Third level Capital Programs - Short-Term Funding Needs

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Third level

Capital Programs - Short-Term Funding Needs and ConsiderationsBoard of Directors Item 10November 20, 2020


Third level

Update

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• Data collection (taxable retail sales) during COVID-19 showssignificant volatility

• Length and severity of economic disruption is unknown• Federal/State stimulus add uncertainty to forecasts• State of California revenue payments are unpredictable

• Deferred payments• accounting issues

Data only available thru Q1, which only includes 2 weeks of COVID-effectRecommendation: Wait for Q2 data (Nov 12), prepare forecast Q1 2021

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Challenges with CDTFA

Q1 2018

Q3 2018

Q1 2019

Q2 2019

Q4 2019

Q1 2020

Software transition effects sales tax dataThe California Department of Taxes and Fees Administration (CDTFA) transitions to new reporting software – Centralized Revenue Opportunity System (CROS) creating many issues with the data and caused reporting shortfalls or anomalies.

Software issuesyet to be resolved

MuniServices adjustments for delayed payments and other reporting deficiencies indicate that

statewide receipts from the local one cent tax rose 5.2% over the first three quarters of 2018 versus the

comparison period.

Slow start to 2019Local sales and use tax receipts from January through March sales were 1.0% higher than the first quarter of 2018 after factoring out accounting anomalies and back payments from previous state reporting shortfalls. This was the lowest percentage increase since first quarter 2010.

Online filing issuesThe local 1% share of California’s sales and use

tax from April through June sales was 20.4% higher than the same quarter of 2018. However, the actual gain came to 2.9% after factoring for online filing issues and accounting anomalies.

Marketplace Facilitator ActEffective October 1, 2019, companies such as Amazon, eBay, and Google who provide sales tax related services to other retailers are required to assume the obligation for collecting and remitting their client’s sales and use tax. This was implementation of the Wayfair v. South Dakota ruling that requires out-of-state retailers to collect and remit sales tax on merchandise sold to California customers.

COVID-19 PandemicTaxpayer relief programs accounted for much of the decline with receipts down roughly 3.1% after factoring for payment deferrals and other

accounting anomalies. Severe drops in auto sales, general consumer goods, service

stations, and restaurants were largely offset by new revenue from implementation of the Wayfair v. South Dakota decision that now requires out-

of-state retailers to collect and remit Californian’s sales and use tax.

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CDTFA Actual Sales Tax Revenues vs. Adjustments

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CDTFA Actual Sales Tax Revenues vs. Adjustments


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$

$5

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$40

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Ma

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No

v-1

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Jul-1

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Jul-2

0

In M

illio

ns (

seas

onal

ly a

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ted)

Monthly TransNet Receipts

Gre

at R

eces

sion

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Gre

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sion

Monthly TransNet Receipts

$

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No

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No

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Jul-0

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No

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Jul-1

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No

v-1

3

Jul-1

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r-15

No

v-1

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Jul-1

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Jul-2

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In M

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(se

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Third level

Estimated COVID-19 Impact on the San Diego Regional Economy

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• Jobs Lost• 450,000 (May 2020)• 176,000 (Sept. 2020)

• Lost Wages• $4.5-5.5 billion (March to Sept. 2020)

• San Diego GRP• $10-15 billion, -3.8% to -5.7% (calendar year 2020)

• Taxable Sales• $5-7 billion, - 8% to -11% (calendar year 2020)

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Estimated Job Loss in the San Diego Region by Employment Sector August 2019 to August 2020

-77,700

-36,100

-27,500

-11,500-9,300 -8,800

-4,700 -1,600 -800

1,800

-90,000

-80,000

-70,000

-60,000

-50,000

-40,000

-30,000

-20,000

-10,000

0

10,000

20% of newunemployed workers35,000 unemployed

-37%

-15%

-21%

-6% -14% -3%-5% -4% -1%

+1%

80% of new unemployed workers141,000 unemployed

Source: SANDAG estimates using August 2020 Employment Development Department Industry employment Release date September 18, 2020; and Applied Geographic Solutions, Inc., Thousand Oaks, California, Weekly Release September 14, 2020. Note: does not include uniformed service military employment.


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5%

-32%

-7%

-33%

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

Auto Dealers Auto Repair/Maintenance Gas StationsCoffee and Snack Bars Fast Food Restaurants Grocery StoresSit Down Restaurants Home Centers/Hardware Stores Apparel StoresDepartment Stores Florists Furniture and Appliance StoresPharmacies Recreation Products

Activity Levels at Businesses in the San Diego Region

Sources: SafeGraph COVID-19 Response Dataset - Weekly Patterns

stay home order reopening begins reopening rolled back

30 to 80%

25 to 45%

30 to 50%

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TransNet Collection compared to Economic Activity data(year over year change)

-60%

-40%

-20%

0%

20%

40%

60%

Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20

Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20

Estimate Based on Economic Activity

CDTFA Sales Tax Payments

Reopening

month of collection

month of sale

Deferred Payments?

Peak Closures

Reclosures

Source: https://cdtfa.ca.gov/DataPortal/charts.htm?url=TaxSalesByCounty11


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Economic Outlook

‐7.8%+4.1%

‐4.7%

+4.2%

+2% +2%

200

220

240

260

280

300

320

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

GR

P in

Bill

ions

of 2

020

dolla

rs

June 2020 September 2020 Pre-COVID12

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Transnet Sales Tax Forecast Scenarios

$150

$200

$250

$300

$350

$400

200

2

200

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200

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0

201

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Collection

PRECOVID

June 2020 Budget update

Based on actual collection

Consensus U-shape


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Short-Term Funding Picture

• Updated Costs and Revenues

• Identified Cashflow Needs FY 2021 – FY 2025

‒ $170 million to $220 million

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Third level

Major Corridor Debt Portfolio –$2.3 Billion

2008 2010 2012 2014 20162019

Refunding Only

2018 Short-TermNotes (TIFIA)

2019 Grant Anticipation Notes

(FFGA)

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Short-Term Funding Picture

• Revenue uncertainty

• Favorable economic conditions

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Third level

Options

• Refinance existing bonds to lower borrowing costs and create capacity to issue additional bonds

• Release Series 2008 debt service reserve funds

• Execute interfund loans

• Increase commercial paper program

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Third level

Refinancing and New Issuance• Lower borrowing costs

• New bond issuance

Opportunities Estimated Savings*

2017 federal TIFIA loan – Mid-Coast $156.2 million (2026-2046)

Series 2014A bonds $24.7 million ($14 million 2021 to 2025)

Series 2018A short-term notes $10.5 million (2026-2046)

*will vary based on rates at time of transactions

Opportunities Estimated Proceeds

Series 2021A bonds $113 million

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Third level

Release Debt Service Reserve Funds

• Series 2008 bonds issued with $17 million debt service reserve fund to support high credit rating

• Evolution of rating agency criteria – no debt service reserve on sales-tax revenue bonds in the portfolio since 2008

• No added benefit to maintaining

‒SANDAG funds debt service payments monthly in advance

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Third level

Interfund Loans

• Ordinance provision

• Internalizes risks

• Minimizes borrowing costs

• Generally requires interest payments

• Example – Major Corridors Program to Environmental Mitigation Program (EMP)

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Third level

Increase Commercial Paper Program

• Currently $100 million

• Could increase to $200 million

• Used by local agencies and SANDAG

• Short-term borrowing instrument (on second lien)

• Manage uncertainty

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Remaining Needs

• New issuance plus release of debt service reserve fund = approximately $130 million

• $40 million to $90 million gap

• Revised sales tax forecast in early 2021

• Any actions approved by the Board would be included in the FY 2022 budget

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Considerations

• Debt capacity

• Credit rating

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Third level

ScheduleNovember 2020

Committee and Board

Presentations*

December 2020

Financing Documents

January 2021

Request for Board Approval

March 2021

FY 2022Draft Budget

Early 2021

2018 Short-Term Notes Refinance and Release of

Debt Service Reserve Fund

May 2021

FY 2022 Budget Adoption

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May 2021Apr 2021Mar 2021Feb 2021Jan 2021Dec 2020Nov 2020

November 2020

Underwriter SelectionBond and Disclosure

Counsel

* Including TIFIA refinancing documents

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Proposed TIFIA 2020 Replacement Loan

San Diego County RegionalTransportation Commission

Board of Directors| Item 11 | November 20, 2020

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2020 Loan Replacement Team• San Diego County Regional Transportation Commission Hasan Ikhrata, Executive Director

Andre Douzdjian, Chief Financial Officer

John Kirk, General Counsel

Ray Major, Chief Economist

Jose Nuncio, TransNet Department Director

Dawn Vettese – Capital Program Funding Manager

• Financial Advisors, Public Financial Management Peter Shellenberger, Managing Director

•Outside Counsel, Norton Rose Fulbright US LLP Victor Hsu, Partner

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2020 TIFIA Replacement Presentation

1. Why are we replacing the loan

2. Description of the main components of the loan

3. Review of various loan documents

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Market Update

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Loan Terms

• Single draw of funds

• 5-year deferred repayment

• Increasing debt service

• Issuance of short-term notes

• Debt service coverage

• Credit ratings

• Additional bonds test

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Costs

• Cost of refinancing are estimated at $400,000 and include Bond Counsel Advisory Services Build America Bureau Legal Advisors

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Debt Portfolio

Debt service calculated based on fixed-payer swap rate and excludes remarketing and liquidity fees.; Net of federal subsidy

Commission’s debt portfolio contains a prudent mix of fixed‐rate and synthetic fixed‐rate debt and a level debt service structure for our senior lien bonds

Summary of Outstanding Debt

Series Tax Status Coupon Type Original Issue Size Outstanding Par Call Option Final Maturity

2008A Tax‐Exempt Variable Rate $150,000,000 $100,575,000 Current 4/1/2038

2008B Tax‐Exempt Variable Rate $150,000,000 $100,575,000 Current 4/1/2038

2008C Tax‐Exempt Variable Rate $150,000,000 $100,575,000 Current 4/1/2038

2008D Tax‐Exempt Variable Rate $150,000,000 $100,575,000 Current 4/1/2038

2010A Taxable Fixed Rate $338,960,000 $338,960,000 Make‐Whole 4/1/2048

2012A Tax‐Exempt Fixed Rate $420,585,000 $40,935,000 4/1/2022 4/1/2048



2019A Taxable Fixed Rate $442,620,000 $442,620,000 4/1/2030 4/1/2048

2020A Taxable Fixed Rate $74,820,000 $74,820,000 4/1/2030 4/1/2048

2018A Notes Tax‐Exempt Fixed‐Rate $537,480,000 $537,480,000 Non‐Callable 4/1/2021

Total $2,315,415,000

Summary of TIFIA Loan Commitment

Series Tax Status Coupon Type Original Issue Size Outstanding Par Call Option Final Maturity

TIFIA* Taxable Fixed‐Rate $537,484,439 $0 Anytime 10/1/2045

Total with Loan Commitment

$2,315,419,439

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Credit Rating Agency Reviews

• Current high credit ratings on SANDAG debt program

• Current ratings – senior lien: Standard & Poor’s: AAA

Fitch: AAA

• Current ratings – junior subordinate lien (TIFIA): Standard & Poor’s: A+

Fitch: A

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Financial Advisor Memo (Attachment 1)

• Market update

• TIFIA loan structure

• Financial considerations

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SANDAG Direct Agreement(Attachment 2)

Required since SANDAG is the administering agency to construct the project and is the grant recipient for the Mid-Coast New Starts grant from the Federal Transit Administration

Updates reference to the TIFIA Loan Agreement and signatories

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MTS Direct Agreement(Attachment 3)

Required since MTS is the administering agency to procure the vehicles, traction power substations, and new fare collection system

Also required since MTS is the operator

Updates reference to the TIFIA Loan Agreement and signatories

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TIFIA Loan Agreement(Attachment 4)

The replacement TIFIA Loan Agreement is an update of the original agreement

Updates interest rate

No other significant changes to terms

Updates old information

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Tenth Supplemental Indenture(Attachment 5)

• Needed to reference new TIFIA loan and bond

• Seventh Supplemental Indenture remains in effect for all other provisions

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Resolution RTC-2021-02(Attachment 6)

The Resolution approves the replacement TIFIA financing method and authorizes the Executive Director to execute the following documents on behalf of SANDAG acting as the RTC: TIFIA Loan Agreement and TIFIA Bond

Direct Agreements

Tenth Supplemental Indenture

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Resolution 2021-07(Attachment 7)

The Resolution authorizes the Executive Director to execute the SANDAG direct agreement on behalf of SANDAG

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Next Steps

• Early December – loan approval

• Late December/Early January– loan execution

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RecommendationThe Transportation Committee recommends that the Board of Directors, also acting as the Regional Transportation Commission (RTC), approve a Transportation Infrastructure Finance and Innovation Act (TIFIA) Loan Agreement and associated Direct Agreements to secure a replacement loan for the Mid-Coast Corridor Transit Project and the Tenth Supplemental Indenture, providing for the issuance of a Junior Subordinate Sales Tax Revenue Bond evidencing the RTC obligations under the TIFIA Loan Agreement. Additionally, the Transportation Committee recommends that the Board:

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Recommendation (continued)

1. Acting as the RTC, approve the replacement TIFIA financing method for the Mid-Coast Corridor Transit Project;

2. Acting as the RTC, adopt RTC Resolution No. RTC-2021-02, authorizing the Executive Director to execute the TIFIA Loan Agreement and Direct Agreements, the TIFIA Bond and the Tenth Supplemental Indenture; and

3. adopt SANDAG Resolution No. 2021-07, authorizing the Executive Director to execute the SANDAG Direct Agreement.

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APPROVAL OF PROPOSED CONTRACT AWARD Rancho Lilac

SANDAG Board of Directors| November 20, 2020

State Route 76 Project

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RFP TIMELINE and STATUS

2011

Caltrans Acquires Rancho Lilac

2014

SANDAG Board authorizes release of RFP

2016

Release of RFP to the public. Three proposals received

2017

SDHC selected for negotiations

2017–2020

Negotiation with SDHC on endowment

Caltrans Management of Property

May 22, 2020

SANDAG BOD meeting

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Staff Recommendation

SANDAG staff is recommending award to SDHC and retaining a trail easement from Caltrans

• SDHC was recommended for award through a fair, competitive procurement based on information available in 2016.

• Additional assurances to accommodate a future trail would be secured through a floating trail easement for future public access.

• Offer County of San Diego an exclusive negotiation agreement for the study and potential development of future public access trails. 5

Other Options for Consideration

1. Cancel RFP for Rancho Lilac Property and send out new RFP

2. Cancel RFP for Rancho Lilac Property and recommend to Caltrans inclusion of Rancho Lilac property in ongoing negotiations with County of San Diego

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Next Steps

• Pending approval by the Board, SANDAG will execute an agreement with SDHC or take other action as directed by the Board.

• Caltrans would then bring this property to CTC for property transfer.

• Caltrans would grant a trail easement to SANDAG

• SANDAG and SDHC would enter into an agreement, and a conservation easement would be granted to SANDAG in exchange for the establishment of an endowment account.

• SANDAG would offer an exclusive negotiation agreement for the study and potential development of future public access trails to the County of San Diego.

• SDHC would then have 18 months to submit the HMP, to be reviewed and approved by SANDAG and Caltrans

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Recommendation

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Action: Approve

The Board of Directors is asked to: (1) authorize the Executive Director to execute an agreement for the transfer and long-term management of mitigation land with the San Diego Habitat Conservancy (SDHC) and accept a conservation easement as a condition of release of endowment funds, (2) accept a trail easement from Caltrans, and (3) offer to the County of San Diego an exclusive negotiation agreement for the study and potential development of a future trail system

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