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Item 18 - CONDUCT TAX EQUITY AND FISCAL RESPONSIBILITY ACT (TEFRA) HEARINGAGENDA ITEM NO. 18 AGENDA STAFF REPORT City of West Covina I Office of the City Manager DATE: December 6, 2022 TO: Mayor and City Council FROM: David Carmany City Manager SUBJECT: CONDUCT TAX EQUITY AND FISCAL RESPONSIBILITY ACT (TEFRA) HEARING AND CONSIDER ADOPTION OF A RESOLUTION CONDITIONALLY APPROVING THE ISSUANCE OF NOT -TO -EXCEED $20,000,000 OF CALIFORNIA ENTERPRISE DEVELOPMENT AUTHORITY REVENUE BONDS FOR THE BENEFIT OF OPTIONS FOR LEARNING RECOMMENDATION: It is recommended that the City Council: 1. Conduct a public hearing as required by Section 147(f) of the Internal Revenue Code of 1986 to receive comments relating to the issuance by the California Enterprise Development Authority (Authority) of not -to -exceed $20,000,000 of the Authority's Revenue Bonds (Bonds) for the benefit of Options for Learning, a California nonprofit public benefit corporation (Borrower). 2. Adopt the attached resolution approving the issuance of the Bonds by the Authority to finance and refinance facilities for the benefit of the Borrower, contingent upon the execution of a payment in lieu of taxes agreement between the City and the Borrower: RESOLUTION NO. 2022-126 - A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WEST COVINA, CALIFORNIA, APPROVING THE ISSUANCE BY THE CALIFORNIA ENTERPRISE DEVELOPMENT AUTHORITY OF NOT TO EXCEED $20,000,000 AGGREGATE PRINCIPAL AMOUNT OF THE CALIFORNIA ENTERPRISE DEVELOPMENT AUTHORITY'S REVENUE BONDS FOR THE PURPOSE OF FINANCING, REFINANCING AND/OR REIMBURSING THE COST OF ACQUISITION, CONSTRUCTION, INSTALLATION, EQUIPPING AND FURNISHING OF CERTAIN FACILITIES FOR THE BENEFIT OF OPTIONS FOR LEARNING, CONTINGENT UPON EXECUTION OF A PAYMENT IN LIEU OF TAXES AGREEMENT BETWEEN THE CITY AND OPTIONS FOR LEARNING, AND OTHER MATTERS RELATING THERETO HEREIN SPECIFIED 3. Authorize the City Manager to negotiate and execute a payment in lieu of taxes agreement (PILOT) with Options for Learning and any future amendments to the agreement, in such form as approved by the City Attorney. BACKGROUND: The purpose of the California Enterprise Development Authority Joint Powers Authority (JPA or Authority) established by the California Association for Local Economic Development (CALED) is to issue tax-exempt and taxable conduit revenue bonds to fund commercial and industrial development projects within member jurisdictions. Federal and state laws provide the ability for cities and counties to join together under cooperative agreements to form joint powers authorities to issue tax-exempt and taxable bonds. These bonds fund projects that provide a public benefit and serve the needs of residents within the jurisdictions of the participating members. Cities and counties in California utilize joint powers authorities primarily for economies of scale, to access specialized transaction knowledge and resources, and to avoid using valuable local staff time on these types of transactions. This JPA is a joint powers authority created by the cities of Selma, Lancaster and Eureka. There are approximately 250 cities and counties who are associate members of the Authority. The Authority's activities are dedicated to providing economic development assistance to member jurisdictions as an extension of the economic development assistance provided by CALED to its members. The City became an associate member of the Authority on April 3, 2018, pursuant to Resolution No. 2018-26. As an Associate Member of the Authority, the City is eligible to participate in the Authority's programs. DISCUSSION: Options for Learning has been serving children and families since 1981 providing affordable childcare, before and after school programs and quality programs designed to provide personalized attention for students in an enriching, and caring environment. Options for Learning also offers training, resources and support to community childcare providers to improve the quality of care for the children served. Options for Learning operates at more than 90 locations, serving more than 15,000 children. Options for Learning also trains and supports thousands of childcare providers. Options for Learning is a leader in preparing children and their families for successful life through innovative quality child development programs so that all children will achieve their potential. Options for Learning is seeking to issue $20 million in tax-exempt bonds in order to purchase the office building located at 2934 East Garvey Avenue South, West Covina, California 91791 for their administrative headquarters. They will be relocating their headquarters from Covina to West Covina with the acquisition of the property. Options for Learning currently has a childcare school program facility in West Covina located at 203 South Azusa Avenue. As Options for Learning is a non-profit, the property would be removed from the tax rolls (or any portion occupied by a non-profit impacting property taxes received by the City on the property). Options for Learning (aka the Borrower) and the JPA have requested that the City conduct a Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRX) hearing and approve a resolution in accordance with Internal Revenue Code (the "Code") Section 147(f) authorizing the issuance of tax-exempt obligations by the JPA in an amount not -to -exceed $20,000,000. A TEFRA hearing is required by the Internal Revenue Code before tax-exempt debt can be issued for the benefit of a private nonprofit corporation. The hearing gives the public an opportunity to comment on the use of tax-exempt funds by the Borrower. The proceeds of the Bonds will be loaned to the Borrower for the purpose of (a) financing, refinancing and/or reimbursing the cost of acquiring, construction, improving, equipping and furnishing a three-story office building with approximately 106,000 square feet located at 2934 East Garvey Avenue South, West Covina, California 91791 (the "Facility") for use as the Borrower's administrative headquarters, and (b) paying certain costs of issuance and other costs related in connection with the Bonds. The issuance of the Bonds as tax-exempt will reduce financing costs and debt service costs for the Borrower. In order to satisfy the requirements for the obligations to be issued as tax-exempt, an applicable elected representative which is also a member of the JPA is required to conduct the TEFRA hearing and approve the issuance of the tax-exempt obligations in accordance with Section 147(f) of the Code. The City Council of the City of West Covina constitutes an applicable elected representative under Section 147(f) of the Code. A public notice (Attachment No. 2) of today's public hearing was published at least seven days prior to the hearing in the San Gabriel Valley Tribune newspaper. If Options for Learning acquires the property, as a non-profit organization, a portion or all of the property taxes will be exempt. Taxing entities, including the City will forfeit a portion or all of the property taxes from the property. The majority of TEFRA hearings the City has held have not required removing properties off the assessor property tax roll. The following are the last two TEFRA hearings the City held: . 2020 - Emanate Health Queen of the Valley Hospital expansion bond issuance 1 $260 million . 2019 - Cameron Park Apartments acquisition & rehabilitation of an affordable multifamily rental housing complex 1 $63 million The City's receives 37% of its general fund revenues from property taxes. The subject property currently generates approximately $17,100 annually to the City in property taxes. The sale of the subject property will increase its value, in addition, any investment to rehabilitate the building for the Options for Learning headquarters could further increase the property's valuation. The increase in valuation could generate over approximately $30,500 annually to the City. Options for Learning is anticipating only a portion of the building to be utilized by non-profit, as such, only that percentage would be tax-exempt from the assessor tax roll. Options for Learning has indicated up to 60% of the property could be occupied by non-profit organizations, meaning the City would only receive 40% of property taxes from the property. To compensate the City for the loss of property tax revenues, staff is recommending the City and Options for Learning consider entering into a Payment In Lieu Of Taxes (PILOT) Agreement. A PILOT agreement is an agreement between a business development project and a municipality that allows a company to make property tax payments on an agreed schedule instead of paying the standard tax amount. The PILOT agreement takes into account the property's market value and the amount of taxes the company would actually pay if it did not have a PILOT agreement in place. In addition, staff recommends the City seek reimbursement from Options for Learning for costs of the transaction, including the public hearing notice and legal costs associated with review and preparation of the TEFRA hearing and any documents associated with TEFRA hearing, including the PILOT agreement. LEGAL REVIEW: The City Attorney's Office has reviewed the resolution and approved it as to form and will review and approve the PILOT agreement as to form prior to execution. OPTIONS: The City Council has the following options: 1. Approve staffs recommendation; or 2. Provide alternative direction. Prepared by: Paulina Morales, Assistant City Manager Fiscal Impact FISCAL IMPACT: The TEFRA hearing has no fiscal impact to the City. The adoption of the resolution approving the financing and refinancing of the Facilities and the issuance of the Bonds complies with the requirements of Section 147(f) of the Internal Revenue Code of 1986. The City does not bear any responsibility for the tax-exempt status of the interest on the Bonds, the debt service on the Bonds or any other matter related to the Bonds. Acquisition of the property by the non-profit organization will result in the City's loss of property tax revenues. The City currently receives approximately $17,100 annually. The approval of the Bonds to finance and refinance the Facilities is not subject to compliance with the California Environmental Quality Act (California Public Resources Code, Section 21100, et seq.). Attachments Attachment No. 1 - Resolution No. 2022-126 Attachment No. 2 - Public Hearing Notice CITY COUNCIL GOALS & OBJECTIVES: A Well -Planned Community ATTACHMENT NO. 1 RESOLUTION NO. 2022-126 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WEST COVINA, CALIFORNIA, APPROVING THE ISSUANCE BY THE CALIFORNIA ENTERPRISE DEVELOPMENT AUTHORITY OF NOT TO EXCEED $20,000,000 AGGREGATE PRINCIPAL AMOUNT OF THE CALIFORNIA ENTERPRISE DEVELOPMENT AUTHORITY'S REVENUE BONDS FOR THE PURPOSE OF FINANCING, REFINANCING AND/OR REIMBURSING THE COST OF ACQUISITION, CONSTRUCTION, INSTALLATION, EQUIPPING AND FURNISHING OF CERTAIN FACILITIES FOR THE BENEFIT OF OPTIONS FOR LEARNING, CONTINGENT UPON EXECUTION OF A PAYMENT IN LIEU OF TAXES AGREEMENT BETWEEN THE CITY AND OPTIONS FOR LEARNING, AND OTHER MATTERS RELATING THERETO HEREIN SPECIFIED WHEREAS, Options for Learning, a California nonprofit public benefit corporation and an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986 (the "Borrower"), has requested the California Enterprise Development Authority (the "Authority") to issue, from time to time, pursuant to a plan of finance, one or more series of its tax-exempt bonds, notes, or other evidence of indebtedness in an amount not to exceed $20,000,0000 (the "Bonds") for the benefit of the Borrower pursuant to the Joint Exercise of Powers Act, Chapter 5 of Division 7 of Title 1 of the California Government Code (commencing with Section 6500) (the "Act"); and WHEREAS, all or a portion of the proceeds of the Bonds loaned to the Borrower will be applied to (a) finance, refinance and/or reimburse the cost of acquiring, constructing, installing, equipping and furnishing a three-story office building with approximately 108,000 square feet located at 2934 East Garvey Avenue S., West Covina, California 91791 (the "Facility"), for use as the Borrower's administrative headquarters; and (b) paying capitalized interest and certain costs of issuance in connection with the Bonds (collectively, the "Project"); and WHEREAS, pursuant to Section 147(f) of the Internal Revenue Code of 1986 (the "Code"), the issuance of the Bonds by the Authority must be approved by the City Council of the City of West Covina (the "City") because the Project is to be located within the territorial limits of the City; and WHEREAS, the City Council of the City (the "City Council") is the elected legislative body of the City and is one of the "applicable elected representatives" required to approve the issuance of the Bonds under Section 147(f) of the Code; and WHEREAS, the Authority has requested that the City Council approve the issuance of the Bonds by the Authority in order to satisfy the public approval requirements of Section 147(f) of the Code; and WHEREAS, pursuant to Section 147(f) of the Code, the City Council has, following notice duly given, held a public hearing regarding the issuance of the Bonds, and now desires to approve the issuance of the Bonds by the Authority. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF WEST COVINA, CALIFORNIA DOES RESOLVE AS FOLLOWS: SECTION 1. The foregoing recitals are true and correct. SECTION 2. The City Council hereby approves the issuance, in one or more series, from time to time, pursuant to a plan of finance, of tax-exempt and/or taxable Bonds by the Authority in an amount not to exceed $20,000,0000 for financing, refinancing and/or reimbursing the cost of the Project, contingent upon the execution of a payment in lieu of taxes agreement between City and Borrower. It is the purpose and intent of the City Council that this resolution constitutes approval of the issuance of the Bonds by the Authority for the purposes of Section 147(f) of the Code by an applicable elected representative of the governmental unit having jurisdiction over the area in which the Project is located, in accordance with said Section 147(f), contingent upon the execution of a payment in lieu of taxes agreement between City and Borrower. This resolution shall also constitute the approval of the issuance of the Bonds by the Authority within the meaning of the Act, contingent upon the execution of a payment in lieu of taxes agreement between the City and Borrower. SECTION 3. The issuance of the Bonds shall be subject to the approval of the Authority of all financing documents relating thereto to which the Authority is a party. The City shall have no responsibility or liability whatsoever with respect to the Bonds. SECTION 4. The adoption of this resolution shall not obligate the City or any department thereof to (i) provide any financing with respect to the Project; (ii) approve any application or request for or take any other action in connection with any planning approval, permit or other action necessary with respect to the Project; (iii) make any contribution or advance any funds whatsoever to the Authority or the Borrower; or (iv) take any further action with respect to the Authority or its membership therein. SECTION 5. The officers of the City are hereby authorized and directed, jointly and severally, to do any and all things and to execute and deliver any and all documents which they deem necessary or advisable in order to carry out, give effect to and comply with the terms and intent of this resolution and the financing transaction approved hereby. SECTION 6. The City Manager is hereby authorized to take whatever actions are necessary and appropriate to carry out the purpose and intent of this resolution. SECTION 7. The City Clerk shall certify to the adoption of this resolution and shall enter the same in the book of original resolutions and it shall become effective immediately. APPROVED AND ADOPTED this 6th day of December, 2022. APPROVED AS TO FORM Thomas P. Duarte City Attorney Dario Castellanos Mayor ATTEST Lisa Sherrick Assistant City Clerk I, LISA SHERRICK, Assistant City Clerk of the City of West Covina, California, do hereby certify that the foregoing Resolution No. 2022-126 was duly adopted by the City Council of the City of West Covina, California, at a regular meeting thereof held on the 6th day of December 2022, by the following vote of the City Council: AYES: NOES: ABSENT: ABSTAIN: Lisa Sherrick Assistant City Clerk ATTACHMENT NO.2 NOTICE OF PUBLIC HEARING PUBLIC NOTICE IS HEREBY GIVEN that at 7:00 p.m., or as soon thereafter as the matter may be heard, on December 6, 2022, at City Hall Council Chambers, 1444 West Garvey Avenue South, West Covina, California 91790, the City Council of the City of West Covina (the "City Council") will conduct a public hearing (the "Public Hearing") at which the City Council will hear and consider information concerning the issuance, from time to time, pursuant to a plan of finance, of one or more series of tax-exempt qualified 501(c)(3) revenue bonds as defined by Section 145 of the Internal Revenue Code of 1986, as amended (the "Code") by the California Enterprise Development Authority (the "Authority") in an aggregate principal amount not to exceed $20,000,000 (the "Bonds") for the benefit of Options for Learning, a nonprofit public benefit corporation, duly organized and existing under the laws of the State of California (the "Borrower"). The Authority will loan the proceeds of the Bonds to the Borrower pursuant to one or more financing agreements. All or a portion of the proceeds of the Bonds loaned to the Borrower will be applied to (a) finance, refinance and/or reimburse the cost of acquiring, constructing, improving, equipping and furnishing a three-story office building with approximately 108,000 square feet and subterranean and surface parking located at 2934 East Garvey Avenue South, West Covina, California 91791 (the "Facility"), for use as the Borrower's administrative headquarters, and (b) paying capitalized interest and certain costs of issuance in connection with the Bonds. The Facility will be owned and operated by the Borrower in connection with the Borrower's mission to prepare children and their families for life success through innovative, quality child development programs. Neither the faith and credit nor the taxing power of City of West Covina (the "City"), the State of California (the "State") or any other political corporation, subdivision or agency of the State is pledged to the payment of the principal of, premium, if any, or interest on, the Bonds, nor shall the City, the State or any other political corporation, subdivision or agency of the State be liable or obligated to pay the principal of, premium, if any, or interest on, the Bonds. The Public Hearing is intended to comply with the public approval requirements of Section 147(f) of the Code. Interested persons wishing to express their views on the nature and location of the Facility or the proposed financing and refinancing of the Facility may attend the public hearing or, prior to the time of the hearing, or contact the City Clerk's Office by email at city clerk(a)westcovina.org. The City complies with the Americans with Disabilities Act (ADA). If you will need special assistance at Council meetings, please call (626) 939-8433 (voice) or (626) 960-4422 (TTY) from 8 to 5 Monday through Thursday. Do call at least one day prior to the meeting date to inform us of your particular needs and to determine if accommodation is possible. For sign language interpreter services at Council meetings, please request no less than four working days prior to the meeting. Advance notification within this guideline will enable the City to make reasonable arrangements to ensure accessibility. Date: November 29, 2022 4870-7033-7084.1