COUNTY OF SAN MATEO

County Manager’s Office

DATE:

October 23, 2009

BOARD MEETING DATE:

November 3, 2009

SPECIAL NOTICE/HEARING:

None

VOTE REQUIRED:

Majority

TO:

Honorable Board of Supervisors

FROM:

David S. Boesch, County Manager

SUBJECT:

Resolution Approving the Form Of, And Authorizing the Execution and Delivery of, Purchase and Sale Agreements and Related Documents with Respect to the Sale of the Seller’s Proposition 1A Receivables from the State; and Directing and Authorizing Certain Other Actions In Connection Therewith

RECOMMENDATIONS:

(1) Adopt a Resolution authorizing the President of the Board to execute Purchase and Sale Agreement, and related documents for the sale of the seller’s Proposition 1A receivable from the California Statewide Communities Development authority and certain other actions in connection therewith; and

(2) Acting as the Governing Board of Special Districts (Exhibit A), adopt resolutions authorizing the President of the Board to execute Purchase and Sale Agreement, and related documents for the sale of the seller’s Proposition 1A receivable from the California Statewide Communities Development authority and certain other actions in connection therewith.

BACKGROUND AND DISCUSSION:

Proposition 1A Suspension: Proposition 1A was passed by California voters in 2004 to ensure local property tax and sales tax revenues remain with local government thereby safeguarding funding for public safety, health, libraries, parks, and other local services. Provisions can only be suspended if the Governor declares a fiscal necessity and two-thirds of the Legislature concur.

The emergency suspension of Proposition 1A was passed by the Legislature and signed by the Governor as ABX4 14 and ABX4 15 as part of the 2009-10 budget package on July 28, 2009. Under the provision, the State will borrow 8% of the amount of property tax revenue apportioned to cities, counties and special districts. The state will be required to repay those obligations plus interest by June 30, 2013.

The Senate has approved the clean-up bill SB67 which is now awaiting the Governor’s signature. SB67 provides for a few critical changes to the enacted legislation, including but not limited to providing for: financing to occur in November; county auditor certification of amount of Prop 1A receivable; tax-exempt structure; California Communities as the only issuer; more flexibility on bond structure (interest payments, state payment date and redemption features); sales among local agencies; and revision to the hardship mechanism.

Proposition 1A Securitization Program: Authorized under ABX4 14 and ABX4 15, the Proposition 1A Securitization Program was instituted by California Communities to enable Local Agencies to sell their respective Proposition 1A Receivables to California Communities. Currently, SB67 is being considered to clarify specific aspects of ABX4 14 and ABX4 15. Under the Securitization Program, California Communities will simultaneously purchase the Proposition 1A Receivables, issue bonds (“Prop 1A Bonds”) and provide each local agency with the cash proceeds in two equal installments, on January 15, 2010 and May 3, 2010 (to coincide with the dates that the State will be shifting property tax from local agencies). The purchase price paid to the local agencies will equal 100% of the amount of the property tax reduction. All transaction costs of issuance and interest will be paid by the State of California. Participating local agencies will have no obligation on the bonds and no credit exposure to the State.

If the County sells its Proposition 1A Receivable under the Proposition 1A Securitization Program, California Communities will pledge the County's Proposition 1A Receivable to secure the repayment of a corresponding amount of the Prop 1A Bonds. The County’s sale of its Proposition 1A Receivable will be irrevocable. Bondholders will have no recourse to the County if the State does not make the Proposition 1A Repayment.

Proposition 1A Program Sponsor: California Statewide Communities Development Authority (“California Communities”) is a joint powers authority sponsored by the California State Association of Counties and the League of California Cities. The member agencies of California Communities include approximately 230 cities and 54 counties throughout California.

Benefits of Participation in the Proposition 1A Securitization Program:

The benefits to the County of participation in the Proposition 1A Securitization Program include:

• Immediate cash relief – the sale of the County’s Proposition 1A Receivable will provide the County with 100% of its Proposition 1A Receivable in two equal installments, on January 15, 2010 and May 3, 2010.

• Mitigates impact of 8% property tax withholding in January and May – Per ABX4 14 and ABX4 15 and the proposed clean-up legislation SB 67, the State will withhold 8% of property tax receivables due to Cities, Counties, and Special Districts under Proposition 1A. The financing outlines bond proceeds to be distributed to coincide with the dates that the State will be shifting property tax from local agencies.

• All costs of financing borne by the State of California. The County will not have to pay any interest cost or costs of issuance in connection with it participation.

• No obligation on Bonds. The County has no obligation with respect to the payment of the bonds, nor any reporting, disclosure or other compliance obligations associated with the bonds.

Proceeds of the Sale of the County’s Proposition 1A Receivable

Upon delivery of the Proposition 1A Bonds, California Communities will make available to the County of San Mateo its fixed purchase price, which will equal 100% of the local agency’s Proposition 1A Receivable. These funds may be used for any lawful purpose of the County and are not restricted by the program.

Proposed Proposition 1A Receivables Sale Resolution

The proposed Proposition 1A Receivables Sale Resolution:

(1) Authorizes the sale of the County of San Mateo’s Proposition 1A Receivable to California Communities for 100% of its receivable;

(2) Approves the form, and directs the execution and delivery, of the Purchase and Sale Agreement with California Communities and related documents;

(3) Authorizes and directs any Authorized Officer to send, or to cause to be sent, an irrevocable written instruction required by statute to the State Controller notifying the State of the sale of the Proposition 1A Receivable and instructing the disbursement of the Proposition 1A Receivable to the Proposition 1A Bond Trustee;

(4) Appoints certain County officers and officials as Authorized Officers for purposes of signing documents; and

(5) Authorizes miscellaneous related actions and makes certain ratifications, findings and determinations required by law.

Proposed Purchase and Sale Agreement

The proposed Purchase and Sale Agreement:

(1) Provides for the sale of the Proposition 1A Receivable to California Communities;

(2) Contains representations and warranties of the County of San Mateo to assure California Communities that the Proposition 1A Receivable has not been previously sold, is not encumbered, that no litigation or other actions is pending or threatened to disrupt the transaction and the this is an arm's length "true sale" of the Proposition 1A Receivable.

(3) Provides mechanics for payment of the Purchase Price

(4) Contains other miscellaneous provisions.

Proposed Purchase and Sale Agreement Exhibits

The proposed Proposition 1A Purchase and Sale Agreement Exhibits:

(B1) Opinion of Counsel: This is an opinion of the counsel to the local agency (which may be an in-house counsel or an outside counsel) covering basic approval of the documents, litigation, and enforceability of the document against the Seller. It will be dated as of the Pricing date of the bonds (currently expected to be November 10, 2009).

(B2) Bringdown Opinion: This simply "brings down" the opinions to the closing date (currently expected to be November 19, 2009).

(C1) Certificate of the Clerk of the Local Agency: A certificate of the Clerk confirming that the resolution was duly adopted and is in full force and effect.

(C2) Seller Certificate: A certification of the Seller dated as of the Pricing Date confirming that the representations and warranties of the Seller are true as of the Pricing Date, confirming authority to sign, confirming due approval of the resolution and providing payment instructions.

(C3) Bill of Sale and Bringdown Certificate: Certificate that brings the certifications of C2 down to the Closing Date and confirms the sale of the Proposition 1A Receivable as of the Closing Date.

(D) Irrevocable Instructions to the Controller: Required in order to let the State Controller know that the Proposition 1A Receivable has been sold and directing the State to make payment of the receivable to the Trustee on behalf of the Purchaser.

(E) Escrow Instruction Letter: Instructs Transaction Counsel (Orrick) to hold all documents in escrow until closing, and if closing does not occur by December 31, 2009 for any reason, to destroy all documents.

County Counsel has reviewed all documents provided by bond counsel. The Finance and Operations Committee discussed this item at its October 21 meeting and approved referral to the Board of Supervisors for consideration. The securitization of the County’s Prop 1A receivables contributes to the Shared Vision 2025 outcome of a Collaborative Community where leaders approach issues with fiscal accountability and concern for future impacts by ensuring that cash reserves that would have been borrowed by the state remains available to the County at no cost.

FISCAL IMPACT:

None. Since all costs of issuance are borne by the State, participation by the County and those Special Districts governed by the County in the Prop 1A securitization will result in 100% of the Prop 1A receivables being paid in two equal installments on January 15, 2010 and May 3, 2010 in-lieu of repayment by the State in 2013 with 2% interest. The estimated Prop 1A receivable for the County General Fund is $20.7 million; County Fire Protection Fund is $399,797 and the Special Districts is approximately $558,249; for a total of $21,656,529 in receivables.