HomeMy WebLinkAbout8A Preliminary Approval of General Obligation Capital Improvement Plan BondsPRIO
U 4646 Dakota Street SE
Prior Lake. MN 55372
A_ �s
CITY COUNCIL AGENDA REPORT
MEETING DATE: DECEMBER 19, 2011
AGENDA #: 8A
PREPARED BY: JERILYN ERICKSON, FINANCE DIRECTOR
PRESENTED BY: JERILYN ERICKSON
AGENDA ITEM: CONDUCT A PUBLIC HEARING AND CONSIDER APPROVAL OF A
RESOLUTION GIVING PRELIMINARY APPROVAL TO THE ISSUANCE OF
GENERAL OBLIGATION CAPITAL IMPROVEMENT PLAN BONDS IN AN
AMOUNT NOT TO EXCEED $10,000,000 AND ADOPTING THE CITY OF PRIOR
LAKE, MINNESOTA, CAPITAL IMPROVEMENT PLAN FOR THE YEARS 2012
THROUGH 2016
DISCUSSION: Introduction
The purpose of this agenda item is to conduct a public hearing on an addendum
to the 2012 -2016 Capital Improvement Program and to consider preliminary ap-
proval for the issuance of General Obligation Capital Improvement Bonds.
Hi story
During the October 17, 2011 workshop, Mr. Steve Mattson /Northland Securities
presented some refunding opportunities to the Council. One of the opportunities
included refunding the Economic Development Authority Lease Revenue Bond of
2005.
The EDA Lease Revenue Bond is callable on 12/15/2013. As we considered the
possibility of refunding the EDA Bonds, we had to take into account some limita-
tions placed on municipalities. As Mr. Mattson mentioned, under Federal and
State laws, municipalities can issue up to $10 million in any calendar year and
declare the issues Bank Qualified (BQ). This qualification results in an approx-
imate 50 basis point (.5 %) savings for interest rates which can result in significant
interest costs over the life of the bonds.
In addition, Mr. Mattson indicated that we could obtain the best interest rates for
refunding the EDA Bonds if we converted them to general obligation debt of the
City. The conversion process would require several steps. The Council would
need to add an addendum to the current Capital Improvement Plan. The require-
ments are provided in State Statute 475.521. This addendum would identify the
City's intent to issue Capital Improvement Bonds for purposes of refunding the
EDA Lease Revenue Bond. The Council would call for a public hearing to allow
public comment. The public would have 30 days from the date of the public hear-
ing to file a petition requesting a vote on the issuance. Since the refunding saves
taxpayers upwards of $1 million, it seems unlikely that a petition would be filed.
Assuming there are no petitions within 30 days from the public hearing date, the
City would be positioned to take advantage of market conditions that provide the
best opportunity to reduce future interest costs. The Council would go through its
regular process of authorizing the sale of bonds and the subsequent approval for
the bonds.
On November 7, 2011 the Council adopted a resolution calling for a public hearing
on an Addendum to the Capital Improvement Program to be held on December
19, 2011.
The notice of public hearing was published on November 26, December 3 and 10,
2011.
Current Circumstances
Staff has prepared the Addendum to the Capital Improvement Program which in-
cludes the requirements outlined in State Statute 475.521. This Addendum is in-
cluded with this agenda report.
A draft resolution giving preliminary approval to the issuance of General Obligation
Capital Improvement Plan Bonds in an amount not to exceed $10,000,000 and
adopting the Addendum to the 2012 -2016 Capital Improvement Program is also
attached.
Conclusion
The City Council should conduct a public hearing to receive public comment on
the Addendum to the 2012 -2016 Capital Improvement Program.
Following the public hearing, the City Council will consider approving a resolution
giving preliminary approval to the issuance of General Obligation Capital Im-
provement Plan Bonds in an amount not to exceed $10,000,000 and adopting the
Addendum to the 2012 -2016 Capital Improvement Program.
FINANCIAL As of December 9, 2011, the future dollar savings associated with refunding the
IMPACT: EDA Lease Revenue bonds with General Obligation CIP bonds was estimated at
$1,064,396 ($857,809 net present value). This actual amount of savings will vary
depending on the interest rate environment at the time the bonds are actually
sold.
ALTERNATIVES: The following alternatives are available to the City Council:
1. Motion and second to approve a resolution giving preliminary approval to the
issuance of General Obligation Capital Improvement Plan Bonds in an amount
not to exceed $10,000,000 and adopting the Addendum to the 2012 -2016
Capital Improvement Program.
2. Table this item for a specific reason.
RECOMMENDED Alternative 1.
MOTION:
2
EXTRACT OF MINUTES OF A MEETING OF THE CITY COUNCIL
CITY OF PRIOR LAKE MINNESOTA
HELD: December 19, 2011
Pursuant to due call and notice thereof, a regular or special meeting of the City Council of
the City of Prior Lake, Minnesota, was duly called and held at the City Hall in Prior Lake,
Minnesota on December 19, 2011, at 7:00 p.m. for the purpose, in part, of giving preliminary
approval to the issuance of general obligation capital improvement plan bonds and adopting the
capital improvement plan.
The following members were present:
and the following were absent:
Member
introduced the following resolution and moved its adoption:
RESOLUTION GIVING PRELIMINARY APPROVAL TO THE ISSUANCE OF GENERAL
OBLIGATION CAPITAL IMPROVEMENT PLAN BONDS IN AN AMOUNT NOT TO
EXCEED $10,000,000 AND ADOPTING THE CITY OF PRIOR LAKE, MINNESOTA,
CAPITAL IMPROVEMENT PLAN FOR THE YEARS 2012 THROUGH 2016
A. WHEREAS, the City Council of the City of Prior Lake, Minnesota (the "City ")
proposes to issue its general obligation capital improvement plan bonds (the "Bonds ") and adopt
the City of Prior Lake, Minnesota, Capital Improvement Plan for the Years 2012 Through 2016
(the "Plan"); and
B. WHEREAS, the City has caused notice of the public hearing on the intention to
issue the Bonds and on the proposed adoption of the Plan to be published pursuant to and in
accordance with Minnesota Statutes, Section 475.521; and
C. WHEREAS, a public hearing on the intention to issue the Bonds and on the
proposed Plan has been held on this date, following published notice of the public hearing as
required by law; and
D. WHEREAS, in approving the Plan, the City Council considered for each project and
for the overall Plan:
1. The condition of the City's existing infrastructure, including the projected
need for repair and replacement;
2. The likely demand for the improvement;
3. The estimated cost of the improvement;
4. The available public resources;
5. The level of overlapping debt in the City;
6. The relative benefits and costs of alternative uses of the funds;
7. Operating costs of the proposed improvements; and
8. Alternatives for providing services more efficiently through shared facilities
with other local governmental units; and
E. WHEREAS, the City Council has determined that the issuance of general obligation
capital improvement plan bonds in the aggregate principal amount of up to $10,000,000 is the best
way to finance the capital improvements identified in the Plan.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Prior Lake,
Minnesota, that the City hereby adopts the Plan and authorizes the issuance of up to $10,000,000
aggregate principal amount of general obligation capital improvement plan bonds.
The motion for the adoption of the foregoing resolution was duly seconded by member
and, after full discussion thereof and upon a vote being taken thereon, the following
voted in favor thereof:
and the following voted against the same:
whereupon the resolution was declared duly passed and adopted.
[Bonds must be approved by at least a three -fifths vote of the membership.]
[Issuance of Bonds is subject to a 30 -day reverse referendum after the public hearing.]
2
4340817v1
STATE OF MINNESOTA
COUNTY OF SCOTT
CITY OF PRIOR LAKE
I, the undersigned, being duly qualified and acting Manager of the City of Prior Lake,
Minnesota, do hereby certify that I have carefully compared the attached and foregoing extract of
minutes with the original minutes of a meeting of the City Council, duly called and held on the date
therein indicated, which are on file and of record in my office, and the same is a full, true and
complete transcript therefrom insofar as the same relates to a resolution giving preliminary
approval to the issuance of the City's general obligation capital improvement plan bonds and
adopting the City's capital improvement plan therefor.
WITNESS my hand on December 19, 2011.
City Manager
3
4340817v1
04 FRIO+p
h
U er
2012 - 2016 CAPITAL IMPROVEMENT PROGRAM
PROPOSED ADDENDUM
Public Hearing Scheduled for December 19, 2011
by the
PRIOR LAKE CITY COUNCIL
Mayor Mike Myser
Councilmember Warren Erickson
Councilmember Ken Hedberg
Councilmember Rick Keeney
Councilmember Vanessa Soukup
CITY MANAGER
Frank Boyles
FINANCE DIRECTOR
Term Expires
December 31, 2012
December 31, 2012
December 31, 2014
December 31, 2012
December 31, 2014
Jerilyn Erickson
INSPECTIONS DIRECTOR / CITY ENGINEER
Larry Poppler
PUBLIC WORKS / NATURAL RESOURCES DIRECTOR
Katheryn Gehler
04 FRIO+P
U
�'IN�sdt�
I. INTRODUCTION .............................................................................. ............................... 1
II. PURPOSE ............................................................................................ ..............................1
III. THE CAPITAL IMPROVEMENT PLANNING PROCESS ............. ............................... 2
IV. PROJECT SUMMARY ...................................................................... ............................... 2
V. FINANCING THE CAPITAL IMPROVEMENT PLAN .................. ............................... 5
APPENDIX A - PROPOSED CIP BOND ISSUE ..................................... ............................... A -1
City of Prior Lake
Five -Year Capital Improvement Program Addendum
2012 through 2016
I. INTRODUCTION
In 2003, the Minnesota State Legislature adopted a statute (Section 475.521, referred to
herein as the "CIP Act ") that allows cities to issue municipal bonds under a capital
improvement plan without the usual referendum requirement (except for the so- called
"reverse referendum" described below). The CIP Act applies to capital improvements
consisting of city halls, public works, and public safety facilities. The 2005 Legislature
added towns to the meaning of a municipality and town halls and libraries to the meaning
of a capital improvement under the CIP Act.
Throughout this Addendum, the term "capital improvement' refers only to those
improvements identified in the CIP Act, as summarized above. Capital expenditures for
other public improvements in the City will be financed through other means, and are not
governed by this Addendum.
II. PURPOSE
A capital improvement is a major expenditure of municipal funds for the acquisition or
betterment to public lands, buildings, or other improvements used as a city hall, town
hall, library, public safety, or public works facility, which has a useful life of 5 years or
more. For the purposes of the CIP Act, capital improvements do not include light rail
transit or related activities, parks, road/bridges, administrative buildings other than city or
town hall, or land for those facilities. A Capital Improvement Plan ( "CIP ") is a document
designed to anticipate capital improvement expenditures and schedule them over a five -
year period so that they may be purchased in the most efficient and cost effective method
possible. A CIP allows the matching of expenditures with anticipated income. As
potential expenditures are reviewed, the municipality considers the benefits, costs,
alternatives and impact on operating expenditures.
The City of Prior Lake, Minnesota (the "City ") believes the capital improvement process
is an important element of responsible fiscal management. Major capital expenditures
can be anticipated and coordinated so as to minimize potentially adverse financial
impacts caused by the timing and magnitude of capital outlays. This coordination of
capital expenditures is important to the City in achieving its goals of adequate physical
assets and sound fiscal management. In these financially difficult times good planning is
essential for the wise use of limited financial resources.
The Capital Improvement Program is designed to be updated on an annual basis. In this
manner, it becomes an ongoing fiscal planning tool that continually anticipated future
capital expenditures and funding sources.
III. THE CAPITAL IMPROVEMENT PLANNING PROCESS
The process begins with analysis of the City's five -year capital improvement needs and
funding sources. The City may solicit input from citizens and other governmental units at
an early stage, if desired.
The City Council then directs staff or consultants to prepare a plan that sets forth the
estimated schedule, timing and details of specific capital improvements by year, together
with the estimated cost, the need for the improvement, and the sources of revenue for the
improvement. The City Council then holds a public hearing on the CIP, with notice
published not more than 30 days and not less than seven days for the hearing (except as
described below). The Council may either approve the CIP immediately after the hearing,
or based on input may make revisions and approve the CIP at a later meeting.
If the CIP calls for general obligation bonds to finance certain improvements, the City
Council must follow an additional set of procedures. The Council must hold a public
hearing regarding issuance of the bonds. Notice of such hearing must be published in the
official newspaper of the municipality at least 14, but not more than 28 days prior to the
date of the public hearing. In addition, the notice may be posted on the City's official
web site. (The public hearings on the CIP and the bonds may be combined into a single
hearing, in which case the notice requirements for bonds must be followed.)
The Council must approve the sale of CIP bonds by a 3 /5ths vote of its membership.
However, the bonds are subject to a so- called "reverse referendum;" if a petition signed
by voters equal to at least five percent of the votes cast in the City in last general election
is filed with the City Clerk within 30 days after the public hearing regarding the bonds,
the bonds may not be issued unless approved by the voters (by a majority of those voting
on the question). Further, the maximum debt service in any year on all outstanding CIP
Bonds is .16% of the taxable market value of property in the City, using the market value
for the taxes- payable year in which the bonds are issued.
After the CIP has been approved and bonds have been authorized, the City works with its
financial advisor to prepare a bond sale and repayment schedule. Assuming no petition
for a referendum is filed, the bonds are sold, and when proceeds from the sale of the
bonds (and any other identified revenue sources) become available, the expenditures for
specified capital improvements can be made.
In subsequent years, the process is repeated as expenditures are completed and as new
needs arise. Capital improvement planning looks five or more years into the future from
the date of the CIP.
IV. PROJECT SUMMARY
The only capital improvement contemplated in this Addendum to the five -year period of
this plan (2012 through 2016) is acquisition of the City's existing city hall and public
safety building (the "Buildings "), through issuance of refunding bonds (referred to as the
"CIP Bonds "). The City of Prior Lake Economic Development Authority ( "EDA ")
issued its $10,000,000 Public Project Revenue Bonds, Series 2005B (the "Series 2005B
Bonds ") to finance construction of the City Hall and Police Station Buildings. The City
leases the Buildings from the EDA, paying lease payments equal to debt service on the
Series 2005B Bonds.
The City has now determined to exercise its purchase option under the lease agreement
with the EDA in order to acquire fee title to the Buildings and refund the Series 2005B
Bonds. The City proposes to finance the acquisition through issuance of CIP Bonds under
the CIP Act and this CIP. The proposed CIP Bonds would be issued in 2012, in a
principal amount not to exceed $10,000,000.
The CIP Act requires the City Council to consider eight factors in preparing the CIP:
1. Condition of the City's existing infrastructure, including projected need
for repair or replacement
2. Likely demand for the improvement
3. Estimated cost of the improvement
4. Available public resources
5. Level of overlapping debt in the City
6. Relative benefits and costs of alternative uses of funds
7. Operating costs of the proposed improvements
8. Alternatives for providing services most efficiently through shared
facilities with other cities or local governments
The City has considered the eight points as they relate to the Refunding of the EDA's
$10,000,000 Public Project Revenue Bonds, Series 2005B through the issuance of CIP
Bonds. The findings are as follows:
Conditions of City Infrastructure and Need for the Project
The Buildings currently exist, but the City has determined that it is financially prudent to
acquire that facility from the EDA. Other than such acquisition, the City does not
anticipate further repair or replacement of the Building in the 2012 through 2016 period.
Demand for Project
As noted above, the Buildings currently exist. Acquisition of the existing leased facility is
prudent in order reduce City borrowing costs.
Estimated Cost of the Project
By issuing CIP Bonds that will refund the Series 2005B Bonds, the City expects to enjoy
a net present value savings of approximately $857,809 (per 1210912011 estimate).
Availability of Public Resource
The CIP Bonds for acquisition of the Buildings would be paid with ad valorem taxes, as
are the lease payments that currently secure the Series 2005B Bonds. However, the CIP
Bonds will be additionally secured by the City's full faith and credit, which is expected to
produce lower interest rates on the CIP Bonds compared to the Series 2005B Bonds.
Level of Overlapping Debt
Scott County $ 142,578,089 18.77% $ 81,260,000 $ 15,252,502
ISD No. 719 Prior Lake-Savage 44,498,209 58.21% 124,310,000 72,30,851
ISD No. 720 Shakopee 42,660,617 2.03% 143,730,000 2,917,719
Metropolitan Council 2,895,036,781 .92% 4,909,956 45,172
Metro Transit 2,516,074,230 1.06% 176,168,947 1,867,391
City's Share Total of Overlapping Debt $ 92,443,635
Source: Prior Lake Official Statement for 2011B bond issue; debt figures do not include non - general obligation debt, short -term
general obligation debt, or general obligation tax/aid anticipation certificates of indebtedness.
Issuance of the CIP Bonds is not expected to affect the City's overall debt in any
significant way, other than through lowering debt service costs.
Relative Costs and Benefits of Alternative Uses of the Funds
Refunding of the Series 2005B Bonds is expected to produce cost savings, which may
free up revenues for alternative uses.
Operating Costs of the Proposed Improvements
The proposed refunding of the Series 2005B Bonds would reduce operating costs of the
Building to the extent current lease payments are converted to lower CIP Bond debt
service payments. In other respects, no changes to operating costs are expected under
this CIP.
Options for Shared Facilities with Other Cities or Local Government
The Buildings currently exist but the City has determined that it is financially prudent to
acquire that facility from the EDA.
V. FINANCING THE CAPITAL IMPROVEMENT PLAN
The total principal amount of requested expenditures under this Capital Improvement
Plan Addendum is $10,000,000. This amount represents the maximum principal amount
of CIP Bonds that may be issued to refund the Series 2005B Bonds. Principal and
interest on the CIP Bonds will be paid through a tax levy over the term of the CIP Bonds,
further described in Appendix A.
In the financing of the Capital Improvement Plan Addendum, two significant statutory
limitations apply.
1. Under Chapter 475, with few exceptions, municipalities cannot incur debt
in excess of 3% of the assessor's taxable market value for the
municipality. In the City, the taxable market value is $2,640,986,500.
Therefore, the total amount of outstanding debt cannot exceed
$79,229,595. These values are for 2010/11 tax year. As of December 9,
2011, the City has $9,700,000 subject to the legal debt limit. As such,
issuance of the CIP Bonds will be within the overall statutory debt limit
for the City.
2. A separate limitation under the CIP Act is that, without referendum, the
total amount of principal and interest in any one year on all CIP Bonds
issued by the City debt cannot exceed 0.16% of the total taxable market
value in the municipality. In the City, that maximum annual debt service
amount is $4,225,578 for the 2010/11 tax year ($2,640,986,500 x .0016).
The annual principal and interest payments on the CIP Bonds proposed to
be issued under this CIP will average approximately $708,000. As such,
debt service on the CIP Bonds will be well within the annual limits under
the CIP Act.
Details regarding the proposed terms of the CIP Bonds under this CIP Addendum are
shown in Appendix A.
Continuation of the Capital Improvement Plan
This Capital Improvement Plan should be reviewed annually by the City Council using
the process outlined in this Plan. It should review proposed expenditures, make priority
decisions, and seek funding for those expenditures it deems necessary for the City. If
deemed appropriate, the Council should prepare an update to this Plan.
APPENDIX A - PROPOSED CIP BOND ISSUE
City of Prior Lake EDA, Minnesota
G.O. Refunding Bonds of 2012 (ASSUMES BQ G.O. BONDS)
Revenue Bonds of 2005B
Refunding Summary
Dated 02/01/20121 Delivered 02/0112012
Sources Of Funds
Par Amount of Bonds
$9,980,000.00
Total Sources
$9,980,000.00
Uses Of Funds
Deposit to Net Cash Escrow Fund
9,834,219.79
Total Underw riter's Discount (1.125 %)
112,275.00
Costs of Issuance
33,400.00
Rounding Amount
105.21
Total Uses
$9,980,000.00
Flow of Funds Detail
State and Local Government Series (SLGS) rates for
12/08/2011
Date of OMP Candidates
Net Cash Escrow Fund Solution Method
Net Funded
Total Cost of Investments
$9,834,219.79
Interest Earnings Q 0.205%
36,075.21
Total Draw IS
$9,870,295.00
Issues Refunded And Call Dates
05bold
12115/2013
PV Analysis Summary (Net to Net)
Net PV Cashflow Savings @ 2.565 %(Bond Yield)
857,809.50
Contingency or Rounding Amount
105.21
Net Present Value Benefit
$857,914.71
Net PV Benefit / $9,070,000 Refunded Principal
9.459%
Net PV Benefit / $9,980,000 Refunding Principal
8.596%
Bond Statistics
Average Life
10.669 Years
Average Coupon
2.5964051%
Net Interest Cost (NIC)
2.7018526%
Bond Yield for Arbitrage Purposes
2.5653371%
True Interest Cost (TIC)
2.6895079%
All Inclusive Cost (AU)
2.7268215%
05bref I SINGLE PURPOSE 1 12/ 9/2011 1 4:43 PM
Northland Securities
Public Finance
Page 1
APPENDIX A — PROPOSED CIP BOND ISSUE
City of Prior Lake EDA, Minnesota
G.O. Refunding Bonds of 2012 (ASSUMES BQ G.O. BONDS)
Revenue Bonds of 2005B
Debt Service Comparison
Date Total P +I
Net New D/S
Old Net D/S
Savings
12/15/2012 576,154.04
576,048.83
634,747.50
58,698.67
12/15/2013 587,425.00
587,425.00
645,547.50
58,122.50
12/15/2014 610,205.00
610,205.00
670,547.50
60,342.50
12/1512015 617,045.00
617,045.00
679,147.50
62,102.50
12/15/2016 632,995.00
632,995.00
691,185.00
58,190.00
12/15/2017 647,895.00
647,895.00
707,160.00
59,265.00
12/15/2018 671,442.50
671,442.50
731,860.00
60,417.50
12/15/2019 678,605.00
678,605.00
739,860.00
61,255.00
12/15/2020 699,540.00
699,540.00
756,797.50
57,257.50
12/15/2021 718,880.00
718,880.00
777,247.50
58,367.50
12/15/2022 726,780.00
726,780.00
784,997.50
58,217.50
12/15/2023 743,385.00
743,385.00
801,412.50
58,027.50
12/15/2024 758,385.00
758,385.00
815,762.50
57,377.50
12/15/2025 771,690.00
771,690.00
832,397.50
60,707.50
12/15/2026 798,540.00
798,540.00
856,940.00
58,400.00
12/15/2027 813,095.00
813,095.00
873,925.00
60,830.00
12/15/2028 835,895.00
835,895.00
893,585.00
57,690.00
12/15/2029 856,560.00
856,560.00
915,687.50
59,127.50
Total $12,744,616.64
$12,744,411.33 $13,808,807.50
$1,064,396.17
PV Analysis Summary (Net to Net)
Gross PV Debt Service Savings .....................
857,809.50
Net PV Cashflow Savings @ 2.565 %(Bond Yield)
.....
857,809.50
Contingency or Rounding Amount ....................
105.21
Net Present Value Benefit
$857,914.71
Net PV Benefit / $10,837,809.50 PV Refunded Debt Service
7.916%
Net PV Benefit / $9,070,000 Refunded Principal...
9.459%
Net PV Benefit / $9,980,000 Refunding Principal..
8.596%
Refunding Bond Information
Refunding Dated Date
2/01/2012
Refunding Delivery Date
2/01/2012
05bref I SINGLE PURPOSE 1 12/ 9/2011 1 4:43 PM
Northland Securities
Public Finance
Page 2