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City Council Regular Meeting Minutes April 8, 2008 Page 3 Motion by Councilmember Thuesen, seconded by Councilmember Gray, to adopt Resolution 08- 027; Resolution Providing for the Sale of $1,910,000 General Obligation Street Reconstruction Bonds Series 2008. Motion carried unanimously. Mayor Faust introduced Jonathan North of Ehlers & Associates. Ms. Kvilvang stated that Mr. North recentlyjoined Ehlers from Moody Investment Services in Chicago. 10 Mr. North addressed the Council and explained the impact of the subprime market on cities 11 across the country. He stated that when a city wants to issue bonds, it wants to do so at the lowest 12 possible interest rate; what has happened is that insurance companies have now been caught in 13 the subprime markets resulting in some insurance company ratings being downgraded. He 14 indicated that the City recently received a letter indicating that some of its bonds were 15 downgraded, and added this is not a reflection of the City, but rather, a reflection of what is 16 happening in the market today. He stated there are currently fewer insurance companies with an 17 "AAA" rating which means there is less competition among insurance companies. He indicated 18 there are a lot of investors putting their money into municipal bonds and they are still seeing low 19 interest rates; it was his opinion that there will continue to be fluctuation in the market. 20 21 Councilmember Thuesen requested Mr. North comment on derivatives and floating rate debt. 22 23 Mr. North stated there are a lot of cities that entered into variable rate debt, which means the rate 24 can change and short term rates have jumped around significantly. He explained there are also 25 auction rate securities, which are similar to variables, and those people who have issued auction 26 rate securities are having trouble re -auctioning the debt, with some paying interest as high as 27 20%. He noted that because the City has a fixed rate, it is positioned well in the market. 28 29 Councilmember Thuesen asked what it will take to stabilize the ratings that cities are facing at 30 this time. 31 32 Mr. North replied that municipal debt is a very safe security and the default rate is very low. He 33 stated the marketplace is coming around to understanding this. He noted that other rating 34 agencies are currently looking at a new rating scale for the entire industry. He stated it will be 35 important.for the City to pay attention to the diversity of its tax base and to keep an eye on long 36 term financial planning by having a goal and target in place that will allow the City to ride out 37 the storms in the near future. He stated there were previously eight or nine insurance companies 38 insuring debt and that number has dropped to two; as a result, they have seen some higher 39 premiums. He added there is not enough information at this point to render an opinion on the 40 impact this will have on cities due to the volatility in the market. 41 42 Mayor Faust expressed his thanks to Mr. North and stated the City appears to be well positioned 43 in the market. 44 45 V. REPORTS FROM COMMISSION AND STAFF. 46 None. rA