REPORT TO COUNCIL
SUBJECT
Title
A. Discussion and Potential Actions Related to Proposed November 2024 Ballot Measure Authorizing the Issuance of General Obligation Bond Debt to Fund Public Infrastructure; Such Actions to Include the Following:
1. Adoption of a Resolution of Necessity
2. Introduction of an Ordinance Ordering the Submission of a Measure Incurring Bonded Indebtedness to the Voters at the November 2024 General Municipal Election
3. Direction on a Draft Expenditure Plan to be Included with the Measure
B. Discussion and Council Direction on a Proposed Charter Amendment Regarding Public Works Procurement [Charter Section 1310] to Update the City’s Public Works Bidding and Contracting Authority, Allow for Design-Build Projects and Implement Other Technical Changes
Report
BACKGROUND
Unfunded Capital Needs
Over the last several years, the need for capital infrastructure investment has been identified and discussed as part of the budget and the City Council’s annual Priority Setting Processes. While the City’s utility infrastructure is well funded, there are significant funding gaps in other areas. For capital infrastructure where the General Fund is the primarily funding source, the City has relied on a pay-as-you-go approach using funds set aside in the Capital Projects Reserve. This reserve is funded by General Fund surplus funds at the end of a fiscal year and is insufficient to address the City’s considerable infrastructure needs.
As part of the development of the FY 2024/25 and FY 2025/26 Biennial Capital Budget, over $600 million in City infrastructure needs were identified where the General Fund would be the primary funding source. This amount included the most immediate needs over the next five years and did not fully account for all unfunded needs in the City. In 2024 alone, the City received over $2700 million in infrastructure requests from the various departments with only $24 million available in the Capital Projects Reserve. Aging roads, bridges, underground stormdrain pipes, and sidewalks all need repairs and maintenance to meet performance, safety, and accessibility needs for residents. The City Fire Department handles approximately 10,000 service calls each year, a 14 percent increase over the past decade. Several of the City’s local fire stations are 50 to 55 years old and in need of seismic upgrades and other enhancements to ensure emergency and disaster preparedness and response. Additionally, funding is needed to ensure safe routes and intersections for kids to get to school; safer roads for drivers, pedestrians, and bicyclists; and safe, well-maintained parks, playground, community and recreation facilities, and libraries for our community.
Given the significant infrastructure needs, the City Council took action on July 18, 2023, to approve funding in the amount of $358,000 for outreach, engagement, and policy analysis to support activities related to potential November 2024 ballot measures (RTC 23-913). A study session on the unfunded needs including a presentation of revenue options and workplan for a November 2024 ballot measure was subsequently held on October 24, 2023. In addition, during the two-day 2024 Council Priority Setting Session on March 25 and April 3, 2024, the City Manager presented on the City’s unfunded capital needs and the potential for the City to explore a general obligation (GO) bond measure. Staff have been working with consultants to explore the feasibility of such a bond.
It is also important to note that this is not the first time the City of Santa Clara has recently considered a general obligation bond to address its mounting infrastructure needs. In 2018, the City considered asking voters to approve an infrastructure bond but elected to wait because the Santa Clara United School District was placing a bond on the same ballot. In November 2018, Santa Clara voters approved Measure BB, providing $720 million for school facilities. Additionally, in 2020, the City was preparing to reactivate its efforts for an infrastructure bond, however, negative economic conditions brought on by COVID-19 caused the City to postpone once again.
Polling Results
During the April 23 and June 4, 2024 City Council meetings, consultants from Tulchin Research presented two rounds of scientific polling surveys. Both surveys were conducted among likely November 2024 general election voters, including newly registered voters and those who have voted in at least one of the past four elections. The initial benchmarking survey took place from April 1 through April 4, and the second survey from May 18 through May 22. Both surveys were offered in English, Chinese, Spanish, and Vietnamese and were conducted by phone to reach a total of 800 likely voters.
A majority of voters indicated they felt Santa Clara could benefit from additional
investment in public infrastructure, and that they generally support measures that provide local funding to address infrastructure or service needs. The most popular areas for potential funding continue to include (not in ranked order):
• Public safety improvements (upgrades to 9-1-1 emergency, medical, fire, and disaster response);
• Street safety (fixing potholes and making roaders safer for drivers, pedestrians, and bicyclists); and
• Storm drain improvements (repairs to underground stormwater pipes to prevent erosion and sinkholes).
Community Outreach
In addition to the two likely-voter surveys, the consultant team released a Community Mailer Survey to gather additional thoughts from the community using a broad approach. This mailer went out to over 30,000 households and was made available at City facilities. Responses to this community mailer were submitted online via a QR code or as a tear-off survey to be mailed back to the City. This community feedback method received over 800 responses to date consisting of nearly 500 online responses and over 300 mailed back.
To ensure the community has information about the topic, the City has established a dedicated webpage to help voters learn about the potential bond measure and stay up to date with current information being provided. To support voter education, a fact sheet will also be available at City Hall, the Senior Center, the Community Recreation Center, all City libraries, and other City facilities. In addition, the City has shared educational information about the proposed measure on social media.
DISCUSSION
Based on community feedback of voter priorities related to improvements throughout Santa Clara, and to meet the City’s over $600 million in infrastructure needs, staff is recommending that the City Council place a GO bond measure on the November 2024 ballot. Voter polling indicated that the community is equally supportive of either a $598 million or a $298 million bond measure. Because of this and due to the severity of the City’s infrastructure needs, staff is recommending the proposed $598 million bond measure option. As part of the Council presentation, staff will also provide the financial breakdown of a potential bond option for $298 million and is seeking council direction.
If the voters were to approve a $598 million GO bond measure, it would be funded by levying an estimated $29 per $100,000 of assessed property value annually. In this scenario, the property tax bill for each of the largest 20 commercial property owners in Santa Clara would increase by an average of $290,000 per year while a typical homeowner would pay on average an additional $195 per year.
If voters were to approve a $298 million GO bond measure, it would be funded by levying an estimated $16 per $100,000 of assessed property value annually. In this scenario, the property tax bill for each of the largest 20 commercial property owners in Santa Clara would increase by an average of $160,000 per year while a typical homeowner would pay on average an additional $110 per year.
Voter Approval
Approval of the bond measure requires that 2/3rds of all qualified voters voting on the proposition at the November 2024 election vote in favor. If this threshold is met, the City would have the authority to issue and sell the bonds in one or more series, in the maximum amount determined at tonight’s meeting, and for the objects and purposes set forth in the Ordinance described below.
If issued, the bonds would be general obligations of the City payable from, and secured by, ad valorem taxes levied and collected on taxable property in the City. The revenue generated from the ad valorem taxes would be used solely for the payment of debt service on the bonds and for no other purpose.
Additionally, a measure known as Assembly Constitutional Amendment 10 (ACA 10) was recently placed on the November ballot. ACA 10 formalizes Assembly Constitutional Amendment 1 (ACA1) and would treat cities like K-12 school districts and community colleges, allowing for bonds to pass at a 55% supermajority, subject to certain accountability provisions. The proposed GO bond measure the City is considering to help address infrastructure needs would be written in a manner that meets or exceeds all of the accountability requirements of ACA10, and would be valid under the new rules if ACA10 were to pass statewide in November.
Proposed Ballot Language
California Elections Code Section 9051 requires that a ballot question not exceed 75 words (with the word count determined pursuant to statute) California Elections Code Section 13119 (c) also requires that the statement of the measure “shall be a true and impartial synopsis of the purpose of the proposed measure and shall be in language that is neither argumentative nor likely to create prejudice for or against the measure.”
Based on voter polling, feedback from the City Council, input from the City’s legal counsel, and City infrastructure priorities, the following ballot question is presented below for the City Council’s consideration.
|
To improve 911 emergency rapid response; fix potholes, repair and improve streets throughout Santa Clara; fix underground stormdrains/pipes to prevent sinkholes; provide safer roads and routes to school for drivers, pedestrians; and repair/maintain safe public facilities; shall the City of Santa Clara’s measure authorizing $598,000,000 in bonds, funded by levying an estimated $29/$100,000 of assessed value while bonds are outstanding, generating approximately $35,000,000 annually, with annual audits and citizen oversight of spending, be adopted? |
Yes |
|
|
No |
After Council input at the July 9th meeting, the final ballot question language will be presented for approval in the Resolution Placing the Measure on the Ballot to be considered at the July 16 Council meeting.
Sources of Bond Repayment
If the bond measure were to be approved by voters, any bonds issued would be payable solely from revenues generated by a property tax levy on all taxable property within the City of Santa Clara, based on assessed property value. The bonds will not be an obligation of the general fund or any other City revenue source.
The “assessed” value of real property can be very different than its “market value.” “Assessed value” is determined by the County Assessor under Proposition 13 based on the most recent actual sale price of the property, plus up to 2% per year thereafter. “Market value” is what a property could be sold for on the open market at any given time. As a result, property that has been held by one owner for many years that may have a high “market value” is likely to have a significantly lower “assessed value” than a similar property that has recently sold.
Transparency and Accountability
The City’s proposed GO bond measure would incorporate stringent transparency and accountability provisions as outlined in the following Transparency and Accountability Plan (Attachment 4).
|
Transparency and Accountability Plan |
|
1. Council approval of an Expenditure Plan, including project category areas and related spending amounts, concurrent with placing a bond on the ballot. [Ordinance Section 13(b)(i)] |
|
2. Process for making changes to the Expenditure Plan would require: o Staff recommendation; o Community Oversight Committee review and input; and o Unanimous approval from the City Council. [Ordinance Section 13(b)(ii)] |
|
3. A Community Oversight Committee will be formed to ensure compliance with bond measure requirements. The Committee will consist of nine members selected by a lottery process made up of: o Seven residents; o One small business representative; and o One large business representative. Business representatives shall have experience in budgeting, accounting, finance, and/or audit. Additionally, no business representative shall work for, have previously worked for, or be employed by a firm that provides services to any professional sports teams within the City of Santa Clara. Business representatives need not be residents but must be an owner or employee of a business headquartered within the City. Members appointed to the Committee shall receive educational training about bonds and fiscal oversight. The role of the Committee shall be to (a) ensure that project implementation is consistent with the bond requirements and the Expenditure Plan, (b) review and report on annual audits, and (c) review and provide recommendations to the City Council on any proposed amendment to the Expenditure Plan. [Ordinance Sections 13(a)(viii) and 13(b)(iv)] |
|
4. Bond expenditures would be subject to independent annual audit with public auditor presentations to the Community Oversight Committee and Council Audit Committee, along with submittal to the State Auditor for review. [Ordinance Sections 13(a)(iv)-(vii) and 13(b)(v)] |
|
5. Strict prohibition on the use of any bond proceeds for: o Levi’s Stadium improvements; o Any projects for the sole benefit of Levi’s Stadium; and o Any projects within the 0.5 miles of Levi’s Stadium, except improvements in existing residential neighborhoods or business districts designed to be of substantial direct benefit to those areas and not Levi’s Stadium; and o For the direct or indirect benefit of any professional sports team [Ordinance Section 13(b)(iii)] |
|
6. Funds could only be used for public infrastructure projects that serve the City of Santa Clara. [Ordinance Section 13(a)(ii)] |
|
7. All bond proceeds are to be deposited into a separate account(s) and tracked on a project-by-project basis to facilitate project oversight and legal compliance audits. [Ordinance Section 13(a)(x)] |
|
8. No money could be used for employee salaries or benefits, with the exception of normal and customary personnel charges for project management and delivery services. Project administrative costs shall not exceed 5% of the proceeds from sale of the bonds. [Ordinance Section 13(a)(i)] |
|
9. Annual public presentation on the Expenditure Plan and Project Status Report to the Community Oversight Committee and the City Council presented by the City Manager, or their designee. [Ordinance Section 13(b)(v)] |
|
10. For projects requiring mail notice, increase the requirement for mail notifications to all properties surrounding bond funded projects from 500 feet to 1,000 feet. [Ordinance Section 13(b)(v)] |
|
11. Communications on bond funded projects: o City webpage conveying status of all bond funded projects; and o Public signage surrounding projects funded by bond proceeds. [Ordinance Section 13(b)(v)] |
Proposed Expenditure Plan
City staff have drafted a proposed Expenditure Plan as part of the City Council presentation for consideration. This plan includes the following category areas:
1. Street Repairs and Transportation
2. Fire Stations and Public Safety
3. Parks and Community Facilities
4. Stormdrain and Flood Protection
5. Other Critical City Infrastructure
Proposed Expenditure Plans and Project Lists for both the $598M and $298M bond scenario amounts are detailed in the attachments (Attachments 5-8).
Community Oversight Committee Structure and Operations
As mentioned in the Transparency and Accountability Plan, staff recommend the Community Oversight Committee include representation from key stakeholders within the community including representation from the residential, small business, and large business sectors. All members of the Community Oversight Committee would be subject to conflict of interest and Brown Act provisions. Additionally, staff recommends staggered four-year term limits, requirements for background/experience in financial audits for applicants representing the business community, and that process for chair selection be determined with direction from Council. In addition to the provisions included in the bond measure regarding Community Oversight Committee requirements, the creation of the Committee and the details of its operation, would be implemented by ordinance approved by the City Council.
Actions Required to Place the Measure on the November 2024 ballot
Three actions are required by the Council to place the bond measure on the November 2024 ballot:
1. At this meeting, consider and approve the Resolution of Necessity and hold the first reading of the bond measure Ordinance. Approval of the Resolution requires a 2/3rds approval by the Council (that is, 5 yes votes).
2. At the July 16 Council meeting, consider and approve the Resolution Placing the Measure on the Ballot and hold a second reading and adoption of the Ordinance. Adoption of the Ordinance requires a 2/3rds approval by the Council (that is, 5 yes votes). These documents are further described below.
3. If this process is successfully completed by the Council, the final Ordinance and Resolution Placing the Measure on the Ballot would need to be submitted (along with other required documents) to the Santa Clara County Registrar of Voters by the August 9, 2024 deadline for the measure to appear on the November 2024 ballot. The Ordinance and Resolution Placing the Measure on the Ballot will appear in the ballot pamphlet sent to each voter before the election.
Each of these action items are described in more detail, below.
1. Resolution of Necessity
The Resolution of Necessity (Attachment 1), required by California Government Code §43607 to be passed by an affirmative vote of 2/3rd of the Council (this is, at least five Council members). This Resolution determines that the public interest or necessity demands the acquisition, construction, or completion of the municipal improvements, and that the costs of the improvements will require an expenditure by the City greater than allowed for it by the City’s annual tax levy. The resolution also appoints Public Financial Management, as municipal advisor to the City, and Jones Hall, A Professional Law Corporation as bond counsel for the City for the proposed bond issue. Such services would be provided under the terms of agreements still in effect with such consultants that were originally entered into back in 2020 and 2019 respectively, with updated fee schedules as required, to be approved by the City Manager and the City Attorney.
2. Ordinance
The Ordinance (Attachment 2) includes information required by California Government Code §43610, including the object and purpose of bonds, a description of the improvements to be financed with the proceeds of the bonds, the estimated costs of the improvements of $598 million, and the manner of holding the election.
The improvements described in the Ordinance consist of public infrastructure improvements that include streets and transportation improvements, improvements to public safety facilities, improvements to parks and community facilities, storm drain and flood protection improvements, and improvements to other City facilities.
The Ordinance establishes the maximum principal amount of the bonds, estimates the total costs of the improvements, establishes a maximum interest rate, and establishes the Transparency and Accountability Plan measures described above.
3. Resolution Placing the Measure on the Ballot
The Resolution Placing the Measure on the Ballot would be scheduled for the next regular meeting on July 16, and would be considered for adoption only if the Ordinance is adopted. This resolution sets forth the 75-word ballot question and other procedural details regarding the election, including actions related to authorship of direct and rebuttal arguments for the measure which would appear in the voter information guide.
Future Issuance of Bonds
If the bond measure is approved by voters, the bonds may be issued in one or more series as needed to pay authorized improvement costs. Timing and amount of each bond issuance will depend on market factors, funding needs to support the plan for construction the improvements, and other factors. The issuance of each series of bonds, and the specific projects to be financed, will subject to express approval by resolution of this Council.
The actual interest rate on each series of bonds will be determined at the time of issuance. As of June 20, 2024, interest rates on general obligation bonds issued by the City, if assigned credit ratings of “AA+” by Standard & Poor’s and “Aa2” by Moody’s Investors Service with level annual payments, would bear estimated interest rates of 4-5% for a 30-year term.
Potential Public Works Charter Amendment
In addition to the potential bond measure, staff is proposing a Charter amendment (Attachment 3) which updates the City’s public works procurement process in a number of ways. The amendment proposes to increase the amount requiring the formal bidding of public works contracts from $1,000 to $250,000. The $1,000 limit was originally set in the 1951 City Charter and has not been increased in over 70 years. Another key change is to expressly authorize the use of the design-build procurement process to streamline construction and implementation of infrastructure improvement projects. Design-build is a project delivery method that combines design and construction services in one contract allowing for a more streamlined and cost-effective process for delivering projects. Additional proposed amendments differentiate between “major” (above $500,000) and “minor” (at or below $500,000) public works projects for City Council versus City Manager approval purposes and provides for implementation of terms for possible exceptions to formal bidding processes, and special rules for utility projects, if approved by the City Council by ordinance as part of an overall program determined to be in the best interests of the City. Other technical updates are also included. Voter polling shows a voter comfort with amending the City Charter to improve and streamline construction efforts. This will be particularly important if a bond were to pass as the City would be driving various infrastructure projects forward. Staff requests Council provide initial input on the draft Charter amendment. If Council is supportive, staff will finalize the proposed amendment language, develop a formal ballot question, and bring the package back for final Council consideration at the July 16th Council meeting.
Conclusion
Should the City Council decide to place the ballot question on the November 5, 2024 Special Municipal Election ballot, appropriate documentation supporting formal action by the City Council must be received by the Santa Clara County Registrar of Voters no later than August 9, 2024. In order to meet this timeline without having to schedule a meeting, action would need to be taken on the Resolution of Necessity and First Reading of the Ordinance at this meeting.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(a) as it has no potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment.
FISCAL IMPACT
The proposed bonds, if the bond measure is approved by voters, would be payable solely from a property tax levy on all taxable property within the City, which will be based on assessed property value. The bonds will not be an obligation of the General Fund or any other City funds.
For the November 2024 election, the cost to place a measure on the ballot is estimated at $118,000 each. Based on the FY 2024/25 elections budget of $420,000 and the estimated cost for the regularly scheduled items to go forward, additional funding of $82,000 would be needed for one measure and $200,000 would be needed for two measures. If the City Council decides to place measure(s) on the ballot, a budget amendment will be brought forward to add funding from the General Fund Budget Stabilization Reserve.
COORDINATION
This report has been coordinated with the Finance Department, the City Attorney’s Office, the City Clerk’s Office, and the City Manager.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
1. Adopt the Resolution of Necessity determining necessity to issue bonds.
2. Waive first reading and approve the introduction of an Ordinance ordering the submission of the measure incurring bonded indebtedness for the purpose of the acquisition, construction, and improvement of certain municipal improvement projects to City voters.
3. Provide Direction on a potential Charter Amendment to update the Public Work Section 1310.
Staff
Reviewed by: Michelle Templeton, Acting Assistant City Manager
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. Proposed Resolution of Necessity
2. Proposed Ordinance
3. Proposed Amendment to Charter Section 1310 for Contracts on Public Works Projects
4. Proposed Transparency and Accountability Plan
5. Proposed Expenditure Plan for a $598M Bond
6. Proposed Project List for a $598M Bond
7. Proposed Expenditure Plan for a $298M Bond
8. Proposed Project List for a $298M Bond