Agenda - Economic Development Authority - 02/02/2005 - Special

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Under current law, the maximum principal and interest on the bonds may not exceed 0.05367% of the taxable market value in the county. This limit would support a bond issue of about $163M based upon an issue maturing over 20 years at 4.25%. While the statute currently refers to the percentage of market value in the county, the Minnesota legislature is expected to revise that limit to .16% of market value in the City. This revised limit would support a bond issue of about $32M based upon an issue maturing over 20 years at 4.25%. O A capital improvement plan must be developed and approved by the City after a public hearing. The capital improvement plan must cover various cost, needs and revenue considerations as outlined in MSA 410.326 subdivision 3. The bonds would only be subject to a referendum if the City received a petition calling for a vote on the issuance of the bonds. The petition must be signed by voters equal to 5% of the votes cast in the City's last general election within 30 days after the public hearing. Under either General Obligation Bond financing scenario, it will be necessary for ownership of the facility to be in the City and in the case of a Lease Purchase Revenue Bond, ownership would be with the EDA or /-IRA. Preliminary Cost Comparison - A lease revenue bond for a City Municipal Center will currently yield approximately .10% higher interest rates than a general obligation bond for a City Municipal Center because of the increased risk due to possible non - appropriation. The spread would be greater for an asset that is less essential. In addition, a lease revenue bond will carry higher costs of issuance / closing costs. Below is an estimated cost comparison. City Municipal Center Only City Municipal Center & Ramp (15.8M + costs) ($17.1 + costs) General Lease Difference General Lease Difference Obligation Revenue : Obligation Revenue Net Debt $25,265,135 $25,878,517 $613,382 $27,348,930 $27,996,870 $647,940 Service P.V. @ $19,087,971 $19,255,868 $167,897 $20,660,370 $20,832,088 $171,718 2.5% The Municipal Bond Market - Traditionally, from a supply and demand perspective, January and February is a very favorable time tO issue bonds because there are not many issuers in the market. In addition interest rates, particularly short-term rates, have been increasing over the last year because of favorable economic news in general Therefore the sooner the project financing amount can be defined the sooner the City can enter the market and perhaps 'take advantage of the window we currently have to lock in long term low interest rates.