COLLEGE OF THE SEQUOIAS COMMUNITY COLLEGE DISTRICT Board of Trustees Meeting
March 8, 2021
MEASURE J BOND AUTHORIZATION
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Status: Information
Presented by: Ron Perez
Vice President, Administrative Services
Issue
College of the Sequoias Community College District has determined that it is necessary and desirable to relocate its Career and Technical Education (CTE) programs from downtown Tulare and Visalia campus. The District is in preliminary discussion with its financial advisor, KNN Public Finance and its underwriter, Piper Sandler & Company on the amount the District could issue from the “College of the Sequoias Tulare Area Improvement District No. 3.
The College of the Sequoias Master Plan 2015-2025 contains a Phase II on the Tulare Campus and has a desire to access the remaining authorization in order to build a new CTE building housing: Environmental Control Technician, Electrical Training, Industrial Maintenance, Architecture CNC Machine, Industrial Automation, Construction, Faculty Offices and others. Initial programming is currently taking place.
Background
An election was held in the Tulare Area Improvement District No. 3 of the College of the Sequoias Community College District on November 4, 2008 (the “Election”) for the issuance and sale of general obligation bonds of the District for various purposes in the maximum amount of $60,000,000 (the “Authorization”).
The remaining unissued authorization is approximately $22.85M. The College established the Tulare Area Improvement District No. 3 and subsequently passed Measure J in November 2008. Measure J authorized the College to sell up to $60
million in General Obligation Bonds (GO Bonds) to fund voter-approved capital projects. The last GO Bond issue to access project funding was completed in June 2016;
however, the College still has $22.8 million in authorized GO Bonds. Access to the full amount of funding has been “stranded” due to a tax rate capacity constraint in the 2038-2040 range which created a “bottleneck” and impaired access to the significant amount of tax rate capacity beyond those years which would fund repayment of the full $22.8 million in GO Bonds.
The Administration, working with its financing team, has developed a financing plan to overcome the tax rate capacity constraint and access the entire $22.8 million. The plan is to first refinance three (3) existing GO Bonds, which have a refinancing amount of
$9.1 million, and save $3.5 million. The disproportionate amount of savings relative to the amount refinanced is largely due to refinancing a Capital Appreciation Bond (CAB) which has a rate of 7.25%. The repayment plan for the refinancing will be biased towards creating additional tax rate capacity in 2038-2040 to alleviate the “bottleneck”. The second part of the plan, now with long-term tax rate capacity accessible, is to issue the full $22.8 million in GO Bonds utilizing only Current Interest Bonds, i.e. no CABs. This new issue, Series F, will be the final issue from Measure J and will have a 30-year repayment with an all-inclusive rate of approximately 3.15% (based on current market conditions).
Recommended Action
March 8, 2021
College of the Sequoias
Community College District
Financing Plan to Access the
Funding Authorized by
Measure J for the
Tulare Area
Introduction
The College of the Sequoias (COS) has several existing GO Bond issues under Measures J
The historical tax rate has been well managed to the $25 target maximum
The projected tax rate is expected to be less than $25 even if “status quo”
Several existing GO Bond series can be refinanced based on current market conditions
Refinancings are integral to the proposed financing plan
Future tax assessments are reduced by $3.5 million – helpful when issuing New Money
Measure J has $22.8 million in existing but unissued GO Bond authorization
COS inquired about accessing at least $12 million to combine with funds on hand
Assessed value is key to funding – annual growth projection is 1% less than historical average
Proposed financing plan provides COS up to the full $22.8 million in funding access
Restructuring of principal repayments contends with tax rate capacity “bottle neck”
New Money issue is largely amortized long-term where there is ample tax rate capacity
Existing Obligations
Election of 2008 –Measure J- $60,000,000 Authorization -Passed November 4, 2008 with 71.90%
Issue Name Issue Date Final Maturity First Call Date Par Amount of Bonds Originally Issued
Par Amount of Outstanding Bonds
Series A February 11, 2009 August 1, 2025 August 1, 2019 $19,998,218 $1,359,127
Series B May 17, 2011 August 1, 2041 August 1, 2021 $10,004,927 $8,871,881
2011 BAN July 27, 2011 September 1, 2013 N/A $11,501,011
--Series C August 14, 2013 August 1, 2042 August 1, 2023 $3,401,460 $3,211,460
2013 BAN August 14, 2013 July 1, 2016 N/A $5,276,844
--Series D June 1, 2016 August 1, 2040 August 1, 2026 $3,710,000 $3,430,000
Series E (2017 Rfdg) June 14, 2017 August 1, 2032 August 1, 2027 $14,015,000 $13,590,000
Remaining Authorization $22,885,395 $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00
Series A Series B Series C Series D Series E (2017 Refunding)
Historical Tax Rate –Measure J
Tax rate has been managed well by COS – assessed value reductions were cause of minor
excesses above $25
Assessed Value Growth
COS has had to attest to the projected assessed valuation
(AV) growth in each of its new issues under Measure J
The long-term projected AV growth rate has traditionally
been 4.5% or higher
irrespective of the real estate market
condition
2011 was recessionary
2013 was recovery
2016 was higher growth
There is no guidance from the Education Code nor County
on how to project AV for the purpose of issuing GO Bonds
Some County Treasurers have a preferred limit
however do not make it policy to provide a particular
AV growth percentage
Primary guide seems to be historical growth levels –
20-year historical mean is 5.0%
Our recommendation is to begin the assessment for the
New Money with 4.0% projected AV growth
This will be the final requisite projection given this New
Money issuance will likely exhaust the authorization
Source: Certificate of the District Regarding Projection of Tax Rates
Projections of AV Growth in New Money Issues
Series A & B Series C Series D May 11, 2011 August 14, 2013 June 1, 2016
2011 / 2012 0.00% --- ---2012 / 2013 2.00% --- ---2013 / 2014 3.00% --- ---2014 / 2015 4.00% N/A ---2015 / 2016 4.00% N/A 4.60% 2016 / 2017 4.00% 4.50% 4.50% 2017 / 2018 4.25% 4.50% 4.50% 2018 / 2019 4.50% 4.50% 4.50% 2019 / 2020 4.75% 4.50% 4.50% 2020 / 2021 4.75% 4.50% 4.50% 2021 / 2022 4.75% 4.50% 4.50% 2022 / 2023 4.75% 4.50% 4.50% 2023 / 2024 4.75% 4.50% 4.50% 2024 / 2025 4.75% 4.50% 4.50% 2025 / 2026 4.75% 4.50% 4.50% 2026 / 2027 4.75% 4.50% 4.50% 2027 / 2028 4.75% 4.50% 4.50% 2028 / 2029 4.75% 4.50% 4.50% 2029 / 2030 4.75% 4.50% 4.50% 2030 / 2031 4.75% 4.50% 4.50% 2031 / 2032 4.75% 4.50% 4.50% 2032 / 2033 4.75% 4.50% 4.50% 2033 / 2034 4.75% 4.50% 4.50% 2034 / 2035 4.75% 4.50% 4.50% 2035 / 2036 4.75% 4.50% 4.50% 2036 / 2037 4.75% 4.50% 4.50% 2037 / 2038 4.75% 4.50% 4.50% 2038 / 2039 4.75% 4.50% 4.50% 2039 / 2040 4.75% 4.50% 4.50% 2040 / 2041 4.75% 4.50% ---2041 / 2042 --- 4.50% ---2042 / 2043 --- 4.50% ---2043 / 2044 --- 4.50% ---2044 / 2045 --- 4.50% ---2045 / 2046 --- 4.50% ---2046 / 2047 --- 4.50% ---2047 / 2048 --- 4.50% ---2048 / 2049 --- 4.50% ---2049 / 2050 --- 4.50% ---2050 / 2051 --- 4.50% ---Fiscal Year
TAX RATE COMPUTATION WORKSHEET
2020/21
Tulare COS SFID 2008
Voter Approved $60 Million 11/4/2008
Amount Issued $36,924,606
Tax Rate Year 1 2009/10
Final Debt Service Pmt Year 2042/43
Reserve Amount $5,462,818
Collection of Reserve at target
CURRENT YEAR REQUIREMENT
Principal and Interest (Feb & Aug) $2,505,447
Add: Reserve Requirements 5,462,818
Other Expenses (GC29142 001-030-2510-6035) 0 7,968,265 Less: Fund balance at 6/30/19 - County 7,393,742
Less: Payment needed before December 2019 (1,940,400)
BALANCE TO BE RAISED $2,514,923
UNSECURED REVENUES
NET UNSECURED VALUES TIMES PR YR Sec Rate 123,698
PRIOR YEARS DELINQUENCY RATE 0.946600
TOTAL UNSECURED REVENUE $117,093
UNITARY REVENUES
TOTAL UNITARY REVENUE $904,508
SECURED REVENUES
VALUE LOCAL 9,518,689,464
TIMES DLQT RATE (RESERVED) 97.27%
EQUALS NET VALUE 9,258,829,242
TOTAL VALUES 9,258,829,242
TIMES 1% (to convert value to tax dollar amount) 1%
SECURED REVENUE $92,588,292
SECURED AMOUNT TO RAISE (a-b-c) $1,493,322
CALCULATED SECURED TAX RATE 0.0161
Secured Tax Rate Formula = ( a-b-c)/d
SECURED TAX RATE SET (PER AUDITOR) 0.0200 To Compare - Prior Year Tax rates 0.02
Tax Rate Projections
The County of Tulare has been extremely helpful in explaining
their logic and methodology which has its own specific nuances
Authorization is aggregated as of FY 2020/21 for
determining annual amount to raise
Reserve amount is equal to Maximum Annual Debt Service
(MADS) of entire authorization
Any increase in MADS is collected over 6 years in equal
amounts, i.e. 1/6 per annum
Unitary Tax Revenue calculated in accordance with statute
Represents 36% of the amount required for debt service
but diluted over time as secured property tax levy grows
Lawsuit pending since 2015 challenging the methodology *
We have kept our projection constant at the 2020/21 level
of ~$904,000
Calculated tax rate and tax rate levied may differ – objective may
be a managed “smoothing” from year-to-year
We utilized the County’s tax rate methodology to determine
the cash flow available to pay debt service and the
commensurate projected tax rates
Source: County of Tulare, Auditor-Controller’s Office
County Tax Rate Methodology
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* BNSF Railway Co v. Alameda County et al., CA Northern District Court Case No. 4:19-cv-07230-HSG
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$5.00 $12.18 $7.64 $7.46 $7.04 $6.62 $6.60 $6.55 $6.09 $5.69 $5.14 $6.59 $5.87 $4.38 $4.07 $3.67 $3.31 $2.98 $2.63 $2. 28 $4.06 $15.65 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $0.00 $2.50 $5.00 $7.50 $10.00 $12.50 $15.00 $17.50 $20.00 $22.50 $25.00 $27.50 $30.00
Projected Tax Rate - Existing Obligations Tax Rate Capacity
The existing obligations under Measure J can all be repaid within the $25 limit
The tax rate is fairly consistent through 2033 but then begins to grow through 2040
The result is a “bottleneck” in 2038 through 2040 that inhibits the ability to access the ample tax
rate capacity beyond that point
Status Quo
Projected Tax Rate –Measure J– Status Quo
AV Growth 2018-19 3.9% 2019-20 5.4% 2020-21 5.0% Thereafter 4.00% “Bottleneck”
Long-term tax rate capacity is stranded due to the “bottleneck” – traditional solution of using Capital Appreciation Bonds (CABs) is not
$5.00 $13.83 $9.20 $9.02 $8.60 $8.20 $8.14 $7.48 $7.09 $6.73 $6.24 $6.82 $6.13 $4.63 $4.31 $3.91 $4.81 $4.94 $4.91 $4.93 $7.78 $14.66 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $0.00 $2.50 $5.00 $7.50 $10.00 $12.50 $15.00 $17.50 $20.00 $22.50 $25.00 $27.50 $30.00
Projected Tax Rate - POST-REFUNDING Tax Rate Capacity
The benefits of refinancing several existing GO Bonds are threefold:
Traditional logic of providing savings in future tax assessments of $3.5 million
Mitigates burden of layering in additional assessments to repay New Money
Provides opportunity to “reshape” the amortization and create tax rate capacity
The option to refinance differs between the candidates for refinancing – requires that both Tax
Exempt and Taxable refunding bonds be issued
Refinancing
Projected Tax Rate –Measure J – Post-Refunding
AV Growth 2018-19 3.9% 2019-20 5.4% 2020-21 5.0%
Thereafter 4.00%
Cash flow savings combined with restructuring the principal repayment alleviates the “bottleneck” and provides access to the long-term tax rate capacity
Former “Bottleneck”
Refinancing Refinancing Refinancing Aggregate
Series B Series B Series C Outcome of
CIBs Convertible
CABs
CIBs Refinancing
A. Tax Status of the Refunding Bonds Tax Exempt Taxable Taxable TE / Taxable
B. Final Maturity of the Refunding Bonds 2031 2041 2042 2042
C. Rate on the Refunding Bonds After Costs 1.30% 2.95% 3.05% 2.75%
D. Par Amount of Bonds Refunded $2,630,000 $5,405,000 ** $1,070,000 $9,105,000
E. Average Coupon of Bonds Refunded 5.30% 7.25% *** 5.00% 6.35%
F. Total Cash Flow Savings, aka Savings in Future Taxes $777,000 $2,550,000 $240,000 $3,567,000
G. Net Present Value Savings, aka Savings in Today’s Dollars $727,000 $1,640,000 $167,000 $2,534,000
H. NPV Savings as % of Bonds Refunded (5% Minimum) 27.5% 30.4% 15.6% 27.8%
I. Negative Arbitrage in Escrow, i.e. Escrow Earnings Deficit $18,000 $702,000 $66,000 $786,000
J. Escrow Efficiency Ratio (50% Minimum) * 97% 78% 71% 76%
Refinancing Outcomes
* Ratio is equal to NPV Savings divided by the sum of Negative Arbitrage and NPV Savings
** Value of Convertible CABs on Closing Date, i.e. Accreted Value at date Escrow Account is funded *** Fixed rate of accretion, not an annual coupon
$0.00 $2.50 $5.00 $7.50 $10.00 $12.50 $15.00 $17.50 $20.00 $22.50 $25.00 $27.50 $30.00
Projected Tax Rate - POST-REFUNDING Projected Tax Rate - NEW MONEY Tax Rate Capacity
New Money is layered in to match the available tax rate capacity which is largely in long term
Linchpin is to have an average coupon on the GO Bonds maturing beyond 2036 that is low
enough to not breach the $25 maximum in the “bottleneck” area
There are two options to pursue to contend with the requisite long-term low average coupon
Sell a portion of the New Money as Taxable Bonds which lowers the average coupon
Refinance additional existing GO Bonds in the “bottleneck” area that may impair the
refinancing outcomes but creates additional tax rate capacity in those years
New Money
AV Growth 2018-19 3.9% 2019-20 5.4% 2020-21 5.0% Thereafter 4.00%New Money is largely amortized in the
long-term now that the “bottleneck” has been addressed and there is
funding access
Former “Bottleneck” Projected Tax Rate –Measure J – Post New Money
New Money Outcomes
New Money
Current Interest
Bonds
A.
Par Amount of Bonds Issued and Net Proceeds for Projects *
$22,860,000
B.
Rate on New Money Bonds Inclusive of Issuance Costs
3.15%
C.
Final Maturity of the New Money Bonds
2051
D.
Total Debt Service to Maturity, Assuming Paid to Final Maturity
$40,742,000
E.
Repayment Ratio (Total Debt Service to Maturity ÷ Par Amount of Bonds)
1.79x
F.
First Optional Redemption Date
8/01/2031 @ Par
Closing Points
The College of the Sequoias (COS) needs the funding afforded by Measure J
Initial maximum was understood to be $8 million as result of Financial Advisor interviews
COS inquired about accessing at least $12 million to combine with funds on hand
The financing plan affords access up to the $22.8 million in remaining authorization
“Bottleneck” was perceived as impediment
Refinancing provides accessibility to funding
o
Generates approximately $3.5 million in future tax assessment savings
o
Enables the restructuring of repayment timing
Long-term tax rate capacity becomes accessible
Accomplished without issuance of Capital Appreciation Bonds (CABs)
Timetable is driven by preferred date for presentation to the Board of Trustees
Tentative Schedule
Date Activity
Week of March 1st Informational Presentation to Board Sub-Committee
Week of March 8th Circulate Preliminary Numbers, Financing Schedule and Distribution List
Week of March 15th Circulate Draft Authorizing Resolution, Legal Documents, and Preliminary Official Statement (POS)
Week of March 29th Rating Conference Call
Monday, April 5th Board Agenda Deadline for April 12thBoard Meeting to Submit Financing Documents
Week of April 12th Receive Rating
Monday, April 12th Board of Trustees acts on authorizing resolution, legal documents and POS
Friday, April 16th Preliminary Official Statement Posted Electronically and Distributed to Investors
Week of April 26th Pre-Price & Price Bonds
