this policy of the board and otherwise that is in our past practices. not in the least, our professional staff does an amazing job. thank you. >> as always, a great presentation. supervisor farrell: i would like to ask the city attorney. i suppose mr. blake would be the one. really, to talk about cop's in particular. if anyone has a more historical perspective, specifically how it works. >> my name is mark blake, and i

am a deputy city attorney. my specialty is finance and the closure. my comments will be brief. certificates of participation are forms of long-term debt that provided interest in loan payments payable by a government agency. cops are you less by the city only for the construction of capital assets. egiven the security concerns of investors, it covers the central government purposes only. in accordance, they are not issued for operating in the vicinity. all issuances must fulfil the

public purpose of the city. courts will defer to the legislative audit. our view is that the city charter, in adoption up specific limitations and not enumerated powers, because in the charge section, the city entered into a transaction. it is underlines. the charter does not require arrangements with full profit entities. it requires board approval for any contract or agreement, and in turn access ford tenures. that would require board

approval. cops to not constitute debts, and just so that you know, the debt limit prohibits local government indebtedness or liability without a two-thirds vote of the public. the general rule is a vote of the electorate is required to incur debt. but there are well established exceptions to the debt limit, one of which is the lease obligation, and that under lines any cop issuance. ed we have to ensure that no debt obligation is imposed on future use it revenues. the courts have construed this over and over, but the sum

payable on the consistency -- contingency is not a debt nor does it become a dead until the contingency happens. -- nor does it become a debt until the contingency happens. lease payments are considered payable in consideration of the contingent availability of the use and the equipment finance. the city does not require toupee that substance -- that subsequent year lease payments and as such it satisfies the pay-as-you-go rules codify the debt limit. . what that means is cop's are not voter approved.

c.o.p.'s are issued, and as long as they are issued for public capital purposes, the interest is excludable from gross income. that is, it is tax-free. this permits the city to borrow at advantageous rates for capital borrowing projects. there is a lease obligation payable for the -- there's no obligation to meet the next succeeding limit. a typical structure will consist of a lease where the land is leased to a third party. then the city makes annual lease

payments for the beneficial use and enjoyment of that asset. the city's annual lease payments are assigned the two certificate of holders in the form of the security. as with any long-term debt offering, they would prepare a disclosure documents and perform necessary diligence to make sure that this was accurate and not misleading. so long as the city has been official used and enjoyment of the assets, to the extent that the city did not have the beneficial use in the assets -- but i think the occurrence of an earthquake or other disaster, the city could not legally make

payments without the asset. so, structural payments. the city has historical invalidated all transactions. in effect, the validation was additional for the bond counsel, and the bonds were duly authorized against the city. just as a little bit of an historic backdrop, the use of these came into being after the passage of prop 13. courts have viewed in effect the strict application of prop. 13 and the debt limit as really constrained ability of local governments to foster economic growth and development. so, exceptions have been

judiciously created. i think that generated the growth of c.o.p.'s. there was a time when council was not confident that they did not generate debts. i think that time has passed. the city has moved toward validation where once the matter is passed by the board, we let it sit for 60 days, and if the citizen has a concern, they can challenge it, and then we would to get out in court. -- would duke it out in court. supervisor farrell: just quickly -- the state does not view this as debt. but when we talk about it, we talk about it as long term debt? >> it is dead.

for atomic purposes. -- is debt. as a legal proposition, it is not treated as bad debts of by which we have been incurred -- encumbered. that is the legal definition of debt under the state constitution. supervisor farrell: it is because of the legal structure? >> that characterization. if we undertook an agreement today to pay in a subsequent fiscal year a third-party $1, that would violate the debt limit. it is an accounting treatment compared to the legal treatment, if you well. supervisor farrell: legally, not debt, but for all intents and purposes -- fair enough. absolutely a debt. >> the other thing -- an

additional protection is that we again employed outside law firms to basically died as through the debt issuance process, and they render important debt bonds due authorized -- duly authorized and enforceable against the city. and so, i think there is a large history where investors find comfort in this because they do not know what our processes are , that it would be a valid debt. the other thing the council would do is render an opinion of the tax status of an obligation. one of the questions we asked is

whether we issue bonds for operating an ex benz's -- expenses. those bonds would be treated as taxable debt. we could, but as a matter of policy, we would not. supervisor farrell: as we think about street maintenance and repair? >> typically what council will do is to rid be a discussion with our -- is there would be a discussion with our accountants. we would talk about things like maintenance, street sweeping, which would not finance. because what is the use of sweeping the street? it is not useful. it is maintenance. you could improve the street and the life of that if, you know, repaving could be 10, 15, 20

years. there is a distinction in kind between street sweeping and street paving and maintenance. and i think counsel is comfortable with that and that has allowed us -- another analogy would be putting a roof on a building. so, again -- supervisor farrell: when someone buys a home or otherwise, they make sure they have enough money not only to pay the rent, but to pay for ongoing maintenance, whether it be roof replacement or what have you. it is the reason you build up reserves accounts. i think the characterization of these as long term -- >> i would distinguish between patching your roof, replacing tiles, and wholesale replacing your roof. it is a debate. i understand.

supervisor farrell: we are going to split hairs and agree to disagree. >> council will rely on some level -- we will have a discussion with our accounts. to the extent we believe is a capital asset with a useful life of longer than a year, it will be recorded. the other thing that you should be aware of is, when we do issue bonds, that the majority of those obligations have to match at least the life of the asset. so, we can necessarily issue bonds, let's say for an asset that has only one year of useful life for 20 years. that would be a taxable bond, too. that would defeat the purpose of issuing the obligations. supervisor farrell: ok. one other thing -- just to clarify. at a certain point you said the

policy is to issue these not to raise taxes. >> not to raise taxes? i mean, i think they are issued for capital purposes and not operating expensive -- operating expenses. supervisor farrell: ok. c.o.p. -- >> c.o.p.'s do not obligate the city to levy taxes. supervisor farrell: to be clear, we are paying additional interest and principal on these obligations going forward. >> that is correct. supervisor farrell: thank you. supervisor campos: supervisor farrell: no farrell: thank you. i will say this to every

department, but thank you for the job you do it. next, we wanted to ask our budget and legislative analyst to come forward. i asked them to do a study on our debt structure, c.o.p. in particular, but to do a comparative analysis to see how we stack up for other jurisdictions. i think prince william in california is what we looked at. thank you. >> good morning, supervisors. i am joined by my colleagues. i will take a couple of minutes to briefly present to you the results of the comparative analysis on the issuance of non- voter approved debt. we were asked to compare the best practices of issuing non- voter debt to those of other

large california jurisdictions. we compared 15 jurisdictions, including san francisco. we focused on debt that provided appropriations. that means we are not providing information on enterprise bonds and other types of debt. finally, these numbers are based on the most recent audited financial reports, which in all but three cases is june 30, 2010. there'll be some slight variation between these numbers because our numbers are slightly older. for compare ability purposes, the numbers represent the principal only since we were not able to identify outstanding interest. so, the first finding has been

discussed, that san francisco is the only jurisdiction we reviewed that requires voter approval for revenue bonds. it is the city's primary vehicle for issuing non-voter debt. as far as we can sell, this dates back to proposition p in 1977, and the pamphlet from that side said the yerba buena as problematic lease financing. we're the only jurisdiction that requires this for revenue bonds. secondly, each of the jurisdictions had outstanding non-voter debt, revenue bonds, c.o.p.'s, or pension bonds.

all of them had a standing c.o.p. debt. i should note when you consider the debt accounted for, only santa fe had no outstanding debt at all. supervisor campos: what were the other dog? >> i have it in the folder if you want me to look at it. c.o.p.'s are considered the most expensive kind of debt, as we already talked about today. we did it to collect the various interest-rate premiums all the jurisdictions pay on their debt. this was not presented uniformly, so we're we're not able to quantify the variance -- so we were not able to quantify the various periods -- the

variants. almost $592 million in outstanding principal. i include the interest so you can get a clear picture of the obligations. please remember, and the slides that follow, interest is not included. supervisor farrell: really quickly come up when you calculate the interest -- how do you arrive at that? >> financial statements. $591 are pulled up a comprehensive schedule. so if we look at outstanding c.o.p. debt alone, san francisco is hired than any of the major

jurisdictions. you can see on the screen. the mean per-capita c.o.p. debt was $112. c.o.p. this is debt. -- this is just c.o.p. debt. all these jurisdictions had lease revenue bonds as well. that is reflected here. supervisor farrell: i think we talked about this the other day, but there were a number of supporting obligations. on an apples to apples basis, have you been able to look and see if it is really apples to apples? our number is really high. >> it is really i. i think it would require basically interviewing the finances in the jurisdictions,

to understand the purposes. supervisor campos: where do we rank in terms of non-voter approved -- >> that is the next chart here. so, if you thrown in the lease revenue bonds, we are still high. we are second highest on a per- capita basis. you'll notice our number stays the same, because c.o.p.'s are our only non-voter approved debt. we are still relatively high, but we're not as off as we are if you just look at the c.o.p.'s.

those are the two main quantitative comparisons we did. supervisor campos: did you get a sense of why it is? is there something unique about the way we are utilizing non- voter approved that? >> why it is still high? supervisor campos: yes. >> we limited ourselves to the financial statements and the debt policies. i think that would require further discussion with the other jurisdictions that we will not really able to come up with other justification beyond that. we did notice that in reviewing the debt policies of other jurisdictions, our that policy is longer and generally more specific. it ranged from the city of long beach had a debt policy -- part

of its larger financial policy, part of a page. it ranged to dozens of pages, like what we have. i think we provide more guidance on the appropriate uses of the various types of debt instruments. beyond that, there was nothing from looking at the debt policy. supervisor campos: we may provide more guidance, but to we have more permissive policies? >> it does not appear so. supervisor farrell: i would actually said it also -- we have a much more restrictive debt policy than any other jurisdiction. >> that is correct. we're the only jurisdiction in the state that requires of vote for least holdings of this --

for leases of this type. we are issuing debt for a city purposes, parks, streets, the like, but also for county purposes. the construction of jails, health services. i think that is important to remember here. even if you were to combine many others in the state and city and county of los angeles, we would still be on a per-capita basis higher than many. frankly, that is a sign of a relatively wealthy community with a relatively well funded budget. we talk about our general obligation bond debt, if you look at that, the capital numbers are higher, but the percentage of the value of the property in the city is very low and speaks to the value of our property tax base.

an important caveat on debt ratios per-capita -- i suggest looking at that and other measures. supervisor campos: 2 we have a sense of where we are in terms of the value -- to we have a sense of where we are in bali -- in terms of the value of our properties? >> this is what reading agencies' comments on. i would assume our that valuation is the highest in the state, if not close to the highest. supervisor campos: i think that information would be helpful. i think we could probably get that information as possible. >> i think so. supervisor chiu: we can follow

up with that for sure, thanks. >> thank you. this is one approach, one way to do the comparison. there are other kinds of comparisons that will be helpful. so, if you would like us to do another comparison on general fund revenues, i can do that as well. supervisor farrell: i would like to suggest we do that as well. we can come back and work with my office as well. we can definitely -- i think it would be appropriate to look at that. thank you. supervisor campos: thank you. supervisor farrell: a slide it talking about principal and interest is different than what we mentioned before. i was wondering if we could clarify --

>> i do have a statement of principle and interest, and in our portfolio, we'd manage ab ductio in may -- 87.1 -- $87.1 million in interest. i have not looked to see why it is $900 million. i just heard katie speak to that. i am showing a marginal number. supervisor farrell: ok. maybe we can clarify that. thank you to the budget and legislative analyst for doing that report. i am looking forward to continuing to review that, the different ratios. i think next -- in terms of

c.o.p.'s overall, wanted to get a sense of future c.o.p.'s in the capital plan, but also understand the issue about the lease revenue bonds. maybe mr. blake can talk about -- we are the only jurisdiction here. maybe a perspective on that? by voter, by initiative? i would love to get your thoughts and general on the implications of what if we were not to have that restriction, not only in terms of ease of operations, but in terms of cost of debt? >> sure. i recall there was a change in the 1970's or 1980's that

changed this restriction in san francisco you do not have elsewhere. i think more tools and the tool kit are always hopeful in this world. i think as the city, over the last 10 years, we have been going forward to the voters with different charter amendments. we have committed ourselves to ability to issue revenue bonds, and the voters are increasing their bonds for most of our government. so, the public utilities commission has the ability to issue bonds without a vote of the people or a series of ballot initiatives over the last 10 years. when the open space fund was reopened for rec and park, that included the ability to issue bonds for that