Agenda - Council - 12/17/1991 - Laserfiche WebLink

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City of Ramsey, Minnesota December 12, 1991 would cover the term of the entire repayment period. Temporary bonds work very well with short assessment periods when the project proceeds as projected. Our main concern is for the financial impact on the City if the project does not work as expected. This is the third and most important reason for the use of temporary bonds (i.e. it provides flexibility). It is important that the City continue to have and to use development agreements, assessment agreements and where possible, Letters of Credit to insure the success of the financing. It is equally important to recognize the limitations of these agreements in the events of bankruptcy of the developers or of the lending institutions providing the Letter of Credit. In a worst case scenario, temporary bonds can provide up to six years to attempt to get the project on track and assessment income flowing. After that period long-term bonds would be required to take out the second temporary issue. A long-term issue could then be structured to meet the then contemplated revenue stream, or if no income is foreseeable, the City could then spread levies to repay the bonds over the term the City desires. City staff raised some concern for the issuance of temporary bonds and asked our recommendation on issuing bonds for the Wood Pond projects over a term of ten years to reduce the annual debt service requirements in the case assessment income did not come in as projected. We do not feel issuing the bonds over a longer term is in the best interest of the City. The yield on special assessments paid to the City are subject to federal arbitrage regulations. Thus, the structure of the debt repayment on the bonds must reasonably reflect the income stream the City expects to receive. Pursuant to the Development Agreement on Tax Increment District No. 5 the City expects to file assessments over a term of five years. Thus, a ten-year bond would not be reasonable under federal arbitrage regulations. It would be possible to issue bonds over a term of six or seven years, assuming some delinquencies, and still meet the federal arbitrage regulations. However, if assessments or proceeds of the Letter of Credit were not available in a timely fashion the City would still be responsible for substantial debt service payments. If assessments did come in over the five years as projected, the City could be in a position of losing money in later years since, under current market conditions, the rate of interest the City receives on monies accumulated in the debt service fund will be at a rate lower than the interest rate on the bonds. In summary, it is in the City's best interest to issue temporary bonds now and wait to structure definitive bonds when the actual progress of development in Tax Increment District No. 5 becomes more apparent. The composition of the issue is as follows: Project Costs of Phase I* Plans and Specifications Engineering Construction $ 53,570 136,425 1,254,482 Subtotal Plus: Capitalized Interest {to 10-15-92) Costs of Issuance Allowance for Discount Bidding Less: Investment Earnings $1,444,477 50,000 21,1 30 13,725 {4,332) Total Bond Issue $1,525,000 * Includes a substantial portion of the costs for Phase L Capitalized interest in the amount of $50,000 has been included to cover interest due from the dated date of the bonds (February 2, 1992) to the anticipated October 15, 1992 filing date of the assessments. Special assessments will first be collected in 1993. To make the February 1, Page 2