AGENDA #4h
MEMORANDUM
TO: Mayor and Town Council
FROM: W. Calvin Horton, Town Manager
SUBJECT: Two-Thirds Bonds Financing Alternative for Town Operations Center
DATE: September 7 , 2004
The attached resolution would allow the Town to preserve the alternative to issue General Obligation bonds in the maximum amount of $1,000,000 to pay for part of the cost of design and site work for the Town Operations Center.
The Town could borrow the necessary funds for cash flow needs with a private bank placement, similar to the Certificates of Participation that the Council is considering for the major construction of the Town Operations Center. However, there is an alternative that would allow the Town to meet the cash flow needs for the project with best possible interest rates and low transaction costs for a twenty-year loan on the initial work for the Town Operations Center.
There is a provision in North Carolina Statutes that allows governmental units to issue bonds each year in an amount equal to two-thirds of the principal amount of debt retired in the previous year. These bonds may be issued without a referendum but must be approved by the Local Government Commission in the same manner as other debt financing methods. Because the cost of issuing General Obligation bonds is about $25,000 to $30,000 per issue, it is generally more
cost effective to issue two-thirds bonds only at the same time as another planned bond issuance. The Council has recommended the sale of the first installment ($4 million) of the $39.36 million bond issue approved by the voters in November 2004 for the fall of 2004.
We are planning to borrow the first installment of the 2003 General Obligation bonds ($4 million),as authorized by the Council on March 30, 2004, this fall, and North Carolina Statutes allow that we could also borrow an amount equal to two-thirds of the General Obligation debt retired from 2003-04 to 2004-05 ($1 million) at the same time. Both the General Obligation bonds and the two-thirds bonds would be repaid over twenty years. By offering the additional $1 million at the same time as the $4 million issuance, the Town would be able to meet its needs for cash this fall at the best possible interest rate.
A timeline for actions related to issuing two-thirds bonds is attached.
That the Council adopt the attached resolution stating its intent to issue General Obligation bonds in the maximum amount of $1,000,000 to pay for the costs of public buildings. The resolution is in the form recommended by the Bond Attorney.
ATTACHMENT
A RESOLUTION STATING OFFICIAL INTENT TO Issue General Obligation Bonds in the Maximum Amount of $1,000,000 To Pay Costs of Public Buildings (2004-09-07/R-6)
WHEREAS, the Town of Chapel Hill has underway a project for the construction of a facility referred to as the “Town Operations Center.” The Town has begun to incur initial costs in connection with this project, including engineering and design fees. Town staff has advised the Town Council that it may be desirable for the Town to issue General Obligations bonds in the upcoming fiscal year to provide funds for some of these initial costs. These bonds could be issued under the provision of law that allows the Town to issue General Obligation bonds to the extent of two-thirds of the Town’s net debt reduction for the previous fiscal year.
BE IT THEREFORE RESOLVED, as follows:
1. The Council makes an initial determination to proceed with the issuance of Town General Obligation bonds in the maximum amount of $1,000,000 to pay capital costs related to public buildings, including initial costs related to the Town Operations Center such as engineering, design and site preparation costs. The issuance of the bonds will be subject to further Board proceedings, including the conduct of a public hearing and approval from the North Carolina Local Government Commission (the “LGC”).
2. The Finance Officer is authorized and directed to proceed with the proper steps toward the issuance of such bonds, including proceeding with an application to the LGC for its approval of such bonds. The Council appoints the Finance Officer as the Town’s authorized representative with respect to the LGC application process.
3. The Town requests that the LGC approve the Town’s application for the issuance of such bonds. The Council makes the following findings of fact in support of its application for approval and its determination to proceed with this bond issue:
a) Financing initial costs of the operations center through the issuance of bonds is necessary and expedient for the Town, and the amount of bonds proposed is adequate and not excessive for the proposed purpose. The $1 million amount is the maximum that the Town may issue as “net debt reduction” bonds, and combining these bonds with the Town’s other proposed bond sale for 2004 will provide economies of scale and produce an effective financing package for the Town. The Town will finance the major portion of construction costs through an installment financing, and paying these early costs through a bond issue will simplify the later financing process and allow the Town to borrow the bulk of the necessary funds closer in time to when they will be needed.
b) The Town’s debt management and budgetary and fiscal management policies have been carried out consistently in accordance with the law.
c) The Town believes that any increase in the Town’s property tax rate necessary to provide for principal and interest payments on the bonds will be minimal, and in any case appropriate under all the circumstances. The Town is committed to the Town Operations Center project, and as described above the Town believes the use of these bonds is overall the most cost-effective way for the Town to provide for the initial costs of the project.
4. All Town officers and employees are authorized and directed to take all such further action as they may consider necessary or desirable in connection with the furtherance of the purposes of this resolution. All such prior actions of Town officers and employees are ratified, approved and confirmed. All other resolutions, or parts thereof, in conflict with this resolution are repealed, to the extent of the conflict. This resolution takes effect immediately.
BE IT FURTHER RESOLVED that the Council authorizes the Town Clerk to certify a copy of this resolution for the Local Government Commission.
This the 7th day of September, 2004.
Town of Chapel Hill, North Carolina
Timetable for 2004 Two-Thirds General Obligation Bonds
|
Bond Sale Event |
Date |
|
1. Council adopts resolution setting out proposed purposes for two-thirds bonds; authorized LGC application and publishing of Notice of Intent |
September 7 |
|
2. File LGC application |
September 13 |
|
3. Council introduces bond order; formally calls for public hearing |
September 13 |
|
4. File sworn statement of debt |
September 16 |
|
5. Publish notice of public hearing |
September 19 |
|
6. Public hearing; adopt Bond Order for two-thirds bonds; adopt resolution formally approving issuance of bonds and approving form of Official Statement and terms for continuing disclosure |
September 27 |
|
7. Publish notice of Bond Order as adopted |
September 29 |
|
8. Local Government Commission distributes Official Statement to prospective investors |
October 8 |
|
9. Bond Sale |
October 19 |
|
10. Bond Closing |
November 8,9 |