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EHLERS LEADERS IN PUBLIC FINANCE 0 To: :!: From: W Date: :E Subject: Diana Lund, Finance Officer Jessica Cook and Mark Ruff February 20, 2008 Proposed Refunding of Savannah Oaks Senior Housing Bonds (City of Ramsey) The City of Ramsey and the Anoka County HRA have preliminarily agreed to refund the bonds for the Savannah Oaks Senior Housing development. As part of the proposed refunding, Anoka County will provide the general obligation pledge for the bonds, releasing the City from their current general obligation pledge. The purpose of this memo is to discuss the use ofHRA levy proceeds to reduce the size of the refunding bonds and improve the project cashflow. Backe;round Savannah Oaks was initially financed with two bond issues: the City of Ramsey's $1,195,000 General Obligation Tax Increment Bonds, Series 1999A and the Anoka County HRA's $3,000,000 Housing Development Revenue Bonds, Series 1998 (City of Ramsey Unlimited Tax General Obligation). Since the project was built, operating expenses have increased faster than the 3% rent increases instituted by the HRA Board of Trustees, resulting in annual operating deficits since at least 2003. The 2008 revenue shortfall is expected to be $55,000. These annual shortfalls have been and will continue to be paid with the annual HRA levy collected in the City of Ramsey. In 2007, the annual levy was approximately $103,000. Equity contribution to promote lone;-term affordabilitv The proposed refunding will reduce the annual shortfall by an average of $8,000 per year, or from $55,000 to about $47,000 in 2008. In addition, the Anoka County HRA Board of Trustees has directed staff to explore the option of using a portion of the HRA Levy cash balance to reduce the par amount of the bonds, further reducing projected annual deficits. The HRA Trustees' goals are to promote long-term financial stability for the project, reduce future need to increase rents more than 3% annually, and maintain long-term affordability for residents. On December 31, 2007, the accumulated HRA levy cash balance designated for use in the City of Ramsey was $729,093. We understand that $400,000 of that has been reserved for another project, leaving $320,000 available to potentially make an equity contribution to Savannah Oaks. Reducing the refunding bonds by $320,000 will produce average additional savings of $20,000 - 1 - Ehlers & Associates Inc. 3060 Centre Pointe Drive Roseville, MN 55113-1105 Phone: (651) 697-8546 Fax: (651) 697-8555 jcook@ehlers-inc.com