SCC Item 1. Financing Discussion Fire and Emergency Services Building ProjectNorthland Securities, Inc. 45 South 7th Street, Suite 2000, Minneapolis, MN 55402 Toll Free 1‐200‐851‐2920 Main 612‐851‐5900
www.northlandsecurities.com
Member FINRA and SIPC
MEMORANDUM
To: Adam Flaherty, City Administrator, City of Otsego
From: Jessica Green, Managing Director
Date: April 22, 2024
Re: Financing Options for the Fire & Emergency Services Building
To assist the City in its discussion regarding the potential construction of a new Fire & Emergency
Services Building (the “Project”) in the City of Otsego (the “City”), Northland has prepared this
memo to provide general information related to debt issuance authority and related considerations
for the above-mentioned project.
Minnesota law allows the City to finance this type of project through a few distinct mechanisms. A
few preliminary considerations for each mechanism are as follows:
General Obligation Capital Improvement Plan (“CIP”) Bonds – The 2003 Minnesota
Legislature enacted into law a program that allows home rule and statutory cities to establish a
capital improvement program and issue bonds for certain capital improvements – including
public lands, buildings, or other improvements for the purpose of a City Hall, Town Hall,
Library, Public Safety Facility or Public Works Facility without an election. Capital
Improvement Plan bonds are subject to the City’s debt limit. In addition, there are other
limitations and procedural requirements involved:
o Under current law, the maximum principal and interest on the bonds may not exceed
0.16% of the taxable market value in the City. Based on the City’s 2024 market value of
$3,741,502,600, this provision will allow for a maximum debt service payment of
$5,986,404 in any given year of the CIP issuance.
o A capital improvement plan must be developed, and the City must hold a public
hearing prior to considering approval of the Plan. The capital improvement plan must
cover various cost, needs and revenue considerations as outlined in Minnesota Statutes
Section 475.521, subdivision 3.
o The bonds are subject to reverse referendum if the City receives a petition calling for a
vote on the issuance of the bonds. The petition must be signed by voters equal to 5%
of the votes cast in the City’s last general election within 30 days after the public
hearing.
EDA Lease Revenue Bonds ‐ the City has the authority pursuant to Minnesota Statutes,
Section 465.71 and 469.090 through 469.1082 to finance such a facility pursuant to a lease
with option to purchase agreement between the EDA and the City. The City must have
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the right to terminate the lease purchase agreement at the end of any fiscal year during its
term. Unless terminated at the end of any fiscal year, the lease is payable from any
revenues available to the City. Under current law, if the City wants the ability to levy
taxes outside of levy limits to make the lease payments, the bonds must be issued by an
Economic Development Authority (“EDA”) or a Housing & Redevelopment Authority
(“HRA”). An EDA and HRA has the statutory authority to issue revenue bonds payable
solely from lease payments to be made by the City pursuant to the lease purchase
agreement, though the issuance may be subject to City approval or concurrence,
dependent upon the terms of the enabling resolution of the EDA. Under current law, a
financing of this type does not require a referendum. The EDA may be required to hold a
public hearing to authorize the authority to execute the powers of Minnesota Statutes
Section 469, however, a hearing is not required specific to the issuance of bonds. If the
bonds are issued in excess of $1,000,000, the entire lease purchase bond‐financing amount
counts against the City’s statutory debt limit.
Preliminary Cost Comparison – Because of the risk due to possible non‐appropriation, lease revenue bonds
for an essential asset such as this project typically yield approximately .25% higher interest rates than a
general obligation bond for the same project. In addition, lease revenue bonds will carry higher costs of
issuance and ongoing fees for trustee involvement throughout the life of the bond issue/lease arrangement.
Below is a preliminary cost comparison and tax impact assuming the City issues approximately $21,000,000
in G.O. Capital Improvement Plan Bonds versus EDA Lease Revenue Bonds.
Preliminary Comparison – 20 Years
Type of Issue G.O. CIP Bond Lease Revenue Bond
Par Amount of Bonds $21,000,000 $21,000,000
Estimated Average Rate* 4.12% 4.39%
Average Annual Debt Service $1,645,014 $1,682,739
Total Principal & Interest $32,856,829 $33,068,735
Est. Annual Tax Impact on $300,000 Home $97 $99
Est. Annual Tax Impact on $450,000 Home $174 $178
Est. Annual Tax Impact on $600,000 Home $264 $270
Preliminary Comparison – 25 Years
Type of Issue G.O. CIP Bond Lease Revenue Bond
Par Amount of Bonds $21,000,000 $21,000,000
Estimated Average Rate* 4.32% 4.61%
Average Annual Debt Service $1,462,421 $1,506,128
Total Principal & Interest $35,834,340 $36,925,791
Est. Annual Tax Impact on $300,000 Home $84 $87
Est. Annual Tax Impact on $450,000 Home $153 $158
Est. Annual Tax Impact on $600,000 Home $235 $242
*Rates shown above include current market rates as of April 12, 2024, plus 25 basis‐points