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7.1. SR 05-21-2007 REQUEST FOR ACTION To Ci ,Council Agenda Section Administration Item Description Resolution Providing for the Sale of $3,135,000 G.o. Improvement Bonds, Series 2007C Meeting Date Ma 21,2007 Item Number 7.1. Prepared by Tim Simon, Finance Director Reviewed by Lori ohnson, Finance Director Reviewed by Action Requested Adopt the resolution providing for the sale of $3,135,000 G.O. Improvement Bonds, Series 2007C. Background/Discussion Public hearings were held on the Deerfleld and Irving Avenue 2007 improvement projects and subsequendy bids have been awarded for these two projects to Redstone Construction Co, Inc. In previous years, these projects have been funded through a combination of assessments, tax levy, and internal financing (street improvement reserve fund). These improvement projects ate significantly larger than previous improvement projects; therefore, staff is recorrunending using bond proceeds, funds from the Surface Water Management fund for the storm water improvements portion of the project and the Street Improvement Reserve fund. By using this combination of financing, the estimated tax levy impact for the next 10 years will be approximately $130,000 per year. Financial Impact These bond proceeds of approximately $3,135,000 will be repaid by annual tax levy and special assessments to the benefiting property owners. Attachments . Pre-sale report . Resolution Providing for the Sale of $3,135,000 G.O. Improvement Bonds, Series 2007C . Preliminary cash flow schedule . 2007 cash flow projection on the street improvement reserve fund Action Motion by _ Second by_ Vote Follow Up C\Oocument:; and Settings\jmiller\LocaI Settings\ Temporary Internet Files\OIK3E\2007C Pre-Sale,doc City of Elk River, Minnesota Pre-Sale Report May 21, 2007 O"~ ~er I Proposed Issue: $3,135,000 General Obligation Improvement Bonds, Series lOD7e Purpose: To fund Irving and Deerfield street projects pursuant to Minnesota Statutes, Section 429. Schedule: Council Authorizes Bond Sale: May 21, 2007 Conference with Rating Agency: May 30, 2007 Bond Sale: June 4, 2007 Estimated Closing Date: Week of June 25,2007 Term: The total tenn of the Bonds will be 10 years of payments with the first interest payment due on February \,2008, and principal due on February 1,2009, and each year thereafter with the final principal payment on February 1,2018. Call Feature: Due to the potential for prepayments of assessments over time, a shorter call date is recommended, with the Bonds maturing in 2014 and later can be called on February 1,2013. Rating, The Bonds are expected to be rated by Moody's Investors Service at an "AI" level. Funding Sources: Debt service will be paid with special assessments levied at a rate equal to 1.5% over the bond rate or approximately 5.75% and a property tax levy of approximately $130,000 per year. Most of the assessments are levied over 10 years with a portion of the Irving project levied and payable over 5 years. Capitalized interest will cover the first interest payment on February 1, 2008. Bank Qualification: The City expects to issue more than $10,000,000 in the calendar year 2007. Therefore, the Bonds will not be bank qualified. The difference between non- bank qualified and bank qualified debt is very small in today's marketplace. Discussion Issues: A portion of the assessments are used to cover costs of issuance. The City is assuming approximately 5% of the assessments will be prepaid, which reduces the bond size. Arbitrage Rebate: With increasing short~term investment rates, IRS rules regarding the amount of interest that the City may earn on bond proceeds is more of a concern. Because the issue is over $5,000,000, the City must spend proceeds according to an 18 month or 2 year schedule to avoid rebating or repaying interest earned that is more than the interest rate on the bonds. The excess interest earnings are known as arbitrage. The City will also need to keep its debt service funds within IRS parameters to avoid penalties on carrying too high of a balance during the life of the issue. Attachments: Sources and Uses of Funds Proposed Debt Service Schedule Ehlers Contacts: Financial Advisors: Bond Analysts: Mark Ruff (651) 697-8505 Sid Inman (651) 697~8507 Diana Lockard (651) 697-8534 Debbie Holmes (651) 697-8536 Connie Kuck (651) 697-8527 Bond Sale Coordinator: The Official Statement for this financing will be mailed to the Council Members at their home address for review prior to the sale date. RESOLUTION 07-_ Council Member introduced the following resolution and moved its adoption: RESOLUTION PROVIDING FOR THE SALE OF $3,135,000 G.O. IMPROVEMENT BONDS, SERIES 2007C WHEREAS, the City Council of the City of Elk River, :Minnesota, has heretofore detennined that it is necessary and expedient to issue the City's $3,135,000 G.O. Improvement Bonds, Series 2007C (the "Bonds"), to fund certain improvements to the City's infrastructure; and; WHEREAS, the City has retained Ehlers & Associates, Inc. in Roseville, 11innesota ("Ehlers"), as its independent fmandal advisor for the Bonds and is therefore authorized to solicit proposals in accordance with Minnesota Statutes, Section 475.60, Subdivision 2(9); NOW, THEREFORE BE IT RESOLVED by the City Council of Elk River, J\.finnesota, as follows: 1. Authorization: Findings. The City Council hereby authorizes Ehlers to solicit proposals for the sale of the Bonds. 2. Meeting; Proposal Opening. The City Council shall meet at City Hall on June 4, 2007, for the purpose of considering a resolution awarding the sale of the Bonds. 3. Official Statement. In connection with said sale, the officers or employees of the City are hereby authorized to cooperate with Ehlers and participate in the preparation of an official statement for the Bonds and to execute and deliver it on behalf of the City upon its completion. Tne motion for the adoption of the foregoing resolution was duly seconded by Council Member and, after full discussion thereof and upon a vote being taken thereon, the following Council Members voted in favor thereof: and the following voted against the same; Whereupon said resolution was declared duly passed and adopted. Passed and adopted this 21" day of May, 2007. Stephanie Klinzing, Mayor ATTEST Tina Allard, City Clerk > " o . . . o " o " o o ., . , . Q " o " . ~ :~ .. " z " . ~ " ~ iil - o '" c:; . ., ~" .. o , ", ! ' c" .. . , .. OS . , o . > . " . . , . . . . . < 0," o. . '" . ~-,...: <ri .. . . . g' E .~ 'E <( - 5 <: ,- . <" , -' . o. . p. E'" III ...11<( Kl:g,- lll:!:! ~ <" e . , o . > . " g,g 0' " "':","0" ,. - "! 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" o o . .:l .. . . ~ w ~ u . . ~ f ~ Street Improvement Reserve Revenues Interest Special assessments Other Revenue Landfill host fee Other Total Revenue Expenditures Deerfield Irving Avenue Capital Outlay Total Expenditures Revenues less Expenditures _I Actual 2006 132,087 2,438 168,712 32,703 335,940 206,342 206,342 129,598 Estimated 2007 117,594 100,000 150,000 367,594 600,000 400,000 1,000,000 (632,406) u:"j';;';;'''''''''!'irft'i''''Wiii''P''_'' ,,;w';"-><;:'i4s;"":;':"'lj'''' .; "h;,,,,h""""j' ""t",'0'''''!lj-' " *..--%~~,.""'."""~.,..", "'~,#:""""""">rh;':;,iii' . -"""""""'" 'qtn({''iG(,:.~._,,:,jIf/',... .' ..'" y,-",.,' .". ,~'~':" ,,,J:hng~~';rl:';m;-:~'i~',,,/L.,,_,,_ .._.-".,~~ Notes Interest earnings are estimated at 4%. S:\Council\Finance\2007CPre--Sale.doc