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Anaheim Blvd. Suite #643 Anaheim, CA 92805 Tel: (714) 765-5195 Fax: (714) 765-5260 www.anaheim.net COUNCIL AGENDA REPORT City of Anaheim FINANCE DEPARTMENT DATE: MARCH 11, 2014 FROM: FINANCE DEPARTMENT SUBJECT: FINANCING OF THE ANAHEIM CONVENTION CENTER EXPANSION AND REFINANCING OF CERTAIN OUTSTANDING DEBT ATTACHMENT YES ITEM # 09-B RECOMMENDATION: That the City Council, by Resolution: 1) Approve an issuance of not to exceed $300,000,000 of Anaheim Public Financing Authority (Authority) Lease Revenue Bonds; 2) Authorize the execution and delivery of the Site and Facility Lease by and between the City and the Authority; 3) Authorize the execution and delivery of the Lease Agreement by and between the City and the Authority; 4) Authorize the execution and delivery of the Purchase Contract by and between the City, the Authority, and Citigroup Global Markets, Inc.; 5) Authorize the execution and delivery of the Continuing Disclosure Agreement, among the City and U.S. Bank National Association; 6) Authorize distribution of one or more Preliminary Official Statements and the execution and delivery of the Official Statement; 7) Authorize the execution and delivery of the Escrow Agreement by and between the City and the trustee for the 1992 Certificates; 8) Authorize the execution and delivery of the Escrow Agreement by and between the City and the trustee for the 1993 Certificates; 9) Authorize the execution and delivery of the Escrow Agreement by and between the City and the trustee for the 2002 Bonds; 10) Approve the selection of the financing team, which includes Orrick, Herrington & Sutcliffe LLP as bond counsel, Public Financial Management, Inc. as financial advisor, and Citigroup Global Markets Inc., De La Rosa & Co., Merrill Pierce, Fenner & Smith Incorporated, and Wells Fargo Bank N.A. as the underwriters for the Bonds; and 11) Authorize and direct the City Manager, the City Treasurer, and the Finance Director to take any and all actions necessary to complete the transactions contemplated by the financing and ratifying any such actions previously taken. BACKGROUND: On September 14, 2010, the City Council, by Resolution, established the Anaheim ---PAGE BREAK--- FINANCING OF ANAHEIM CONVENTION CENTER AND REFINANCING OF CERTAIN OUTSTANDING DEBT March 11, 2014 Page 2 of 4 Tourism Improvement District (ATID) for the promotion of local tourism and convention-related programs, as well as transportation improvements within the Anaheim Resort and Platinum Triangle. These local hoteliers agreed to self-assess 2% of hotel room rent within the ATID boundaries. Of the revenues collected from the ATID, 75% of the funds are dedicated to marketing, promotion, and related activities, and 25% are dedicated to transit projects including the operation and maintenance of the Anaheim Rapid connection (ARC) project. Because the City would no longer be committed to paying for the marketing and promotions of the Anaheim destination (approximately $6 million in 2010), the City committed to re-dedicating those funds to the rapid expansion of the Anaheim Convention Center (ACC) and the addition of the Grand Plaza. Therefore, on September 14, 2010, the City Council, by Resolution, also approved the improvement and expansion of the ACC and the related financing. The improvement and expansion were to generally consist of a new plaza area, approximately a 200,000 net square foot addition of meeting space plus support space, new and replacement parking facilities, and related remodeling, furnishings, equipment, improvements, and betterments. The first phase of the improvement and expansion of the ACC was the addition of the new, award winning Grand Plaza. The Grand Plaza opened in January of 2013 and provides convention center attendees 100,000 square feet of outdoor function space. The new space includes 80,000 square feet of colored concrete and pavers, three signature water features, a river of lights and over 150 palm and orange trees. The Grand Plaza has already hosted numerous concerts, banquets, receptions and even yoga classes. DISCUSSION: In preparation for the larger 200,000 net square foot addition, the City engaged Crossroads Consulting Services (Crossroads) to evaluate the proposed expansion. Based on research, including interviews and work sessions with key stakeholders; an analysis of market attributes, industry trends, historical operations, and competitive/comparable facilities and destinations; as well as surveys/interviews with existing and potential users, Crossroads developed an estimate of economic and fiscal benefits as well as a cost/benefit analysis. The results of the research and analysis concluded that the proposed expansion of the Anaheim Convention Center appears warranted and could serve to increase Anaheim’s share of the convention/tradeshow industry as well as allow several existing users to grow. In doing so, the City would attract incremental new events and visitors who would positively impact the area economy. Crossroads cost/benefit analysis for an expanded ACC indicates a significant return on investment over a 30-year period. In addition, the funding mechanism that would be used for the ACC expansion would also allow funding for other public projects such as public safety, neighborhood improvement and other quality of life projects and services for the City. The following table illustrates the results of the cost/benefit analysis: ---PAGE BREAK--- FINANCING OF ANAHEIM CONVENTION CENTER AND REFINANCING OF CERTAIN OUTSTANDING DEBT March 11, 2014 Page 3 of 4 30-Year Cost Benefit Analysis for an Expanded ACC Category Range Incremental new transient occupancy tax 341,449,000 $ 429,225,000 $ Incremental new local sales and use tax 30,264,000 38,053,000 Incremental operating gain 9,030,000 9,810,000 Total incremental new revenues 380,743,000 477,088,000 Recapture of lost revenues 164,250,000 164,250,000 Debt service (409,667,000) (409,667,000) Net benefit 135,326,000 $ 231,671,000 $ To ensure that the new revenues would be available for General Fund programs, City Staff has put together a financing plan that keeps the General Fund’s annual debt service burden where it is today (excluding the payment towards Resort Debt). The following is a summary of the existing General Fund debt obligations: Description Total Debt Outstanding on 2/1/14 Final Payment Date FY 2013/14 Debt Service Obligation Long-term General Fund Obligations: 1992 Certificates of Participation – Convention Center $38,000,000 8/1/23 $2,187,552 1993 Certificates of Participation – Arena Land $ 8,880,000 11/1/19 $1,754,250 2002 Certificates of Participation – Convention Center $ 1,290,000 8/1/23 $3,964,002 2008 Lease Revenue Bonds – Various City Facilities $31,445,000 8/1/19 $3,698,181 Total Long-term General Fund Obligations $79,615,000 $11,603,985 Short-term Obligation: 2010 Lease Revenue Notes – Convention Center Grand Plaza $ 5,185,000 12/1/14 $5,238,051 Grand Total $84,800,000 $16,842,036 The Financing Plan is targeting $17.0 million per year or less in debt service. This amount is generally equal to the annual debt service of the General Fund obligation (listed above). All of the above obligations (with the exception of the 2008 Lease Revenue Bonds that are not eligible for refinancing) would be refinanced to take advantage of lower interest rates that are currently available. Further, the plan will not extend the term of repayment for any of the Long-term General Fund Obligations. The ---PAGE BREAK--- FINANCING OF ANAHEIM CONVENTION CENTER AND REFINANCING OF CERTAIN OUTSTANDING DEBT March 11, 2014 Page 4 of 4 end result could provide level debt service of not more than $17.0 million to pay the refinanced debt of $53.4 million and provide construction proceeds of approximately $200 million, to be used for improvement projects to the extent allowable by the indenture. As noted above, the debt begins to be repaid in full in FY 2019/20. As part of its due diligence, City staff estimated the difference between not expanding and expanding. In the “Do Nothing” scenario the City will begin to save the money that was being paid on debt in FY 2019. However, the Convention Center will also likely begin to lose market share of convention/meeting activity that would yield less revenues, economic benefits (in terms or spending, jobs and earnings) and tax revenues to the City. In addition, the CarPark 1 structure will need to be rebuilt irrespective of the expansion project and the City would again need to pay marketing and promotional costs (conservatively estimated at the 2010 level of $6 million annually). When comparing this “Do Nothing” scenario to the expansion and the new tax revenues that would be received, it is estimated conservatively that the General Fund would instead be better off by $117 million at the 15-year mid-point and $323 million over a 30-year period, which could be used to fund community projects and services. Based on the economic analysis that estimates an improvement in General Fund taxes, a financing plan that does not put additional debt service burden on the General Fund, and the City’s commitment to the local hotel industry that freed up funding to be used for the expansion of the Anaheim Convention Center, it is Staff’s recommendation that the City Council approve this expansion and the related Financing Plan as outlined above. IMPACT ON BUDGET: There is no adverse impact anticipated to the General Fund. Respectfully submitted, Deborah A. Moreno Finance Director Attachments: 1. Resolution 2. Lease Agreement 3. Site and Facility Agreement 4. Purchase Contract 5. Continuing Disclosure Agreement 6. Preliminary Official Statement 7. Escrow Agreement (1992 Certificates) 8. Escrow Agreement (1993 Certificates) 9. Escrow Agreement (2002 Bond) 10. Escrow Agreement (2010 Note)