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TO: |
Roger L. Stancil, Town Manager |
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FROM: |
Kay Johnson, Finance Director |
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SUBJECT: |
Public Hearing to Consider Using Installment Contract Financing for Construction of the Aquatics Center and for Major Repairs on the Community Center; Authorization to Proceed with Financing |
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DATE: |
December 4, 2006 |
The purpose of this public hearing is to receive comments from citizens on the proposed use of an installment contract to finance construction of the Aquatics Center ($1.35 million) and for major repairs on the Community Center ($1.75 million). Notice of the public hearing was published in The Chapel Hill News on November 22, 2006, as required by procedures of the North Carolina Local Government Commission. The attached resolutions would approve the use of borrowing for the projects and would authorize the Town to enter into a financing agreement with SunTrust Bank.
Attached Resolution A would declare findings by the Council that a proposed installment contract is a necessary and expedient method to finance the proposed renovations, and would formally approve and ratify the filing by the Manager, Finance Director and Attorney of an application with the North Carolina Local Government Commission for approval of the projects and a proposed financing contract. The application to the Commission was submitted on December 1 for consideration by the Commission on January 2, 2007.
Attached Resolution B would accept the lowest cost installment financing proposal submitted by SunTrust Bank to finance these projects over a 10-year period, also contingent upon approval of the financing proposal by the Local Government Commission. The resolution would authorize the Manager, Finance Director, and Town Attorney to complete the steps necessary with SunTrust Bank and the Local Government Commission to execute an installment financing agreement.
Community Center
As a part of the 2006-07 budget process, the Council included a proposal for major repairs of the Community Center. The repairs include the following replacements: roofing, doors, the gym floor, all pool mechanical systems, bathroom and locker fixtures, heating and air conditioning systems, including adding air conditioning for the gym. The Town has received a bid of $1.96 million for the actual construction of the major repairs to the Community Center. The difference between the proposed $1.75 million borrowing and the bid amount is being funded with cash on hand.
Aquatics Center
The Aquatics Center is being built in Homestead Park and has a proposed budget of $6.5 million. The majority of funding for the project is provided by Orange County Parks bonds totaling $4.4 million. The remaining funding will include the proposed borrowing of $1.35 million.
The 2006-07 budget anticipated total borrowing of $1.35 million for the Aquatics Center and the Southern Community Park. We intend to borrow the full $1.35 million for the Aquatics Center. This action will have no affect on the total amount available for each of the two projects.
Approvals
If the Council approves the recommended financing for the major repairs to the Community Center and the construction of the Aquatics Center, the Local Government Commission would still need to approve the financing proposal and supporting documentation at the Local Government Commission’s January 2, 2007 meeting.
After hearing from citizens during the public hearing, we recommend that the Council proceed with the process necessary to obtain approval from the Local Government Commission by adopting the attached Resolution A in a format prescribed by the Commission. The resolution would state the Council’s findings that an installment contract is a necessary and expedient method for financing this project, and would approve and ratify the filing of an application to the Commission for approval of the proposed financing contract. We submitted the required application materials to the Commission on December 1, 2006.
The attached Resolution A would formally approve and ratify the filing of an application for approval of a financing agreement authorized by the North Carolina General Statute 160A-20.
The Local Government Commission is scheduled to consider the Town’s application on January 2, 2007. We propose to close the financing agreement and receive the funding by January 12, 2007.
A Request for Financing Proposals was distributed to financial institutions on November 20, to be returned to the Town by November 30. The proposals for financing requested a fixed interest rate and even principal payments over a 10-year period.
On November 30, five responsive proposals were received from financial institutions as follows:
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Financial Institution |
Interest Rate |
Principal & Interest |
Fees (not to exceed) |
Total Cost |
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Wachovia Bank |
3.54% |
3,676,135 |
5,500 |
3,681,635 |
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RBC Centura |
3.61% |
3,687,528 |
5,000 |
3,692,528 |
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Bank of America |
3.74% |
3,998,535 |
5,500 |
4,004,035 |
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BB&T |
3.73% |
3,707,058 |
2,300 |
3,709,358 |
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SunTrust Bank |
3.5% |
3,669, 625 |
5,500 |
3,675,125 |
Based on the proposals received, SunTrust Bank offers the lowest interest rate and total cost with a bid of 3.5% for the 10-year term.
The bid offers to finance the cost of this project over a 10-year period at a fixed interest rate of 3.5%. The first year payments would be $415,000, beginning in fiscal year 2007-08, and will decline by about $11,000 each year over the next 10 years. Funding for the installment payments would need to be included in the Capital Improvements Budget for 2007-2008.
The attached Resolution B would authorize the Manager and Finance Director to enter into an installment-purchase contract with SunTrust Bank for this project, subject to final approval of the financing by the N.C. Local Government Commission. The resolution confirms that the Town does not expect to issue more than $10 million in tax-exempt debt during the calendar year. This expectation allows financial institutions to bid lower rates for governmental installment-purchase contracts.
That the Council: