REPORT TO COUNCIL AND SUNNYVALE FINANCING AUTHORITY
SUBJECT
Title
Adopt Resolutions to Authorize Issuance of Solid Waste Revenue Bonds to Finance SMaRT Station® Improvements and Equipment in an Amount Not to Exceed $50 Million, Including Financing and Closing Costs; Approve Financing Team, and Authorize the City Manager/Executive Director or the Finance Director/Treasurer to Execute all Related Documents
Report
REPORT IN BRIEF
Staff is recommending the City Council and the Sunnyvale Financing Authority (the “Authority”) to authorize the issuance of bonds to finance a portion of the costs of the SMaRT Station NextGen Project (the “Project”), approve the financing team that implements the issuance of the Bonds, and Authorize the City Manager/Executive Director or the Finance Director/Treasurer to execute all related documents.
BACKGROUND
The City of Sunnyvale (“City”) is responsible for the ownership, operation, and improvement of the SMaRT Station, the City-owned waste transfer and processing facility that handles a diverse array of incoming material streams, including garbage, source-separated curbside and commercial recyclable materials, yard trimmings, food scraps, and construction and demolition debris.
The City has entered into a memorandum of understanding with the City of Mountain View (“Mountain View”), dated December 22, 2021 (“MOU”), for the use and management of the SMaRT Station. The MOU is scheduled to expire on December 31, 2036. The City also entered into a merchant agreement with the City of Cupertino on August 12, 2025, under which Cupertino would begin sending its garbage to the SMaRT Station after the planned improvements are completed. This agreement was executed on October 15, 2025.
The City has determined that it is necessary to install materials recovery facility equipment at, and make improvements to, the SMaRT Station (“NextGen Project”), including the design, fabrication, and installation of an integrated waste processing equipment system. The NextGen Project will involve improvements to the Mixed Waste System, the Curbside System, and the Transfer Station. On May 20, 2025, the Sunnyvale City Council awarded an agreement to Bulk Handling Systems, Inc. for the purchase and installation of the equipment system (RTC No. 25-0307). The Council was informed of the plan to issue bonds to fund the project, and the Council approved a reimbursement resolution to preserve the City’s flexibility to reimburse itself using bond proceeds for prior project expenditures.
Staff recommends that 1) after holding the public hearing on the proposed financing of a portion of the costs of the NextGen Project, the City Council adopt a resolution approving the issuance of bonds by the Sunnyvale Financing Authority (“Financing Authority”) to finance a portion of the costs of the NextGen Project and related documents and actions; and 2) the Sunnyvale Financing Authority adopt a resolution approving the issuance of bonds and related documents and actions.
EXISTING POLICY
Council Policy 3.2.1 Solid Waste Management, Goal 3.2F: Maintain sound financial strategies and practices that will enable the City to provide comprehensive solid waste management services to the community while keeping refuse rates at or below countywide averages for cities using cost of service pricing.
Council Policy 7.1C.1.3 - Capital Improvement Policies: High priority should be given to replacing capital improvements prior to the time that they have deteriorated to the point where they are hazardous, incur high maintenance costs, negatively affect property values, or no longer serve their intended purposes.
Council Policy: 7.1l, l.1: Enterprise Fund Policies:
7.1l.1b.1: Capital improvements associated with the existing infrastructure of a utility should be primarily funded from two sources: rate revenue and debt financing.
7.1l.1b.5: Bonded debt financing should be used for capital improvements as appropriate to:
• Make cost recovery of an asset more consistent with its useful life
• Equitably assign cost over multiple generations of customers who use the assets
• Smooth near-term rate impacts of the project
Council Fiscal Policy 7.1.8 - Debt Management:
7.1.8.2(a): Long-Term Debt proceeds may be used: a. To finance the construction, acquisition, and rehabilitation of capital improvements and facilities, equipment and land to be owned and operated by the City (a Project) to provide basic services and/or benefit constituents over multiple years.
7.1.8.5(c): Revenue Bonds: all City utility-related improvements shall be funded only from revenues of the respective utilities.
ENVIRONMENTAL REVIEW
On May 20, 2025 (RTC No. 25-0307), the City Council accepted Addendum #3 to the previously certified SMaRT Station EIR (State Clearinghouse # 89022812), finding that no further environmental review is required for the proposed integrated waste process equipment system constituting the NextGen Project to be financed by the 2025 Bonds, pursuant to Sections 15162 and 15164 of the Guidelines to the California Environmental Quality Act.
DISCUSSION
The City needs to finance improvements to several systems that have reached the end of their useful life at the SMaRT Station, the City-owned waste transfer and processing facility. In May 2025, the City Council awarded a contract to Bulk Handling Systems to deliver the planned improvements. The project will be financed through a combination of debt proceeds, a State of California recycling grant, and a potential cash contribution from the City of Mountain View.
Project Costs and Sources
|
Project Costs |
Cost |
|
Project Expenses to Date (excluding BHS costs) |
$5,540,000 |
|
BHS Contract including contingency** |
35,063,175 |
|
SSI Compactor including contingency |
2,672,831 |
|
Other Improvements |
8,260,000 |
|
Total Project Cost |
$51,536,006 |
|
|
|
|
Project Sources |
|
|
State Recycling Grant |
$6,575,000 |
|
Bond Proceeds* |
44,961,006 |
|
Total Sources |
$51,536,006 |
*Mountain View may contribute $4 million to fund a portion of its share of costs; if so, the bond principal would be reduced accordingly.
**The City issued a $6.9 million payment to BHS following contract execution
City staff from the Departments of Environmental Services, Finance, and the City Attorney, along with the City’s Municipal Advisor (Ross Financial), bond and disclosure counsel (Jones Hall), underwriter (Stifel, Nicolaus & Company), and trustee (U.S. Bank) (collectively, “Financing Team”), have been preparing the City/Sunnyvale Financing Authority (“Authority”) to access the public bond market to finance the planned improvements. The Financing Team presented the planned financing to Standard & Poor's at the SMaRT Station on October 2, 2025, and led the credit analysts on a facility tour. The Financing Team anticipates the planned bonds will be assigned a rating in the “AA” category. Assuming approval from the City Council and the Authority, staff plan to sell the bonds in November 2025. The planned improvements are anticipated to be completed by December 2026.
Approximately $12.6 million has been spent on the NextGen Project to date, primarily on infrastructure improvements, including the refurbishment of the tip floor, the installation of a bag opener/shredder, building and equipment assessments, feasibility studies, and technical and professional services. On May 20, 2025, the Council adopted Resolution No. 1292-25, declaring its intent to reimburse expenditures related to the NextGen Project from the proceeds of the bonds.
Proposed Bonds
The MOU stipulates that the Cities of Sunnyvale and Mountain View (collectively, “Cities”) are each responsible for a share of debt service on bonds issued to finance capital improvements to the SMaRT Station, based on the percentage of total material delivered to the SMaRT Station at the time of bond issuance. The Cities have determined that Sunnyvale will be responsible for approximately 73.24% of debt service on the Bonds, and Mountain View will be responsible for the remaining 26.76%.
Staff recommends that the City finance the costs of the NextGen Project in the amount shown in the Project Costs and Sources table above. The City has established a Financing Authority to assist with its financings, and over the last few months, the City has established an Industrial Development Authority to replace the Successor Agency to the Sunnyvale Redevelopment Agency as the second party to an amended and restated Joint Exercise of Powers Agreement governing the Financing Authority. There is a related item on the agenda regarding the Industrial Development Authority's actions on its business matters and the Joint Exercise of Powers Agreement. Staff recommends that the City Council hold a public hearing, after which the City Council and the Financing Authority adopt resolutions approving the issuance by the Financing Authority of Solid Waste Revenue Bonds, Series 2025 (“2025 Bonds”), in the maximum principal amount of $50 million, and approving related documents and actions.
The Financing Authority will pay debt service on the 2025 Bonds from installment payments (“Installment Payments”) made by the City to the Authority under an Installment Sale Agreement (described below). The City is required to make the Installment Payments from (i) net revenues (revenues remaining after operating costs) of the City’s solid waste enterprise (“Solid Waste System”) and (ii) debt service payments made by Mountain View under the MOU, as described below. The City will have no obligation to pay the Installment Payments or debt service on the 2025 Bonds from the General Fund or any source of funds other than net revenues of the Solid Waste System and debt service payments made by Mountain View under the MOU.
The 2025 Bonds will be issued as tax-exempt bonds, which means that purchasers of the 2025 Bonds will not pay tax on the interest they receive. This allows the 2025 Bonds to bear a lower interest rate than they would if the interest were taxable. The 2025 Bonds will be sold on a negotiated basis to Stifel, Nicolaus & Company (“Underwriter”) pursuant to a Bond Purchase Agreement (described below). The Underwriter was selected following a competitive process.
State law (Government Code Section 5852.1) requires the disclosure of good faith estimates for certain information about the 2025 Bonds, including the true interest cost, financing costs, use of proceeds, and total payment amount. This information is included in Exhibit A of the proposed resolutions of the City Council and the Financing Authority. Based on current market conditions, the 2025 Bonds are projected to be issued in the amount of approximately $45.4 million, including $420,000 in issuance costs. At current market conditions, the 2025 Bonds are expected to carry a true interest cost of approximately 4.08%. The anticipated amount of the 2025 Bonds will be reduced if Mountain View cash funds a portion of its contribution.
Approval of Financing Team
In addition to City staff, the Financing Team consists of the City’s bond counsel, disclosure counsel, municipal advisor, underwriters, and trustee. Staff recommends that the bond counsel, disclosure counsel, municipal advisor, underwriters, and trustee be approved by the Council and the Authority.
Municipal Advisor
Ross Financial, San Francisco, CA. Ross Financial is a San Francisco-based financial advisory firm that specializes in municipal bonds. Its principal, Peter Ross, has over forty years of experience in the municipal bond market, having served in capacities including bond counsel, underwriter, and municipal advisor throughout his career. Ross Financial performs work for many prominent municipalities in California, including the Cities of San Jose, San Francisco, Burbank, the Santa Clara Valley Transportation Authority, SamTrans, Housing Authorities in the Cities of Los Angeles and Sand Diego, and Peninsula Corridor Joint Powers Board. Mr. Ross has been the City’s municipal advisor for over twenty five years, most recently supporting the City on the Civic Center lease revenue bonds, the Sunnyvale Clean Water Program Water Infrastructure Financing and Innovation Act (“WIFIA”) Loan negotiations as well as with the issuance of the City’s 2017 Water and Wastewater Revenue Refunding Bonds, the 2010 Solid Waste revenue bonds and the 2009 Variable Rate Certificates of Participation.
Ross Financial proposes a fee of $75,000 plus out-of-pocket expenses (likely minimal, if any). This fee will be paid from the proceeds of the Bonds and is contingent upon their sale and closing.
Bond Counsel and Disclosure Counsel
Bond counsel is responsible for drafting legal documents and ensuring that the Bonds are issued in compliance with all applicable state and federal tax laws. Bond counsel delivers an opinion that the 2025 Bonds are legally issued and interest on the 2025 Bonds is tax-exempt for Federal and California income tax purposes. Disclosure Counsel drafts the Official Statement and provides the opinion that the Official Statement is accurate in all material respects.
The law firm of Jones Hall is recommended as both bond counsel and disclosure counsel. Jones Hall is a leading public finance law firm in the State and serves local governments throughout California. The firm has served as bond and/or disclosure counsel on several previous City financings, including the Civic Center lease revenue bonds, Sunnyvale Clean Water Program WIFIA Loan negotiations, 2017 Water and Wastewater Revenue Refunding Bonds, Variable Rate Certificates of Participation financing for the Government Center Site Acquisition Project, the Mello-Roos financing for the Downtown Parking Project, previous SMaRT Station financings in 2003, 2007 and 2014, and the 2001 Utilities Bonds. Jones Hall proposes a fee of $115,000 for both bond counsel services and disclosure counsel services. This fee will be paid from the proceeds of the bonds and is contingent on their sale and closing.
Underwriter
Staff conducted a request for proposals (“RFP”) process for underwriting services for the bonds. The City distributed the RFP to 14 firms and received 4 proposals. Based on the responses, Stifel, Nicolaus & Company (“Stifel”) was selected. Stifel is one of the most active underwriting firms in the California municipal bond market, has prior experience with solid waste revenue credits and underwrote the City’s 2020 Lease Revenue Bonds.
The underwriter will be compensated by purchasing the Bonds at a discount to the price at which they sell the Bonds to investors. The underwriter’s discount (including expenses and the costs of underwriter’s counsel), may not exceed 0.35% of the par amount of the 2025 bonds.
Trustee
Staff is recommending U.S. Bank National Association, San Francisco, CA, as the Trustee for this transaction. The trustee is responsible for holding the bond proceeds, repaying the bonds on behalf of the City, and enforcing the rights and remedies of the bondholders. U.S Bank serves as trustee on several of the City’s bond issues.
Overview of the Financing Structure
Staff is recommending revenue bond financing in which the Sunnyvale Financing Authority will issue Solid Waste Revenue Bonds. The Bonds will be secured by Installment Payments made by the City to the Authority on a semiannual basis in amounts sufficient to pay the scheduled principal and interest. Those Installment Payments, in turn, will be secured by Net Revenues of the City’s solid waste enterprise. This financing approach is common among California cities for utility financings, has been used by the City in the past, and is well-accepted by investors.
Use of Negotiated Sale
There are two ways the City can sell bonds: through a competitive process and a negotiated process. The City has generally issued bonds on a negotiated basis. Here, staff is recommending a negotiated sale for the bonds due to the complexity of the transaction, potential for market volatility, and the ability to control the timing of the sale. In a negotiated sale, the Underwriter will pre-market the bonds to investors, providing an opportunity to educate investors about the City’s credit and to gather investor feedback that informs key bond structuring decisions.
With a competitive sale, the City would set a date and time at which any underwriting firm may submit a bid to purchase the bonds, and the City would award the bonds to the firm that offers the lowest true interest cost. A competitive sale is best suited to more straightforward transactions, such as general obligation bonds.
Key Documents
The key documents required for the issuance of the 2025 Bonds are described below:
Installment Sale Agreement. Under the Installment Sale Agreement, the City will agree to pay the Installment Payments to the Financing Authority as the purchase price to finance the NextGen Project. The Installment Payments are secured by a pledge of the City's net revenues from its Solid Waste System and are also payable from debt service payments made by Mountain View under the MOU.
In the Installment Sale Agreement, the City will agree to two “rate covenants,” summarized below. To the extent that revenues from the City’s Solid Waste System and the SMaRT Station are insufficient to meet the covenants, the City would be obligated to raise rates or reduce operating expenses. However, the Installment Sale Agreement includes a mechanism under which the obligation to raise rates could be deferred: the City retains the option of using moneys in a “Rate Stabilization Fund” to meet its expenses. The availability of a Rate Stabilization Fund is dependent upon the City making transfers to the Rate Stabilization Fund in those years when surplus revenues are available.
Sum Sufficiency Covenant. Each year, the City will agree to set the rates paid for the services of the City’s Solid Waste System to generate revenues - including any transfers from the Rate Stabilization Fund, Mountain View’s payments under the MOU, and other SMaRT Station revenues - that are sufficient to pay all of the following:
1. costs of operating and maintaining the Solid Waste System and the SMaRT Station;
2. the Installment Payments payable to the Financing Authority; and
3. all other obligations payable from revenues of the Solid Waste System, including annual transfers to the City’s General Fund for costs of administering the Solid Waste System.
Net Revenues Covenant. The City will agree to set the rates paid for the services of the City’s Solid Waste System to generate revenues - including any transfers from the Rate Stabilization Fund, Mountain View’s payments under the MOU, and other SMaRT Station revenues - that, after the City has paid the costs of operating and maintaining the solid waste enterprise and the SMaRT Station, are equal to at least 120% of the Installment Payments due in each year. For the Net Revenues Covenant, annual overhead reimbursements to the General Fund are considered as being paid after annual debt service. The 20% “margin,” or coverage factor, in the Net Revenues Covenant is necessary to secure an investment-grade rating that will achieve the lowest borrowing cost and, as a result, reduce the impact of the financing on customers of the City’s Solid Waste System.
In addition, the City agrees not to issue any additional solid waste revenue bonds on a parity with the Bonds unless historical Net Revenues (excluding transfers from the Rate Stabilization Fund) cover the maximum annual debt service on the Bonds and the new obligations by at least 1.20 times. The additional bonds test allows the City to include projected revenues from approved rate increases.
Indenture of Trust. The Financing Authority will enter into an Indenture of Trust with U.S. Bank Trust Company, National Association, as the trustee (the "Trustee"). The Indenture of Trust lays out the terms of the proposed 2025 Bonds, including:
• Principal and interest payment dates;
• Redemption and defeasance provisions, which would allow the City to refinance the 2025 Bonds to generate debt service savings; and
• The default and remedy provisions.
Generally, the Financing Authority serves as a conduit between the City and the owners of the 2025 Bonds. The Financing Authority will assign the Installment Payments to the Trustee and has no obligation to pay debt service on the 2025 Bonds from any source of funds other than the Installment Payments.
Bond Purchase Agreement. At the time the 2025 Bonds are sold, the City and the Authority will enter into a Bond Purchase Agreement with the Underwriter, who will agree to underwrite the 2025 Bonds subject to satisfaction of the conditions described in the Bond Purchase Agreement. The resolution provides that the Underwriter’s discount on the purchase of the 2025 Bonds may not exceed 0.35% of the par amount of the 2025 Bonds.
Preliminary Official Statement. This document, approved and signed by the City and the Financing Authority, most importantly describes:
• Term of the 2025 Bonds (“THE BONDS”)
• Security for the 2025 Bonds (“SECURITY FOR THE BONDS”)
• NextGen Project (“SMaRT STATION - The NextGen Project”)
• Solid Waste System (“THE SOLID WASTE SYSTEM”) and the SMaRT Station (“THE SMaRT STATION”), which are the source of funds for the Installment Payments
• Potential risks to prospective investors (“RISK FACTORS”)
• Tax status of interest on the bonds (“TAX MATTERS”)
• Economic and demographic characteristics of the City (Appendix A)
The Preliminary Official Statement also includes the City’s June 30, 2024, Annual Comprehensive Financial Report. The Preliminary Official Statement (often referred to as the POS) is distributed to prospective investors before the bond sale, enabling them to make informed purchase decisions. It is the equivalent of a prospectus in the private sector. A final Official Statement is sent to purchasers after the terms of the sale are finalized.
The distribution of the POS is subject to federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws require the POS to include all facts that would be material to an investor in the bonds. Material information is information that there is a substantial likelihood would have actual significance in the deliberations of the reasonable investor when deciding whether to buy or sell the bonds.
Continuing Disclosure Certificate. This certificate, attached as an appendix to the Official Statement, outlines the updated information related to the 2025 Bonds that the City will agree to provide to the bond markets on an ongoing basis. Disclosure is required annually, and on an exceptional basis for certain listed events.
FISCAL IMPACT
Since this financing is intended to replace equipment with an estimated 20-year life span, the term of the proposed bonds is also 20 years. Assuming total proceeds of approximately $45.4 million, total debt service is estimated at $67.1 million, including $21.7 million in interest. Annual debt service on the Bonds, based on current market conditions, is estimated at $3.3 million, assuming no prepayments - of which Mountain View is expected to pay $925,000 per year. Additionally, the City will be responsible for paying modest annual fees to the Trustee.
The estimated true interest cost of the Bonds, based on interest rates as of September 29, 2025 (plus a cushion of 0.50%), is approximately 4.1%.
Estimated transaction costs for the Bonds are approximately $420,000 and will be paid from bond proceeds. These costs primarily include rating agency fees, the Underwriter’s discount, the City’s municipal advisor, and bond and disclosure counsel fees.
The FY 2025/26 Budget and the Solid Waste Fund Resource Allocation Plan includes estimated debt service in the Solid Waste Fund of approximately $3.2 million per year.
The 2025 Bonds are payable only from Installment Payments made by the City under the Installment Sale Agreement. The Installment Payments are payable by the City only from net revenues from the Solid Waste System and debt service payments made by Mountain View under the MOU. Neither the City nor the Financing Authority has any obligation to pay the Installment Payments or the 2025 Bonds from any other source of funds. If Mountain View fails to make its debt service payments under the MOU, the City will be obligated to make up the difference from the net revenues of the Solid Waste System.
PUBLIC CONTACT
Public contact was made by posting the Council meeting agenda on the City's official-notice bulletin board at City Hall, at the Sunnyvale Public Library and in the Department of Public Safety Lobby. In addition, the agenda and this report are available at the City Hall reception desk located on the first floor of City Hall at 456 W. Olive Avenue (during normal business hours), and on the City's website.
A notice of public hearing was published in the Sunnyvale Sun on October 10, 2025 and October 17, 2025.
ALTERNATIVES
City Council:
• Adopt a Resolution of the City Council of the City of Sunnyvale Approving Solid Waste Revenue Bonds Issued by the Sunnyvale Financing Authority in the Maximum Principal Amount of $50,000,000 to Finance SMaRT Station Improvements and Equipment, Approve an Installment Sale Agreement and Other Documents, Authorize Official Actions and Related Matters, and Approve the Financing Team.
• Do not approve the proposed 2025 Bonds, in which case the NextGen Project would need to be delayed or cancelled.
• Approve the proposed 2025 Bonds to finance a smaller amount of NextGen Project costs, in which case the NextGen Project would need to be delayed or cancelled until the City has identified other funding sources.
Sunnyvale Financing Authority:
• Adopt a Resolution of the Board of Directors of the Sunnyvale Financing Authority Authorizing the Issuance and Sale of Solid Waste Revenue Bonds in the Maximum Principal Amount of $50,000,000 to Finance SMaRT Station Improvements and Equipment, Adopting a Debt Management Policy, and Approving Related Documents and Actions.
• Do not approve the proposed 2025 Bonds, in which case the NextGen Project would need to be delayed or cancelled.
• Approve the proposed 2025 Bonds to finance a smaller amount of NextGen Project costs, in which case the NextGen Project would need to be delayed or cancelled until the City has identified other funding sources.
STAFF RECOMMENDATION
Recommendation
City Council
Alternative 1: Adopt a Resolution of the City Council of the City of Sunnyvale Approving Solid Waste Revenue Bonds Issued by the Sunnyvale Financing Authority in the Maximum Principal Amount of $50,000,000 to Finance SMaRT Station Improvements and Equipment, Approve an Installment Sale Agreement and Other Documents, Authorize Official Actions and Related Matters, and Approve the Financing Team.
Sunnyvale Financing Authority
Alternative 1: Adopt a Resolution of the Board of Directors of the Sunnyvale Financing Authority Authorizing the Issuance and Sale of Solid Waste Revenue Bonds in the Maximum Principal Amount of $50,000,000 to Finance SMaRT Station Improvements and Equipment, Adopting a Debt Management Policy, and Approving Related Documents and Actions.
Levine Act
LEVINE ACT
The Levine Act (Gov. Code Section 84308) prohibits city officials from participating in certain decisions regarding licenses, permits, and other entitlements for use if the official has received a campaign contribution of more than $500 from a party, participant, or agent of a party or participant in the previous 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website: www.fppc.ca.gov/learn/pay-to-play-limits-and-prohibitions.html
An “X” in the checklist below indicates that the action being considered falls under a Levine Act category or exemption:
SUBJECT TO THE LEVINE ACT
___ Land development entitlements
___ Other permit, license, or entitlement for use
___ Contract or franchise
EXEMPT FROM THE LEVINE ACT
___ Competitively bid contract*
___ Labor or personal employment contract
___ Contract under $50,000 or non-fiscal
___ Contract between public agencies
_X_ General policy and legislative actions
* "Competitively bid" means a contract that must be awarded to the lowest responsive and responsible bidder.
Prepared by: Dennis Jaw, Assistant Director of Finance
Reviewed by: Matt Paulin, Director of Finance
Reviewed by: Sarah Johnson-Rios, Assistant City Manager
Approved by: Tim Kirby, City Manager
ATTACHMENTS
1. City Council Resolution
2. Financing Authority Board of Directors Resolution
3. Preliminary Official Statement (including Continuing Disclosure Certificates)
4. Indenture of Trust
5. Installment Sale Agreement
6. Bond Purchase Agreement