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Agenda Item
ASR
Control 21-000370 |
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MEETING DATE: |
06/08/21 |
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legal entity taking action: |
Board of Supervisors |
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board of supervisors
district(s): |
All Districts |
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SUBMITTING
Agency/Department: |
County Executive Office (Approved) |
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Department contact
person(s): |
Suzanne Luster (714) 834-3362 |
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Louis McClure (714) 834-5999 |
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Subject: Teeter Plan Financing
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ceo CONCUR |
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Clerk of the Board |
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Concur |
Approved Resolution to Form |
Discussion |
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3 Votes Board Majority |
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Budgeted: Yes |
Current Year Cost:
See Background Section |
Annual Cost:
See Background Information Section |
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Staffing Impact: |
No |
# of Positions:
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Sole Source:
N/A |
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Current Fiscal Year Revenue: N/A
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Prior Board Action: 6/5/2018
#26, 1/12/2016 #37, 1/29/2013 #55, 6/29/1993 |
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RECOMMENDED ACTION(S):
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1. |
Approve the selection of Wells Fargo Bank, National Association to provide financing for the County's Teeter Plan. |
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2. |
Adopt the resolution authorizing the issuance of additional County of Orange Teeter Plan Obligations, and authorizing the execution and delivery of a Sixth Supplemental Trust Agreement, a Second Amended and Restated Note Purchase and Reimbursement Agreement, a Fourth Amended and Restated Fee and Interest Rate Agreement and other documents and matters related thereto. |
SUMMARY:
Approval of the recommended actions will provide for the flexible and cost-effective financing of the County's Teeter Plan.
BACKGROUND INFORMATION:
On June 29, 1993, the Board of Supervisors (Board) adopted the Teeter Plan pursuant to Sections 4701 through 4717 of the California Revenue and Taxation Code. The Teeter Plan is an alternative method for distribution of revenues from the secured property tax roll to local participating agencies.
Presently in Orange County, approximately 88 cities, agencies, districts and taxing entities participate in the Teeter Plan program (Participating Agencies) and receive their full share of property taxes from the secured roll, whether or not these taxes have been collected. The Teeter Plan provides these Participating Agencies with stable and timely cash flow without the collection risk. The County, in exchange for assuming the collection risk, receives the delinquent taxes, penalties and interest for the tax-defaulted properties when paid.
The Teeter Plan remains in effect in perpetuity unless the Board directs its discontinuance or, under certain conditions, the Board may discontinue the program for an individual Participating Agency. Additionally, prior to the commencement of a fiscal year, the Teeter Plan may be discontinued by petition and the resolutions of the governing bodies of not less than two-thirds of the Participating Agencies. None of these aforementioned events has occurred to discontinue or otherwise limit the Teeter Plan since its inception.
Since 2013, the County funded the Teeter Plan through Notes (Drawdown Direct Purchase program approved by the Board January 29, 2013, and extended on January 12, 2016, and June 5, 2018) under the terms of a Note Purchase and Reimbursement Agreement with Wells Fargo, National Association (Wells Fargo). Each July, the bank purchases notes in the amount necessary for the County to purchase the tax delinquencies from the participating taxing entities. Interest is paid on the outstanding notes monthly based on a spread to the one-month London Inter-bank Offered Rate (LIBOR) Index rate. In addition, a 25 basis point annual commitment fee is charged on the unutilized portion. The prior year defaulted base tax collections are pledged to repay the notes. The current plan is set to expire on July 30, 2021. The County has been satisfied with the current program structure and the service provided by Wells Fargo.
The following table summarizes the history of Teeter Plan Direct Purchase Note Program:
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July – June |
Note
Authorization Amount |
July Teeter
Delinquency Purchase |
July 30th Note
Outstanding Balance |
Note
Repayment |
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2013 - 14 |
$ 150,000,000 |
$ 39,639,000 |
$ 83,125,000 |
$ 43,295,000 |
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2014 - 15 |
$ 150,000,000 |
$ 31,541,000 |
$ 71,371,000 |
$ 37,548,000 |
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2015 - 16 |
$ 100,000,000 |
$ 30,542,000 |
$ 64,365,000 |
$ 34,174,000 |
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2016 - 17 |
$ 100,000,000 |
$ 31,536,000 |
$ 61,727,000 |
$ 33,859,000 |
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2017 - 18 |
$ 100,000,000 |
$ 30,621,000 |
$ 58,489,000 |
$ 31,242,000 |
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2018 - 19 |
$ 100,000,000 |
$ 33,860,000 |
$ 61,107,000 |
$ 31,600,000 |
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2019 - 20 |
$ 100,000,000 |
$ 40,269,000 |
$ 69,776,000 |
$ 35,115,000 |
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2020 - 21 |
$ 86,000,000 |
$ 50,725,000 |
$ 85,386,000 |
$ 32,756,000* |
*Reflects partial year, July – December 2020 tax collections.
Selection of Recommended
Financing
On March 1, 2021, County Executive Office (CEO)/Public Finance issued a Request for Proposal (RFP) for a financing mechanism for the County's Teeter Plan. Using the County's online bidding site (BidSync), the RFP was distributed to all Underwriting firms on the County's current panel of qualified firms approved by the Public Financing Advisory Committee (PFAC) on September 12, 2019, and the Board on October 8, 2019. Twelve firms were invited to participate in the RFP and three firms responded.
A five-member evaluation panel was convened to review the RFP responses and make a recommendation to the PFAC and Board. The evaluation panel was made up of two managers from CEO/Public Finance, a manager from the Treasurer-Tax Collector Department, a manager from CEO/Budget and a PFAC member. The criteria used to evaluate the firms included the efficiency and flexibility of the proposed structure, the experience of the firm with similar financing programs, the fee and interest rate structure and the firm’s ability and willingness to commit capital and credit to the plan. The evaluation panel unanimously recommended that the proposal provided by Wells Fargo be awarded to finance the County's Teeter Plan.
The Wells Fargo proposal offers the continuation of a three-year note (Drawdown Direct Purchase Program authorized up to $150 million) as the most efficient and effective financing mechanism for the County’s Teeter Program. The taxable interest rate on the Notes is calculated using a spread of 34 basis points (0.34 percent) to the one-month LIBOR rate. In addition, a 25 basis point (0.25 percent) annual commitment fee is charged on the unutilized portion. The attached documents also provide for the option of setting a fixed interest rate at the time of issuance. The decision as to interest rate mode will be determined at the time of issuance in the best interest of the County. With the anticipated cessation of the LIBOR index, the attached documents contain the methodology for transitioning to a subsequent index. An estimate of the annual cost is shown in the table below assuming $150 million authorized and $100 million utilized:
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Rates as of March 29, 2021 |
Wells Fargo Proposal |
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Terms |
LIBOR + 34 Basis Points |
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Current Rate* |
0.45% |
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Utilized Amount |
$100,000,000 |
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Utilized Fee |
$450,000 |
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Unutilized Amount |
$50,000,000 |
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Unutilized Rate |
25 Basis Points |
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Unutilized Fee |
$125,000 |
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Total Annual Cost Estimate |
$575,000 |
* Assumes one month LIBOR of 0.11 percent as of March 29, 2021
State law requires that an issuer provide an estimate of the cost of the program over the three years. The County’s Municipal Advisor, KNN Public Finance, prepared the following estimates assuming draws are made in a similar pattern and a 25 basis point increase over current rates. The true interest cost of the notes is approximately 1 percent. The amount of proceeds is estimated to be $100 million and the total estimated repayment amount including principal, interest and $95,000 in costs of issuance is $102.1 million.
Conversion to Taxable Note
Program:
Prior to July 2017, the Teeter notes were issued on a tax exempt basis. Because the Teeter notes are short-term in nature and considered working capital debt for cash flow purpose, the County must invest an equivalent amount to note proceeds in a suitable tax exempt investment such as Demand Deposit State and Local Government Series (SLGS) in order to comply with the Internal Revenue Code. In March 2017, the federal treasury suspended the SLGS program, also known as closing the SLGS window, which resulted in the necessity to convert to a taxable note program. While the Wells Fargo proposal includes the option of issuing tax exempt notes, due to limited investment options it is anticipated that the new notes will be issued at taxable rates.
The table below shows the history of penalties and interest revenue compared to interest expense. FY 2013-14 through FY 2016-17 reflect tax exempt interest expense and FY 2017-18 through FY 2019-20 reflect interest expense on taxable notes.
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July – June |
Penalties
and Interest Revenue |
Interest
Expense |
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2013 - 14 |
$ 12,533,656 |
$ 443,656 |
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2014 - 15 |
$ 12,417,034 |
$ 351,543 |
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2015 - 16 |
$ 10,199,982 |
$ 347,091 |
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2016 - 17 |
$ 11,053,276 |
$ 600,320 |
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2017 - 18 |
$ 9,448,887 |
$ 1,104,801 |
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2018 - 19 |
$ 7,324,017 |
$ 1,378,722 |
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2019 - 20 |
$ 6,927,162 |
$ 1,262,872 |
As reflected in the table above, the County’s Teeter Plan produces significant revenue for the County’s general fund. The selection of Wells Fargo and issuance of the Series B Notes will provide a flexible and cost efficient method of financing the Teeter Plan.
PFAC approved this item at its meeting on May 13, 2021.
FINANCIAL IMPACT:
The County’s Teeter Plan produces significant revenue for the County’s general fund. The selection of Wells Fargo and issuance of the Series B Notes will provide a flexible and cost efficient method of financing the Teeter Plan.
STAFFING IMPACT:
N/A
ATTACHMENT(S):
Attachment A - RFP Panel Score Sheet
Attachment B - Resolution
Attachment C - Sixth Supplemental Trust Agreement
Attachment D - Second Amended and Restated Note Purchase and Reimbursement
Agreement
Attachment E - Fourth Amended and Restated Fee and Interest Rate Agreement
Attachment F - Form of the Demand Obligation
Attachment G - Trust Agreement and Supplemental Trust Agreements previously
approved by the Board (for reference)
Attachment H - Government Code Sections 4701 - 4717