AGENDA #4e
TO: Mayor and Town Council
FROM: W. Calvin Horton, Town Manager
SUBJECT: Introduction of Bond Order and Calling a Public Hearing on Authorizing Issuance of General Obligation Refunding Bonds
DATE: February 25, 2002
After introducing the attached Bond Order authorizing the issuance of refunding bonds as discussed below, the attached resolution would call for a public hearing on the Bond Order, and direct publication of a Notice of Public Hearing and the filing of a debt statement regarding the proposed refunding bonds.
The attached resolution and Bond Order deal only with the proposed refunding of 1992 bonds. No action is necessary to consider the issuance of a portion of the 1996 bonds. However, in view of the current budget emergency this year created by the Governor’s actions on February 5, 2002, and the prospect of a very difficult budget year for 2002-2003, we recommend that the Council consider postponing the sale of additional 1996 bonds until the fall of 2002 or early 2003. Our recommendation to consider this postponement is discussed below.
BACKGROUND
On January 28, 2002, the Council adopted a resolution authorizing the initial steps necessary for a combined sale of General Obligation refunding bonds in an amount up to $3.8 million (to refinance outstanding 1992 bonds to achieve debt service savings), and the sale of $2,935,000 in new General Obligation bonds to continue bond projects approved by the voters in 1996. The Council appointed bond counsel and a financial advisor for the refunding, which is required by the Local Government Commission, and authorized the filing of an application for sale of the combined bonds.
DISCUSSION
Refunding Bonds
Based on current bond market conditions, we recommend continuing the steps necessary for a sale of bonds to refinance the 1992 bonds. The latest analysis by our financial advisor indicates the refunding would generate savings, net of issuance costs, of about $150,000 over the next seven years. Therefore, we recommend continuing with the refunding portion of the proposed sale.
The next steps to continue the refunding process is the introduction of the attached Bond Order, and adoption of the attached resolution calling for a public hearing on the refunding bonds to be held on March 4, 2002. The resolution would also authorize publication of a notice of the public hearing, and direct the filing of a statement of net debt with the Town Clerk’s Office prior to the public hearing. At the public hearing on March 4, the Council would be asked to adopt the Bond Order as introduced tonight, to approve a preliminary official statement to be used for the bond sale, and give preliminary approval to the various conditions and maturities of the proposed refunding bonds.
Issuance of 1996 Bonds
No actions would be required tonight to continue the steps necessary to issue additional 1996 bonds. However, because of the problems created by the Governor’s withholding of revenues this year, the continuing sluggish economy and the prospect of a difficult budget next year, we recommend that the Council consider postponing the issuance of new bonds approved in 1996 until next fall or early 2003. Given the uncertainty of next year’s budget, the prospect of a tax increase to continue present services and the limited funding flexibility expected next year, we believe it would be prudent to consider postponing issuance of new bonds that would result in new debt service costs for next year.
Our preliminary estimate of the new debt service cost on issuing $2,935,000 in new bonds (as discussed in the January 28 agenda item on bonds) totals about $300,000 if issued on March 12. This cost is an estimated tax rate equivalent for next year of about .7 cents. Postponing the sale until January of next year would allow us to delay the new debt service costs until the 2003-04 budget year. Because of the low interest earning rates in today’s investment market, there is no incentive to issue bonds incurring about 4.5% in interest costs and being able to earn only about 2% on proceeds during the completion of each of these projects.
Our analysis of current bond funds on hand indicates we still have more than $600,000 in available cash for ongoing projects. We believe that we can continue most of these projects with available bond funds and with advances of general cash for the smaller bond projects if needed. Over the next year, we believe we can continue work on the streetscape project, sidewalks, the Police Department renovations, and curb and gutter projects as originally planned. About $350,000 is available for open space purchases over the next year. If an opportunity to purchase a large tract of land for open space involving a significant cash outlay should arise over the next year, we would be able to sell bond anticipation notes to fund such a purchase until the next bond sale.
RECOMMENDATIONS
Based on considerations as discussed above and the circumstances and uncertainty surrounding next year’s budget, we believe it is prudent to consider postponing the sale of new bonds until next fall or early 2003 in order to delay new debt service costs until the 2003-2004 budget year. We recommend proceeding with the refunding bonds as originally proposed, and recommend introduction of the attached Bond Order and adoption of the attached resolution.
1. Resolution 4, adopted on January 28, 2002 (p. 5).
A BOND ORDER AUTHORIZING THE ISSUANCE OF UP TO $3,800,000 REFUNDING BONDS, SERIES 2002 OF THE TOWN OF CHAPEL HILL, NORTH CAROLINA (2002-02-25/R-6a)
WHEREAS, in August of 1992 the Town issued its Public Improvement Bonds, Series 1992 (the “Series 1992 Bonds”) in an aggregate principal amount of $5,000,000, of which approximately $3,200,000 in aggregate principal amount is outstanding on the date hereof; and
WHEREAS, the Town Council of the Town of Chapel Hill, North Carolina deems it advisable to refund the Series 1992 Bonds by issuing its refunding bonds in an aggregate principal amount of up to $3,800,000; and
WHEREAS, an application has been filed with the Secretary of the Local Government Commission of North Carolina requesting Local Government Commission approval of the bonds hereinafter described as required by The Local Government Bond Act, and the Secretary of the Local Government Commission has acknowledged that the application has been filed and accepted for submission to the Local Government Commission;
NOW THEREFORE, BE IT ORDERED by the Town Council of the Town of Chapel Hill, North Carolina as follows:
The Town Council of the Town of Chapel Hill, North Carolina has ascertained and hereby determines that it is in the best interests of the Town of Chapel Hill, North Carolina to refund the Series 1992 Bonds.
Section 2
In order to raise the money required to refund the Series 1992 Bonds, in addition to any funds which may be made available for such purpose from any other source, general obligation refunding bonds of the Town of Chapel Hill, North Carolina are hereby authorized and shall be issued pursuant to The Local Government Bond Act. The maximum aggregate principal amount of the bonds authorized by this bond order shall be $3,800,000.
Section 3
A tax sufficient to pay the principal of and interest on said bonds when due will be annually levied and collected.
Section 4
A sworn statement of the debt of the Town of Chapel Hill, North Carolina has been filed with the Clerk to the Town Council of the Town of Chapel Hill, North Carolina and is open to public inspection.
Section 5
This bond order shall take effect upon its adoption.
This the 25th day of February, 2002.
A RESOLUTION CALLING A PUBLIC HEARING ON THE BOND ORDER, DIRECTING PUBLICATION OF A NOTICE OF PUBLIC HEARING AND THE FILING OF A DEBT STATEMENT (2002-02-25/R-6b)
WHEREAS, the bond order entitled:
“BOND ORDER AUTHORIZING THE ISSUANCE OF UP TO $3,800,000 REFUNDING BONDS, SERIES 2002 OF THE TOWN OF CHAPEL HILL, NORTH CAROLINA”;
has been introduced at the meeting of the Town Council held on February 25, 2002 and the Town Council desires to provide for the holding of a public hearing thereon and the submission of a statement of debt in connection therewith as required by The Local Government Bond Act;
NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill, North Carolina, as follows:
1. The public hearing upon said bond order shall be held on the 4th day of March, 2002 at 7:00 p.m. in the Council Chambers at the Town Hall in Chapel Hill, North Carolina.
2. The Town Clerk is hereby directed to cause a copy of the bond order to be published with a notice of such hearing in the form prescribed by law in a qualified newspaper no fewer than six days prior to such public hearing.
3. The Finance Director of the Town of Chapel Hill is hereby directed to file with the Town Clerk prior to publication of the bond order with the notice of such public hearing, a statement setting forth the debt incurred or to be incurred, the appraised value of property subject to taxation by the City and the net debt of the City.
This the 25th day of February, 2002.
ATTACHMENT #1
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.