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HomeMy WebLinkAbout11-06-13 Finance Commmittee MinutesDUBLIN CITY COUNCIL FINANCE COMMITTEE MEETING Wednesday, November 6, 2013 Council Chambers Minutes of Meeting Ms. Chinnici - Zuercher, Chair, called the meeting to order at 6:00 p.m. Finance Committee members present: Ms. Chinnici - Zuercher, Mr. Gerber and Mr. Keenan. Staff present: Ms. Mumma, Mr. Thurman, Ms. Grigsby. Ms. Mumma noted that she has a few slides to present with information regarding the bond legislation (Ordinances 87 -13, 88 -13, 89 -13 and 90 -13) that was introduced on November 4, 2013. She introduced the financing team: Patrick King of Stifel Nicolaus, the underwriter; Chris Franzmann, bond counsel, Squire, Sanders & Dempsey; and Brad Sprague, financial advisor from Prism Municipal Advisors. She noted that Ordinance 87 -13 issues up to $12 million in principal for the construction of Emerald Parkway Phase 8. This would be amortized over 20 years, and payment is anticipated from the Kroger and McKitrick Tax Increment Financing Districts. As stated in previous memos, the project is out to bid and will be awarded in the upcoming weeks. Staff would expect, based on this timeframe, that construction will be an 11- month process and will have monthly drawdowns. Presumably, within the next 12 months, those bond funds would be spent. Ordinance 88 -13 issues up to $9 million for the design and right -of -way acquisition related to the I- 270/33 interchange improvements. Because this portion is simply for the design and right -of -way acquisition, it will be amortized over 10 years as opposed to the typical 20 years for roadway construction projects. Repayment is expected to be made from the Ruscilli and Upper Metro Tax Increment Financing Districts. In terms of the timeline, the City has already paid out $3,053,000 to the Ohio Department of Transportation. Those funds were advanced from the General Fund earlier this year. Based on discussions with ODOT, staff is expecting that the balance of approximately $5.5 million will be due the end of 2013 or early 2014. She noted that there are many pieces to this project, and this is the current estimate of when payment is expected. Ordinance 89 -13 issues up to $5.75 million for land acquisition costs associated with the Riverside Drive /State Route 161 improvements. This would be amortized over 20 years and repayment is expected from the River Ridge and future Bridge Street Tax Increment Financing Districts. However, until those are established and revenue generated, that would be repaid from the Capital Improvement Tax Fund. Council has authorized two ordinances related to these land acquisitions. In June 2013, $3.3 million was paid for the purchase of 5.1 acres at Bridge Pointe, and $2 million is expected to be paid by June 2014 for the Wendy's restaurant acquisition. Finance Committee of Dublin City Council October 14, 2013 Page 2 Ordinance 90 -13 authorizes up to $12.5 million to refund the existing Build America Bonds. In order to match the amortization schedule that was previously established when the bonds were issued in 2009, that relates to a 16 -year repayment schedule. Staff is anticipating that the City will continue to repay those bonds out of the Capital Improvement Tax Fund for the Central Ohio Innovation Corridor interchange; the Water Fund for the water component of those bonds; and the Sewer Fund for the sewer component. Those current bonds have an interest rate of 3.63 percent and the anticipation is to replace them at an interest rate just below 3 percent. The present value savings at the time the numbers were run by Stifel Nicolaus as of October 31 reflected a savings of approximately $525,000 or nearly 4.5 percent savings. Council had requested information regarding the direct debt limitations and indirect debt limitations. The Ohio Revised Code provides that the voted and unvoted net general obligation debt of the City shall never exceed 10.5 percent of the total assessed valuation of the City. There is a further stipulation that the unvoted net debt of the City cannot exceed 5.5 percent of the total assessed valuation. The City's current assessed valuation is $1.9 billion, which results in a 10.5 percent limitation of $205 million and a 5.5 percent limitation of $107 million. Therefore, for conservation purposes, staff looks at the $107 million, since it is the lower of the two numbers. Within the context of what the City currently has outstanding, the total outstanding debt of the City as of December of 2012 is $48.7 million. If the OPWC and OWDA loans are excluded from those debt limitations, and because of the fact that all of the City's unvoted general obligation debt is categorized as exempt in terms of the 5.5 percent limitation, the City actually has the full $107 million still available. Pursuant to the ORC, anything that is paid for from income tax revenues, TIF revenues, special assessments or the like are considered exempt. So the City has no debt on its books that is currently subject to that 5.5 percent debt limitation. The City does have voted debt — and that is taken into consideration when looking at the 10.5 mill limitation. The 5.5 limitation just pertains to the unvoted general obligation debt of the City. Ms. Grigsby stated that the approval for the debt was from 1990 and 1991. There were three separate series — one was transportation, one was the community recreation center, and one for facilities that was used initially for the Justice Center. In 1995, the voters approved voted debt for the Rec Center at the ballot. Similar to what Columbus does, having this on the ballot provides the authority to issue the voted debt in the event that income tax revenues are not available for repayment; in such case, it would fall back on the property tax. When the City requested the voted debt authority, it was because there were restrictions based on assessed valuations. The City had more revenue to pay for it, but was limited by the ORC limitations. Ms. Chinnici - Zuercher asked if these voted debts remain on the books. Ms. Grigsby responded that some of these are still on the books. Mr. Keenan added that such issuances are typically 20 years. The City has not done any voted debt since the 1990s. As he reviewed the prior slide regarding the Build Finance Committee of Dublin City Council October 14, 2013 Page 3 America Bonds, it is noted that the City will save over $500,000 over the term of that bond issue. It begs the question of how much total interest is being paid over that period and how much is the City receiving from the investment income side. Ms. Grigsby stated that these are the considerations evaluated. Staff also evaluates trying to match the debt service payments against the parties who benefit from the project. For a major roadway, it makes sense to pay for it over a 20 -year period. Much of the debt the City issues relates to Tax Increment Financing (TIF) projects, and when those revenues come in, the debt payment is structured so that they match or are slightly less than the revenues generated. Mr. Keenan asked if the debt repayment period would ever exceed the TIF period. Ms. Grigsby responded that there has not been such a case to date. Ms. Mumma noted that there is a page in the operating budget listing the current outstanding debt, the principal and interest for the year. She noted that for the indirect debt limitation, it stipulates that for any of the overlapping entities within any jurisdiction — whether Franklin County, Union County or Delaware County — who can issue debt, the aggregate debt payment cannot exceed over 10 mills of the real property taxes to pay the debt service. In looking at the most conservative number, which is the Delaware County limitation, even after taking into consideration what the City is proposing, there is still over $95 million of capacity from that standpoint as well. Ms. Chinnici - Zuercher commented that the issue is not what the City could do but making sure that whatever the City does choose to do is affordable — that it will not result in a future financial hardship. Ms. Mumma agreed. The limits are good discussion points, but the City still has to ensure it has the ability to make the payments going forward. Of the 25 percent of income tax revenue that goes into the Capital Improvements Tax Fund, the City allocates 60 percent toward the retirement of debt. What funds of that 60 percent are not needed has been available to fund cash projects. The City also reviews the recommended maximum amount that could be supported under those situations. She shared a slide depicting the projections for income tax over the next five years. This demonstrates the amounts used to retire debt each year. At the time of preparation of the Five -Year CIP, staff projects the 2014 — 2018 debt payments, if the debt proposed were to be issued. The City was looking at $44 million needed in 2015 related to some of the Bridge Street projects. Given the debt service allocation from the income tax revenues, once the debt payments are met, there remains a surplus which can be used to cash fund projects. The City is not spending all of the money set aside for debt to meet the debt service obligations. Mr. Keenan asked about the Post Road interchange project at $42 million, which is not in the Five -Year CIP. How does that interface with these numbers? Finance Committee of Dublin City Council October 14, 2013 Page 4 Ms. Mumma responded that the City continues to set aside $500,000 each year in debt service in anticipation of those interchange expenses. This would fund about $12.5 million of debt service. Ms. Grigsby clarified it would be approximately $600- 700,000 for debt service, and there are property tax revenues allocated for that as well. When the Post Road interchange project was taken out of the Five -Year CIP, $500,000 each year was reserved. If the project was not done and the debt not issued, the City would have those dollars to fund additional cash projects. Ms. Mumma stated that since the economic downturn, transfers into capital project funds have not been incorporated in the budget. Staff reviews the resources in the Capital Improvements Tax Fund, income tax revenue advances, service payments, debt proceeds from other sources to determine how to finance the projects brought forward in the CIP document. An evaluation is made about projects that have benefit long term and that produce revenue streams over the next 20 -30 years — such projects would be appropriate for debt issuance. Ms. Mumma stated that the major project section in the CIP lists projects funded with cash as well as other sources. Mr. Keenan asked if the Build America Bonds count against the City's debt capacity. He believes there are some Stimulus funds that do not count against it. Ms. Mumma responded that they do count toward it. Mr. Franzmann stated that for state law purposes, any debt that the City incurs is generally subject to those debt limitations. There are exceptions, such as OWDA, OPWC borrowings that do not count against the debt limit. OAQDA borrowings are not at the local level, so the debt limitations for municipalities are different from the limitations for school districts, for townships, for state level agencies. Mr. Keenan stated that Ohio Air Quality has done City issues and has been told it does not count against debt capacity. Mr. Franzmann clarified that it depends on the type of borrowing. Mr. Sprague added that for some of the borrowings for energy conservation done through OAQDA, if a City is pledging their general obligation behind the issuance, then it counts against the general obligation limitations. But some of those borrowings are done without a general obligation pledge of the City — a non -tax revenue pledge or other specific revenue source — and so it does not count against the limitation. Ms. Mumma stated that, based on the projections for 2013 revenue and expenditures, staff expects that the General Fund balance at the end of the year will be approximately $50.5 million, which is an 87.5 percent reserve level. In 2014, given conservative estimates of revenue and realistic estimates of expenditures, staff expects the General Fund balance to be at approximately $49.7 million or 80.6 percent. This is important information in the context of the discussion this evening. Mr. Gerber asked for clarification about excluding advances. Finance Committee of Dublin City Council October 14, 2013 Page 5 Ms. Mumma responded that the General Fund advances monies to other areas, and these advances are excluded from expenditures when looking at it in comparison to annual expenses. For example, through October 31, the General Fund has advanced $6.4 million to other capital funds in order to advance projects. Ms. Mumma shared a slide that shows the Emerald Parkway refunding now and later, and the costs of not doing this now. The anticipated interest rate on this debt issuance is 2.93 percent. Currently, the estimated interest earnings are approximately 1.5 percent. The net outflow is therefore 2.78 percent. In looking at the Emerald Parkway construction, the average life of the construction is 5.5 months. If the City pays 2.78 percent on $12 million for 5.5 months, that cost is about $153,000. Staff looks at that in terms of the interest rate risk. For each .01 percent in additional interest rate that occurs, it equates to about $10,000. Therefore, if the interest rates fluctuate between now and next year by 15 basis points, that cost of $150,000 goes away. Staff began having discussions in February/March about refunding the Build American Bonds. At that time, the savings were hundreds of dollars. Mr. King and his group did an analysis to determine what change to the interest rate would be needed in order for the savings not to exist anymore. At that time, it was approximately 95 basis points. No one predicted that interest rates would increase a full percent, but they did. There was a time two months ago where there would be no savings, based on the interest rate environment at that time. Now, rates have come back down. The slide provides a perspective on that. Ms. Mumma noted that she has the cost of issuance information that was requested by the Committee's request. (She distributed this information.) With the 2012 series, the City's costs as a relative percentage were higher. It is a factor of economy of scale. The more bonds issued, the less the costs are. Members of the team can respond to any specific questions regarding costs. Mr. Keenan noted that the length of the projects are all under 12 months, is that correct? Ms. Mumma responded that is the estimate at this time. Ms. Chinnici - Zuercher asked if the land acquisitions necessary for Emerald 8 have been completed. Staff responded they have been. Ms. Chinnici - Zuercher asked if Emerald 8 will complete the parkway all the way to Sawmill Road. Mr. Hammersmith responded affirmatively, noting that this portion includes the crossing of Billingsley Creek. The advertised completion date for the project is November 20, 2014. It is not a complicated project, as the majority of construction is through an open field. The only complicated portion is the connection to Bright Road. Ms. Chinnici - Zuercher asked Council members if they have any additional questions for staff. It is important for the Emerald Parkway project that these bond issuances move forward. Finance Committee of Dublin City Council October 14, 2013 Page 6 Ms. Mumma clarified that the Emerald 8 project will move forward, regardless of whether or not the bond issuance is done. There are funds available in the General Fund to advance for the project, if that is necessary. However, staff wanted to take advantage of splitting the bond issuances into two pieces, which brings more favorable tax treatment. Based on the rates and the time of year, staff believes it is an appropriate time to do these. Mr. Keenan asked about the lock -in for interest rate — is it 10 days prior to the issue? Mr. Sprague responded that the offering documents cannot be circulated until Council approves the bond ordinances. After the ordinances are approved, the rates can be locked in for a period of 7 -10 days thereafter. Mr. Keenan asked if action can be taken on the ordinances tonight at the budget meeting. Ms. Grigsby responded that Council can consider these at the November 18 meeting, as they are advertised for second reading /public hearing at that time. Mr. Gerber stated that the Committee can make a recommendation regarding the bond ordinances for the November 18 hearing. Mr. Sprague added a comment about speculation on interest rates. The interest rates were at historic lows until May of this year. At that time, the Federal Reserve announced they would begin to taper their quantitative using program of buying treasuries in the open market. They currently buy about $85 billion per month. The Federal Reserve indicated that as the economy hit targets they set -- and they expected that to occur by September — the Federal Reserve would begin lowering their purchases. The market heard that and reacted with an interest rate increase. As the Federal Reserve lowered their purchased amount, the supply of securities in the market increased, forcing rates up. As usual, the Federal Reserve targets were not attained in terms of growth in the economy and so they indicated they will continue their purchases for several more months. For that reason, interest rates began to decrease. The consensus is that -- sooner or later -- over the course of the next 12 months, the Federal Reserve will begin to back off their purchases and as they do, the interest rates will climb. Mr. Sprague also responded to a previous Council question about negative arbitrage — paying out more than is being earned. In this case, funds are being spent quickly. The interest rate is paid for 20 years, while the negative earnings are for the next 6 -12 months. From his perspective as an adviser, it is still an excellent time to enter the market and it should be done as quickly as possible. Mr. Keenan asked them to share information prior to November 18 about the interest rate target as of this meeting and as of November 18 when the ordinances are voted upon, and whether it will have changed. Mr. Gerber stated that the rates being discussed are long term and will still be considered good rates over that time period. Finance Committee of Dublin City Council October 14, 2013 Page 7 Mr. Gerber asked about the bond related to Riverside Drive. How many more bond issuances are expected over the next 12 -24 months — whether for land acquisition or other purposes associated with the Bridge Street District? Perhaps this should be discussed at a future Bridge Street workshop. Ms. Grigsby responded that, currently, in the CIP, the four major projects identified for the District will involve issuing debt. Anytime debt is issued, staff continues to evaluate how much is needed and by when. In 2015 when the City prepares to do these projects, and if there are additional dollars available at that time, less debt may be issued than what is projected today. Other projects will come on line and the City will likely issue debt for those. Some of those could be supported through future TIF districts that may be created. Every year, these evaluations are done — particularly in the CIP process and the operating budget process. There will be additional debt issues for these projects. The total cost of the four projects is in the range of $34 -35 million. Looking at the current outstanding City debt of $49 million plus, and even with adding the projected debt over the next few years, it is still less debt than the City had 10 years ago. The level of debt at this time is relatively low compared to the resources available to retire the debt. Each year, it is a balancing act of whether or not to issue debt. The 2014 capital budget includes $27 million of projects funded on a cash basis. Cash is used to fund projects much more often than debt is used. Mr. Gerber stated that he understands the needs in the Bridge Street District. He wants to make certain that there are adequate resources to take advantage of any opportunities that arise for the City in the future. Ms. Grigsby agreed, noting that staff regularly evaluates this. Mr. Keenan moved to recommend passage of the four bond ordinances to Council. Mr. Gerber seconded the motion. Vote on the motion: Mr. Keenan, yes; Mr. Gerber, yes; Ms. Chinnici - Zuercher, yes. The Finance Committee was adjourned at 6:42 p.m. Clerk of Council