Clerk of the City of Vernon shall
certify to the passage of this Resolution and thereupon and
thereafter the same shall be in full force and effect.
APPROVED AND ADOPTED this 4th day of April, 2001.
ATTEST: ,/
BRUCE V. MALKENHORST, City Clerk
LEONIS C. MALBU G, Mayo
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STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES )
I, BRUCE V, MALKENHORST, City Clerk of the City of Vernon,
do hereby certify that the "foregoing Resolution, being Resolution
No. 7744, was duly adopted by the City Council of the City of Vernon
at a regular meeting of the City Council duly held on Wednesday,
April 4, 2001,and thereafter was duly signed by the Mayor of the
City of Vernon.
BRUCE V. MALKENHORST, City Clerk
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SUPPORTING
DOCUMENTS
CITY COUNCIL
LEONIS C. MALBURG
Mayor
THOMAS A. YBARRA
Mayor Pro-Tem
WM. 'BILL" DAVIS
Councilman
H. "LARRY" GONZALES
Councilman
W. MICHAEL MCCORMICK
Councilman
BRUCE V. MALKENHORST
City Administrator / City Clerk
FAX (323) 581-7924
City Council
City of Vernon
Honorable Members:
EDUARDO OLIVO
City Attorney
r /FAX:
(562) 927-8722
KEVIN WILSON
Director of Community Services & Water
FAX: (323) 588-2761
CITY HALL
4305 SANTA FE AVENUE, VERNON, CALIFORNIA 90058
TELEPHONE (323) 583-8811
March 28, 2001
KENNETH J. DeDARIO
Director of Municipal Utilities
FAX: (323) 583-1983
STEVEN E. PARKER
Fire Chief
FAX: (323) 581-1385
BRUCE W. OLSON
Police Chief
FAX: (323) 583-5236
Staff has been reviewing the matter of purchasing & installing electric
generating units that would serve the city's load. At this time it
would be prudent to proceed with a resolution allowing the city to take
official action to issue tax-exempt bonds to finance the cost of this
project.
This has been reviewed by our legal consultant, the Utilities
Department, and the City Attorney. It is hereby recommended that the
following submitted herewith be approved and adopted.
Very truly yours,
Bruce V. Malkenhorst
City Administrator/City Clerk
BVM/gjo
i CITY COUNCIL
LEONIS C. MALBURG
Mayor
THOMAS A. YBARRA
Mayor Pro-Tem
WM. 'BILL" DAVIS
Councilman
H. "LARRY" GONZALES
Councilman
W. MICHAEL MCCORMICK
Councilman
BRUCE V. MALKENHORST
City Administrator / City Clerk
FAX (323) 581-7924
March 27, 2001
CITY HALL
4305 SANTA FE AVENUE, VERNON, CALIFORNIA 90058
TELEPHONE (323) 583-8811
CONFIDENTIAL
ATMVOEY VMK PRODUCT
EDUARDO OLIVO
City Attorney
FAX: (562) 927--8722
KEVIN WILSON
Director of Community Services & Water
FAX: (323) 588-2761
KENNETH J. DeDARIO
Director of Municipal Utilities
FAX: (323) 583-1983
DAVE TELFORD
Fire Chief
FAX: (323) 581-1385
BRUCE W. OLSON
Police Chief
FAX: (323) 583-5236
To: Bruce V. Malkenhorst
City Administrator
Eddie Olivo
City Attorney
From: Eric Fresch �
Legal Counsel
Subject: City Council Resolution Declaring "Official Intent" to Issue Debt for
Generation Project
The attached draft resolution satisfies the federal tax law requirements for reimbursement bonds
and declaring "official intent" to issue debt. (internal Revenue Code Sections 103 and 141-150
and U.S. Treasury Regulations 1.150-2.) This resolution enables the City to issue debt
securities at a later time, (whether the transaction is structured as a bond issue or an installment
sale) to reimburse the City for moneys paid toward the cost of acquiring electrical generation
assets.
The United States Treasury has issued a body of rules, termed reimbursement regulations,"
which dictate how a governmental bond issuer may reimburse itself for costs paid before the
issue date of the bonds. The regulations require the City to adopt an official intent for the
original expenditure and make the reimbursement from the bond issue not later than 18 months
after the later of the date the original expenditure is paid or the date the project is placed in
service. The City essentially has three years to issue the bonds from the date the first original
expenditure is made toward the generators.
March 27, 2001
Page 2
All original expenditures must be for a capital asset or considered made for a capital
expenditure, under federal income tax law interpretations and Generally Accepted Accounting
Principles.
The City's resolution for official action must be made in a reasonable form, which the regulations
interpret to mean a specific legislative authorization. The official intent must generally describe
the property or project and'state the maximum amount of the obligations expected to be issued.
The project description must identify the name and functional purpose of the fund or account to
be reimbursed. In this case, it is sufficient that the description of the Project includes electrical
generation which identifies the Utilities Department as the fund advancing moneys toward the
Project and which shall be reimbursed with bond proceeds.
The City taking or adopting "official action" toward the proposed project is only the first step.
There are still many federal income tax issues to be resolved. Primary among these are the
"output" regulations and private activity rules of the Treasury Department.
Bonds issued by the City of Vernon bear tax-exempt interest (a significant savings in the cost of
capital for the Project) when the bond proceeds are used to finance essential governmental
functions. (Internal Revenue Code Section 103.) Bond interest is not tax-free, however, when it
is derived from arbitrage bonds, non -registered bonds or bonds that finance private activities to
an excessive degree. The federal government has issued numerous rulings and regulations
over what is an arbitrage bond or a bond that finance(s) private activities.
If the City successfully navigates through these regulations; the interest rate savings for a
project of this size could exceed several million dollars per year over the life of the project. How
the City characterizes the Project, existing utility assets, including power sales agreements with
generators and other utilities and future intentions regarding the use of the new generator could
make the difference in meeting the City's objectives.
I recommend that all City representatives working on this proposed financing review and agree
on what the City's positions will be before talking to underwriters, financial consultants, bond
and tax counsels, rating agencies, bond insurers; State of California Debt and Investment
Advisory Commission members and staff and any other interested party.
Finally, the passage of the official action resolution by the City Council does not obligate the City
to do anything. It merely gives the City the capability to issue debt if it chooses at a later time
for this defined "Project".
E F: rmt
c: Kenneth J. DeDario
Jorge C. Somoano
A
CITY COUNCIL
". LEONIS C. MALBURG m
Mayor
THOMAS A. YBARRA
Mayor Pro -Tern
WM. "BILL" DAVIS
Councilman
H. "LARRY" GONZALES
Councilman
W. MICHAEL MCCORMICK
Councilman
BRUCE V. MALKENHORST
City Administrator / City Clerk
FAX (323) 581-7924
CITY HALL
4305 SANTA FE AVENUE, VERNON, CALIFORNIA 90058
TELEPHONE (323) 583-8811
March 28, 2001
Mr. Bruce V. Malkenhorst
City Administrator
City of Vernon
4305 Santa Fe Avenue
Vernon, California 90058
Dear Bruce:
Subject: Electrical Generation Project Financing
EDUARDO OLIVO
City Attorney
FAX: (562) 927-8722
KEVIN WILSON
Director of Community Services & Water
FAX: (323) 588-2761
KENNETH J. DeDARIO
Director of Municipal Utilities
FAX: (323) 583-1983
DAVE TELFORD
Fire Chief
FAX: (323) 581-1385
BRUCE W. OLSON
Police Chief
FAX: (323) 583-5236
I recommend the City consider all available options in financing the cost of the proposed
electrical generation assets. I request your permission to meet with bank and institutional
lenders in connection with this transaction, in addition to the traditional bond underwriters, like
Steve Dworkin of Bear Stearns.
Recently, the State of California has proposed issuing billions of dollars in tax-exempt bonds for
power projects. This could impact the City's capability of obtaining its tax-exempt bond
allocation for a traditional bond issue for the Project.
I would like Kenneth J. DeDario, Jorge C. Somoano and me to meet with John Madden, a
principal of Bank of America's Investment Management Group, which includes power project
finance, about the City's electrical generation project. This Group finances close to 60% of all
merchant -generating plants in the United States. Bank of America provides an alternative
source of funding for the City to explore in order to finance the costs of the proposed generation
project.
I look forward to discussing these issues with you at your earliest convenience.
Sincerely,
Eric Fresch
Legal Counsel
EF:rmt
c: Kenneth J. DeDario
Jorge C. Somoano
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Banc of America Securities LLC
John R. Madden
CA5-705-04-03
Principal
555 California Street, 4th Floor
Investment Management 11244
San Francisco, CA 94104.1503
Tel 415.765.1856
fax 415.765.1817
john.r.madden@bankofamerica.com
BankofAmerica
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Official Sponsor Recycled Pape,