Agenda Packets - 1983/11/28 - Laserfiche WebLink

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.14' , / I1EM0 TO: Mayor and City founcil FROM: Finance Director -Treasurer Brager DATE: November 21, 1983 SUBJECT: POLICY CONSIDERATIONS ON A CASH DEFEASANCE OF THE BONDS, IN THE IMPROVEMENT BOND REIDEMPTION FUND The City recently authorized the hiring of Springstead, Inc., as financial consultants, to advise and assist with a cash defeas- ance of those bonds in the Improvement Bond Redemption Fund. I believe that there are several policy considerations which have to he addressed and on which Council direction should be given to staff. These policy considerations involve the identification of the goals and objectives that are to be met by undertaking a cash defeasance. During the presentation of the Special Assessment Debt Study, Bob Voto indicated that the present good financial position of the Improvement Bond Redemption Fund presented the City with several options. I believe it important that those options be fully understood. I shall briefly outline those options. The first option identified would be to continue to make payments of bond principal and interest until 1996. At that time all of the bonds will be paid off. Projections made as part of the Debt Study indicate that a surplus will exist in the fund at that date. That surplus could be used for any public purpose. A part of this first option is consideration of future scheduled bonded debt tax levies of the fund. The City has the option of levying those future tax levies or cancelling a part or all of them. Levying would maximize the projected surplus of the fund while cancellation of levies would minimize the projected A second option identified would be to undertake a cash defeas- ance of the bonds. A cash defeasance would satisfy the City's obligation to its bond holders by investing in securities at such maturities to meet the payment schedules of the fund's out- standing bonds. These securities would be assigned to a bank's trust department. The bank would then make the scheduled bond payments for the City. Any remaining cash in the fund would be considered a surplus and could be used for any public purpose. Since our obligation to the bond holders is satisfied under a cash deteasance, future bonded debt tax levies are not needed and should be cancelled entirely.