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Street Rehabilitation Financing December 3, 2007 Page 2 In order to explore bonding alternatives and capacity, a financing team consisting of a financial advisor (Fieldman, Rolapp & Associates), an underwriter (De La Rosa & Co.), bond counsel (Orrick, Herrington & Sutliff e), and disclosure counsel (Quint & Thimmig) was retained. Upon evaluation the team is recommending the use of an installment-sale Certificates of Participation (COP) financing structure that utilizes Gas Tax Revenue as the pledge to repay the certificates. The use of this innovative financing structure has several advantages. First, it utilizes an existing, stable revenue source already designated for the design, construction, maintenance, and operation of public streets and highways. Second, it does not require the pledge of any General Fund monies as collateral for debt payments. The COP installment sale also allows bonding capacity to exceed the 25% debt service limit allowed through a straight revenue bond structure as authorized under the California Streets and Highways Code. Lastly, the financing structure is exempt from the State's constitutional debt limit thereby preserving the City's ability to capitalize on existing bond capacity should it be necessary in the future. On August 20, 2007 the City Council approved the execution of the Installment Sales Agreement between the City of Santa Ana and the Santa Ana Financing Authority. The agreement permits the purchase of the street improvements from the Santa Ana Financing Authority who then assigns the improvements back to the City for completion. In addition, Council approved a Trust Agreement between the Santa Ana Financing Authority and the Bank of New York. The Trust Agreement reassigns all debt payments to the Bank of New York as the trustee. Finally, the Council authorized the City to initiate the validation process that assigns the use of Gas Tax revenues as a special fund and pledge. On November 16, 2007, a judgment was entered by the Orange County Superior Court validating the use of the gas tax pledge. A 30-day appeal period will expire on December 16, 2007. In conjunction, City staff along with Fieldman, Rolapp and Associates (financial advisor) and De La Rosa & Co (underwriter) prepared a credit presentation for Standard & Poor's consideration. Recently, the City received a solid A credit rating and is now preparing for the bond insurance solicitation process. Upon Council approval of the recommended action and conclusion of the 30-day appeal period, bond certificate pricing and issuance will commence. It is anticipated that bond closing would occur during the latter part of December. In an adjoining action the Public Works Agency is requesting the addition of two Assistant Engineer II positions and one Construction Inspector II position. The positions will provide much needed assistance in the design and inspection of the $100 million dollar Neighborhood Street initiative.