HomeMy WebLinkAbout2014-11-05 PACKET 04.C. i
REQUEST OF CITY COUNCIL ACTION COUNCIL AGENDA
MEETING ITEM #
DATE 11 /5/14 a �
PREPARED BY Finance Robin Roland
ORIGINATING DEPARTMENT DEPARTMENT HEAD
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COUNCIL ACTION REQUEST
Consider approval of a resolution calling a Public Hearing for December 3, 2014 on the
issuance of conduit debt.
STAFF RECOMMENDATION
Approve the resolution calling the Public Hearing December 3, 2014.
BUDGET IMPLICATION
BUDGETED AMOUNT ACTUAL AMOUNT
ADVISORY COMMISSION ACTION
DATE REVIEWED APPROVED DENIED
❑ PLANNING ❑ ❑ ❑
❑ PUBLIC SAFETY ❑ ❑ ❑
❑ PUBLIC WORKS ❑ ❑ ❑
❑ PARKS AND RECREATION ❑ ❑ ❑
❑ HUMAN SERVICES/RIGHTS ❑ ❑ ❑
❑ ECONOMIC DEV. AUTHORITY ❑ ❑ ❑
❑ ❑ ❑ ❑
SUPPORTING DOCUMENTS
� MEMO/LETTER:
� RESOLUTION:
❑ ORDINANCE:
❑ ENGINEERING RECOMMENDATION:
❑ LEGAL RECOMMENDATION:
� OTHER: Letter from C. Courtney, Briggs & Morgan
ADMINISTRATORS COMMENTS
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City Administrator Date
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H:\Council items\council-action template.docx
Cottage
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� Pride ana ��OSPerity Meet
To: Mayor and City Council Members
Ryan Schroeder, City Administrator
From: Robin Roland, Finance Director
Date: October 30, 2014
Subject: Call for Public Hearing on issuance of Conduit Debt — Educational Facilities
Revenue Notes (Charter Schools Development Corporation/Hiawatha
Academies)
INTRODUCTION
The City of Cottage Grove has the authority to issue tax-exempt revenue bonds on behalf of
other non-profit entities to secure favorable financing for them. Historically, the City has used
this authority for commercial/industrial development projects such as Allina Health Systems
(2009) and Presbyterian Homes (2006).
DISCUSSION
The City received a request from Hiawatha Academies to act as a conduit for the issuance of no
more than $6.6 million in Educational Facilities debt. Hiawatha Academies is a Charter School
organization located in Minneapolis. They are expanding their facilities to include a 38,000
square foot middle school building and the bonds issued would finance this facility. A letter from
Catherine Courtney (Briggs & Morgan) is included which describes the request and the actions
required.
In order to for Hiawatha Academies bonds to be tax exempt, the debt must be issued by a
political subdivision. Municipalities may issue up to $10 million in tax exempt debt each year
(known as Bank Qualification or BQ) on their own behalf or on behalf of 501( c)(3) organization.
Cottage Grove received this request because we still have bonding capacity under the annual
$10 million Bank Qualification limit and the City of Minneapolis does not. In return for acting as
the conduit, the City will receive an administrative fee of one percent (1 %) of the principal amount
issued.
In acting as the conduit, there is no obligation on the City for any future responsibilities on the
debt. There is no impact to the City's bond rating or obligations.
ACTION REQUESTED
In order to proceed, a public hearing must be held by the City Council and a resolution must be
approved after that public hearing for the issuance of the bonds. The action requested of the
City Council is that they adopt the attached resolution calling for the public hearing on December
3, 2014 at 7:30 pm.
B � � � � 22001D5 Center
►S 80 South 8th Streefi
Minneapolis MN 55402 2157 '
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October 29, 2014 Catherine J. Courtney
(612)977-8765
ccouriney@briggs.com
BY E-MAIL
Robin Roland
City of Cottage Grove
12800 Ravine Parkway S.
Cottage Grove, Minnesota 55016
Re: Issuance of Conduit Revenue Bonds by the City of Cottage Grove for
Charter Schools Development Corporation/Hiawatha Academies
Dear Ms. Roland and Councilmembers:
This letter is to follow-up on discussions that we have had regarding consideration by the
City of Cottage Grove, with the consent of the City of Minneapolis, to act as issuer, in 2014, of
501(c)(3), bank-qualified revenue bonds (the "Bonds"), the proceeds of which would be loaned
to Charter Schools Development Corporation, a nonprofit corporation and 501(c)(3)
organization, to be used to finance a project located in Minneapolis related to its charitable
purposes. Briggs and Morgan, P.A. would act as bond counsel to the City on the issuance of
such Bonds and the Borrower has asked that we submit this letter of intent to you. It is
anticipated that the Bonds will be directly purchased by Minnesota Bank & Trust.
The Bonds will be used for the purpose of financing the acquisition, construction and
equipping of a charter school facility located at the southeast corner of Hiawatha Academies'
Northrop Campus located at 1611 East 46th Street, Minneapolis, Minnesota, near the intersection
of 17th Avenue East and 47th Street South, including an approximately 38,000 square foot two-
story middle school building containing approximately 19 classrooms, a gymnasium, auditorium,
a cafeteria, conference and brealc-out rooms, and administrative space, and site upgrades,
including approximately 36 parking spaces, a loading area, and landscaping. The Project will be
owned by the Borrower and leased to and operated by Hiawatha Academies, a Minnesota non-
profit corporation having federal income tax-exempt 501(c)(3) status as a public (charter) school.
State and federal laws allow local government units to enter into arrangements to issue
bonds and loan the proceeds to nonprofit corporations to finance or refinance capital
expenditures. This assistance reduces borrowing costs for nonprofit corporations and enables
them to provide their services more cost effectively. It is a fairly common means of obtaining
necessary financing for all nonprofit entities, including educational facilities.
Briggs and Morgan, Professional Association
Minneapolis I S4; Paul I www.briggs.com
Member- Lex Mundi, a Globat Association bf Independent Law Firms
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BR1GG5 ANO MORGAN
Robin Roland
October 29, 2014
Page 2
To accomplish this purpose, the City will enter into a Loan Agreement with the Borrower
under which the Borrower will agree to pay all principal and interest on the Bonds. The City
will assign all of its rights to payments under the Loan Agreements to a lender, in this case,
Minnesota Bank & Trust (the "Lender"), who will purchase the Bonds and loan the purchase
price of the Bonds directly to the Borrower. The City is merely a conduit and the money and
obligations flow only between the Lender and the Borrower.
The Bonds and the resolutions adopted by the City will recite that the Bonds, if and when
issued, will not to be payable from or charged upon any of the City's funds, other than the
revenues received under the Loan Agreement and pledged to the payment of the Bonds, and the
City is not subject to any liability on the Bonds. No holder of the Bonds will ever have the right
to compel any exercise by the City of its taxing powers to pay any of the principal of the Bonds
or the interest or premium thereon, or to enforce payment of the Bonds against any property of
the City except the interests of the City in payments to be made by the Borrower under the Loan
Agreement. The Bonds will not constitute a charge, lien or encumbrance, legal or equitable,
upon any property of the City except the interests of the City in payments to be made by the
Borrower under the Loan Agreement. The Bonds are not moral obligations on the part of the
State or its political subdivisions, including the City, and the Bonds will not constitute a debt of
the City within the meaning of any constitutional or statutory limitation.
The Lender requires that the Bonds be issued as bank-qualified bonds. Any municipality
may issue up to $10,000,000 of bank-qualified bonds in each calendar year for its own purporses
or on behalf of a 501(c)(3) organization. Because the bonds will be in an amount not to exceed
$6.6 million (likely around $6.4 million) Minneapolis does not have sufficient bank qualification
capacity on its own remaining in 2014. Therefore, because Cottage Grove does not expect to
issue more than $10,000,000 of bonds for its own purposes or for 501(c)(3) organizations,
including the Bonds, in 2014, it is proposed that Cottage Grove act as the issuer of the Bonds.
There is a nexus between Cottage Grove and the project, in that, as a charter school, students
from any city may attend. So, students from Cottage Grove may attend Hiawatha Academies.
The City will receive an issuer administration fee equal to 1% of the principal amount that is
issued.
The issuance of the Bonds will not affect the City's credit rating on bonds it issues for
municipal purposes.
Under federal and State law, in order for the Bonds to be tax exempt obligations, they
must be issued by a political subdivision. This requires that the City hold a public hearing and
approve issuance of the Bonds and the execution of related documents. Cottage Grove will hold
a public hearing and give final approval to the actual issuance of the Bonds and approve all
related documents on December 3rd. The City of Minneapolis, as the "host" city, will also hold
a public hearing.
66sssa��i
BRIGGS AND MORGAN
Robin Roland
October 29, 2014
Page 3
As bit of bacicground on the Borrower, it is a nonprofit corporation, 501(c)(3)
organization, and Community Development Financial Institution (CDFI). The Borrower is
focused exclusively on the facility and financing needs of charter school organizations with
significant low-income student populations in economically distressed communities. Over its 17
year history, the Borrower has provided or procured roughly $680 million in capital financing
and facilities for 235 charter schools in 24 states and the District of Columbia, including the
other buildings currently occupied by Hiawatha Academies. It has steadily expanded its program
offerings and financial services as the charter school movement has grown from a single school
in Minnesota over 20 years ago to over 2.57 million students attending 6,400 charter schools in
43 states and the District of Columbia today.
Hiawatha Academies is a network of high-performing college preparatory charter schools
located in South Minneapolis. Its mission is to empower all Hiawatha scholars with the
lcnowledge, character and leadership skills to graduate from college and serve the common good.
It currently teaches grades Kindergarten through g grade and will open a high school in 2015.
Hiawatha Academies expects that the new facility financed with the Bonds will create 73 new
full time positions and 2 part-time positions.
Please feel free to contact me if you have any further questions or comments. I know that
the Borrower and Hiawatha Academies appreciate the consideration of the City of Cottage Grove
in this matter.
Very truly yours,
/s/ Cathe�^ine J. CouNtney
Catherine J. Courtney
CJC
cc: Michelle Liberati, CSDC
Sean Elder, Hiawatha Academies
Kelly Elkin, Minnesota Bank & Trust
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RESOLUTION CALLING FOR A PUBLIC HEARING ON THE ISSUANCE OF
EDUCATIONAL FACILITIES REVENUE NOTES AND
AUTHORIZING THE PUBLICATION OF A NOTICE OF THE HEARING
(CIIARTER SCHOOLS DEVELOPMENT CORPORATION/HIAWATHA ACADEMIES PROJECT)
(a) WHEREAS, Minnesota Statutes, Sections 469.152 through 469.1655,
relating to municipal industrial development (the "Act"), gives municipalities the power to issue
revenue obligations for the purpose of promoting the welfare of the state by the active attraction
and encouragement and development of economically sound industry and commerce to prevent so
far as possible the emergence of blighted and marginal lands and areas of chronic unemployment;
and
(b) WHEREAS, Cottage Grove, Minnesota (the "City"), has received from
Charter Schools Development Corporation, a District of Columbia nonprofit corporation and
501(c)(3) organization (the "Borrower"), a proposal that it undertalce a program to finance the
Project hereinafter described, through the issuance of revenue notes, in one or more series, or
obligations (the "Notes") pursuant to the Act; and
(c) WHEREAS, before proceeding with consideration of the request of the
Borrower it is necessary for the City to hold a public hearing on the proposal pursuant to Section
147(� of the Internal Revenue Code and Section 469.154, Subdivision 4, of the Act.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Cottage
Grove, Minnesota, as follows:
1. A public hearing on the proposal of the Borrower will be held at the time
and place set forth in the form of Notice of Public Hearing attached hereto as Exhibit A. The
general nature of the Project and an estimate of the aggregate principal amount of revenue notes
or other obligations to be issued to finance the proposal are described in the Notice of Public
Hearing.
2. The Clerlc is hereby authorized and directed to cause notice of the hearing
to be given one publication in the official newspaper of the City and also in a newspaper of general
circulation available in the City, not less than 14 days nor more than 30 days prior to the date fixed
for the hearing, substantially in the form of the attached Notice of Public Hearing.
Adopted by the City Council of Cottage Grove, Minnesota, this Sth day of November, 2014.
Mayor
ATTEST:
Clerlc
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STATE OF MINNESOTA
COUNTY OF WASHINGTON
CITY OF COTTAGE GROVE
I, the undersigned, being the duly qualified and acting Clerk of the City of Cottage
Grove, DO HEREBY CERTIFY that I have compared the attached and foregoing extract of
minutes with the original thereof on file in my office, and that the same is a full, true and complete
transcript of the minutes of a meeting of the City Council of the City of Cottage Grove, Minnesota,
duly called and held on the date therein indicated, insofar as such minutes relate to a resolution
calling a public hearing on the issuance of educational facilities revenue notes.
WITNESS my hand this day of November, 2014.
Clerk
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EXHIBIT A
NOTICE OF PUBLIC HEARING
ON A PROPOSAL FOR THE ISSUANCE OF
EDUCATIONAL FACILITIES REVENUE NOTES FOR THE
HIAWATHA ACADEMIES PROJECT
Notice is hereby given that the City Council of the City of Cottage Grove, Minnesota (the
"City") will meet at the City Hall located at 12800 Ravine Parkway South, Cottage Grove,
Minnesota, at 7:30 p.m. on Wednesday, December 3, 2014, to consider the proposal of Charter
Schools Development Corporation, a District of Columba nonprofit corporation and having federal
income tax-exempt 501(c)(3) status (the `Borrower"), that the City assist in financing a project
hereinafter described pursuant to Minnesota Statutes, Sections 469.152 to 469.1655, by the
issuance of revenue notes, in one or more series (the "Notes").
The "Project" consists of financing the acquisition, construction and equipping of a charter
school facility located at the southeast corner of Hiawatha Academies' Northrop Campus located
at 1611 East 46th Street, Minneapolis, Minnesota, near the intersection of 17 Avenue East and
47 Street South, including an approximately 38,000 square foot two-story middle school building
containing approximately 19 classrooms, a gymnasium, auditorium, a cafeteria, conference and
break-out rooms, and administrative space, and site upgrades, including approximately 36 parking
spaces, a loading area, and landscaping. The Project will be owned by the Borrower and leased to
and operated by Hiawatha Academies, a Minnesota non-profit corporation having federal income
tax-exempt 501(c)(3) status as apublic (charter) school.
The maximum estimated principal amount of the Notes to be issued to finance the Project
is $6,600,000.
The Notes if and when issued will not constitute a charge, lien or encumbrance upon any
property of the City, except the Project, and such obligations will not be a charge against the
general credit or taxing powers of the City but will be payable from sums to be paid by the
Borrower pursuant to a revenue agreement.
A draft copy of the proposed application to the Minnesota Department of Employment and
Economic Development for approval of the Project, together with all attachments and exhibits
thereto, is available for public inspection, during normal business hours, Monday through Friday,
in the office of the Clerk, in the City Hall.
At the time and place fixed for the Public Hearing, the City Council will give all persons
who appear at the hearing an opportunity to express their views with respect to the proposal.
Written comments will be considered if submitted at the above City office on or before the date of
the hearing.
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