Underwriting proposal includes rate of 2.71 percent
In the final meeting before the fate of the municipal campus proposal will be decided, the Forest Lake City Council and Economic Development Authority this Monday heard updated figures relating to a bond issuance that would provide $21 million in funding.
For a second consecutive joint meeting, Bruce Kimmel of Ehlers & Associates shared good news from a numbers perspective.
His firm selected an underwriting proposal from Edward Jones & Company that stood out on several fronts. Its estimated True Interest Cost, which incorporates an approximately $150,000 charge for the issuance, is 2.71 percent.
“When you look at a $21-22 million bond issue, having that much tighter interest rate spreads really makes a huge difference in terms of saving the city and your taxpayers money,” Kimmel said. “So that’s a significantly better rate than we were projecting.”
Also, the Edward Jones proposal includes a call feature in five years as opposed to eight from other proposals, meaning the city would not have to wait as long to have the ability to use outlot sales or other resources to pay off debt. Finally, Edward Jones agreed to waive a standard debt service reserve fund, which would have required $1.5 million in additional bonding.
The estimated par amount, or total bond issuance, would be $22,055,000. That includes the project funds, issuance cost, $525,300 in capitalized interest and an underwriter’s discount of $379,300.
Kimmel proposed structuring the debt in such a way as to increase payments by 0.5 percent annually starting in 2017. This would cut one year off the end of the payments, meaning the debt would be paid off in 2033.
All told, the bonding package makes for substantial projected savings compared to the tax impact presented Nov. 29. On an average home, the bonding would lead to an estimated property tax increase of $31 in 2014, another $37 on top of that in 2015 and another $9 in 2016. At that point, the total debt levy would be fully ramped-up, save for the 0.5 percent annual rise Kimmel proposed.
For a $500,000 commercial property, the increases are estimated at $101 in 2014, another $120 in 2015 and another $24 in 2016.
The bond structure can continue to be tweaked until the issuance is finalized, potentially in January.
“We’re not done pushing,” said Kimmel, noting that January is generally a good month for issuing bonds. “My philosophy is that proposed interest rates spreads…those are starting points for negotiations, not ending points.”
The council’s discussion also touched on the upcoming expiration of two Tax Increment Financing Districts. The city will likely seek the extension of one of those districts. If granted by the state, an extension would prevent the return of that tax capacity to the tax base. However, it would produce for the city a substantially higher amount of funding that could in turn be put toward paying off the debt.
The three-year tax impact presented assumes that no extension will be given.
“We feel in all cases that we’ve been pretty conservative on our assumptions,” said Finance Director Ellie Paulseth.
City Council member Susan Young thanked Kimmel for his work on the bonding package.
“Quite frankly, I am much happier with where we are now than where we started,” she said.
The council and EDA will meet separately next Monday, Dec. 17. An agreement through which the EDA would lease the new facility to the council will be up for consideration. The EDA will also consider a resolution authorizing the bonding.
A group of residents opposed to the municipal campus proposal are planning to bring forth to the City Council and EDA next Monday a petition that has been circulating both online and at local businesses. The group is currently researching whether the petition has the legal backing to force a referendum.
“We believe that the statute…that the city is using to enable the EDA to issue the bonds was intended for private development, not municipal, even though there is a small private component to the Northland Mall agreement,” said John Freed.