Agenda - Council - 02/22/1983 - Laserfiche WebLink

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! ! At the present time most potential refunding issues could pass these two tests. However, federal arbitrage regulations may pose a more formidable obstacle to large scale interest savings, due to yield restrictions on those investments mode in the escrow account from proceeds of the refunding bands. In general, those arbitrage regulations restrict the reinvestment yield to the true interest cost on the refunding bonds, thus making it difficult to save large interest amounts which might be assumed available when you refund I1.00% bonds with 9.00% new bonds. However, there are some techniques which can be used to increase investment yields, particularly if the issuer can finance some of the front end costs. Those costs will vary, and are recoverable, over time.' If you would like to discuss the refunding potential of some of your 1981-1982 issues, S-I can perform a preliminary analysis of the refunding feasibility. There may be some other justification for refunding in addition to interest savings. In some cases cities may want to extend maturities on issues which were arbitrarily shortened because of market conditions during the past 20, months.- In other cases, a refunding might eliminate onerous covenants. Tax Anticipation Certificates As indicated a number of the State's larger school districts ore finding it necessary to issue these certificates. Cities also have this authority, although charter cities may have different authority than Statutory cities, and in some cases may have no such authority. Statutory cities have the authority granted by MSA 412.261, which permits their sale at any time after the first day of the year, in an amount not to exceed the total of all uncollected taxes at the time of issuance. The certificates must be due and payable not later than April I of the year following issuance. Federal arbitrage regulations will further limit the total value of permitted certificates to the largest combination of a single month's projected deficiency plus the next month's projected expenditures. Since these certificates can currently be sold from 5.0% to 6.5%, there can be a reinvestment gain. As a result there may be merit in their issuance even though your projected monthly cash deficits can be managed by temporary transfer from surplus funds. Should you wish to discuss the issuance of certificates in more detail we have developed some computer models which aid in making the arbitrage calculations and determining gain or loss from the sale, based on input from you on your cash flow requirements. Year in Retrospect We think you will agree that 1982 was o year of uncertainty, and the precursor of great change in government finance. It was a year of extraordinary volatility in credit markets, and one in which a number of new debt financing techniques appeared or reappeared. These new techniques included zero coupon and deep discount bonds, and while those programming concepts have lost, at least temporarily, much of their initial attractive- ness, it is clear that continuing variations of older, well established marketing concepts will continue to be presented to issuers. It is also clear that resources for the payment of both operating and capital costs will be at a premium and difficult decisions will need to be made as to community priorities. It will be a time of frustration, which will make it even more difficult to attract and retain the highly qualified administration and policy making individuals we have tended to take for granted in Minnesota. The relationship between units of government will also change. We anticipate municipal units will see a return to greater local control of finance and service levels, at the price of great accountability. We think this change will be welcomed by most, though it may require some traumatic adjustments. Based on our knowledge of Minnesota municipal government we are confident you will make those adjustments. We pi.edge that during this ~.,..,.~.period of change we will do our utmost to continue to attract and retain the quality of ... staff necessary to assist in making your job easier when called upon.