3.0. SR 06-01-1993
ITEM 3.
.
I
r
TO:
MAYOR & CITY COUNCIL
FROM:
LORI JOHNSON, FINANCE DIRECTOR
DATE:
MAY 26, 1993
SUBJECT: LIBRARY EXPANSION FINANCING
During the Library Annual Report presentation, there was considerable discussion about
the Library Expansion Project. I have met with the LibraI)' Board on two occasions to
discuss financing the expansion. The Board is now ready to make a presentation to the
Council on a financing proposal for the expansion.
At the Library Board meetings, several options for financing the Library Expansion were
discussed: General Obligation bonds could be issued if a referendum was approved for the
expansion. A lease purchase could be entered in to similar to the agreements for the
Public Works building and the Fire Station. Lastly, General Obligation Tax Increment
bonds could be issued. Of the options presented, it was agreed that issuing General
Obligation Tax Increment Bonds was the preferred financing method because of the lower
interest rate on the bonds.
There are several factors in issuing GO Tax Increment bonds of which the Council needs
to be aware. First, in order to qualify as Tax Increment bonds, 20 (twenty) percent of the
principal and interest of the debt needs to be paid from tax increments. The City Council
needs to give approval to the use of tax increment for this purpose. An amendment to Tax
Increment Financing districts one and three would need to be approved to authorize the
issuance of debt and to pledge increments to service the debt.
The second and more important issue relates to whether the Library Fund's current annual
resources could fund the issue. If the project can be completed for $500,000, the actual
amount to be financed would be approximately $358,000 after considering available cash
and issuance costs. Given this issue size, it is possible to meet the debt service
requirement if the annual Landfill Tax and Reserve for Capital Outlay are both dedicated
to the repayment and ifboth remain consistent with current levels. See page two of this
memo for the current financing assumptions.
Representatives from the Library Board will be present to discuss the expansion project
and to request Council authorization to continue work on the expansion.
P.o. Box 490 · 13065 Orono Parkway 0 Elk River, MN 55330 e (612) 441-7420 · Fax: (612) 441-7425
Library Expansion Financing
Page 2
ASSUMPTIONS:
Project cost
Cash Avail. 12/31/93
Amount to be Financed
Issuance Costs
Bond Issue
$500,000
160,000
340,000
18,000
$358,000
Term - 20 years
Interest Rate - 6.25% for estimating purposes only; this is subject to
change either up or down at any time.
Tax Increment Pledge - 20% of total debt service (approximately
$127,000)
Annual Debt Service
2=-$3 1,800
Annual Revenue Available $31,700
(this assumes that revenue sources remain constant)
When reviewing this information, it is important to understand that there are many
variables in these projections that could significantly change these estimates.