5.1. SR 04-05-2010Item # 5. I .
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MEMORANDUM
TO: Mayor and City Council
FROM: Tim Simon, Finance Director
DATE: April 5, 2010
SUBJECT: Presentation from Mark Ruff, Ehlers and Associates on Bond
Rating and Results of Bond Sale
Mark Ruff from Ehlers and Associates will be at the City Council meeting to review the
recent bond rating upgrade and the results of the bond sale conducted on March 24, 2010.
On March 18, 2010 Standard and Poor's assigned its AA+ rating to the City of Elk River. I
have attached the complete report received from Standard and Poor's. This is a significant
accomplishment for the City. Listed below are a few highlights from the rating report.
• Access to the deep and diverse Minneapolis-St. Paul and St. Cloud, Minn.
Metropolitan economies;
• Favorable economic indicators, reflecting strong income levels and extremely strong
market value per capita;
• Maintenance of very strong reserves, couple with conservative and strong financial
management policies that include long-range budget and capital plans; and
• Moderate debt burden.
On March 24, 2010 the pricing committee met and approved awarding the bond sale to
Fifth Third Bank. A total of nine bids were received. In addition, Fifth Third Bank paid a
premium of over $300,000 so we were able to change the bond size. The true interest cost is
2.878 percent and the savings will be $325,735.03 over the life of the bonds.
Next steps
The EDA will approve the bond documents at the April 12 meeting and the Utilities
Commission will approve the changes to the sublease of the City Hall space at its April
meeting.
Attachments
• Standard and Poor's rating report for the City of Elk River dated March 18, 2010
Summary:
Elk River, Minnesota; General
Obligation
Primary Credit Analyst:
Linda Merus, Chicagoj1-312-233-7017; lnda_merusC~3standardandpoors.com
Secondary Credit Analyst:
Justin Formas, Chicago (312) 233-7032; Justin_formas@standardandpoors.com
Table Of Contents
Rationale
Outlook
Related Criteria And Research
www.standardandpoors.com/ratingsdirect
Summary:
Elk River, Minnesota; General Obligation
• s e
US$7.8 mil GO cap imp plan bnds ser 2010A dtd 04/21 j2010 due 02/01/2023
Long Term Rating AA+/Stable New
Rationale
Standard & Poor's Ratings Services assigned its 'AA+' rating, and stable outlook, to Elk River, Minn.'s series 2010A
general obligation (GO) capital improvement plan bonds.
In our opinion, the rating reflects the city's:
• Access to the deep and diverse Minneapolis-St Paul and St. Cloud, Minn. metropolitan economies;
• Favorable economic indicators, reflecting strong income levels and extremely strong market value per capita;
• Maintenance of very strong reserves, coupled with conservative and strong financial management policies that
include long-range budget and capital plans; and
• Moderate debt burden.
Officials plan to use series 2010A bond proceeds to refund the 2011-2023 maturities of the city's series 2002A and
2002B bonds outstanding for interest cost savings. The city's full faith and credit GO pledge secures the series
2010A bonds.
Elk River, the seat of Sherburne County, covers 43.8 square miles approximately 30.0 miles northwest of the
Minneapolis-St Paul metropolitan area and 38.0 miles southeast of St Cloud. The city's population has increased by
45% since 2000 to a current estimate of 23,888. Management has stated that although residents commute into the
Minneapolis-St. Paul and St. Cloud metropolitan areas for employment, the city also draws commuters from
surrounding communities due to the employment opportunities offered by a number of small companies in the city.
Along with access to Interstate 94, residents can also commute into downtown Minneapolis via the city's Northstar
commuter rail station. Leading city employers include:
• Elk River Independent School District No. 728 (1,991 employees);
• Sherburne County (626);
• Wal-Mart Stores Inc. (425); and
• Guardian Angels of Elk River (207), a nursing home.
County unemployment averaged 9%, as of December 2009, above the state's rate but below the nation's rate.
Income levels are a strong 127% of the nation's median household effective buying income. Taxable market value
increased by an average of 10.1 % annually between fiscals 2004 and 2008 to $2.3 billion. Indicated market value, a
better representation of area market prices, was $2.4 billion, or, in our opinion, an extremely strong $101,706 per
capita. Residential properties account for 56% of the property tax base while commercial and industrial properties
account for 29%. The tax base is very diverse with the 10 leading taxpayers accounting for 11% of net tax capacity.
The city's good financial management practices have contributed to a strong financial profile, including consistently
Standard & Poor's ~ RatingsDirect on the Global Credit Portal ~ March 18, 2010 2
Summary: Elk River, Minnesota; General Obligation
high reserves. Over the past three years, general fund reserves have ranged between 45% and 48% of expenditures,
which adheres to the city's policy of maintaining an unreserved general fund balance of at least 40% of
expenditures. As of fiscal year-end Dec. 31, 2008, the city had a $5.2 million unreserved fund balance, o~ in our
opinion, a very strong 45% of expenditures. During fisca12008, the city reported a drawdown of $161,000, which
management attributes mainly to the unallotment of $467,000 of state aid. The city was unallotted $393,000 of
state aid in fisca12009; but due to conservative budgeting and several steps taken by management to offset the state
aid reduction, the city expects to report an approximately $400,000 surplus. For fisca12010, management has taken
numerous measures to become less dependent on state aid revenues; it has budgeted for no local government aid and
an unallotment of $221,000 of market value homestead credit. City officials are projecting to end the year with at
least break-even operations for fiscal 2010.
The city has additional reserves in its liquor fund, providing about $3.4 million of cash assets, available for the
general fund. Officials annually transfer about $248,000 into the general fund from the liquor fund; they planned to
make that transfer in 2009. The city also annually transfers approximately $200,000 from its electric fund; it
planned to make that transfer in 2009. Property taxes (78%) are the city's leading revenue stream while
intergovernmental aid (8%) accounts for most of the remainder.
Standard & Poor's considers Elk River's management practices "good" under its Financial Management Assessment
(FMA) methodology, indicating financial practices exist in most areas but that governance officials might not
formalize or regularly monitor all of them. Highlights of these policies include monthly reports to the city council on
budgeted numbers compared to actual performance; the council can amend the budget, as necessary. Management
maintains along-term financial and capital plan. The city maintains an adopted investment and debt management
policy. The city-adopted reserve policy requires it to maintain a general fund unreserved balance of at least 40% of
expenditures for cash flow purposes.
In our opinion, the city's overall debt burden, excluding self-supporting utility debt, is a moderate $4,528 per capita,
or 4.5% of market value. Carrying charges were an elevated 16.4% of total governmental expenditures less capital
outlay in 2008. Debt amortization is above average with officials planning to retire 64% of principal over 10 years.
The city might issue less than a million dollars in debt for street improvement projects in 2010.
Outlook
The stable outlook reflects Standard & Poor's expectation that Elk River should continue to maintain very strong
financial reserves and take the necessary steps to adjust its budget in anticipation of potential local governmental aid
reductions. We also expect the city to continue its extensive planning and good financial practices. The stable
outlook also reflects the city's access to the St. Paul-Minneapolis and St. Cloud metropolitan areas.
Related Criteria And Research
USPF Criteria: GO Debt, Oct. 12, 2006
Complete ratings information is available to RatingsDirect on the Global Credit Portal subscribers at
www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this
rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings
search box located in the left column.
www.standardandpoors.com/ratingsdirect
Summary: Elk River, Minnesota; General Obligation
Standard & Poor's ~ RatingsDirect on the Global Credit Portal ~ March 18, 2010
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