02-21-97 WSFebruary 14, 1997
Larry Fournier
Mayor
City Hall
8899 Nashua Ave Northeast
Otsego, MN 55330
Dear Mayor, Council and Administration:
JURAN & MOODY
A division of Miller, Johnson & Kuehn, Inc.
400 North Robert Street - Suite 800
Saint Paul, Minnesota 55101-2091
(612)224-1500 • (800) 950-4666
Fax (612) 224-5124
Thank you very much for inviting me to meet with you to discuss the wastewater
project you are considering and how it may be financed in the most cost effective
manner. I enjoyed our conversation and hope our discussion provided you with
information you found beneficial.
During our meeting, we discussed what the future may be for our economy in
terms of inflation and interest rates. I have enclosed portions of two February 14, 1997
Bloomberg reports which imply that with inflation being held in check that interest rates
should continue to remain at current levels if not drift lower. I have also included a
graph showing 30 -year Treasury rates since January 1, 1994. If these reports prove
accurate and rates, wages and inflation remain at current levels or go lower, that should
correlate to maintained or increased residential, industrial and commercial development.
While this cannot predict the magnitude of development Otsego may realize, I hope it
does give comfort that the economy appears to be going in the right direction as far as
expansion in the Highway 101 corridor is concerned.
I have also provided some debt ratio assumptions for your review and
consideration. The Wright County Auditor's Office indicated that the 1997 market value
for Otsego will be $212,867,293 which is considerably higher than previous years. As
you will note at the bottom of the page, we have projected what Otsego's debt ratios
would be should a $5,000,000, $7,000,000 or $10,000,000 bond be issued. Please note
that these ratios are accurate assuming the City's market value does not increase. As the
valuation of the community increases, these ratios will decrease, which is very positive.
However, based on 1997 valuations, the City's debt ratios for even the $10,000,000 is
appreciably lower than most communities in Minnesota and many of the communities in
the Otsego area.
Saint Paul, MN - Minneapolis, MN - Saint Louis Park, MN - Houston, TX - Clearwater FL
Larry Fournier
February 14, 1997
Page 2
Once again, thank you for the opportunity to meet with you. I would welcome
the appointment to serve as your financial advisor and I am confident that you would be
impressed with the quality of our service and satisfied with our reasonable fee structure.
It is our goal to be your advisor for the future and not just for one or two projects, so be
assured that we will do everything possible to help you evaluate your options,
understand the process and the financial impacts and locate the most cost effective
financing possible. I look forward to serving the City of Otsego in this capacity.
Thank you for your time and consideration.
Very truly yours,
JURAN & MOODY
Thomas P. Truszinski
Vice President
TPT/eh
Purpose:
CITY OF OTSEGO, MINNESOTA
GENERAL OBLIGATION DEBT
(As of February 15, 1997, Plus This Issue)
This Issue:
G.O.
G.O.
G.O.
G.O.
Improvement
Improvement
Water
Improvement
Bonds
Bonds
Revenue
Bonds,
of 1987
of 1991
Bonds of 1994
Series 1996A
Dated: 02101/87 09/16/91
tututtJ4 vaui
Original Amount: 5415,000 $210,000
5210,000 5655,000
Maturity: I -Feb 1 -Aug
1 -Oct 1 -Feb
$33,000
4.60-5.60% TOTALS:
Interest Rates:
50,000
1997
SO
S15,000
$18,000
SO
SO
$33,000
1997
1998
50,000
25,000
19,000
60.000
0
154,000
1998
1999
50,000
25.000
20,000
75,000
0
170,000
1999
2000
0
25,000
21.000
80.000
0
126.000
2000
2001
0
25,000
23,000
85.000
0
133,000
2001
2002
0
25,000
24,000
90,000
0
139,000
2002
2003
0
25.000
25.000
50.000
0
100,000
2003
2004
0
0
27,000
50,000
0
77,000
2004
0
0
0
50,000
0
50,000
2005
2005
0
0
0
55,000
0
55,000
2006
2006
2007
0
0
0
60.000
0
60.000
2007
5100,000
5165,000
S177,000
$655,000
SO
51,097.000
(1)
(1)
(2)
(1)
(1) These bonds are payable primarily from net special assessments a.-ainst all benefitted propery and additionally secured by ad valorem razes on all
taxable property within the City and without limitation of amount.
(2) These bonds are payable primarily from net revenues of the municipal water utility system and additionally secured by ad valorem taxes on all
taxable property within the City and without limitation of amount.
Assumptions:
1996/1997 Indicated Market Value = S212,867,293 (178,912.900/.848+1.885.100). These figures were obtained from the Wright County auditor's
office.
Springsted did not include the currant outstanding balance of the the 5210.000 General Obligation Water Revenue Bonds of 1994, dated October 1,
1994. Juran & Moody does include this balance in the computation of debt ratios.
based on 1995 population estimate of 6,116.
349 (the April 30, 1996
Assumes that the current various Debt Service Funds are equal to S225,
figure used by Springsted). This figure is used to
reduce the total general obligation debt which in effect would reduce the ratios. If less funds are available the figures would be higher, if more funds
are available the figures would be lower.
If they issued additional debt in the following amount the ratios would be:
Debt Net Direct Debt Net Direct Debt
_
Issued: to IMV: to Per Capita:
55,000.000 2.76% 5960
S7,000,000 3.70% $1,287
$10,000,000 5.11010 51,778
Approximation of current ratios as calculated by Springsted Incorporated with the issuance of 5655,000 General Obligation Improvement Bonds,
Series 1996A: (i) Net Direct Debt to NV =.41176 and (ii) Net Direct Debt to Per Capita = S124
Page 1 of 2
BBN 02/13 Fed's Stern Sees Healthy Job Market, Difficulty Hiring Workers
Duluth, Minnesota, Feb. 13 (Bloomberg) -- The U.S. economy
near full employment, and employers are finding it
"increasingly difficult to hire and retain" qualified workers,
Gary Stern, president of the Federal Reserve Bank of Minneapolis,
said today.
That's why it is "hardly surprising" that wages are
creeping up, Stern said, speaking to the College of St.
Scholastica's Minnesota Dialogue series.
Still, he said, policymakers "haven't seen an uptick in
core inflation."
Stern is a non-voting member of the central bank's Federal
Open Market Committee, which sets interest rate policy.
Stern said workers may be moderating their wage demands
because of concerns about job security, as well as because of
"foreign competition, technological change and probably some
other things."
He said he did not know how long those conditions would
prevail and added, "one might want to keep one's fingers crossed
and hope for the best."
Stern also said he found a report in December that inflation
is overstated by the consumer price index to be "pretty
convincing."
A congressionally appointed commission headed by Stanford
University economist Michael Boskin found that the CPI overstates
the actual rate of inflation by as much as 1.1 percentage point.
"To the extent we have been overstating inflation, we have
been understating output and productivity," Stern said. "It
important to get those things straightened out when we can."
Stern raised a red flag about the U.S. savings rate, though
e said he was unconcerned for now about the amount of consumer
debt. "Credit has become more readily available," he said,
"and that seems to me to be positive."
"Overall, consumer balance sheets look pretty sound to
me," Stern said. "If and when economic circumstances turn, then
some of this debt burden may come back to haunt some of these
consumers. Still, he said, "we're certainly not at that point."
The FOMC met last week and left the federal funds interest
rate target for overnight borrowing rate between banks unchanged
at 5.25 percent. The Fed hasn't changed interest rate policy
since Jan. 31, 1996, when policymakers trimmed the fed funds
target by a quarter point. The FOMC meets again on March 25.
Behind the Fed's latest decision were signs the U.S. economy
is retaining momentum without sparking inflationary pressures.
The economy added more jobs than expected in January, though the
growth in labor costs slowed and the unemployment rate rose a
tenth of a point from a month earlier to 5.4 percent.
Last month's gain of 271,000 new jobs exceeded forecasts by
Wall Street analysts of an increase of 231,000 jobs. It also
Copyright (C) 1997 Bloomberg, L.P.
Page 1 of 3
BBN 02/13 Rising Wages Don't Have to Mean Rising Prices: U.S. Outlook
Washington, Feb. 13 (Bloomberg) -- Though wages of American
kers probably will creep up this year, the Federal Reserve can
relax. Rising wages do not necessarily mean rising prices.
Analysts estimate that this year's increase in average
hourly earnings will exceed last year's 3.8 percent gain by only
a few tenths of a percentage point, in line with the pattern of
small annual advances in recent years.
What's more, there's little evidence that the wage
increases are translating into higher prices -- the fear of the
inflation -fighting Fed. "None of them amount to very much,"
said Bill Goodman, an economist at the U.S. Bureau of Labor
Statistics, which collects the data.
Tupperware Corp., based in Orlando, Florida, is a case in
point. Employees can expect wage and salary increases of about
2.0 percent to 4.0 percent this year, slightly above last year's
range, CEO Warren Batts said in an interview. However, "we don't
see ourselves raising prices more than a couple of percentage
points, if at all," he added.
If the estimates and anecdotal evidence are accurate, then
the Fed may find that it won't have to raise interest rates for
some time to come. "The economy's in cruise control; the Fed
should do nothing," said Gordon Richards, an economist at the
National Association of Manufacturers.
Michael Englund, chief economist at MMS International in
Belmont, California, said "the Fed could easily get through this
year without tightening, as long as we see strong growth (in
employment), and the inflation numbers don't pick up."
Watching Wages
U.S. central bankers are watching wage patterns for signs
that the rising cost of labor is igniting inflation. "The
relatively modest wage gains we've seen are a transitional rather
than a lasting phenomenon," Fed Chairman Alan Greenspan told the
Senate Budget Committee last month. "Indeed, the recent pickup
in some measures of wages suggests that the transition may
already be running its course.
Today, Gary Stern, president of the Federal Reserve Bank of
Minneapolis, said that with the economy near full employment,
it's "hardly surprising" that wages are creeping up. He spoke
in Duluth, Minnesota.
Nonetheless, policy makers "haven't seen an uptick in core
inflation," he said. Stern is a non-voting member of the central
bank's Federal Open Market Committee, which sets interest rate
policy. The FOMC left interest rates alone once again last week
at its first meeting of the year.
The modest size of current wage demands is one reason why.
Even the money at issue in the high-profile American Airlines
-----------------------------
-------- Copyright (C) 1997 Bloomberg, L.P.
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Bloomberg-all rights reserved. Fronk fur t:69-920410 Hong Kong:2-521-3000 London: 171-330-75M New York:212-318-2000
Princeton;609-279-3000 Singapore, 226-3000 Sydney:2-9777-8600 Tokyo -3-3201-8900 G267 -502 -1t14 -FC 20927-100409:41
Minnesota Department of Trade and Economic Development (DIED)
Business and Can nu pity Development Division
500 Metro Square
.�
121 7th Place East •
Saint Paul, MIV SS101-2146 ,
612/2965005 (Metro arca)
. o •
1500-6575858 (Toll free) •.t
Fax: 612/2965287
TTY/TDD: 61212825142 • '••••••''
Public Facilities Authority
Water Pollution Control Revolving Fund
Program purpose:
To enable borrowers to finance wastewater facilities that meet effluent standards
mandated under the Clean Water Act.
How it works:
The Authority provides below-market rate loans to borrowers for upgrading and
constructing wastewater facilities.
Eligible applicants:
Any home rule charter or statutory city, county, sanitary district, Indian tribe or
tribal organization, or other governmental subdivision having primary
responsibility for wastewater treatment.
Minimum
Projects must be included on the Minnesota Pollution Control Agency's (PCA)
requirements:
Project Priority list and Intended Use Plan (IUP). Projects must be certified by
PCA before the Authority can consider approving a loan. The applicant must
demonstrate that complete financing of the project is in place.
Eligible projects:
Allowable costs as defined in the Clean Water Act include site preparation, but not
land cost; construction costs; engineering costs; costs of equipment or machinery;
bond issuance costs; and certain fees and contingency costs.
Interest rates:
Rates are determined by the Quarterly Set Rate minus discounts based on
demographic characteristics of the borrower; or borrowers may negotiate a discount
off the rate of the Authority's Bond.
Terms: Loans are amortized up to a maumum of twenty years.
Applications accepted: On a year-round basis using the Business and Community Development
application. The NP is compiled by PCA once a year in the fall but may be
amended during the year.
Approval authority: Public Facilities Authority
Disbursement of funds: Loan funds are disbursed on a monthly basis as costs are incurred.
Contact: DTEDBusiness and Community Development Division at 612/296-5005.
11 •9+400
maNNE9OTA POLLunON CONTROL AGENCY
REVOLVING LOAN PROGRAM
1 Introduction
was created under the State Revolving Fund (SRF) provisions in the
The revolving loan program provide fimacial assistance for w� pollution control projects.
Federal Clean Water Ad (Ad) top {�
Kmesota's revolving loan program provides loans to =,nicipal'mes planning, design and
construction of wastewater treatment projects. 'Ile goals of the Minnesota Revolving Loan
Program are as follows:
• To leverage the federal capitalization grants, if necessary' so that loans below the market rate
are available to all municipalities on the MPr'
Oft Project Prft List(PPL) to assist them to
attaining and maintaining compliance with federal and state water Quality standards.
• To assist financially hardship communities by providing loans below the market rate, which
can be used in combination with other sources of grant funds.
• To administer the Fund so that its revolving nature is assured in pecpetnity-
The Department of Trade and Economic Development's Public Facilities Authority administrates
the loan application and the distribution of funds. The loans are or the perkxL work is
Current interest rates are approximately 4 percent. The City requests
accomplished on a monthly basis for the planning, design and construction. The city must retain
a nationally recognized bond counsel to work in conjunction with the Public Facilities Authority's
Hail law firm, to prepare dye G.O. Note. After
bond counsel, Paul Tiesz of the Popham, y
preparation of the documents and receipt b the Public Facilities Authority, the city may begin
submitting payment requests to draw down funds on the loan as costs are incurred. The city will
have approximately 18 months of 0% interest before the interest starts accruing; first principal
and interest payment will be due at approximately 24 months. Payments on all loans are semi-
annual and are due on February 20 and August 20.
The basic requirements for a construction loan are as follows:
• City must request placement on MPCA's Project Priority List (PPL). This is acceomplished
by writing a brief letter to the MPCA which outlines the need for wastewater improvements
and the estimated cost of the improvements.
• The City must complete a Wastewater Facility Plan and submit it to the MPCA for review
and approval. The Facility Plan includes the following items: land use and population
projection for a twenty-year planning period; projections of wastewater flow and loadings;
evaluation of existing wastewater treatment facility; evaluation of viable wastewater treatment
alternatives for the necessary improvements; recommend the most cost-effective and viable
0 ,
alternative for the improvements; and provide an implementMion phn fix the recommended
alternatives.
• City must request placement on the Intended Use Plan (IUP) which includes the following.
a brief description of the project
a proposed project schedule
a project cost estimate and desired loan amount
a breakdown of estimated quarterly cash now needs.
The request for placement on the 1494 IUP must be submitted to the MPCA. 'Ile only
limitation to placement on the IUP is that a municipality seeking a Iona for construction mint
first receive preliminary approval of a facilities plan. 'Ile NP is amended throughout the
year to include additional projects.
• The City must complete Plant and Specifications for the wastewater went improvements
and submit them to the MPCA for review and approval.
• Once the Plans and Specifications have been approved by the MPCA, the ?APCA certifies the
project to the Department of Trade and Economic Development (DTED). DTED submits the
loan application to the City. The loan application is completed by the City and approved by
DTED and loan funds are awarded.
• City has to certify that it has established a Sewer Use Ordinance and a Sewer Rate
Ordinance.
• Full-time resident inspection has to be provided during the constraetion of the project.
• An Operations and Maintenance manual has to be provided and a start-up evaluation report
has to be completed one year after the project has been completed_