AGENDA #8b
MEMORANDUM
TO: Mayor and Town Council
FROM: W. Calvin Horton, Town Manager
SUBJECT: Proposed Sale of $4.7 Million General Obligation Bonds
DATE: February 14, 2000
This memorandum provides information about the Council’s options regarding $600,000 in General Obligations bonds included in the bond sale scheduled for February 15, 2000 that are allocated for repairs at the Police Department building.
The second phase sale of General Obligation bonds totaling $4.7 million to continue capital improvement projects approved by the voters in 1996 is scheduled for February 15, 2000. The Council adopted resolutions on January 10 and 31 authorizing the sale of these bonds and an official statement to be used in conjunction with the sale. The Local Government Commission has finalized the official statement and has circulated the statement to prospective bond buyers. Ratings of Aaa (triple A) and AA+ (double A+) were confirmed by Moody’s Investor Service and Standard and Poor’s respectively, with no change from previous ratings.
The scheduled sale of $4.7 million in bonds includes $600,000 allocated for repairs at the Police Department building as approved by the Council in the 1999-2000 Capital Improvements Program. The Council has requested information on what options the Council may have if it decided to postpone the bond sale or alter the amount originally designated for the Police Department facility improvements. Options are discussed below.
We recommend that the Council proceed with the bond sale as scheduled for February 15. We believe postponing the sale at this date could be viewed negatively by bond buyers and bond rating agencies and that sufficient flexibility exists regarding use of these bond proceeds so that postponing the sale is not necessary.
In discussing this issue with our bond counsel, we believe that the Council’s options for the Police improvement bonds as are follows:
· If the Council decides at any point that it does not wish to spend the $600,000 or any alternative amount for repairs at the Police Department building because circumstances are different than originally envisioned, the total $600,000 or any unused amount could be paid off by liquidating the outstanding principal not used. Under bond regulations, the Council would have a period of two years in which final decisions and expenditure of the bond proceeds would need to be made. The interest cost we would pay on the bonds during the time period not used would be offset by interest income we would be allowed to earn on the bond proceeds during the same time period. Thus, there would be no net interest cost to the Town on these bonds if they were not used and subsequently repaid.
· If the Council decided that circumstances regarding the Police Department improvements are different that originally envisioned, the $600,000 or whatever amount the Council desires could be used for other public safety improvements, including fire uses if desired. This approach is possible because the language of the original bond order and question approved by the voters is broad as to public safety use, with specific amounts for various projects subject to change based on changing circumstances. However, we note that the funds were originally presented to voters in literature as being intended for Police headquarter repairs.
Based on the flexibility in spending bond proceeds as noted, we recommend that the Council proceed with the bond sale as planned, and that the final decisions regarding the use of bond proceeds for Police Department improvements be made after the sale is completed.
That the Council proceed with the sale of $4.7 million in General Obligations bonds on February 15, 2000.