HomeMy WebLinkAboutRPT 1 GEN'L OBLIG BONDS 9-20-82OATE:
September 14, 1982
~~ REPORTS
NO. 1, 9-20-82
Inte -Com
FROM:
S UBJ ECT:
Honorab~yor and City Council Members
Ron Nad~qnance Director
Early Call/Redemption of Outstanding General Obligation Bonds
At the meeting of September 1, Council asked that I investigate the feasibili~ of
redeeming the subject bonds prior to maturity. The main concern stated was the
possibility of the outstanding g.o. bonds negatively impacting the City's future
bonding capabilities.
The' attached schedule details both issues: balances at 6-30-82; first call/redemp-.
tion dates; cost of call/redemption; and a comparison of costs through maturity.
Briefly summarized, both issues have call/redemption, clauses which allow premature
principal payments, plus accrued interest and a premium payment similar to a
pre-payment penalty on mortgages. The premium payment on the Park bonds is equal
to 2.5% of the principal balance as of 4-1-86 and the premium payment on the Civic
Center bonds is equal to 3% of the principal balance as of 4-1-92. The schedule
shows that there would be a savings of $113,000 by calling the bonds prior to
maturity.
I have discussed the issue of the outstanding bonds having a negative impact on
the City's future bonding needs with our financial consultants. They are of the
opinion that given the bonding vehicles available to the City since Prop. 13, tax
allocation bonds for RDA's, revenue bonds for enterprise funds, and the immaterial
amount of outstanding principal, $775,000 as of 4-82, the existing g.o. bonds
would not be a factor in determining future bond needs of the City.
There is some question as to the legality of using the annual tax rate as a means
of accelerating the accumulation of tax proceeds for the purpose of calling
outstanding bonds. This question has been put to Alan Watts for his review and
opinion.
An alternative to early call/redemption of the bonds could be the use of the
existing bond fund balances and accumulated interest to provide adequate funding
for future years' debt service requirements. For example, investment rates of 5%
between now and maturity would mitigate any gain from premature call/redemption.
Interest rates at. 10% could generate accumulatd revenue equal to approximatly four
years annual debt service.
Given a positive legal opinion allowingfor setting a higher tax rate to call the
~bonds, the 1983 tax rate for the 1971 part bonds would be increased from .00644 to
.01449 and the Civic Center bonds would be increased from .00491 to .00818. This
would be considered the maximum rate without allowance for increases in property
valuations.
PAN:mm
cc: Bill Huston
A1 an Watts
Mayor and City Council Members
September 14, [982
(attachmen%-Inter-Com)
Amount Issued
Balance 6-30-82
Number of Yrs. to Maturity
First call/redempti°n date
Call/redemption cost:
Annual principal due
Interest due
Principal bal. due
Premium cost
TOTAL COST 04-01-86
Cost through maturity
POTENTIAL SAVINGS
Estimated Fund
balance 6-30-83
Annual principal due
through maturity
Annual interest rate
through maturity
1971 Park Bonds
$1,200,000
725,000
9
04-01-86
75,000
216,125
425,000
10,625
$ 536,750
591,425
$ 54,675
$ 224,582
$75,000-$100,000
5.1% - 5.7%
1973 Civic Center Bonds
$950,000
750,000
15
04-01-92
50,000
21,600
350,000
10,500
$432,100
490,530
58,430
$ 98,069
$30,000-$60,000
5.25%- 5.6%