COUNCIL COMMUNICATION
TO: Honorable Mayor and Council
FROM: Tabatha Miller, Administrative Services Director
SUBJECT:Title
Adopt Resolution No. 16-3096 Authorizing the City to Borrow up to $12,225,000 from an Arizona Bank in the Form of a Loan to Finance Certain Street Improvements, Wastewater Projects, Parks and Recreational Facilities’ Improvements, Airport Improvements and Other General Projects and Acquisitions; Authorizing the Execution and Delivery of a Loan Agreement Setting Forth the Terms of the Loan and Providing for the Repayment Thereof; Pledging the City’s Excise Tax Revenues as Security Therefore; Authorizing the execution of a Placement Agent Agreement and other Necessary Agreements; and Declaring an Emergency
Body
FUNDING SOURCE:
Various Departments
PURPOSE:
To authorize the City to borrow up to $12.25 million in the form of a bank loan to fund capital projects and acquisitions as a means to exclude the expenditures from the State imposed Expenditure Limitation. The Resolution also authorizes the Mayor, City Manager and Administrative Services Director to select the Arizona Bank offering the most advantageous terms and execute the necessary loan documents, so long as the interest rate including fees and costs does not exceed 3.0% per year and the loan is for a period no longer than five years.
BACKGROUND:
During the budget work sessions and at the City Council meetings in which the Fiscal Year (FY) 2016-17 budget was discussed and adopted, staff introduced the impact of the State-Imposed Expenditure Limitation on the City’s ability to budget and spend available revenue and resources. The Expenditure Limitation caps the amount municipal governments can expend in any year to the revenues received in FY 1979-80, adjusted annually by population change and inflation.
Total City spending will exceed the Expenditure Limitation and will deplete the reserve of prior year revenues exempted from the Limit, if the total budgeted funds are spent in FY 2016-17. A solution, which will allow the City to complete the planned CIP projects - is to issue debt. The expenditure of debt proceeds is exempt from the Expenditure Limitation as is the annual repayment of the debt. This matter is not one of available resources but a lack of spending capacity. The City’s current Community Investment Program (CIP) was developed assuming that cash, not debt, would be used to fund projects for the next three years.
On August 9, 2016 the Council adopted Resolution No. 16-3080, which approved reimbursement from future debt proceeds for expenditures made on capital projects and capital outlay. That resolution authorized the reimbursement but it did not authorize the actual debt issuance.
Resolution No. 16-3096 authorizes the debt. The debt is structured as a private placement or loan from an Arizona bank. Stifel, Nicolaus & Company, who served as the City’s Financial Advisor for the 2015 Wastewater Debt Restructuring, and will serve as the City’s placement agent, if approved. On September 21, 2016, Stifel issued a Request for Proposal (see attachment) soliciting private financing proposals for a five year loan of up to $12,225,000.
The proposals are due October 7, 2016. At the City’s discretion, it may accept any one of the proposals or none of the proposals. The City may also negotiate final terms. Mark Reader from Stifel will be present at this October 11th meeting to discuss the proposals received. This timing allows the Council an opportunity to review the proposed terms and discuss the most advantageous proposal prior to adopting this Resolution to authorize the debt.
In addition to authorizing the debt, the Resolution authorizes the Mayor, City Manager and Administrative Services Director to execute the final Loan Agreement, the Disbursement Agreement, Placement Agent Agreement and other necessary documents to complete the debt transaction.
COMMUNITY IMPACT:
The planned CIP projects and capital expenditures financed with the debt proceeds will increase the reliability of the City’s infrastructure; provide additional attractions and services for City residents and visitors; and improve the overall appearance and functionality of the City.
FISCAL IMPACT:
The projects are included in the CIP or included in the capital outlay budget for fiscal year 2016-17. Cash funding was originally identified for these expenditures. The City will incur interest on the borrowed money and some costs associated with debt issuance but the intent is to limit the interest expense by issuing short-term debt and utilizing call features to pay it off early.
ATTACHMENTS:
Resolution No. 16-3096
Request for Private Financing Proposals - Proposed Terms and Conditions
SUGGESTED MOTION:Recommended ACtion
I move to adopt Resolution No. 16-3096 authorizing the City to borrow up to $12,225,000 from an Arizona Bank in the form of a loan to finance certain street improvements, wastewater projects, parks and recreational facilities’ improvements, airport improvements and other general projects and acquisitions; authorizing the execution and delivery of a loan agreement setting forth the terms of the loan and providing for the repayment thereof; pledging the City’s excise tax revenues as security therefore; authorizing the execution of a placement agent agreement and other necessary agreements; and declaring an emergency.