News Release News Release The City of Palo Alto
Communications Department
250 Hamilton Ave
Palo Alto, CA 94301


PRESS RELEASE 06/24/2010
Subject :

Palo Alto’s AAA Rating Results in Successful Bond Sale on Library and Community Center Capital Improvement Bonds
Estimated Cumulative Interest Savings of Nearly $14.5 Million Expected from Lower Interest Rate for 30-Year Bond Repayment *
Contact : Lalo Perez, Director of Administrative Services    650-329-2675
Palo Alto, CA – The City successfully sold the first of two General Obligation (GO) bonds to provide $58.5 million in construction funds for the Mitchell Park Library and Community Center, and Downtown Library projects; the bonds were awarded to Citigroup Global Markets, Inc., on June 9, 2010. The bond closing is scheduled for June 30, 2010.

"We are really pleased with the success of this bond sale," said Lalo Perez, Director of Administrative Services. “Competitive bids came in from many well-known financial firms, and this helped us secure a lower interest rate on repaying these long-term construction bonds.” 

The City's Financial Advisor, Sohail Bengali of Stone and Youngberg, stated that “the City had a very good reception in the bond markets” with eight firms submitting bids. The True Interest Cost (TIC) for the bonds came in at 4.207 percent, which is 1.22 percent lower than the City originally projected in 2008. As a result, the City estimates that it could realize up to $14.5 million in cumulative interest payments over 30 years for repayment of the first series of 30-Year bonds.

Updated property tax assessments to pay the debt service on these bonds (first of two series) will be calculated in July 2010 when Santa Clara County provides its preliminary estimates for current property assessment values. This first new tax assessment will appear on residents’ 2010-11 property tax bills.  An additional assessment will appear on property tax bills when the City issues a second bond issue to pay for improvements to the Main Library. The second bond sale currently is expected in winter 2012 and the assessment to pay debt service would appear on 2012-13 property tax bills. When Measure N went to the voters in 2008, based on an estimated TIC of 5.43 percent, the estimated assessment was $27 per $100,000 of assessed value. This estimate was based on all projects approved in Measure N, so the full assessment on property owners will not be known until the second series of bonds are sold. Measure N gave the City the authority to issue up to $76 million in bonds for capital improvements to the Mitchell Park, Downtown, and Main libraries, and to the Mitchell Park community center. 

Two rating agencies, Standard & Poor's and Moody's, awarded their highest credit ratings, AAA, to this bond issuance, which helped the City obtain construction funding at a much lower cost to the community. These ratings demonstrate that through the budget balancing actions taken by the community, City Council, and staff, Palo Alto’s prudent financial management and fiscal strength are viewed most favorably in the bond market.

Residents have expressed interest in buying the City’s GO bonds. Unfortunately, it is impractical to buy bonds directly from Citigroup, which sells these bonds to institutional investors and large retailers. The bonds, however, can be purchased on the secondary market, when available. It is recommended that residents work directly with their personal brokers to do so. In addition, the firm of Stone and Youngberg, which does not own or have inventory in any of the City’s GO bonds, is willing to act as a facilitator to purchase the bonds on the secondary market. Contacts at Stone and Youngberg are David Lowi (415-445-2664) and Jennifer Green (415-268-2991).

*The estimated, cumulative interest savings for the first series of bonds is based on a number of assumptions and adjustments necessary to allow a reasonable comparison with Measure N information.  For example, the $76 million approved by voters included all projects and capitalized interest while the first series of bonds does not.  After these adjustments and accounting for the lower interest rate of 4.207 percent, the $14.5 million in savings over 30 years was derived.