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7.1. SR 03-21-2005 Item # 7.1. MEMORANDUM TO: Mayor and City Council FROM: Lori Johnson, Finance and Administrative Services Director DATE: March 21, 2005 SUBJECT: Consider Proposal for a Private School Facility for the Church of St. Andrew for the St. Andrew School and Consider Resolution Giving Preliminary Approval to this Project and Resolution Approving the Issuance and Sale of Such Revenue Notes At the February 22, 2005 City Council meeting, the Council approved increasing the amount of tax exempt fmancing for the Church of St. Andrews to $2.5 million. Although a public hearing has already been held on this item, a second hearing is required because the amount has increased. A representative from St. Andrew's will be present at the public hearing to address any questions raised during the hearing about the project. Additionally, the Council is asked to consider two resolutions: 1) a resolution giving preliminary approval to a project pursuant to Minnesota Statute s469.154 and authorizing the submission of an application to the Minnesota Department of Employment and Economic Development and the preparation of necessary documents; and 2) a resolution approving the issuance and sale of the City of Elk River Minnesota Educational Facilities Revenue Notes Series 2005A. These resolutions authorize the city to enter in to all of the necessary agreements to complete the fmancing for this p'roject. As you will recall, the city is not responsible in any way for this debt. In addition, the Church of St. Andrew is responsible for paying any incremental interest cost the city incurs if the city exceeds the bank qualified limit in 2005 due to the issuance of this revenue note. St. Andrews is also responsible for reimbursing the city for all of its out-of-pocket costs related to the issuance of this note. Action Requested 1. Council is asked to hold a public hearing on issuance of $2,500,000 in tax exempt fmancing for the non-religious portions of the renovation, equipping of, and construction of additions to the St. Andrew School. 2. The Council is asked to consider a resolution giving preliminary approval to a project pursuant to Minnesota Statute s469.154 and authorizing the submission of an application to the Minnesota Department of Employment and Economic Development and the preparation of necessary documents. 3. The Council is asked to consider a resolution approving the issuance and sale of the City of Elk River Minnesota Educational Facility Revenue Notes Series 2005A. RESOLUTION NO. RESOLUTION GIVING PRELIMINARY APPROVAL TO A PROJECT PURSUANT TO MINNESOTA STATUTES, SECTION 469.154, AND AUTHORIZING THE SUBMISSION OF AN APPLICATION TO THE MINNESOTA DEPARTMENT OF EMPLOYMENT AND ECONOMIC DEVELOPMENT AND THE PREPARATION OF NECESSARY DOCUMENTS (ST. ANDREW SCHOOL PROJECT) WHEREAS, (a) The purpose of Minnesota Statutes, Sections 469.152 to 469.165 relating to municipal industrial development (the "Act") as found and determined by the legislature is to promote the welfare of the state by the active attraction and encouragement and development of economically sound industry and commerce to prevent so far as possible the emergence of blighted and marginal lands and areas of chronic unemployment; (b) Factors necessitating the active promotion and development of economically sound industry and commerce are the increasing concentration of population in the metropolitan areas and the rapidly rising increase in the amount and cost of governmental services required to meet the needs of the increased population and the need for development of land use which will provide an adequate tax base to finance these increased costs and access to employment opportunities for such population; (c) The City Council of the City of Elk River (the "City") received a proposal from The Church of St. Andrew, a nonprofit religious corporation (the "Borrower") that the City undertake to finance a Project hereinafter described, through the issuance of revenue bonds (hereinafter the "Bonds" or the" Revenue Bonds") pursuant to the Act; (d) The City desires to facilitate the selective development of the community and surrounding area, retain and improve the tax base in the City, and help to provide the range of services and employment opportunities required by the population; and the Project will assist the City in achieving those objectives. The Project will help to increase assessed valuation in the City and help maintain a positive relationship between assessed valuation and debt and enhance the image and reputation of the community; (e) The Project to be financed by the Bonds is (i) renovation, and constructing additions to, the St. Andrew School located at 428 Irving Avenue in the City and (ii) the acquisition and installation of equipment therein (the "Project"). The Project is expected to create 1.4 additional new full-time equivalent jobs in addition to the existing twenty-six (26) jobs; (f) The City has been advised by representatives of Borrower that conventional, commercial financing to pay the capital cost of the Project is available only on a limited basis and at such high costs of borrowing that the economic feasibility of operating the Project would be significantly reduced; (g) No public official of the City has either a direct or indirect financial interest in the Project nor will any public official either directly or indirectly benefit financially from the Project; (h) A second public hearing on the Project was held on March 21, 2005, pursuant to published notice as required by the Act and Section 147(f) of the Internal Revenue Code of 1986, as amended. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Elk River, Minnesota, as follows: 1. The Council hereby indicates its preliminary intent to undertake the Project, and additional financing therefore, pursuant to the Act, and pursuant to a revenue agreement between the City and Borrower upon such terms and conditions with provisions for revision from time to time as necessary, so as to produce income and revenues sufficient to pay, when due, the principal of and interest on the Bonds in the total principal amount of up to approximately $2,500,000 to be issued pursuant to the Act to finance or refinance a portion of the costs of the construction and installation of the Project. 2. On the basis of information available to this Council it appears, and the Council hereby finds, that the Project constitutes properties, real and personal, used or useful in . connection with one or more revenue producing enterprises within the meaning of Subdivision 2(b) of Section 469.153 of the Act; that the Project furthers the purposes stated in Section 469.152; that the availability of the financing under the Act and willingness of the City to furnish such financing will be a substantial inducement to Borrower to undertake the Proj ect, and that the effect of the Project, if undertaken, will be to encourage the development of economically sound industry and commerce, to assist in the prevention of the emergence of blighted and marginal land, to help prevent chronic unemployment, to help the surrounding area retain and improve the tax base and to provide the range of service and employment opportunities required by the population, to help prevent the movement of talented and educated persons out of the state and to areas within the State where their services may not be as effectively used, to promote more intensive development and use of land within the City and surrounding communities and eventually to increase the tax base of the community. 3. The Project is hereby given preliminary approval by the City subject to final approval by this Council, Borrower, and the purchaser of the Bonds as to the ultimate details of the financing of the Project. 4. The Mayor and staff of the City are hereby authorized and directed to submit an application for approval of a bond project to the Minnesota Department of Employment and Economic Development for the Project. 5. The Borrower has agreed and it is hereby determined that any and all costs incurred by the City in connection with the financing of the Project, including legal fees, whether or not the Project is carried to completion; will be paid by the Borrower. 6. Briggs and Morgan, Professional Association, acting as bond counsel, is authorized to assist in the preparation and review of necessary documents relating to the Project, to consult with the City Attorney, the Borrower and the purchaser of the Bonds as to the maturities, interest rates and other terms and provisions of the Bonds and as to the covenants and other provisions of the necessary documents and to submit such documents to the Council for final approval. 7. Nothing in this resolution or in the documents prepared pursuant hereto shall authorize the expenditure of any municipal funds on the Project other than the revenues derived from the Project or otherwise granted to the City for this purpose. The Bonds shall not constitute a charge, lien or encumbrance, legal or equitable, upon any property or funds of the City except the revenue and proceeds pledged to the payment thereof, nor shall the City be subject to any liability thereon. The holder of the Bonds shall never have the right to compel any exercise of the taxing power of the City to pay the outstanding principal on the Bonds or the interest thereon, or to enforce payment thereof against any property of the City. The Bonds shall recite in substance that the Bonds including interest thereon, are payable solely from the revenue and proceeds pledged to the payment thereof. The Bonds shall not constitute a debt of the City within the meaning of any constitutional or statutory limitation. 8. In anticipation of the issuance of the Bonds to finance a portion ofthe Project, and in order that completion of the Project will not be unduly delayed when approved, Borrower is hereby authorized to make such expenditures and advances toward payment of that portion of the costs of the Project as Borrower considers necessary, including the use of interim, short-term financing, subject to reimbursement from the proceeds of the Bonds if and when delivered but otherwise without liability on the part of the City. 9. This resolution shall take effect immediately upon adoption. Adopted by the City Council of the City of Elk River, Minnesota, this 215t day of March, 2005. Mayor Attest: City Clerk STATE OF MINNESOTA COUNTY OF SHERBURNE CITY OF ELK RIVER I, the undersigned, being the duly qualified and acting Clerk of the City of , Minnesota, DO HEREBY CERTIFY that I have compared the attached and foregoing extract of minutes with the original thereof on file in my office, and that the same is a full, true and complete transcript of the minutes of a meeting of the City Council of said City duly called and held on the date therein indicated, insofar as such minutes relate to a resolution giving preliminary approval to an industrial development proj ect. WITNESS my hand this _ day of March, 2005. Clerk RESOLUTION NO. RESOLUTION APPROVING THE ISSUANCE AND SALE OF THE CITY OF ELK RIVER, MINNESOTA EDUCATIONAL FACILITIES REVENUE NOTE, SERIES 2005A (ST. ANDREW SCHOOL PROJECT) AND AUTHORIZING THE EXECUTION OF DOCUMENTS RELATING THERETO BE IT RESOLVED by the City Council (the "City Council") of the City of Elk River, Minnesota (the "City"), as follows: SECTION 1. LEGAL AUTHORIZATION AND FINDINGS. 1.1 Findings. The City hereby finds, determines and declares as follows: (a) The City is authorized under Minnesota Statutes, Section 469.152 to 469.1651, as amended (the "Act") to assist the revenue producing project herein referred to, and to issue and sell the City's Educational Facilities Revenue Note, Series 2005A (St. Andrew School Project) (the "Note") as hereinafter defined, for the purpose, in the manner and upon the terms and conditions set forth in the Act and in this Resolution. (b) The City has received a proposal that it issue its revenue Note in the aggregate principal amount of up to $2,500,000 to provide funds to be loaned to The Church of St. Andrew, a religious corporation organized under the laws of the State of Minnesota (the "Borrower") to finance or refinance the completion of the non-religious portions of the renovation and equipping of, and construction of additions to, a school for grades preschool through 6th grade known as St. Andrew School, owned and operated by the Borrower and located at 428 Irving Avenue in the City (the "Project"). (c) As required by the Act and Section 147(f) of the Internal Revenue Code of 1986, as amended (the "Code"), the City has, on Tuesday, February 22, 2005, and Monday, March 21,2005 held public hearings on the issuance of the Note to finance the Project. (d) The issuance and sale of the Note by the City, pursuant to the Act, is in the best interest of the City, and the City hereby determines to issue the Note and to sell the Note to The Bank of Elk River, a Minnesota corporation (the "Lender"), as provided herein. The City will loan the proceeds of the Note (the "Loan") to the Borrower to finance the Proj ect. (e) Pursuant to a Loan Agreement (the "Loan Agreement") to be entered into between the City and the Borrower, the Borrower has agreed to repay the Note in specified amounts and at specified times sufficient to pay in full when due the principal of, premium, if any, and interest on the Note. In addition, the Loan Agreement contains provisions relating to the completion, maintenance and operation of the Project, indemnification, insurance, and other agreements and covenants which are required or permitted by the Act and which the City and the Borrower deem necessary or desirable 1743229v4 for the financing of the Project. A draft of the Loan Agreement has been submitted to the City Council. (f) Pursuant to a Pledge Agreement (the "Pledge Agreement") to be entered into between the City and the Lender, the City has pledged and granted a security interest in all of its rights, title, and interest in the Loan Agreement to the Lender (except for certain rights of indemnification and to reimbursement for certain costs and expenses). A draft of the Pledge Agreement has been submitted to the City Council. (g) Pursuant to a Disbursing Agreement dated as of March 1, 2005, (the "Disbursing Agreement") by and between the Borrower, the City, the Lender and a disbursing agent, if other than the Lender, selected by the Lender, the parties thereto have provided certain terms for the disbursement of the proceeds of the Note. (h) The Note will be a special limited obligation of the City. The Note shall not be payable from or charged upon any funds other than the revenues pledged to the payment thereof, nor shall the City be subject to any liability thereon. No holder of the Note shall ever have the right to compel any exercise of the taxing power of the City to pay the Note or the interest thereon, nor to enforce payment thereof against any property of the City. The Note shall not constitute a debt of the City within the meaning of any constitutional or statutory limitation. (i) It is desirable, feasible and consistent with the objects and purposes of the Act to issue the Note, for the purpose of financing the costs of the Project. 1.2 Authorization and Ratification of Proiect. The City has heretofore and does hereby authorize the Borrower, in accordance with the provisions of the Act and subject to the terms and conditions imposed by the Lender, to provide for the construction and equipping of the Project by such means as shall be available to the Borrower and in the manner determined by the Borrower, and without advertisement for bids as may be required for the construction and acquisition of other municipal facilities; and the City hereby ratifies, affirms, and approves all actions heretofore taken by the Borrower consistent with and in anticipation of such authority. SECTION 2. THE NOTE. 2.1 Authorized Amount and Form of Note. The Note issued pursuant to this Resolution shall be in substantially the form submitted to the City Council on the date hereof, and shall bear interest at the rates, mature in the years and amounts and be subj ect to redemption as therein specified, as such may be modified by agreement of the Lender, the Borrower and the City. The total aggregate principal amount of the Note that may be outstanding hereunder is expressly limited to $2,500,000, unless a duplicate Note is issued pursuant to Section 2.7; provided, however, the Note may be initially issued in a lesser maximum principal amount by agreement of the Borrower and the Lender. The offer of the Lender to purchase the Note at an aggregate purchase price of such amount as is actually disbursed thereunder is hereby accepted. 2.2 The Note The Note shall be dated for convenience of reference as of March 1, 2005, shall be payable at the times and in the manner, shall bear interest at the rate, and shall be subject to such other terms and conditions as are set forth therein. 1743229v4 2 2.3 Execution. The Note shall be executed on behalf of the City by the manual or facsimile signatures of its Mayor and City Administrator and shall be sealed with the seal of the City; provided that the seal may be intentionally omitted as provided by law. In case any officer whose signature shall appear on the Note shall cease to be such officer before the delivery of the Note, such signature shall nevertheless be valid and sufficient for all purposes, the same as if such signatory had remained in office until delivery. In the event of the absence or disability of the Mayor and City Administrator such officers of the City as, in the opinion of the City Attorney or Special Counsel to the City, may act in their behalf, shall without further act or authorization of the City Council execute and deliver the Note. 2.4 Deliverv of Initial Note. Before delivery of the Note there shall be filed with the Lender (except to the extent waived by the Lender) the following items: (a) an executed copy of each of the following documents: (i) the Loan Agreement; (ii) the Disbursing Agreement; and (iii) the Pledge Agreement; (b) an opinion of Counsel for the Borrower as prescribed by the Lender and Bond Counsel; (c) the opinion of Bond Counsel as to the validity and tax exempt status of the Note; (d) evidence that the Borrower is an organization described in Section 501(c)(3) of the Code and is exempt from income taxation under Section 501(c)(3) of the Code; (e) approval of the Project from the Minnesota Department of Employment and Economic Development; and (f) such other documents and opmlOns as Bond Counsel may reasonably require for purposes of rendering its opinion required in subsection (c) above or that the Lender may reasonably require for the closing. 2.5 Disposition of Note Proceeds. Upon delivery of the Note to Lender, the Lender shall, on behalf of the City, disburse the proceeds of the Note for payment, or to reimburse the Borrower for payment, of Project Costs in accordance with the terms of the Loan Agreement and the Disbursing Agreement. 2.6 Registration of Transfer. The City will cause to be kept at the office of the City Administrator a Note Register in which, subject to such reasonable regulations as it may prescribe, the City shall provide for the registration of transfers of ownership of the Note. The Note shall be initially registered in the name of the Lender and shall be transferable upon the Note Register by the Lender in person or by its agent duly authorized in writing, upon surrender 1743229v4 3 of such Note together with a written instrument of transfer satisfactory to the Administrator, duly executed by the Lender or its duly authorized agent. The following form of assignment shall be sufficient for said purpose: For value received hereby sells, assigns and transfers unto the within Note of the City of Elk River, Minnesota, and does hereby irrevocably constitute and appoint attorney to transfer the Note on the books of said City with full power of substitution in the premises. The undersigned certifies that the transfer is made in accordance with the provisions of Section 2.9 of the Resolution authorizing the issuance of the Note. Dated: Registered Owner Upon such transfer the City Administrator shall note the date of registration and the name and address of the new Lender in the Note Register and in the registration blank appearing on such Note. 2.7 Mutilated, Lost or Destroyed Note. In case any Note issued hereunder shall become mutilated or be destroyed or lost, the City shall, if not then prohibited by law, cause to be executed and delivered, a new Note of like outstanding principal amount, number and tenor in exchange and substitution fOLand upon cancellation of such mutilated Note, or in lieu of and in substitution for such Note destroyed or lost, upon the Lender's paying the reasonable expenses and charges of the City in connection therewith, and in the case of a Note destroyed or lost, the filing with the City of evidence satisfactory to the City with indemnity satisfactory to it. If the mutilated, destroyed or lost Note has already matured or been called for redemption in accordance with its terms it shall not be necessary to issue a new Note prior to payment. 2.8 Ownership of Note. The City may deem and treat the person in whose name a Note is last registered in the Note Register and by notation on such Note whether or not such Note shall be overdue, as the absolute owner of such Note for the purpose of receiving payment of or on account of the principal balance, redemption price or interest and for all other purposes whatsoever, and the City shall not be affected by any notice to the contrary. 2.9 Limitation on Note Transfers. The Note have been issued without registration under state or other securities laws, pursuant to an exemption for such issuance; and accordingly the Note may not be assigned or transferred in whole or part, nor may a participation interest in the Note be given pursuant to any participation agreement, except as an exempt security or as an exempt transaction. 2.10 Issuance of New Notes. Subject to the provisions of Section 2.9, the City shall, at the request and expense of the Lender, issue a new note, in aggregate outstanding principal amount equal to that of the Note surrendered, and of like tenor except as to number, principal 1743229v4 4 amount, and the amount of the monthly installments payable thereunder, and registered in the name of the Lender or such transferee as may be designated by the Lender. SECTION 3. MISCELLANEOUS 3.1 Severability. If any provision of this Resolution shall be held or deemed to be or shall, in fact, be inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions or in all jurisdictions or in all cases because it conflicts with any provisions of any constitution or statute or rule or public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any extent whatever. The invalidity of any one or more phrases, sentences, clauses or paragraphs in this Resolution contained shall not affect the remaining portions of this Resolution or any part thereof. 3.2 Authentication of Transcript. The officers of the City are directed to furnish to Bond Counsel certified copies of this Resolution and all documents referred to herein, and affidavits or certificates as to all other matters which are reasonably necessary to evidence the validity of the Note. All such certified copies, certificates and affidavits, including any heretofore furnished, shall constitute recitals of the City as to the correctness of all statements. contained therein. 3.3 Authorization to Execute Agreements. The forms of the proposed Note, Loan Agreement, the Pledge Agreement, and the Disbursing Agreement are hereby approved in substantially the form heretofore presented to the City Council together with such additional details therein as may be necessary and appropriate and such modifications thereof, deletions therefrom and additions thereto as may be necessary and appropriate and approved by Bond Counsel and the City Attorney prior to the execution of the documents, and the Mayor and City Administrator are authorized to execute the Note, the Loan Agreement, the Disbursing Agreement and the Pledge Agreement in the name of and on behalf of the City and such other documents as Bond Counsel consider appropriate in connection with the issuance of the Note. In the event of the absence or disability of the Mayor or the City Administrator such officers of the City as, in the opinion of the City Attorney, may act in their behalf, shall without further act or authorization of the Board do all things and execute all instruments and documents required to be done or executed by such absent or disabled officers. The execution of any instrument by the appropriate officer or officers of the City herein authorized shall be conclusive evidence of the approval of such documents in accordance with the terms hereof. 3.4 Qualified Tax Exempt Obligation. In order to qualify the Note as a "qualified tax- exempt obligation" within the meaning of Section 265(b )(3) of the Internal Revenue Code of 1986, as amended (the "Code"), the City hereby makes the following factual statements and representations: (a) the Note is not treated as a "private activity bond" under Section 265(b)(3) of the Code; 1743229v4 5 (b) the City hereby designates the Note as a qualified tax-exempt obligation for purposes of Section 265(b )(3) of the Code; (c) the reasonably anticipated amount of tax-exempt obligations (other than obligations described in clause (ii) of Section 265(b)(3)(C) of the Code) which will be issued by the City (and all entities whose obligations will be aggregated with those of the City) during the calendar year 2005 will not exceed $10,000,000; and (d) not more than $10,000,000 of obligations issued by the City during the calendar year 2005 have been designated for purposes of Section 265(b )(3) ofthe Code. 3.5 Effective Date. This resolution shall take effect immediately upon adoption. Adopted by the City Council of City of Elk River, Minnesota, this 21 st day of March, 2005. Mayor Attest: City Clerk 1743229v4 6 CERTIFICATION BY CITY CLERK STATE OF MINNESOTA ) COUNTY OF SHERBURNE ) ss CITY OF ELK RIVER ) I, the undersigned, being the duly qualified and acting City Clerk of the City of Elk River, Minnesota, hereby certify that I have carefully compared the attached and foregoing Resolution No. with the original thereof on file in my office and the same is a full, true and complete transcript therefrom, insofar as the same relates to a Resolution Approving the Issuance and Sale of the City's Educational Facilities Revenue Note, Series 2005A (St. Andrew School Project) and Authorizing the Execution of Documents Relating Thereto. WITNESS my hand officially as such Clerk and the corporate seal of the City of Elk River, Minnesota, this day of March, 2005. City Clerk (SEAL) 1743229v4 7