AGENDA #4e
TO: Mayor and Town Council
FROM: W. Calvin Horton, Town Manager
SUBJECT: Authorization for the Sale of $2,935,000 of General Obligation Bonds and Refunding of $3,400,000 of 1992 General Obligations Bonds on March 12, 2002
DATE: January 28, 2002
The attached resolution prepared by our bond counsel, Womble Carlyle Sandridge & Rice, PLLC, would authorize the third phase sale of $2,935,000 in General Obligation bonds as originally planned by the Council to continue implementation of bond projects approved by referendum in November 1996. ($1,315,000 in authorized bonds reserved for an aquatic center would remain outstanding until a later date.)
In addition to sale of bonds authorized in 1996, the attached resolution would provide for the refunding (refinancing) of $3,400,000 of General Obligation bonds issued in 1992 in order to obtain a lower interest rate and achieve annual debt service savings. The resolution authorizes the Town Manager and Town Attorney to take the actions necessary for a combined sale of these bonds tentatively scheduled by the Local Government Commission on March 12, 2002, including filing an application with the Commission and publishing notice of the proposed sale in the local news media. The resolution would also appoint the firm of Ferris, Baker Watts, Inc. as a financial advisor for refunding of the 1992 bonds. (The Local Government Commission requires the use of a financial advisor for all refunding bonds issues.)
In November 1996, Chapel Hill voters approved a referendum authorizing the issuance of General Obligation bonds totaling $13.5 million for various capital improvement projects that have been ongoing since 1996. As originally planned by the Council, these bonds were to be issued in two-year intervals, beginning in 1998. $4,550,000 of the bonds were issued in 1998 followed by $ 4,700,000 issued in 2000. The final phase sale now proposed for the remaining bonds of $2,935,000 (excluding the bonds reserved for the aquatic center which will be sold at a later date) is tentatively scheduled by the Local Government Commission for March 12, 2002.
Information on the proposed refinancing of 1992 bonds is provided below.
In accord with the Council’s six-year plan, a third phase sale of these bonds is now needed to continue implementation of bond projects as previously approved by the Council. We propose to issue this phase of bonds for projects as follows:
· Streetscape $ 500,000
· Sidewalks/Bikeways 100,000
· Drainage projects 290,000
· Bridge replacements 270,000
· Curb & gutter projects 200,000
· Public Works Facility Improvements 290,000
· Open Space/Greenways 1,185,000
· Police Improvements 100,000
TOTAL $ 2,935,000
The bonds need to be sold now to provide cash flow for ongoing projects and to reimburse ourselves for costs already incurred in other projects nearing completion. The amounts of bonds to be issued in each category as noted above are in accord with the overall projects and plan previously approved by the Council. However, amounts and plans for specific projects such as sidewalks, bridges, open space purchases, curb and gutter projects, etc. would be submitted to the Council for approval prior to use of the bonds funds.
The proposed bonds would be sold with a normal maturity of twenty years as recommended by the Local Government Commission. We estimate interest costs of about 5% or less on these bonds based on current bond market conditions. New debt service costs on issuance of the bonds would begin in next year’s budget (fiscal 2002-2003) and are estimated to be about $300,000 in the first year, declining gradually over the next 20 years. The debt service cost of the bonds has been included in our previous and current financial forecasts of General Fund expenditures.
The attached resolution prepared by bond counsel would authorize the Town Manager and the Town Attorney to take all actions necessary or appropriate to sell the 1996 bonds, including filing an application with the Commission, and publishing a notice of the proposed sale. Another resolution regarding the bond that would provide approval of a preliminary official statement to be used in the sale and proposed debt service schedule would be scheduled for consideration by the Council in February.
In recent months, we have reviewed interest rates on current outstanding General Obligation bonds to determine if current bond market conditions would warrant a refinancing of any current bonds for lower interests rates and a savings in annual debt service costs. Based on preliminary advice and analysis of the investment firm of Ferris, Baker Watts, Inc., we believe there is an opportunity to replace $3,400,000 of our outstanding 1992 General Obligation bonds issued at average interest rates of about 5.2% with new bonds at an estimated average rate of about 3.6%. We estimate the resulting savings, net of bond issuance costs, would total about $180,000 over the next eight years (about $20,000 in annual debt service savings). The estimated savings are based on current bond market conditions, and would be subject to change over the next few weeks if the bond market changes.
Based on market conditions today, we recommend proceeding with the refinancing of the 1992 bonds, and combining the refinancing with the proposed sale of 1996 bonds as discussed above. The refinancing would require issuance of $3,400,000 to replace the 1992 bonds and provide for bond issuance costs. The combined bond sale proposed for March 12 would then total $6,335,000.
The attached resolution would authorize the refinancing of 1992 bonds as well as the issuance of new bonds approved by the voters in 1996. For refinancing bond issues, the Local Government Commission requires that local governments use a financial advisor to prepare the savings analysis from the refinancing, and to coordinate the refinancing with the Town’s bond counsel. The proposed resolution would appoint the firm of Ferris, Baker Watts, Inc. as the Town’s financial advisor for the proposed refinancing, and would authorize the Manager, Town Attorney, Finance Director, and Town Clerk to proceed with the steps necessary for the proposed combined sale.
That the Council adopt the attached resolution authorizing the Town Manager and Town Attorney to take necessary actions for the sale of $2,935,000 in new General Obligation bonds and the refinancing of $3,4000,000 in outstanding 1992 General Obligation bonds.
A RESOLUTION APPROVING THE FORM OF NOTICE OF INTENT TO FILE AN APPLICATION WITH THE LOCAL GOVERNMENT COMMISSION TO ISSUE CERTAIN GENERAL OBLIGATION BONDS, AUTHORIZING AND DIRECTING PUBLICATION OF SUCH NOTICE OF INTENT AND DESIGNATING BOND COUNSEL AND AN UNDERWRITER FOR SUCH BONDS AND FOR CERTAIN REFUNDING BONDS (2002-01-28/R-4)
WHEREAS, the Council desires to pursue the possibility of issuing one or more issues of general obligation bonds of the Town of Chapel Hill, North Carolina (the “Town”) in the aggregate principal amount not to exceed $6,735,000 (the “Bonds”), which Bonds would be composed of one or more of the following issues: (i) up to $3,800,000 in aggregate principal amount of the Town of Chapel Hill, North Carolina General Obligation Refunding Bonds, Series 2002 (the “Refunding Bonds”), all of the proceeds of which would be used by the Town to refund the aggregate outstanding principal amount of the Town’s Public Improvement Bonds, Series 1992 originally issued in the aggregate principal amount of $5,000,000; and (ii) up to $2,9350,000 in aggregate principal amount of the Town of Chapel Hill, North Carolina Public Improvement Bonds, Series 2002 (the “Public Improvement Bonds”), the proceeds of which would be used by the Town to pay the capital costs of the acquisition, construction, installation, renovation, expansion, reconstruction and equipping of certain public improvements in the following respective approximate maximum amounts: $1,185,000 to pay capital costs of acquiring real property in order to maintain, protect, limit the future use of or otherwise conserve open spaces and areas; $290,000 to pay capital costs of providing public works facilities; $100,000 to pay capital costs of providing fire and police facilities and equipment; and $1,360,000 to pay capital costs of construction, replacement and reconstruction of streets and sidewalk improvements; and
WHEREAS, a notice of intent to file an application with the Local Government Commission of North Carolina to issue the Public Improvement Bonds is required to be published in a newspaper of general circulation in the Town of Chapel Hill, North Carolina at least ten (10) days prior to the filing of such an application; and
WHEREAS, the law firm of Womble Carlyle Sandridge & Rice, PLLC, Winston‑Salem, North Carolina, has been recommended to the Town Council as a law firm possessing capabilities in each of the following areas:
(a) North Carolina municipal law, including in particular the Local Government Bond Act;
(b) Municipal finance and municipal securities law;
(c) Corporate Finance and Corporate Securities Law; and
(d) Tax Law, including Section 103 and Sections 140 through 150 of the Internal Revenue Code of 1986, as amended,; and
WHEREAS, the firm of Ferris, Baker Watts, Inc. Richmond, Virginia, has been recommended to the Town Council as an underwriting firm experienced in the structuring and marketing of the Bonds.
NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill, North Carolina as follows:
Section 1. The form of the notice of intent to file an application with the Local Government Commission of North Carolina to issue the Public Improvement Bonds in the form of Exhibit A attached hereto is hereby approved and the Town Manager and the Town Attorney of the Town are hereby authorized and directed to cause such notice of intent, as may be required by the Local Government Bond Act, relating to the Public Improvement Bonds for the purposes set out in said form of notice to be published in a newspaper of general circulation in the Town.
Section 2. The law firm of Womble Carlyle Sandridge & Rice, PLLC, Winston‑Salem, North Carolina, is hereby designated to serve as bond counsel in connection with the issuance by the Town of the Bonds, or any series thereof, and in connection with the issuance by the Town of such additional issues of bonds as the Council shall deem appropriate.
Section 3. The firm of Ferris, Baker Watts, Inc., Richmond, Virginia is hereby designated to serve as underwriter in connection with the issuance by the Town of the Bonds.
Section 4. The Town Manager and the Town Attorney are hereby authorized and directed to take such other actions as they may deem appropriate to expedite the process of issuing the Bonds, including, without limitation, the preparation of an application or applications for approval of the issuance of the Bonds, which application or applications shall be filed by the Town with the Local Government Commission.
Section 5. This resolution shall taken effect upon its passage.
Section 6. A certified copy of this resolution shall be filed with the Local Government Commission.
This the 28th day January, 2002.