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Case #2 1987 GENERAL OBLIGATION TAX INCREMENT BOND ISSUE By: Sandra Ashley Helling, Finance Officer Background: Bob Thistle, Vice President of Springsted, Inc., the City's current financial advisor, has from time to time presented net savings information for crossover advance refunding of the City's General Obligation Tax Increment Bonds, Series 1987A. We have also received similar information from Monte Eastvold, Public Finance Advisor, Juran & Moody, Inc. Series 1987A is a $2,800,000 General Obligation Tax Increment Bond issued in 1987. It is a general obligation of the City for which the City pledged its full faith and credit and power to levy direct general ad valorem taxes, and tax increment income generated within the City's Development District No. 1. The proceeds were used to finance a well, water tower and sewer and water within the development district. The City may elect on February 1, 1996, and any interest payment date thereafter, to prepay Bonds due on or after February 1, 1997. If redemption is in part, those bonds remaining unpaid which have the latest maturity date (and for this issue the highest interest rate) will be prepaid first. The last payment date for this issue is in the year 2007. A refunding of this issue would result in a new issue call date in the year 2000 with prepayment available in 2001 and thereafter. Observations: Staff has reviewed the information received from both firms. Due to the decline in the municipal bond market interest rate, refunding the 1987A issue in the current market would offer present value savings of approximately $145,000. However, these savings are based on the assumption the City does not intend to prepay all or any portion of this issue. I have reviewed the forecasted 1993 - 1996 tax increment revenue and debt service payments scheduled for Development District #1, and based on this data alone, the City would be in a position to prepay $1 million and partially defease the 1987A issue. This prepayment would reduce the I/1/97 remaining principal balance from $2,495,000 to a $1,495,000 refunding. As I have used 1992 current tax increment revenue numbers, it is likely the prepayment could exceed $1.2 million. In addition, depending upon the interest earnings for the City's investments in the future, the City may choose to authorize an inter-fund loan from a trust or some other fund to provide full prepayment of the 1987A issue, jit~ But as no single bond issue should be looked at in isolation, staff and the Finance Committee should review all outstanding debt service, call dates and available or forecasted fund balances. An update on the financial status of the City's Tax Increment Financing and Development Districts should be included in this review. As the market is not expected to change significantly over the next few months, the time required for staff to provide this overall review should not adversely impact any refunding decisions that result from this review. Staff Recommendation: It is recommended that the Finance Committee schedule an outstanding indebtedness and tax increment review for the Finance Committee meeting of April 27, 1993. Committee Action: Based on discussion. Review Checklist: City Administrator Finance Officer FC: 03/09/93