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HomeMy WebLinkAboutSR - Energy Indpen Loan - Audit, Invtmnt & Fin Recmndns �xtsc:Ie�r.sc:n��� * Continued to the meeting of January. 22, 2009, and referred the matter to the Audit, Investment � Fina�ce ��s����Y�q�.J._L,���..�.�,____ Committee for further review and reco�nendation, � ���� ,`� including the Riverside County proposal. ��j b;e����y','� U 4-0 (Finerty Absentj CITY OF PALM DES R� �f�S�€D Tp 2i��3 R�1����� FINANCE DEPARTME Staff Report REQUEST: ACCEPT THE RECOMMENDATION OF THE AUDIT, INVESTMENT & FINANCE COMMITTEE RELATIVE TO THE ENERGY INDEPENDENCE PROGRAM TO CONTINUE TO MOVE FORWARD WITH NEGOTIATION OF PROPOSALS RECEIVED FROM WELLS FARGO BANK AND RENEWABLE FUNDING, AND, IF RESULTS ARE NOT SATISFACTORY TO PROGRAM NEEDS, ISSUE A REQUEST FOR PROPOSALS TO LOCATE ADDITIONAL FUNDING SOURCES SUBMITTED BY: PAUL S. GIBSON, FINANCE DIRECTOR DATE: DECEMBER 11, 2008 CONTENTS: DRAFT MINUTES OF THE AUDIT, INVESTMENT & FINANCE COMMITTEE SECTION V, I, RELATIVE TO ENERGY INDEPENDENCE PROGRAM Recommendation: By Minute motion, that the City Council accept the recommendation of the Audit, Investment & Finance Committee to: 1. Work with the two proposals obtained from Wells Fargo Bank and Renewable Funding; 2. If the results are not satisfactory to program needs, issue an RFP to obtain additional respondents; and 3. Suspend committing additional funds to projects when staff is uncertain how it will be covered. Background: At the Council meeting of November 20, 2008, Council directed the Audit, Investment & Finance Committee to review the proposals received for funding of the Energy Independence Program, and to determine if a formal process should be followed to issue a Request for Proposals. The Audit, Investment & Finance Committee met on November 25, 2008 and reviewed the information provided. Member Ortega provided a summary to the Committee of the events of the Council meeting, and related the processes of funding that each of the two companies concerned, Wells Fargo Bank and Renewable Funding, had proposed. The following points were voiced at the meeting: G:\Finance\Niamh Ortega\Staff Reports\Energy Independence Program proposal acceptance and negotiation 121108.docx Staff Report Energy Independence Program Proposal Acceptance & Negotiation December 11, 2008 Page2of2 • The Agency's and City's funds are not intended to be used for long-term funding, and while the City has funds available in the amount of $400 million, all but $75 million is designated as restrictive use. Alternative funding sources must be located in order to secure these funds for a period of up to 20 years. • Due to the state of the current market, the City would not be able to secure a fixed loan, and the variable rate offered by Wells Fargo would be acceptable upon negotiation of the terms. It was also pointed out that the bonds issued in 2007 could not be sold in today's market. • The City Manager recommends against accepting the initial offer made by Renewable Funding as it would result in the City owing more than was loaned, but he indicated he would be open to negotiating an alternative. • A formal Request for Proposals (RFP) may not return any additional qualified responses as the market has shrunk. Wells Fargo indicated that if the City issued an RFP, it would consider making a proposal again. Additionally, in the current market, the same responses may not be available if staff chooses to wait for the RFP process to run its course. It was noted that every bank with which the City currently has a banking relationship was approached for funding, and Wells Fargo was the only bank that the City has a history with that responded favorably. • Local banks would not be able to provide a twenty-year loan on their own merit, and at a specified dollar amount would have to participate out to a bigger bank. A twenty-year loan may be possible if they take the approach that it would be renewable every three to five years. • Member Loog stated that if a bank was willing to commit, the City should immediately work towards getting that tied in for at least a portion, and look for others in the meantime, especially given that there is no prepayment penalty with Wells Fargo and the agreements would not need to be exclusive. • It was agreed that there should be some type of cap on funding programs available to residents until there is financing in place, and that it was important to protect the City's finances in the current market. It is the Committee's recommendation that Council authorize staff to negotiate the two existing proposals and then move forward with issuing an RFP if the results are unsatisfactory. The Committee also recommends that the City suspend financing programs available to residents until such time as sufficient funding is available. Submitted by: � Paul S. Gibson, Finance Director Carlos L. O a, City Manager AUDIT, INVESTMENT, AND FINANCE COMMITTEE MINUTES NOVEMBER 25 2008 F. PALM DESERT GOLF COURSE FACILITIES CORPORATION FINANCIAL REPORTS FOR OCTOBER 2008 Mr. White reported that numbers were down again in October. The sales volume did not exist to bring up the numbers for the month. The revenue mix has also changed. People are still coming to Desert Willow, but they are not spending the same money. November's trend is that the numbers will narrow the gap between budget and actual revenue. It was noted that the golf course has agreements in place with local hotels for discounted rates, and the resident discount is always lower than that discount. G. 457 DEFERRED COMPENSATION PLANS���� & RETIREMENT HEALTH SAVINGS PLAN The report was received and filed. H. INFORMATIONAL ARTICLE RELRTIVE TO FINANCIA�. STATE OF CITIES IN NORTHERN CALIFORNIA The article was received and filed. I. REVIEW STAFF REP(ORT,RELATIVE' Tp FINANCING FOR THE CITY OF PALM DESERT'S ENERGY INDEPENa�NCE PROGRAM AND PROVIDE DIRECTION TO STAFF �� �, � �� : ���;`' , . °::� A , Member°'C),�feg�, r,eviewed �'��that Courr�il�ah�s cre�t�d a vehicle by which the Redevelop'ment �gency were able to buy an instrument from the City, and the Council has adopt�d regulations;by which that' could happen through a direct placement of a bond!;;by the City with the Agency for $5 million. Previously, the City Council had advarlced $2.5 million to the Energy Program for the same purpose of m�king` loans to homeowners for improvements. They are not ' intended'to be for fong-term financing, and it was not intended that the Agency's funding be out for 2Q,years. Member Ortega, as City Manager, recommends that a long-term funding source be secured so that the City's and Agency's funds are not tied up for'an extended period of time. It was also noted that while the City has. $400 million available,''all but $75 million is designated for restrictive use. Additionally, the Ag,ency's $5 million is being treated as a form of investment in the pro��am and,is�not intended to be viewed as a true loan. Staff contaete�I �ocal and national banks regarding the project. As a result of Assembly Bil!I'$11, there is a new firm, Renewable Funding, which is willing to make loans for this purpose. Both Wells Fargo and Renewable Funding have issued a proposal for the program. Council has requested that the Audit, Investment & Finance Committee review the information and determine if a Request for Proposals should be issued, as they were not comfortable with dealing with only two proposals without a formal process being followed. The Wells Fargo loan is a lease-leaseback loan, where the City offers facilities as security because State law does not allow the City Council to put the City's General Fund as security. The bank issues the funds to the City, which loans the 3 AUDIT, INVESTMENT, AND FINANCE COMMITTEE MINUTES NOVEMBER 25 2008 funds to the homeowners and is paid back to the City by the homeowners. This is practiced with the County on a regular basis. Renewable Funding is a new company, and the City would be the company's second client. The company offers to buy the loans from the City in the form of notes, and is also a variable rate. Loans made to homeowners are at a fixed rate of 7%. They also made an offer for the initial $2.5 million which the City Manager recommends against as the City would owe more than what was loaned. It was noted that while the City would prefer to not subsidize the loans, it was a possibility. The reason the item is before the Committee iS to determine if an RFP should be issued to determine if there are other parties'interested in funding the program. Mr. Gibson cautioned that the bond mark�t th�t the City issued Tax Allocation bonds in 2007 could not be sold in the current market. He highlighted the market has shrunk, and he does not know vuho would be able to respond favorably to the City. Mr. Ortega also mentioned h`e'�clid not know what other responses would be received for this program, which i� essentially a 20-ye�r rnortgage. Wells Fargo indicated that if the City went out fdr proposals,, they would consider making the proposal again. , Member Spiegel pointed out that the $2''S rnillion provided as part of AB 811 was made available in August, �nd was committed by the end of September. Due to the program's success, the Redevelopment Agency put forward an additional $5 million and that is 50% committed. He noted th�t citizens, even in tough times, are willing to make these improveme�ts and,put it on their property taxes as an assessme�it to pay it back. L'ocal banks will not provide long-term loans, as they work on �hort-term Ioans. Additionally, the City would not be able to secure a fixed loan dwe to the state of the market. Mr. Ortega stated that the current state of the program is lo�rting long-term money while the City's money is only short- term, so the Ci�y n�eds td have a source of long-term money. . Member'McCarthy �tated that there are two issues being explored. There is a significant spr,��d betvv�e� the 7% and the variable rates, so there is the ability to create a resei�i�;�;that off'��#s any negative arbitrage that might occur. There is a s�bsequent dis�u��ion occUrring with Wells Fargo where they have indicated a wiilingness to allow the City to purchase a cap. There is the ability to cap either at or slightly below 7% in an effort to create a synthetic fixed rate. There is a question as to wiiether the spread between the 7% and the variable rate is enough to offs`et fhe cost of the cap, and that has not yet been answered. Mr. Wood asked if any other banks had been approached for funding, and Mr. Gibson responded that every bank with which the City currently has a banking relationship had been approached, and all with the exception of Wells Fargo indicated that they could not provide funding. He added that a Request for Proposals may not return anything better and the process would not be completed prior to January. Ms. Loog offered to check with JP Morgan to determine if they would be able to fund the program. 4 AUDIT, INVESTMENT, AND FINANCE COMMITTEE MINUTES NOVEMBER 25 2008 Mr. Ortega indicated that it was necessary to put funding in place, and waiting for the return of the RFP may result in the current offer from Wells Fargo expiring since it is not signed or locked in. The $7.5 million that is currently allocated to the Energy Independence Program would not be required for other programs in the next two years. He also indicated that it was possible to work with both banks that currently have issued proposals, and possibly have them work together. The agreement would not be exclusive. Ms. Loog stated that if a bank was willing to commit, the City should immediately work towards getting that tied in for at least a portion, and look for others in the meantime. Mr. Ortega stated that he asked Ken Dieker, the City's consultant, if there was a prepayment penalty with Wells Fargo and he said no, so something could be negotiated for up to $5 million. Curre'ntly, they are willing to offer up to $10 million, and Mr. Ortega suggested that the City work with Wells Fargo to find a way to make the funding work for both�parties.; Ms. Loog pointed out that the City should have the commitment''from Wells Fargo in case the City does not receive anything else because on�e�the commitment'is out there it is unlikely that the bank would cut the offer. Mr. Gibson asked Ms. Loog if local banks could provide this,type of loan. Ms. Loog responded that.�ocal banks only have a limit up to a certain amount and then would have to parti�i�ate out to another bank. A 20-year loan could be done by local banks, but it wauld likely be renewabl� every three to five years. � ��; Mr. Wood �sked why the�',Gity coriirr��tte�1 the mo�ey before they knew if there was any ���I�ing;�Mr. Ortega���•,��espond��l�{�t�t this i�;� new program and staff did not e�pE�t�t the h'igh;�l�vel of dema�d �r`the prp�ram. There are sufficient funds to provide (oans to th�se homeowr��rs who have `already signed a contract. Once staff reali�ed the le�rel of demand #hey went out in the market and looked for long-term fin�ncing �n� received twq responses. He stated that Council is asking th� 'Committee t4 determine if it is necessary to go back into the market and deterrnine if there:are any oth�r agencies that will come back with a proposal. He indicated fhat this is acceptable, but that the Committee should be aware that there is a risk that the credit markets might change, and what is available now may not be av�iiable in rnid-January or February. He expressed concern over loaning money out;with short-term funding. Mr. Gibson asked if staff should prepare an RFP or if they should look at the offer from Wells FargO: Mr. Ortega, Ms. Loog and Mr. Wood responded that staff should do both. Mr. Wood stated it was important that both be checked out and see what cart'be done. Ms. Loog added that staff should negotiate whatever deal is possible in order to secure the commitment as long as there is no prepayment penalty. Mr. Wood added that he would like a stipulation on the motion that the City put a hold on future advances of money until the City is sure they can obtain financing, and Ms. Loog agreed that there should be some type of cap until there is financing in place. Mr. Ortega clarified that the only loans that have been signed are for the initial $2.5 million. Beyond that, people are on the waiting list even though the $5 million is available. Ms. Loog said that it was important to protect the City's finances in the current market. 5 AUDIT, INVESTMENT, AND FINANCE COMMITTEE MINUTES NOVEMBER 25 2008 Mr. Ortega clarified that the motion was to work on the two existing proposals and then go forward with an RFP if needed. MOTION made by Member Wood, seconded by Member Loog, and unanimously approved that staff should: 1) work with the two proposals obtained from Wells Fargo Bank and Renewable Funding, and, if the results are not satisfactory to program needs, 2) issue an RFP to obtain additional respondents, with a stipulation that the City not commit additional funds when staff is uncertain how it will be covered. VI. CONTINUED BUSINESS " None. '� VII. OLD BUSINESS A. PUBUC AND PRIVATE PARTN�RSHIP BACKGROUND C'HECKS No report. B. PALM DESERT FINANCINC� AUTHORITY BOND ISSUANCE The Energy Independence Program is the pnly program currently under consideration for bond issuance. VIII. MEMBER COMMENTS None. IX. ADJOURNMEN�" � , Th�re being no furtfile��busin����:this meeting, upon motion duly made, seconded and carried was adjourned �t 10:52 a:r�h', to the next regular meeting of December 23, 2008. � Niamh Ortega, Recording Secretary 6