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Northland Securities, Inc. Page 4 <br />Structure <br />The Improvement Portion has been structured over 10 years, with relatively level annual debt <br />service payments beginning on February 1, 2026. The Water Revenue Portion has been <br />structured over 15 years, with relatively level annual debt service payments beginning on <br />February 1, 2025. <br />The proposed structure for the bond issue and preliminary debt service projections are <br />illustrated in Attachment 1 and the estimated levy schedule is illustrated in Attachment 2. <br />Security and Source of Repayment <br />The Bonds will be general obligations of the City. The finance plan relies on the following <br />assumptions for the revenues used to pay debt service, as provided by City staff: <br />•Special Assessments. The City is expected to levy special assessments against benefited <br />properties in the amount of $1,411,310 for the Improvement Portion of the Bonds. The <br />assessments will be payable over 15 years, with an interest rate of 1.00% over the average <br />coupon on the Improvement Portion of the Bonds (currently estimated to be 4.50%) and <br />structured for level annual payments of principal and interest. Because the special <br />assessments are structured over 15 years, revenues will continue to be received beyond <br />the life of the Improvement Portion of the Bonds. The plan assumes that the assessments <br />will be levied in 2024 for initial payment in 2025. <br />•Water Revenues. Net revenues of the City’s water utility will be pledged for payment of <br />the Water Revenue Portion of the Bonds. The City will covenant to adopt water rates and <br />charges that are sufficient to produce net revenues equal to at least 105% of the debt <br />service requirements on the Water Revenue Portion of the Bonds. In the event there is a <br />deficiency in the amount of net revenues available for payment of debt service, the City <br />may levy taxes to cover the insufficiency, but only on a temporary basis until rates are <br />adjusted. <br />•Property Taxes. The remaining revenues needed to pay debt service on the Bonds are <br />expected to come from property tax levies. The initial projections show an annual tax <br />levy averaging approximately $462,144 for the Improvement Portion of the Bonds, is <br />needed to produce the statutory requirement of 105% of debt service after accounting for <br />assessments and utility revenues. The levy may be adjusted annually based on actual <br />special assessment collections and additional monies in the debt service fund. The initial <br />tax levy will be made in 2024 for taxes payable in 2025. <br />Given the timing of the initial revenue from the tax levy and special assessments, <br />capitalized interest will be included in the Improvement Portion to cover the first interest <br />payment due on February 1, 2025, before the first tax and assessment collections are <br />received. <br />Plan Rationale <br />The Finance Plan recommended in this report is based on a variety of factors and information <br />provided by the City related to the financed project and City objectives, Northland’s knowledge <br />of the City and our experience in working with similar cities and projects. The issuance of <br />General Obligation Improvement & Water Revenue Bonds provides the best means of achieving <br />the City’s objectives and cost-effective financing. The City has successfully issued and managed <br />this type of debt for previous projects.