HomeMy WebLinkAbout1998-05-06 PACKET 09.B.REQUEST OF CITY COUNCIL ACTIOfJ COUNCI� AGENDA
MEETING ITEM #� �
DATE 5/6/98 ,
PREPARED BY Finance Liz Johnson
ORIGINATING DEPARTMENT STAFF AUTHOR
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COUNCIL ACTION REQUE5T
Adopt:
1. Resolution providing for the sale of $3,940,000 General Obligation Improvement Bonds
Series 1998A
2. Resolution providing for the sale of $1,060,000 General dbligation Improvement Bonds
Series 19988
BUDGET IMPLICATION $ $
BUDGETED AMOUNT ACTUAL AMOUNT FUNDING SOURCE
ADVISORY COMMISSION ACTION
❑ PLANNING
❑ PUBLIC SAFETY
❑ PUBLIC WORKS
❑ PARKS AND RECREATION
❑ HUMAN SERVICES/RIGHTS
❑ ECONOMIC DEV. AUTHORITY
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REVIEWED
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APPROVED
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DENIED
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SUPPORTING DOCUMENTS
❑ MEMOl�ETTER:
❑ RESOLUTION:
❑ ORDINANCE:
❑ ENGINEERING RECOfNMENDATION:
❑ LEGAL RECOMMENDATIdPJ:
❑ OTHER
ADMliVISTRATORS COM(VIEPJTS:
��c°� ..:�
Date
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cou�ciL �acTOC�� �rAKEr� l.� A���ov�D �� Q��iEO � oTH��
Memorandum
To: Honorable Mayor and Ciry Council
Ryan Sdmz�3a, CIlyAdmu�isirator
From: Liz Johnson, Acting Finance Director�
Date: 04/30l98
Re: Bond issue
Introduction
Council is being asked to approve the resolution providing for the sale of
40,000 General Obiigation Improvement Bonds Series 1998 A and $1,060,000
�ral Obligation Improvement Bonds Series 1998 B.
conducted a workshop on Saturday, Aprii 18' at which time the bond
scussed. it was the consensus to issue two separate bond issues and
the arbitrage rebate cap.
T�e Series A bonds finance the 80' Street and 1998 Pavement Management
improvement Projects. MSA funds wiii be used to finance the construction of 80` Street
in addition to the bond proceeds. This bond will be repaid by special assessments a�d
general tax levy. The bond will mature in 2014 with a cali date in 2006.
The Series B bonds finance West Draw Meadows and Pine Forest 3`� d�velopments.
This bond will be repaid through speciai assessments and wiii mature in 2002 with a
cali date in 2d01.
A representative from Ehlers and Associates will be available at the meeting to answer
any questions.
Action Requested
Adopt resolutions providing for the sale of the bonds.
:• ! • - -�-
$3,940,000 General Obligation Improvement Bonds,
Series 1998A
FLZI
$1,060,000 General Obligation Improvement Bonds,
Series 1998B
CITY OF COTTAGE GROVE, MINNESOTA
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OVERVIEW
This report describes the proposed plan for the City of Cotta�e Grove to issue
$3,940,000 General C)bligation Improveinent Bonds, Series 1998A and
$1,060,000 Generai Obligation Improvement Bonds, Series 1998B. This report
has been prepared by El�lers and Associates, in consaltation with City Staff and
bond counsel. This report deats with:
• Background.
• Purpose and coinponents of the issues.
• Structure.
• Other considerations in issuing bonds.
• Market conditions.
• Issuing process.
BACKGROUND
The City has a history of financing public improvements for new reside iltial
subdivisions with debt issued wlder Minnesota Statutes, Chapter 429. The
developer is special assessed for 100% of the costs over three years at an interest
rate not less than 7%, ar 1.5�% above the City barrowing rate. The City has
ai�nually issued debt for developer projects ran�ing from $1,000,000 to
$3,000,000 each year.
■ IC provides the single family honle developers favorable financing terms for the
construction of the City's infrastructure.
■ The City totally controts the timin�r and quality of C11e City infrastructure that
is constructed
Page 1
■ The City receives a financial benefit for their role.
1. The developer is charged a total of 5% (2% fiilance, 2% engineering, and
1% adininistrative) of the project cost that goes inC.o the Genera] Fund and
Capital Projects Fund.
2. Any fands renlaining in the Debt Service Pund once the Bonds have been
�aid off can be transferred to the General Fund. The City policy is to
transfer this money to the Closed Debt Service Fund 300. The City has
complete flexibility in the future regarding use of these monies.
More recently individual residents have been special assessed for only 25-35% of the
actual costs over 15 years for the Pavement Management Program projects for street
reconstrUCtion. The remaining portion of the costs has been paid from a city-wide
annual debt service tax levy. If the Citv were to combine the Developer Subdivision
Projeets and the Citywide Projects into one bond issue, any debt service funds
remaii�ing after the developer projects are paid off would be required to be applied to
reducing the tax levy for the remaining citywide projects portion of the issue. The
City, however, wishes to coptinue to have coinplete flexibility ii1 the use of tl�e funds
remaining from the issues that were solely for developer subdivisioi� projects.
Therefore, we recommend the City separate the projects for the 1998 borrowing
i�eeds into two 429 issues for t11e following:
Developer Subdir�ision Projects
West Draw Meadows (lst)
Pine Forest 3rd Addition
Citywide Projects
80th Street Improvements
1998 Pavement Management
$559,240
$464,316
$`L,060,057
$1,934,140
n�ge 2
$3,940,000
GENERAL OBLIGATION IMPROVEMENT BONDS, SERIES 1998A
PURPOSE
The $3,940,000 General Obligation Improvement Bonds, Series 1998A
{the "1998A Bonds") are being issued pUrsuant to Minnesota Statutes,
Chapters 429 and 475, for the purpose of fii�ancing the following city-wide
public street im�rovement projects.
PYO�eCi
Cost
$2,060,057
1,934,140
$3,994,197
Amount Levy Year!
Assessed Terin
1998/12
$600,000 15 Years
1998/12
800,000 15 years
80th Street Improvements
1998 Pavement Mgmt. Projects
Total
Financin� these projects requires a bond issne in the anlount of
$3,940,000. The proposed finance plan consists of the following sources
and uses of funds:
Sources
Par Ainount of 1998A Bonds
Interest Earnings
Tax Increment Revenues
Water Trunk Fund
City General Fund
$3,940,000
100, 83 6
67,200
40,000
41,770
Totai Sources
Uses
Total Project Costs
Discount Allowance
Capitalized Interest
Finance Related Eapenses
Total Uses
$4,189,806
$3,994,197
39,400
135,000
21,209
$4,189,806
Page 3
STRUCTURE AND REPAYMENT
The 1998A Bonds are general obligations of the Citv and as such are secured by�a
pledge of the City's fuIl faith, credit, and taxing po«ers. It is the intent of the
City to pay a portion of the debt service from special assessments levied in the
years 1998 through 2012, at a rate of 7% over 15 years, against the benefitting
property owners. The remaining balance will be paid by from a t�ix levy.
The 1998A Bonds wonld be sold May 20, 1998 and be dated June 1, 1998. The
first interest paynlent on the Bonds will be February 1, 1999, and semiannu�lly
thereafter on August 1 2nd February 1. Principal on the 1998A $onds will be due
on February 1 in the years 2000 through 2014. We recoinmend that 1998A
Bonds maturing February 1, 2007 and thereafter will be subject to prepayment at
the discretion of the City on February 1, 2006.
The projected debt service aild flow of funds can be found in Ehhibit 1.
$1,060,000
GENERAL OBLIGATION IMPROVEMENT BONDS, SERIES 19988
PURPOSE
The $1,060,000 General Obligation Improvement Bonds, Series 1998B (the
"19988 Bonds") are being issued pursuant to Minnesota Statutes, Chapters 429
and 475, for the purpose of finailcing the following subdivision projects.
Pro�ect
West Draw Meadows 1 st Addition
1'ine Forest 3rd Addition
Amoixnt
Cost Assessed
$559,240 575,677
464,316 477,963
$1,023,556
Levy Year/
Term
1998/00
3 years
1998/00
3 years
Paye 4
Financing these projects requires a bond issuc in the ainount of $ I,060,000. The
proposed finance plan coi�sists of the following sources and uses of funds:
Sources
Par Anlount of 1998B Bonds
Interest Earned
$1,060,000
8,322
Total Sources
Uses
Tota1 Project Costs
Discount Allo�vance
Capitalized Interest
Finance Related Expenses
Total Uses
STRUCTURE AND REPAYMENT
$1,068,322
$1,023,556
6,360
30,000
8,406
$1,068,322
The 1998B Bonds are general oblig�tions of the City �nd as such are secured by
a pledge of the City's full faith, credit, and taxing powers. It is the iiltent of the
City to use special assessments levied in the years 1998 through 2000, at a rate
of 7% over three years, against the benefitting property owners to pay the entire
debt service on the issue.
The 1998B Bonds would sold on May 20, 1998 and be dated June l, 1998. The
first interest payment on the Bonds will be February 1, 1999, and semiannually
thereafter on August 1 ai�d Pebruary 1. Principal on the 1998B Bonds will be due
on February 1 in the years 2000 through 2002. We �ecommend that any 1998B
Bonds maturing Febnzary 1, 2002 will be subject to prepayment at the discretion
of the City on February 1, 2001.
The projected debt seivice and flow of funds can be found in E�hibit 2.
Page 5
CONSIDERATIONS COMMON TO BOTH ISSUES
Following is a stiimmary of additional key factars in the finapce plan that are comnlon
to the 1998A Bond and 19988 Bonds (collectively referred to hereinafter as the
"$onds"):
• We anticipate that the City (in combination with any subordinate taxing
jurisdictions or debt issued in tl�e City's name by 501(c)3 corporations) will not
issue more than a total of $10,000,000 in tax-exempt debt during this calendar
year. This will allow the Bonds to be designated as bank qaialified. Bank qualified
status broadens the marlcet and achieves lower interest rates.
• Because the City does not plan at dzis tinle to issue more thap �5,000,000 in tax-
exempt obligations during calendar year 1998, these issnes will quatify for the
small issuer exemption from arbitrage rebate. The City will attempt to manage
any other financing needs in 1998 by possibly advancing City funds for any
additional developer projects or tax inereinent projects. Then, by preparing a
"L�eclaration of Intent" to reiinbuse itself laYer for those projects financed by thc
advancement of City funds, it will preserve its option to issue debt later in 1999
far those additional projects that had to be done in 1998.
• The Bonds will be global book entry. As °paperless" bonds, you will avoid the costs
of bond printing and the need for registrar/paying agent.
• Moody's Investors Service will be asked to rate this issue. The City currently has
an "A2° rating on its outstandin� general obligation bonds.
Moody's now offers a I'referred I'ricing Program to issuers who have issned bonds
or notes in the past calendar year, who have paid all their previous ratin� fees,
and who agree that all future issues will be� rated by Moody's. The "Preferred
Pricing" amounts to about a 40% discount off standard rating fees. We will
proceed with completion of the appiication process for the Moody's Preferred
Pricing Program for the City of Cottage Grove.
• New regulations of the Securities and Exchange Commission on the continuing
disclosure of municipal securities apply to long-term securities with an aggregate
principal amount of $1,000,000 or more.
Because the aggregate amount of each issue is over $1,000,000 and the City has
more than $10,000,000 in total municipal obligations outstanding, you will be
obligated to comply with Full Continuing Disclosu��e requirements as required by
Page �
paragraph (b)(5) of Rule 15c2-12 promulgated by the Securities and Exchange
Convnission under the Sectiirities Excllange Act of 1934. You will be required to
provide certain financial infornlation and operating data relating to the City
annually and to provide notices of the occurrence of certain matei�al events. The
specific nature of the Undertaking, as well as Che information to be contaiiled in
the notices of inaterial events will be set farth in the Continuous Disdosure
Undertaking that you will ei�ter into at the time of cios'sng far this issue.
You are responsible for reporting any of the material events listed below
and in the Undertalcing.
1. Principal and interest payment del'rnquencies;
2. Non-payment related defaults;
3. Unseheduled draws on debt service reserves reflecting financial
difficulties;
4. Unscheduled draws on credit enhancements reflecting financial
difficulties;
5. Substitution of eredit of liquidity providers, or their failure to
perform;
6. Adverse tax opinions or events affecting the tax-exempt status of
the securities;
7. Modification to rights of holders of the Securities;
8. Securities calls;
9. Defeasances;
10. Release, substitution or sale of property securing repayment of
the Securities;
11. Rating changes;
12. Failure to provide annual financial information as required; and
13. Other material events.
REFUNDING OPPORTUNITIES
We have reviewed all outstanding indebtedness for the City and find that if the
$330,000 G. O. T� Inerement Bonds of 1990 were refinanced at current rates, the
City could save approaimately $24,000 ip future savings (about $2,000/yr.} or
$17,000 of present value savin�s. We should discuss this further with fhe City staff
to see if this warrants City Council action. This issue could be refinanced by August
1 as a current refunding. This issue would be exenlpt from the $5,000,000 arbitrage
limit if issuance costs are paid from funds on hand.
Page 7
MARKET CONDITIONS
The graph on the following page shows the trends in the Bond Btryer's 20-Year C.O.
Index (BBI) since 1995. Current interest rates are dose to historic lows.
Page S
Bond Buyer's 20-Year G.O. Index
: ��'
7.50%
7.00%
6.50%
6.00%
b'�'S�Y'�.�
NXiI�yA
4.50%
Ehiers and Associates
1990 1991 1992 1993 1994 1995 1996 1997 1998
ISSUING PROCES5
Following is a tentative schedule for the steps in the issaing process.
May 6, 1998
May 8, 1998
May 8, 1998
City Council adopts resolution calling for the sale of
the Bonds
Submit draft Official Statement and rating materials to
Moody's Investors Service, Inc. far credit rating
Distribute Official Statement
Weel� of May 18 Receive credit rating
May 20, 1998
Jixne 9, 1998
Bond sale
Bond closing
' ,_: •► � �_ •►
Arbitrage ReF�ate: We recommend that the City attenlpt to manage its debt
issuance this year and not issue over $5 million in total debt in order to be
exempt from arbitrage rebate. Any debt issued this year which would bring ihe
total debt to over $5 million would subject all 1998 debt issues to arbit�
rebate. Rebate would reduce the projected cumulative balance in the Closed Debt
Service Fund by at least $13,000 and depending on prepaid special assessrnents up
to $56,000.
Page ] 0
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Resolu[ion No.
Council Member introduced d�e following resolurion and moved its adoption:
Resolution Providing for the Sa1e of
$3,940,000 General Obligation Improvement Bonds, Series 1998A
A. WHEREAS, the City Council of the CiCy of Cottage Grove, Minnesota, has heretofore determined that it
is necessary and expedient to issue the City's $3,9A0,000 General Oblieation Improvement Bonds, Senes
1998A (the "Bonds"), to finance the constroction of varioas public improvements in the Ciry; and
B. WHEREAS, the Ciry has retained Ehlers and Associates, Inc., in Minneapolis, Minnesota ("Ehlers"), as
its independent financial advisor for tl�e Bonds and is tl�erefore authorized to solicit proposals' in
accordance with Minnesota Statutes, Section 475.60, Subdivision 2(9);
NOW, THHRERORE, BE IT RESOLVLD by the City Comicil of City of Cottage Grove, Minnesota, as
Pollows:
1. Aud�orization: Findinas�. The City Council hereby authorizes Ehlers to so)icit proposals for the sale of the
Bonds.
2. Meeting; Proposa] Opening. The City Council shall meet at the time and place to be specified in the
Terms of Proposal for the purpose of considering sealed proposa]s for, and awarding Che sale of the Bonds.
The City Clerk, or designee, shall open proposals' at the time and place specified in such Terms of
Proposal.
3. Bond Sale RepoR. The terms and conditions of the Bonds and the sale thereof are fully set Porth in the
�"Sond Sale Report" attached hereto and hereby approved and made a pdrt hereof.
4. Officia] Statement In connection with said sale, the officers or employees of the City are l�ereby
authoiized to cooperate with Eh7ers and pai2icipate in Che preparation of an otficial statement �for the Bonds
and to execute and deliver it on behalf of the City upon its completion.
The motion for the adoption of the foregoing resolu[ion was duly seconded by City Council Member
and, after full discussion thereof and upon a vote being taken thereon, the
following City Counci] Members voted in favor thereo'f:
and the following voted against the same:
Whereupon said resoludon was declared duly passed and adopted.
Dated this _ day of ,] 998.
City Clerk
(SEAL)
Resolution No.
Councii Member introduced the following resol�tion and moved its adoption:
Resolution Providing for the Sale of
$1,060,000 General Obligation Improvement Bonds, Series 1998B
A. WHEREAS, the Ciry Council of the Ciry of Cottage Grove, Minnesota, has heretofore determined that
it is nec essary and expedient to issue the Ciry's $],060,000 General Obligation Improvement Bonds,
Senes 19988 (the "Bonds"), to finance the construction of various public improvements in the City;
and
B. WAEREAS, the Ciry has retained Ehlers and Associares, Inc., in Minneapolis, Minnesota ('Bhlers"),
as its independent financial advisor for thc Bonds and is therefore authorized to solicit proposals in
aecordance with Minnesota Statutes, Section 475.60, Subdivision 2(9); �
NOW, THEREFORE, BF, IT RESOLVED by the City Couneil of Ciey of Cottage Grove, Minnesota, as
follows:
1. Authorization; Findines. The Ciry Council hereby anthorizes Ehlers to solicit proposals for the sale
oFthe Bonds.
2. Meeting� Proposal Openin�. The City Council shall meet aY the time and place to be specified in the
Terms of Pro�osal for the purpose of eonsidering sealed proposals for, and awarding the sale of the
Bonds. The Ciry Clerk, or designee, shall open proposals at the time and place specified in such
Tenns of Proposal.
3. Bond Sale F2eport. The tenns and conditions of the Bonds and the sale thereof are fully set forth in
the "Bond Sale Report" attached hereto and hereby approved and made a part hereof.
4. Official Statement In connecCion with said sale, the officers or employees of the Ciry are hereby
authorized to cooperaYe wiCh Ehlers and participate in the preparation of an official statement for the
Bonds and to execute and deliver iY on behalf of the City upon its completion.
The motion Por the adoption of the foregoing resolution was duly seconded by City Council Member
and, after fu11 discussion thereof and upon a vote being taken tl2ereon, the
following City Council Members voted in favor thereof:
and thefollowin� voted against the same:
Whereupo� said resolution was declared duly passed and adopte�i.
Dated this day of , 1998.
Ciry Clerk
(SEAL)