05-28-13 Council Packet - Laserfiche WebLink

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Page 2 PURPOSE: Proceeds of the Bonds along with a small cash c ontribution from the City will be used to finance public improvements related to the Otter Lake Road Extension. The Bonds are being issued as taxable Bonds . In the opinion of bond counsel, the City charter provision applicable to the area being assessed does not meet requirements of federal tax law. Federal regulations permit cities to issue tax exempt bonds secured by special assessments only if the assessment procedures meet certain criteria. One of those criteria is that owners of business and non-business property must be required to pay assessments on an equal basis. The City charter provision that applies in this area permits owners of certain residential property to “opt out” of being assessed, which does not meet the “equal basis” requirement. Even though there are no residential properties being assessed for the specific improvements financed by the Bonds, the assessment procedure in this area remains questionable without a ruling on this point from the Internal Revenue Service. In addition, the City has entered into certain agreements with owners of assessed commercial property, which agreements are permissible under State law but do not comply with the equal basis requirement under federal tax law. AUTHORITY: The Bonds are being issued pursuant to Minnesota Statutes, Chapters 475 and 429 and the City’s home rule charter (the “City Charter”). SECURITY AND SOURCE OF PAYMENT: The Bonds are a general obligation of the City, secured by its full faith and credit and taxing power. In addition, the City will pledge special assessments against benefited properties. Assessments in the principal amount of $532,400 will be filed in the fall of 2013 and collected over a term of 10 years with level payments of principal and interest. Interest on the unpaid balance will be charged at a rate of 2.0% over the true interest cost of the Bonds. For structuring purposes we have assumed a rate of 4.35%. The City will use funds on hand to make the first interest payment due on February 1, 2014. Beginning with the August 1, 2014 interest payment, each year’s collection of assessments will be used to make the interest payment due on August 1 in the collection year and the principal and interest payment due February 1 in the following year. Since assessment income is not expected to be sufficient to pay 105% of the debt service on the Bonds, the annual shortfall not covered by assessments will be paid from state aid money. The bond resolution will include a tax levy requirement for the Bonds, however, the City plans on canceling the levy each year and using state aid money to pay the shortfall. STRUCTURING SUMMARY: Per direction from the City, the Bonds have been structured around the projected assessment income with a term of 10 years to result in an approximately level annual shortfall to be paid from state aid money. SCHEDULES ATTACHED: Schedules attached for the Bonds include the sources and uses and debt service requirements, given the current interest rate environment. SALE TERMS AND MARKETING: Variability of Issue Size : A specific provision in the sale terms permits modifications to the issue size and/or maturity structure to customize the issue once the price and interest rates are set on the day of sale. Prepayment Provisions: Based on the short duration of the Bonds, and to avoid possible negative pricing impacts, the Bonds will not be subject to redemption prior to their stated maturities.