PURPOSE:

The purpose of this report is to request that the City Council conduct a public hearing and take related actions to: 1) form the City of Burbank Community Facilities District No. 2005-1; 2) levy the special tax on property owners in the District; and 3) issue and sell special tax bonds in an amount not-to-exceed $6,400,000 to finance certain costs of The Collection Public Parking Facility. This report also requests the Redevelopment Agency Board to adopt a resolution approving certain documents related to such bonds.

BACKGROUND:

On November 23, 2004, the City Council and Redevelopment Agency Board approved an Amended and Restated Owner Participation Agreement (Champion Development, Inc.) (the �Champion OPA�), a Second Implementation Agreement to the Owner Participation Agreement (Burbank Entertainment Village, LLC-AMC), and other documents relating to the proposed development of the Phase II site of the Burbank Entertainment Village Project (the �Project�) by Burbank Collection, LTD., a California limited partnership formed by Champion Development, Inc. (the �Developer�).

Under the Champion OPA, the Developer is required to construct a mixed-use project which includes 118 residential units, approximately 40,000 square feet of commercial uses and a six-level parking structure on the Phase II site.  The parking structure (the �Parking Structure�) will consist of parking spaces required for the residential condominium and commercial components of the project and 278 public parking spaces. Because of its design, the Parking Structure will include two more public parking spaces than the 276 spaces required by the OPA. The Parking Structure will be subdivided into three legal components: a component to be owned by residential condominium owners, a component to be owned by the commercial owner of the Project and the public parking component to be owned by the City (the public parking component is hereinafter referred to as the �Public Parking Facility�). Once construction is completed, the Developer is required to convey the Public Parking Facility to the City. The commercial component of the Parking Structure, despite its private ownership, will be required to be open to the public on a non-reserved, non-exclusive basis for those hours designated for public parking in accordance with Downtown parking standards. The Parking Structure will connect to the existing Orange Grove parking structure.

Under the Champion OPA, the Developer is required to pay the costs of all improvements on the Phase II site, including the Parking Structure. However, the Redevelopment Agency is required to provide Community Facilities District (�CFD�) financing that will generate $5 million in net proceeds  (exclusive of reserve funds, issuance costs and capitalized interest) to finance a portion of the costs of constructing the Public Parking Facility. Following the completion of the Public Parking Facility, annual debt service on and annual administrative expenses in connection with the CFD financing will be paid from 75% of the tax increment generated by the Phase I and Phase II improvements.  Annual debt service is anticipated at approximately $670,000 per year beginning in FY 2009.

According to Keyser Marston Associates, tax increment generated from Phase I and Phase II improvements is estimated at $934,000 in FY 2008 after Phase II is completed. Therefore, it is anticipated that tax increment revenues will be sufficient to pay annual debt service and administrative costs on the CFD bonds. To the extent that tax increment revenues are insufficient to pay all CFD obligations, the remaining amount of annual debt service and administrative expenses will be paid from special taxes levied and collected by the City on certain property in the CFD. The Redevelopment Agency�s obligation to contribute tax increment will be triggered upon completion of the Public Parking Facility.

In May 2005, the City adopted Article 20 of Chapter 14 of the Burbank Municipal Code to provide for the establishment of community facility districts in the City. As a charter city, the City�s authority is independent of that granted under the Mello-Roos Community Facilities Act of 1982, as amended, constituting Sections 53311 et seq. of the California Government Code.

On September 13, 2005, the City Council took the initial steps toward the implementation of the CFD financing required under the Champion OPA by adopting two resolutions of intention. The first one was a Resolution of Intention to Establish the CFD.  This resolution: 1) described the proposed boundaries of the CFD, the public improvements (i.e., the Public Parking Facility) to be financed,  the proposed levy of the special tax described in the Rate and Method of Apportionment, and the proposed issuance of bonds; 2) directed the Interim Financial Services Director to prepare a report regarding the proposed financing (the �CFD Report�); 3) set a public hearing date of October 25, 2005; and 4) designated certain firms to represent the City. The second resolution was a Resolution of Intention to Incur Bonded Indebtedness. This resolution evidenced the City�s intention to issue bonds for the CFD.

ANALYSIS:

Community Facilities District financing, also known as �Mello Roos� or special tax bonds, typically involves the issuance of bonds that are payable from a special tax levied on the property owners in the CFD. The tax rate is set at a level that will generate sufficient special tax revenues to pay annual debt service on the bonds. The special tax is collected on the same bill as the private property owner�s ordinary ad valorem property taxes, or by direct billing of the property owners in the CFD. The special tax is secured by the recordation of a continuing first lien on all non-exempt property in the CFD. If the property owner does not pay its special tax on a timely basis, the City is obligated to commence foreclosure proceedings to collect the delinquent special taxes. However, as stated earlier, it is anticipated that tax increment revenues from Phase I and Phase II improvements will be sufficient to pay all CFD obligations.  Under the Champion OPA, bond proceeds in an amount not to exceed $5,000,000 will be released to the Developer as reimbursement for a portion of the costs of the Public Parking Facility (once the Phase II improvements are complete and the minimum value to lien ratio of 3 to1 is met).  A summary of the flow of funds is attached as Exhibit A to this report.

The credit of a CFD is often based on its �value to lien� ratio, which compares the appraised value of the private property in the CFD to the principal amount of the CFD bonds. The minimum value to lien ratio of CFD bonds (exclusive of escrowed funds) is typically at least 3 to 1.  Based on an estimated bond amount of $6,150,000, the value of the private property subject to the special tax lien would need to be at least $18,450,000 for the release of the entire $5,000,000 to the Developer.  If a lesser value is achieved, a smaller amount of bond proceeds would be released to the Developer and any funds not released will be used to redeem the bonds.   The developer currently anticipates that the appraised value of the private property subject to the special tax will be about $23,000,000.

Before the City can issue special tax bonds, it must form the CFD to be known as �City of Burbank Community Facilities District No. 2005-1 (The Collection Public Parking Facility)� and have the special tax approved by the property owners in the CFD. The sole property owner in the CFD is Burbank Entertainment Village, LLC, an AMC entity, which will sell the property to the Developer for the development of the Project on the day before the Bond closing, which is now expected on December 22, 2005 (to allow for the Developer to meet its lending requirements). Once approved, the special tax is levied by ordinance. This process involves both a public hearing and a special election among the CFD property owners.

The City Council will be asked to take the following actions:

• Conduct the public hearing

• Adopt the Resolution of Formation of the CFD

• Adopt the Resolution of Necessity to Incur Indebtedness

• Adopt the Resolution Calling for the Special CFD Election

• Hold the Election

• Introduce Ordinance Levying the Special Tax

• Adopt the Resolution approving the legal and disclosure documents necessary to issue the Bonds

In addition, the Agency is asked to adopt a resolution approving certain of the disclosure documents necessary to issue the Bonds.

CFD Report. On September 13, 2005, the City Council directed the Interim Financial Services Director to study the proposed Public Parking Facility and the Champion OPA, and to prepare and file with the City Clerk a written report containing the following:

(a)     A brief description of the Public Parking Facility;

(b)     An estimate of the cost of financing the Public Parking Facility, including any incidental expenses, and the costs of the proposed bond financing and annual administration.

The CFD Report, filed with the City Clerk, shall be made a part of the record of the public hearing required for this transaction. 

The CFD Report indicates that the estimated bond size as of October 25, 2005 will be $6,150,000, compared with an authorized amount of $8,000,000. It shows that the estimated uses of bond proceeds will be as follows:

The estimated bond size is lower than the maximum amount ($8,000,000) reflected in the Resolution to Incur Bonded Indebtedness adopted on September 13, 2005. The principal reason for the reduced borrowing need is that the Developer will fund interest during construction (through March 1, 2008) with its own funds rather than through �capitalized interest� funded from Bond proceeds.

The reserve fund is required by the bond market for added security to bondholders. The reserve fund is sized at 10% of the par amount of the Bonds. A reserve fund has been included in all of the revenue bonds issued by the City, the Redevelopment Agency and the Burbank Public Financing Authority.

The underwriter�s discount and issuance costs are somewhat higher compared to prior bonds issued by the City or Agency. There are two reasons for the higher costs. First, the Bond size is small, so costs as a percentage of the overall bond size are relatively high. Second, the transaction is complex and has taken several years to complete. The financing team has worked on this transaction, on a contingency basis, since 1998. During this timeframe, the project has undergone various stages of development and there have been two developers, two Owner Participation Agreements, at least two sets of transaction documents developed and multiple financing approaches analyzed. Under these highly unusual circumstances, staff believes the fees are appropriate.

The deposit to the Administrative Expense Fund provides a source of funding for anticipated annual Bond administrative expenses prior to completion of the Public Parking Facility and prior to when Phase II improvements are recognized on the Assessor�s role.

The contingency amount allows for increased Bond sizing at the time of sale over the size that is estimated in the current market environment. The contingency could be needed, for example, if higher interest rates cause the initial deposit to the debt service reserve fund to increase or if Bonds are marketed as �discount bonds�[1].

Public Hearing. The second action is to conduct a public hearing. The public hearing date was set at the meeting of September 13, 2005 and notice was published in the Burbank Leader on October 12, 2005. The public hearing allows an opportunity for the property owners in the proposed CFD to protest the formation of the CFD, the levy of special taxes in the CFD and the need to incur bonded indebtedness. The hearing also allows an opportunity for comment from all interested persons.

Council Action. After the public hearing, the Council will be asked to adopt three resolutions. The first resolution is the Resolution of Formation. This resolution: 1) establishes the CFD with the boundaries described in the Resolution of Intention adopted on September 13, 2005; 2) finds that the proposed Public Parking Facility is necessary to meet the increased demands as a result of the development occurring in the CFD; 3) authorizes the levy of the special tax in the CFD; 4) preliminarily establishes an appropriations limit for the CFD; and 5) submits the levy of the special tax and appropriations limit to the qualified voters in the CFD (i.e., the current property owner). The second resolution is the Resolution of Necessity to Incur Indebtedness. This authorizes the City to issue bonds within the CFD boundaries to finance a portion of the Public Parking Facility in an amount not-to-exceed $6,400,000 with a final maturity not to exceed twenty (20) years, and also submits this proposition to the qualified voter in the CFD. The third resolution is the Resolution Calling for the Special Election. This resolution submits to the qualified voter in the CFD the levy of the special tax, the appropriations limit and the issuance of indebtedness, as noted above.

CFD Election. Following the adoption of the Resolution Calling for the Special Election, the CFD election will be held. Because there is only one property owner in the CFD, the election will occur at the Council meeting. The property owner will submit its ballot prior to the Council meeting. The City Clerk will canvass the return at the election.

Post-Election Actions. Following the election, the City Council is requested to take three remaining actions. First, it is asked to adopt a Resolution that declares the results of the special election and directs the recording of notice of the special tax lien. Second, it is asked to conduct a first reading of the Ordinance which levies the special tax within the CFD. Finally, it is asked to adopt a Resolution that authorizes the issuance of the special tax bonds (the �Bonds�), and approves and directs the execution of certain legal documents. These documents are attached as exhibits to this report and include:

Fiscal Agent Agreement. This agreement is between the City and Wells Fargo Bank, National Association, as Fiscal Agent. This Agreement authorizes the issuance of the Bonds; describes the terms of the Bonds; establishes various funds applicable to bond proceeds, the special tax levy and payments under the tax increment note; contains certain covenants of the City relative to the Bonds and the collection of special taxes, including the covenant to foreclose on the property in the event the special tax is levied and not paid; and appoints Wells Fargo Bank, National Association to serve as fiscal agent for the payment of the Bonds.

Acquisition Agreement.  This agreement is between the City and Burbank Collection, Ltd., the developer of the public parking facility (the �Developer�). The agreement requires the Developer to construct the Parking Facility in accordance with the requirements of the OPA. Under the Agreement, the City will acquire the Parking Facility upon completion.

Bond Purchase Agreement.  This agreement is between the City and Stone & Youngberg LLC (the �Underwriter�) as purchaser of the Bonds. The agreement sets forth the Underwriter�s obligation to purchase the Bonds at the interest rates and prices set forth in the agreement, subject to certain conditions that are standard in the marketplace. The interest rates on the Bonds will be set on the sale date and are subject to market conditions.

Preliminary Official Statement. This is the offering document by which the Underwriter will market the Bonds. It describes the Bonds, the use of proceeds, security and sources of repayment (including the tax increment pledge), the Public Parking Facility, the CFD, relevant information about the Redevelopment Agency, various risk factors and other matters that a potential investor may consider relevant in its decision to purchase the Bonds.

Continuing Disclosure Agreement. This agreement is between the City, the Redevelopment Agency and the Fiscal Agent. The agreement sets forth the responsibility of these parties to provide an annual report to the marketplace about the Bonds. The annual report consists of the City�s Comprehensive Annual Financial Report (�CAFR�) and updates on certain information provided in the Official Statement.

In addition, the Redevelopment Agency is asked to adopt a resolution approving the Preliminary Official Statement and Continuing Disclosure Agreement and related actions. One of the related actions is a Cooperation Agreement between the City and the Agency which restates the Agency�s obligations to the City.

FISCAL IMPACT:

The issuance of the special tax bonds for the CFD imposes no fiscal obligations on the part of the General Fund. All costs of issuance will be funded from Bond proceeds. Debt service on the Bonds will be paid from either the tax increment pledged under the OPA or special taxes levied in the CFD.

RECOMMENDATION:

Staff recommends that the City Council take the following actions that are required to form the CFD and levy the special tax:

1) Adopt the �RESOLUTION OF THE COUNCIL OF THE CITY OF BURBANK OF FORMATION OF CITY OF BURBANK COMMUNITY FACILITIES DISTRICT NO. 2005-1 (THE COLLECTION PUBLIC PARKING FACILITY), AUTHORIZING THE LEVY OF A SPECIAL TAX WITHIN THE DISTRICT, PRELIMINARILY ESTABLISHING AN APPROPRIATIONS LIMIT FOR THE DISTRICT AND SUBMITTING LEVY OF THE SPECIAL TAX AND THE ESTABLISHMENT OF THE APPROPRIATIONS LIMIT TO THE QUALIFIED ELECTORS OF THE DISTRICT�.

2) Adopt the �RESOLUTION OF THE COUNCIL OF THE CITY OF BURBANK DETERMINING THE NECESSITY TO INCUR BONDED INDEBTEDNESS WITHIN CITY OF BURBANK COMMUNITY FACILITIES DISTRICT NO. 2005-1 (THE COLLECTION PUBLIC PARKING FACILITY) AND SUBMITTING PROPOSITION TO THE QUALIFIED ELECTORS OF THE DISTRICT�.

3) Adopt the �RESOLUTION OF THE COUNCIL OF THE CITY OF BURBANK CALLING  SPECIAL ELECTION WITHIN COMMUNITY FACILITIES DISTRICT NO. 2005-1 (THE COLLECTION PUBLIC PARKING FACILITY).�

4) Adopt the �RESOLUTION OF THE COUNCIL OF THE CITY OF BURBANK DECLARING RESULTS OF SPECIAL ELECTION, AND DIRECTING RECORDING OF NOTICE OF SPECIAL TAX LIEN.�

5) Introduce �An Ordinance of the Council of the City of BurbanK Levying Special Taxes with City of Burbank for the Community Facilities District No. 2005-1 (The Collection Public Parking Facility.�

6) Adopt the �RESOLUTION OF THE COUNCIL OF THE CITY OF BURBANK AUTHORIZING THE ISSUANCE OF SPECIAL TAX BONDS OF THE CITY FOR THE CITY OF BURBANK COMMUNITY FACILITIES DISTRICT NO. 2005-1 (THE COLLECTION PUBLIC PARKING FACILITY), APPROVING AND DIRECTING THE EXECUTION OF A FISCAL AGENT AGREEMENT AND APPROVING OTHER RELATED DOCUMENTS AND ACTIONS.�

Staff recommends that the Redevelopment Agency adopt the following resolution:

�RESOLUTION OF THE REDEVELOPMENT AGENCY OF THE CITY OF BURBANK APPROVING AND AUTHORIZING THE EXECUTION OF DOCUMENTS PERTAINING TO THE CITY OF BURBANK COMMUNITY FACILITIES DISTRICT NO. 2005-1 (THE COLLECTION PUBLIC PARKING FACILITY), AND APPROVING RELATED ACTIONS.�

EXHIBITS:

Exhibit A         Summary of the Flow of Funds

Exhibit B         CFD Report

Exhibit C        Notice of Special Tax Lien

Exhibit D        Fiscal Agent Agreement

Exhibit E         Acquisition Agreement

Exhibit F         Bond Purchase Agreement

Exhibit G        Preliminary Official Statement and Continuing Disclosure Agreement

Exhibit H         Cooperation Agreement

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