10-11-2017 Council Packet - Laserfiche WebLink

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STAFF REPORT TO: Mayor Keis and Members of City Council FROM: Joel Hanson, City Administrator Sharon Provos, Finance Director DATE: October 6, 2017 RE: Defeasance of 2009 Taxable HIA Bonds Ehlers & Associates has proposed that we refund the 2009 Taxable HIA Bonds given a favorable interest rate climate. (Their report detailing the refunding option is attached.) In reviewing this option, staff believes it would be better to simply utilize an interfund loan and call the debt prior to the February 1st payment date. In addition to the payment due on 2/1/2018, we would have to pay off $1,200,000 of outstanding principal. We prepared the attached spreadsheet comparing the two options on a “cash basis”. You will notice that a refunding will provide a better savings option compared to a 4% Interfund Loan ($119,602.08 versus $54,425.00). However, we also avoid over $50,000 of expenses needed to sell the refunding bonds making the net savings for the refunding $69,042.08 versus $54,425.00 for the interfund loan option. If we own the bonds, that difference effectively accrues to our benefit. One advantage this creates to those property owners with active HIA (Housing Improvement Area) assessments is they could now prepay their outstanding assessments (2019 on) at any time and without penalty given we would not have any bonds tied to their assessment. (If you recall, because these were taxable bonds, they carried a higher interest rate. With the difference in the rate they were paying on the assessments and what our bonds required for debt service, we were unable to reinvest prepayments at a high enough rate to make interest payments. Therefore, we did not allow the bonds to be prepaid because the City would have made up the difference. That issue goes away if we payoff the outstanding bonds with an interfund loan. One other possible advantage we are checking into with Ramsey County is our ability to lower the interest rate on the outstanding assessments. Assuming the County can accommodate that request, those with assessments would see a drop in their interest rate. On a $20,600 initial assessment, that would save the condo owner over $650 in interest costs for the remaining term of the assessment (2019 – 2024). We would also lower the rates on the deferred assessments from 5.75% to 4.00% starting in 2019; thereby lowering interest accruals for those owners too. We will report on this option at a later date. Staff recommends the Council adopt the attached resolution authorizing internal loan from the Water & Sewer Capital Replacement Fund #604 to CSCA HIA Fund #362 to finance the payoff of the 2009 Taxable HIA Bonds associated with the Canabury Square Condominium Association in the amount of $1,200,000 with an interest rate of 4.0% and to take appropriate actions to pay off the outstanding bonds on February 1, 2018.