ITEM 6.3 Adoping City Policy regarding conduit Debtot CITY OF
go
MINNEOTA
DEPARTMENT INFORMATION
Request for
City Council Action
ORIGINATING DEPARTMENT:
REQUESTOR.
MEETING DATE:
Administration
Lori Johnson,, City Administrator
July 8, 2013
PRESENTER(s):
REVIEWED BY:
ITEM #.
Lori Johnson, City Administrator
6.3
AGENDA ITEM DETAILS
RECOMMENDATION:
Adopt the attached City Policy and Guidelines Regarding Conduit Debt with adjustments, if any, from the
Council.
ARE YOU SEEKING APPROVAL OF A CONTRACT?
No
IS A PUBLIC HEARING REQUIRED?
No
BACKGROUNDIIJUSTIFICATION,
The need to adopt a policy for the issuance of conduit debt was brought to the Council's attention
previously at which time the Council indicated its support for the issuance of such debt in certain
circumstances. However, adoption of a policy for the issuance of conduit debt was not a priority until
the recent request from Guardian Angels for the City to issue conduit debt for the Evans Park senior
housing project in Albertville. The City of Albertville was not able to accommodate Guardian Angels'
request because of the size of the bond issue prompting the request to Otsego. Therefore, a draft policy
is attached for your review and adoption prior to processing the Guardian Angels' request for issuance
of approximately $9,500,000 of conduit debt.
Before adopting a policy for the issuance of conduit debt, sometimes referred to as private activity
bonds, it is important to understand the affect the issuance of this type of debt has on the City. The
Government Accounting Standards Board defines conduit debt as "Conduit debt obligations are certain
limited -obligation revenue bonds, certificates of participation, or similar debt instruments issued by a
state or local governmental entity for the express purpose of providing capital financing for a specific
third party that is not a part of the issuer's financial reporting entity. Although conduit debt obligations
bear the name of the governmental issuer, the issuer has no obligation for such debt beyond the
resources provided by a lease or loan with the third party on whose behalf they are issued." The
issuance of conduit debt does not affect the City's bond rating, debt limit, or create a liability for
payment of the debt. The City is simply the means or "conduit" for issuing the debt. It does, however,
count toward the $10,000,000 bank qualified limit.
Attached are a draft City Policy and Guidelines Regarding Conduit Debt (Policy) and application form.
The Policy outlines the conditions under which the City will issue conduit debt including the option to
issue debt for projects outside of the City if the jurisdiction in which the project is located has approved
and supports the project. Debt issued for projects within the City must be compatible with the City's
overall development goals, meet all planning and zoning requirements, and the applicant must be of
good financial standing. In all cases, the City retains the right to deny any application at any point
through the process. The applicant is responsible for payment of all costs for the issuance of the debt
including t he City's costs for legal and ad rn I n ist rative review. In addition, most jurisdictions co Ilect an
issuance fee. The Policy proposes a $3,,000 application fee and a .50 percent of par issuance fee. The
fees are set at the discretion of each jurisdiction; typical fees range from no fee to one percent with
most falling between . 25 to .50 percent. The Council may adjust the issuance and application fees as
you deem appropriate. The issuance fee maybe used as the Council wishes; there are no additional
restrictions on the use of the funds. Further, the Policy states that the applicant must reimburse the
City for the additional interest cost of exceeding the and qualified limit if the City issues more than
$10,000,000 of debt in the calendar year.
Finally, the intent of the Policy as drafted is to protect the City and give the City flexibility in determining
when and if the City will issue conduit debt. As I stated earlier, the City always retains the right to deny
a project at any time through the process. When reviewing the Policy, the Council should consider the
terms u n d e r which issuance is allowed pe r the policy anal mare adjustments to meet the City's goals and
determine if the fees proposed are acceptable. The City Attorney and I will be prepared to review the
Policy and answer questions at the Council meeting.
SUPPORTING DOCUMENTS- X ATTACHED DNI NE
City Policy and Guidelines Regarding Conduit Debt
Application for Conduit Revenue Bond Project Financing
POSSIBLE MOTION
Please word motion as you would like it to appear in the minutes.
Motion to approve the City Policy and Guidelines Regarding Conduit Debt (with changes, if any).
BUDGET INFORMATION
FUNDING: I BUDGETED: ❑YES
N/A
NO
ACTION TAKEN
Ei APPROVED AS REQUESTED ii DENIED n TABLED n OTHER (List changes)
COMMENTS:
Y 0
ot C 1 Te F 0
MINNESOTA g
City Policy and Guidelines Regarding Conduit Debt
Authority
The City of Otsego is granted the power to issue conduit revenue bonds and other conduit
revenue obligations under Minnesota Statutes, Section 469.152-469.165, as amended, and
Minnesota Statutes, Chapter 4620, as amended (the "Conduit Bonds Acts"). The Otsego
City Council has expressed its support for the use of such financing but has reserved the
right to approve or reject projects on a case-by-case basis. The following criteria have
therefore been developed as a guide for review of applications:
Criteria
a. The project is to be compatible with the overall development plans and objectives of the
City.
b. The project must not put a burden on existing City services or utilities beyond that which
can be reasonably and economically accommodated.
c. The applicant (and/or the lessee in the case of property to be leased) must have a good
financial standing, show a substantial net worth, or equity in the project, or both, and
have an acceptable earnings history or pro forma. Projects are to show in the application
for financing an owner equity or other collateral (such as a bank Letter of Credit, a
Bankers Acceptance, Pledge of a Certificate of Deposit, insurance company guarantee,
or similar security) which will be satisfactory to the end -lender, underwriter, or rating
agency, and applicant is to file with the City, if requested, a final statement of total costs
and project equity, certified to by an authorized officer or partner, or the individual
applicant.
d. Any offering material for must prominently state in substantially the following affect
that:
"THE CITY OF OTSEGO HAS NOT ASSUMED ANY RESP ONSI BI LITY TO
REVIEW THIS OFFERING MATERIAL AND HAS NOT RESPONSIBILITY FOR
ITS ACCURACY OR COMPLETENESS. THE CITY OF TSEGO HAS NO
FINANCIAL OBLIGATION OF ANY NATURE WITH RESPECT TO THE
OFFERED BONDS.})
e. Requests for conduit financing of projects located in another jurisdiction must have the
approval and support of that jurisdiction in order to be considered eligible by the City of
Otsego.
Procedures
a. The applicant shall make an application for financing on forms available from the
Finance Department of the City of Otsego. The completed application is to be returned
to the Administrative Services Director, accompanied by the processing fee and other
materials as required by this document, whereupon the application will be reviewed by
staff and forwarded to the City Council with a staff recommendation within 60 business
days of the complete application, processing fee, and any other required materials being
submitted. Specific findings shall be made and recited regarding the criteria as well as
satisfaction of public purposes of the Conduit Bonds Acts.
b. The application cannot be considered by the City until tentative City Code findings and
requirements have been made with respect to zoning, building plans, platting, streets
and utility services.
c. The applicant shall submit a timetable for completion of the financing of the project. The
financing must be completed within the calendar year for which application is made, or
be subject to review and approval by the City Council.
d. The applicant is to select qualified financial consultants and/or underwriters, as well as
legal counsel, to prepare all necessary documents and materials. The City may rely on
the opinion of such experts and following submission of the application, the applicant
shall submit a financial analysis (pro forma income statement, debt service coverage,
mortgage terms, etc.) acceptable to the underwriter and lender as to the economic
feasibility of the project and the underwriter's ability to market the financing. Financial
material submitted is to also include most recent fiscal year-end, audited, financial
statements of the applicant and/or of any major lessee tenant, if readily available.
e. Further, in the case of the tax exempt mortgage placements, the applicant will be
required to furnish the City, before passage of the Final Resolution, a comfort letter (but
not necessarily a letter of commitment) from the lending institution, to the affect that said
lending institution has reviewed the economic feasibility of the project, including the
financial responsibility of the guarantors and find that, in their professional judgment, it
is an economically viable project.
f. The applicant shall furnish along with the application, a description of the project, plat
plan, rendering of proposed building, etc., and a brief description of the applicant
company, all in such form as shall be required at the time of application. Such of this
data as necessary may be furnished to members of the City Council for background
information.
g. If an allocation of bonding authority is required under Minnesota Statutes, Chapter 474A,
as amended ("Chapter 474A"), the applicant shall be required to pay any required
application fee and provide any required application deposit as specified in Chapter
474A, and without regard to whether the application fee or application deposit will be
refunded.
h. The applicant shall covenant in the applicable conduit bond documents to comply with
all applicable requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), and the applicable Treasury Regulations, including, but not limited to: (i) the
arbitrage and rebate requirements of Section 148 of the Code-, and (ii) the qualified
bonds provisions of Sections 141 (e), 142, 143� 144, and 145 of the Code. The applicant
shall be the party responsible for monitoring the conduit bonds for compliance with such
requirements and to remediate nonqualified bonds in accordance with the requirements
of the Code and applicable Treasury Regulations. The applicant shall be the party
responsible for monitoring compliance with the requirements of Section 148 of the
Code.
The applicant shall covenant in the applicable conduit bond documents to reimburse the
City for all costs paid or incurred by the City (including the fees of attorneys, financial
advisors, accountants, and other advisors) as a result of the City's response to or
compliance with an audit, inspection, or compliance check (random or otherwise), by the
Internal Revenue Service, the Minnesota Department of Revenue, the Minnesota Office
of the State Auditor, or any other governmental agency with respect to the conduit bonds
or the project financed with the proceeds of the conduit bonds. The applicant shall
reimburse the City for all costs related to exceeding the bank qualified bond limit.
j. If the applicant is requesting financing for a project not located in the City of Otsego, all
approvals from the jurisdiction in which the project is located shall be submitted with the
application or, if such approvals are in process, shall be submitted before approval of
consideration of the final bond resolution by the City of Otsego.
Administrative
a. The City Council reserves the right to deny any application for financing at any stage of
the proceedings prior to adopting the final resolution authorizing issuance of the
industrial development financing. The City Council may waive any provision of this
Conduit Bonds Policy if the City Council determines that such waiver is in the best
interests of the City.
b. The City is to be reimbursed and held harmless for and from any out-of-pocket costs
related to the actual or proposed issuance of conduit revenue bonds. A nonrefundable
processing fee of $ 3,000 must be submitted with the application. Upon closing an
issuance fee of .50% of the par amount of the bonds is due and payable to the City.
c. All applications and supporting materials and documents shall remain the property of the
City. All such materials may be subject to disclosure and/or public review under
applicable provisions of State law.
d. The Finance Department shall report all conduit debt issues in the Comprehensive
Annual Financial Report in accordance with Generally Accepted Accounting Principles
and shall report any material events with regard to all conduit debt issued by the City,
and still outstanding, to the City Council.
CITY 0
ot e F 0
MINNESOTA Og
Application for
Conduit Revenue Bond Project Financing
a. O New Facility (describe)
Located at
b. 0 Expansion (describe)
For: Land �
Building
Equipment
Loan and Legal Fees
Interest During Construction
Contingency
Other Fees and Costs
Total Cost
Less Equity
Financing Requested
a. Yes 11 Describe -
a. Are you currently located |nthe City ofOtsego? O Yes O No
b. Number ofemployees inOtsego
1 Before this project
U After this project
c. Approximate annUal sales -
d. Length of time in business - In Otsego -
e. Do you have plants in other locations? 0 Yes El No If yes, where?
a Underwriter - Firm Name Address
Representative Telephone
|. Has preliminary financial analysis by underwriter required by City policy been completed and attached to this
application along with the loan application? 11 Yes O No
b. Bond Counsel -Firm Name Address
Attorney Name Telephone
c. CorporateCounse|- Firm Name Address
Attorney Name Telephone
If yes, give details.
a. Construction start -
b. Construction completion -
11. Do you have preliminary City approval for zoning and construction? 0 Yes 0 No
a. If "'Yes", then please ask those City Departments to send preliminary approval memos to the Finance Department.
b. If ','no", then please submit preliminary site and building plans to Building & Community Standards and Public
Works Departments prior to submitting this application if possible.
--J
12. Financial References:
a. Bank
b. Mortgage
c. Other Conduit Revenue Bonds, if any (give name of Trustee)
Applicant
By:
(Print name and title)
Date
Submit application fee of $3,000 with application. Issuance fee of .50% of par amount of bonds is due at closing.
For Further Information, contact:
Finance Department
1340090th Avenue NE
Otsego, MN 55330
763-441-4414