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HomeMy WebLinkAbout1993 04 27 City Commission Special Minutes CITY COMMISSION SPECIAL MEETING April 27, 1993 92-93-17 . The special meeting was called to order by Mayor Kulbes at 7:10 P.M. Mayor Philip A. Kulbes, Present CamrrQssioner John V. Torcaso, Present CorrrrUssioner Don Jonas, Present CamrrQssioner John Langellotti, Present CorrrrUssioner Terri Donnelly, Absent CamrrQssioner Cindy Kaehler, Present City Manager Govoruhk, Present City Attorney Tam Lang Attorney Lang stated that this meeting is a continuance of last night's meeting, we will try an explain to you what numbers should be filled into that Resolution which is a not to exceed number. That number is merely a arbitrary number today which would be the most that we would go, we will size the issue at a later date. If you put in 5 rrdllion, 10 rrdllion or 100 rrdllion that doesn't camrrQt you to selling that amount of bonds it just means that you are not going to sell any more than that and that at some future date, once you get a plan of finance you will actually decide the total amount of bonds that you will sell. Jim Lentz and Mike Stewart of Capital Market Consultants, Inc., were present to explain the numbers to the CorrrrUssion. . Lentz explained the market place will sometimes pay you a much lower interest rate if you use discount bonds. The not to exceed number is really used as a marketing tool that will benefit you in the long run. Again, as Tom said, you can pass 100 rrdllion, that doesn't mean you are going to issue 100 rrdllion, it means that you will not exceed that figure. We have some suggestions for the not to exceed number as we go through our presentation. Lentz reviewed how they got to the point they are at now. He stated that about a year and a half ago they looked at refunding two issues, one was the water and sewer issue and the other one was this issue. This issue was a little bit away because the interest rates were a little bit lower and interest rates have come down this past year. During the course of us preparing the refunding bond issue your outstanding 10 rrdllion with 5 rrdllion of which can be refunded, the notion came up that the interest rates are at 20 year historic lows and this can be an opportunity to combine some City new requirements with the refunding which would do two things. One it would assure you of a long term capital of very attractive rates and two it could save some additional issuance expenses if you separated them until the later date. That is when we came before the City and explained those options at a regular meeting some time ago. The number at that point that we used in our evaluation was approximately 1 rrdllion 750. Lentz explained how they came up with the 1 rrdllion 750 figure. He said this figure was an estimate, and was based upon what this facility cost (Municipal Complex). He stated. that at that time he believed that the CorrrrUssion expressed an interest to continue to proceed and home in on the . ~~ . . . Special Meeting City Coomission April 27, 1993 Page 2 ;oL-'- exact cost of at least what the police complex would cost, but also at that point there was discussion about improving the fire station and same other improvements that you had to make. About two-three weeks ago after a survey of land values on what 8 to 10 acres would cost, we got concerned as did Staff that the approximate cost that we were looking at at that point was 100 thousand dollars per acre. Obviously given that and construction costs have increased since this facility was built, we felt that since the City had looked at this issue with approximately 1 million 750, in that range, that we needed to come back to the City with further discussion on this item; meanwhile since the time we met with the City Manager and Finance Director until this Monday, there was another piece of property was found, subject to the due diligence that needs to be done on that property that that parcel seems like a very attractive price. Lentz then stated that the first scheduled talks was for a million 750 and the second talks were about where we think we are today. If we acquire this parcel the land costs 350 thousand, we are still including approximately 375 thousand for a fire station and 60 thousand for public works expansion, the police station complex using 59.40 per sq. ft., which we are getting a sense of being comfortable with, along with site infrastructure and design we come up with the 2 1/2 million. How you pay for that, there are a lot of ways to structure it, the last time we talked about a smaller issue 1 million 750, we talked about the notion of extending the debt and I think it was the sentiment of the Comrrdssion not to do that, it was just to retire the debt as has been the policy in the past, over a 25 year period. Currently you have on this outstanding improvement issue, you are paying about 800 thousand dollars a year in annual debt service, that is the full amount. By completing the refunding which has been our target, just setting aside the refunding and going ahead with the refunding, regardless what you do we recommend you do that if you can acheive a minimum of a 5% savings, those costs will be reduced by 20,000.00 per year, we hope it is a little bit more but that is what we are comfortable with today. The reduction from 800 thousand a year to 780 thousand per year, that is after all the issuance expenses and cost of reissuance. This is a reissuance by the way, we have to actually go back and sell bonds in the market place just like every other new issue and all of those factors are factored into the reduction of outstanding principal and interest fram 800 to 780 thousand. If we include 2 1/2 million for 25 years rather than doing it for 30 years or rather than rapping it around, we would increase the annual cost to the City of about 200 thousand dollars per year, less the 20 thousand, so it would be about 180 thousand per year. So if you do the refunding issue the new money your annual debt service payments will increase by 180 thousand dollars per year. Lentz stated that with discussions with the City Manager and Finance Director at this point we don't know if that represents an increase in taxes or not, it is too early to tell. There will be an increase in debt, you are raising 2 1/2 million dollars, that is the bad news. The good news is that . . . Special Meeting City Cormrission April 27, 1993 Page 3 your cost of capital that you haven't seen since the seventies. If in fact this infrastructure is going to be required, giving these interest rates environments and giving both land costs and construction costs which we think are reasonably well at this point, this could make a lot of sense to the City with going forward now. If in fact we decided to extend the debt on just the new money portion, paYments would go from 202 thousand dollars to 190 thousand per year, that extension of over a five year period would cost you six hundred thousand dollars extra. Again, we discussed this last time and there was not a great amount of sentiment to do that. If we wrapped around the new money, which is also typical for governments, and Tom would attest to that, and in effect try to make the paYments for the refunding bonds, your outstanding bonds and the new bonds on a constant sort of leveling basis that can be reduced to another 164 thousand per year through the year 2014, then it would increase to 410, we also would again deduct the 20,000.00 fram that. Depending on how you structure this, you don't have to structure this tonight, we may have same other alternatives in the way of structures, if your goal is to try to lessen the immediate impact on your budget of adding the police complex, the fire station or whatever, we can came back and reduce that further. So you can be looking at between 140 thousand dollars per year net increase to 180 thousand dollars a year net increase, to raise the 2 1/2 million dollars. In terms of number for this resolution, we would recommend if the Cormrission decides not to go forward or is not making a decision on new money tonight, we would still recommend that the Cormrission pass a resolution not to exceed 10 million dollars. If we do just the refunding that approximately a 6 million dollar issue, if we include the new money 8 1/2 million dollars we would come back and reduce that not to exceed amount to the actual amount that we issue. The not to exceed amount, again does not cormrit you to raise another dollar, it just allows to put a not to exceed amount so that the people reading the preliminary official statements and documents will have some degree of comfort that there is a limit on the amount of debt that you borrow. Lentz said that is where we are at now, we felt that it might be a good opportunity for you to consider including same new money for services and requirements that you will need, and do it all at once because of the interest rates. Mayor Kulbes asked about the 20,000.00 savings if it is a solid figure or a fluctuating figure. Lentz said it fluctuates, based on the marketing conditions. Lang also said that it is constant after you sell the bonds. Discussion. Lentz stated that what we really need to do is to determine whether we are just issuing refunding bonds or refunding bonds with new money bonds and complete this new project. CorrrrUssioner Torcaso asked if the best deal would be the 25 years. Lentz said he feels the 25 years is the most conservative position the City could take. ".... e Special Meeting City comnission April 27, 1993 Page 4 Lang said that is again assurrdng we structure tonight, where we are is we don't have to structure tonight all you have to do is give a top end figure; which is the number you don't want to exceed. Once we know exactly where the market is when you want to go into it we will structure and decide whether you use 25 yrs., 30 yrs., discounted paper, zero coupon bonds, those are the decisions you'll make down the road once someone comes back with a structure and says we are prepared to go and here's what we want to do. The only decision that has to be made tonight is whether or not you incorporate the new money. Torcaso said he feels the 10 rrrillion amount is a good amount to go with. . Comrrdssioner Kaehler said that there is a couple of things that concerns her. She does not have a problem with the property, she said that she thinks the property would be a good value no matter what, going down the line. She said that we have to keep in rrrind that we are talking about going into debt each year 180,000 dollars more than what we are right now, and that money has to come from somewhere. There is enough in the fund to take it out of there, but that still effects our bottom line as far as our budget is concerned. We just don't have 180,000 laying around that we put away each year so that money has to come back into the fund, so if we do this we have to be prepared to raise taxes next year to cover this. There was discussion about raising taxes. Lentz said we could extend the debt for another 10 years, so the increase could be as low as 75,000.00 per year. Lang said that he needs to caution the Comrrdssion that in fact if they are truly pledging ad valorem taxes we would have to go to a referendum. What you can pledge is your non ad valorem taxes to these bonds, to the extent that you use non ad valorem money to make debt service which other wise you would use for operating income you could use ad valorem taxes for your operating expenses without having to go through a referendum, and that is legal. But if you truly are saying that the only way you can pay this off is to raise taxes, you are setting yourself up for an argument that these are ad valorem bonds and you have to be very careful not to do that. Kaehler said she understands, however if you take that money and pledge that money that leaves you that much less on the bottom line for your budget and therefore you have to get that money somewhere. However, if you are going to play it up front with the people you represent then this is the way it is: we feel we need a new complex, it's going to cost "X" amount of dollars this is how we want to fund it this is how we want to pay for it and this is how much it will cost the people. . Corrnrissioner Jonas said that for the three years he has been on the corrnrission there has been an excess of 500,000 of revenue. Kaehler said what we budget for reserve is the only figure that we can keep in rrrind, .:.;. . Sped a 1 Meeting City Conmission April 27, 1993 Page 5 because you can't over budget. So if we budget 350,000 in excess monies that we have coming in, that is only two years worth to repay this, when you get to the third year you have no reserves, and then we are 180,000 in debt. Discussion. Torcaso said that we are doing this for the residents of the City. Kaehler said that she does not disagree that we need the complex, but she does not want to do a bait and switch with the people that she represents and be up front with them. Discussion. Jonas said that he feels the people will understand. Conmissioner Langellotti said that we should start looking at increasing the rrUllage rate because we are nickel and dimeing the residents with the stormwater, garbage etc. I feel it is something we have to bring to the people and explain it to them. . Lang again said he wanted to caution the Commission that the increase in rrUllage does not relate to this bond issue, that is something that will come up later; if you tie the two together you will have to go to referendum. Where you are is you have non ad valorem revenue sources that currently can be used as operating expenses, you will pledge them to this bond issue which means that if the balance of the non ad valorem revenues do not cover your operating expenses you will have to deterrrUne what you will do during the budgetary cycle and decide whether or not to increase the ad valorem taxes. You cannot use that money to pay for the debt service on this bond issue. Lang said again you don't have to decide how you are going to precede, you just have to set a top end number and I feel it will be up to the City Manager and Staff to bring back to you how they intend to pay for the bonds and what it will cost to do various things. You don't have to do anything right now, you could even just take 350,000 and buy the land right now and defer the construction if you felt uncomfortable in raising the capital to build those buildings in this fiscal year, that is a decision you can make down the road, you don't have to make that decision tonight. The only thing you are deciding tonight is you are willing to go to 10 rrUllion if everything works out and you are comfortable with it. Torcaso said that the Commission made a decision last night to buy the land. Jonas said that was contingent upon whether we okayed the bond issue or not. . Lang said for purpose of the record, you passed a resolution where you intended to reimburse yourself out of this bond issue, and that means you have no budgeted funds to pay for that property at this point, so you are going to use reserves to buy it and then reimburse yourself. Mayor Kulbes said that is correct, and we should go ahead with the 10 rrUllion bond issue, and we should not worry about building a new fire station or public works expansion or police station this fiscal year until we find out what it will cost and how we are going to raise the money. We can afford to buy the land. Discussion. Jonas said he would like the City Manager to direct the staff to find a method of financing because down the road it will cost twice ~"" .... , . . . Special Meeting City Corrrnission April 27, 1993 Page 6 . , as much. Kaehler moved to approve resolution 705 with the issuance of bonds not to exceed 10 million dollars. Seconded by Langellotti. Vote: All aye. Mayor said that now that we have the resolution 70S, he would like to talk about the property purchase. He said that there is a good deal of low area and wet lands in there and asked if there is sufficient available buildable land to do what we want to do. LeBlanc said the Staff is aware, and we think there is enough land. He said that the City Attorney has looked at all the information we have, and the attorney will be calling the broker tomorrow, if they are in agreement, contingent upon there being enough I and and we think there is; Lockcuff and Zaudtke walked the property but no studies were done. We are going to get an environmentalist, but first the people have to be in agreement with the contract, the studies are included in the 350,000 price. Discussion. City Manager Govoruhk said that the Attorney and Zaudtke and Engineers has looked at today, talking about soil testing, wet lands, the well being put in and Attorney Lang said he will put a paragraph in the contract. Lang said we will give ourselves an out clause, that we will try and get a 30 day inspection period to determine that we are comfortable or not. If they reject that we will have to decide what to do at that point and bring it back to you, but our current intention is that we get a 30 day window in which to do the environmental checking to make sure we have sufficient acreage to build the facility and we do not have any environmental problems that would preclude us utilizing that property for what we want to use it for. Govoruhk said Zaudtke walked the property again today and said that he feels there is buildable space for the complex and then some. 'Discussion on a commercial strip along S.R. 419. Respectifully SubrrUtted, '~~~ Margo Hopkins Deputy City Clerk '-") .' ........... \ /).' .' . . ./ / " / . " .-/ 1 (f:~_~<___