Agenda Packets - 1987/12/14 - Laserfiche WebLink

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City of Mounds View, Minnesota December 10, 1997 previously, the third phase of construction will be completed in 1990 and placed on the tax rolls as of January I, 1991. The first collection of taxes will be made in 1992, which will be available to pay the August I interest payment in 1992 c. : ti.e February I principal and interest payment in 1993. This levy cycle continues through the term of ?he bonds. Column 4 is our projection of interest rates for this bond issue. The interest rates are taxable rates, since the use of the bond proceeds will be for p,rvate activity, and because the City receives g-::...-.iees from the developer for the repayment of the bonds. Taxable bonds became a necessity with the Tax Reform Act of 1986, which severely restricts the use of tax-exempt bond issues to finance the costs of private activities. The taxable bond market is not well established, and therefore it is difficult to project accurately what interest rates may be received on the bonds. Most taxable bond Issues have been relatively small in size and do not present a very solid basis for making projections. To our knowledge, the $6,000,000 of taxable general obligation bonds will be the largest taxable issue sold in Minnesota to date. We anticipate or. excellent reception to the bond issue; however, we are still uncertain as to what interest rate levels will be required for the bonds. Our projections are based upon interest rates received for smaller issues and we are comfortable that actual rates received will not be greater than our estimate unless the overall market deteriorates between now and the sale date. Minnesota Statutes require the City to provide for debt service in an amo6ol equal to but not less than 105% of actual principal and interest cost. The reason for this / is to protect the bondholder and the City in the event the taxes are not received irr the full amount as projected. This may result in a surplus of revenues if 100% of the taxes are collected as projected. The surplus can be used to prepay bonds at some future date. The debt service at 105% is shown in Column 9. Column 10, as stated previously, is the projected incremental income. Columns II and 12 represent the surplus of revenues over debt service. The bond issue provides for bonds maturing in the years 1997 through 2003 to be callable as early as February 1, 1996 without penalty. This represents $4,725,000, or approximately 79% of the bond issue. This is an extremely aggressive call provision, but it is necessary in order to protect the City in the event that the income stream is more rapid than projected, creating surpluses which may not be able to be invested at rates as high as the interest rates on the bonds. Also, if income does not materialize as pruected, the City needs the opportunity to be able to refinance the debt at an early date. Any call provision earlier than what we are recommending may negatively affect the interest rates and the bidding on the bonds. Since the bonds are a general obligation pledge of the City, a Moody's rating will again be required for the issue. The City has not been reviewed b7 Moody's for several years, however, it has continued to retain its "A" rating. The $6,000,000 of new debt wil! be of significant concern to Moody's; however, at this moment we de not think it will detract from the current rating. We will continue to keep staff informed as we discuss this in more detail with Moody's. We are recommending the bonds be offered for sale on Monday, January II, with bids to be received in the offices of Springsted Incorporated at 11:00 A.M. A representative of the City will be required to attend the sale. The bids will be rw�, Page 4