The Hamilton Trust (the "Trust") was established in conjunction with the original development of Hamilton, and was officially memorialized in the document, "Acknowledgment and Agreement Re: Developer Trust Funds Payments (Hamilton Field, Novato)," signed on January 22, 2004.
The original Hamilton Reuse Plan required that, prior to any development occurring, negative fiscal impacts on the City and its residents be resolved. These impacts were required to be quantified and fully mitigated by any development proposal. The master developer ultimately selected by the City (the “Developer”) to implement the Hamilton Reuse Plan, proposed making payments into a permanent trust fund which would be invested. The investment returns from the Trust would flow back to the City, as beneficiary of the trust, to mitigate fiscal impacts of the Hamilton development on City services and ultimately, the City’s General Fund. The Novato Public Finance Authority (“NPFA”), a joint powers authority between the City and its Redevelopment Agency, is the trustee of the Trust.
Once Hamilton development was completed, the total amount paid into the trust by the Developer was approximately $31 million. The trust is divided into several sub-accounts: 1) $4 million—the investment earnings are 100% dedicated to fund affordable senior housing in Novato. The rest of the trust, or approximately $28 million, directs 80% of its investment earnings (interest) directly to the City’s General Fund, with the remaining 20% staying in the Trust to build the Trust principal over time. Due to the principal-building component, the Trust has grown to approximately $32.7 million. As a permanent, irrevocable trust, the Trust can never be spent by the City – it must be invested to generate investment earnings for the benefit of the City.
Per the Trust document, the Trust assets must be invested as public funds in accordance with the City’s investment policy. The policy emphasizes (in order) safety, liquidity, and yield, and is restrictive in the types of investments that can be utilized, in accordance with the California Government Code.
Investments of the Hamilton Trust typically include Treasury securities, federal agency securities, negotiable certificates-of-deposit, corporate notes, cash/money market funds, local agency debt, and several other types of low-risk securities. Since 2006, the Hamilton Trust funds have been invested and managed by the City’s investment advisor, PFM Asset Management, a firm with significant expertise in investing public agency funds.
In the history of the Trust, the City has twice chosen to fund a capital project via a loan from the Trust. The first occurred in 2004 when the City chose to construct upgrades and renovate facilities at the Corporation Yard via a $1,745,000 loan from the Trust. This loan was paid off by the City in 2014.
The second instance occurred in 2017 when the City opted to utilize a $2.2 million loan from the Trust to fund the first phase of the Downtown SMART Station construction.
Per the Trust agreement, these loans are permissible investment types and allow the Trust to invest a portion of its assets in longer-term, higher yielding investments. From a City perspective, as the General Fund receives 80% of the interest income on Trust investments, it is a very low-interest method of financing a project.
In both prior instances, the City’s General Fund was the repayment source for the debt. If the City were to explore additional loans from the Trust in the future, it should consider issues such as: the repayment source of any loans; the structure and duration of the debt; and risks for the Trust such as interest rate risk and repayment risk associated with making long-term investments in local capital projects.