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HomeMy WebLinkAbout9.a. Approval of issuance of revenue bonds by MVTA 4ROSEN4OUI\flT EXECUTIVE SUMMARY CITY COUNCIL City Council Regular Meeting: January 15, 2013 AGENDA ITEM: Approval of issuance of revenue bonds AGENDA SECTION: by MVTA New Business PREPARED BY: Dwight Johnson, City Administrator AGENDA NO. q. . ATTACHMENTS: Resolution, Bond Counsel memo, APPROVED BY: PowerPoint presentation RECOMMENDED ACTION: Approve the attached resolution authorizing the sale of revenue bonds by MVTA BACKGROUND The Minnesota Valley Transit Authority (MVTA) is seeking approval of each of its members for the issuance of revenue bonds to expand the Eagan Bus Garage. Approval of each of the seven members is required for the proposal to proceed. The proposal indicates that the revenue bonds will not obligate City funds in any way and will be issued in a total amount not to exceed $7 million. DISCUSSION MVTA Bond Counsel Stephen Bubul will be present to discuss the proposal and answer questions. Staff has discussed the proposal with Mr. Kabul and Terri Heaton of Springsted and has also reviewed the documents. The one potential impact on the MVTA cities is that the one-seventh of the bond amount ($1,000,000)will count against the each city's bank qualification cap for 2013. If a city sells a total of more than$10 million in bonds in 2013, there would be some negative impact since bank qualification status would be lost,reducing the potential market for the bonds. Rosemount expects to be well below this cap in 2013, so it is not a factor for us. RECOMMENDATION Since the proposed revenue bonds will have no negative impact or risk for Rosemount and will help MVTA to continue to provide service to its member communities, staff recommends approval of the resolution. CITY OF ROSEMOUNT DAKOTA COUNTY, MINNESOTA RESOLUTION 2013 - APPROVING ISSUANCE OF REVENUE BONDS BY THE MVTA TO FINANCE EXPANSION OF THE EAGAN BUS GARAGE BE IT RESOLVED By the City Council (the "Council") of the City of Rosemount (the "City") as follows: Section 1. Recitals. 1.01. The City is a member of the Minnesota Valley Transit Authority (the "Authority"), which is a joint powers entity organized pursuant to Minnesota Statutes, Section 471.59 and Sections 473.384 and 473.388. 1.02. The Authority owns and operates a public transit system (the "System") under a Second Amended and Restated Joint Powers Agreement of the Minnesota Valley Transit Authority, effective as of October 11,2012 (the"JPA") between five cities and two counties (the "Parties"). 1.03. Under the JPA, the Parties also established the MVTA Bond Board (the "Bond Board"),which may issue bonds or obligations on behalf of the Parties, under any law by which any Party may independently issue bonds or obligations, and may use the proceeds of the bonds or obligations to carry out the purposes of the law under which the bonds or obligations are issued; provided that such bonds or obligations shall be issued only to carry out the powers and duties of the Authority described in the JPA. 1.04. Pursuant to the JPA, and Minnesota Statutes, Section 471.59, subd. 11, the Bond Board may issue bonds and obligations only in accordance with express authority granted by the action of the governing bodies of each Party, which bodies must each approve the Bond Board decision to issue bonds and obligations. 1.05. The Bond Board has determined that is in the interest of the Authority and the Parties to finance the acquisition and betterment of an expansion to the Eagan Bus Garage operated by the Authority (the "Project"), through issuance by the Bond Board of revenue bonds secured solely by specified revenues of the Authority (the "Bonds"),as described in this resolution. 1.06. The Bond Board has further determined that it is in the best interest of the Bond Board and the Authority to negotiate the sale of the Bonds with the advice and assistance of Springsted, Incorporated ("Springsted) as the Bond Board's financial advisor. 1.07. The Bond Board has also determined that it is in the best interest of the Bond Board and the Authority to negotiate the sale of the Bonds to Dougherty& Company LLC ("Dougherty"). 417146v1 SJB MN455-3 RESOLUTION 2013- Section 2. Authorization. 2.01. The Council expressly approves the issuance of the Bonds by the Bond Board in a maximum principal amount of$7,000,000, and expressly authorizes the Bond Board to negotiate all terms of sale of the Bonds to Dougherty,including without limitation maturities and interest rates. 2.02. Nothing in this resolution is intended, or will be construed, to pledge the City's full faith and credit or taxing power to the Bonds, or to pledge any City funds or assets of any kind as security for the Bonds, it being understood that the Bonds will be secured solely by specified revenues of the Authority. 2.03. For the purposes of Section 265(b)(3)(C)(iii) of the Internal Revenue Code of 1986 as amended (the "Bank Qualification Act"), the City agrees,with all other Parties, that: (a) all the Parties receive benefit from issuance of the Bonds, in that the Parties jointly own and operate the System, and the Bonds will finance the Project,which is part of the System; (b) an equal allocation of such benefits among all Parties (i.e., one-seventh) bears a reasonable relationship to the respective benefits received by each Party;and (c) the City irrevocably agrees to allocate one-seventh of the principal amount of the Bonds to the City in calendar year 2013 for the purpose of determining the City's status as a"qualified small issuer" in 2013 under the Bank Qualification Act. 2.04. The City's approval of issuance of the Bonds is subject to approval by the governing body of each Party as to the issuance of the Bonds substantially as described in this resolution. 2.05. The Mayor and City Clerk are authorized and directed to execute any documents required by the Authority or its bond counsel in order to effectuate the intent of this resolution. 2.06. City staff and consultants are authorized and directed to take all other actions required to carry out the intent of this Resolution. Section 3. Effective Date. 3.01. This resolution is effective upon approval by this Council. 3.02. If a bond purchase agreement for purchase and sale of the Bonds as described in this resolution has not been approved by this Bond Board by September 1, 2013, this resolution is deemed to be expired and the authorizations described herein terminated. 417146v1 SJB MN455-3 2 RESOLUTION 2013- ADOPTED this 15th day of January,2013. William H.Droste,Mayor ATTEST: Amy Domeier,City Clerk 417146v1 SJB MN455-3 3 RESOLUTION 2013- CERTIFICATE STATE OF MINNESOTA ) COUNTY OF DAKOTA ) ss CITY OF ROSEMOUNT ) I am the duly appointed,acting and qualified City Clerk of the City of Rosemount,Dakota County, Minnesota do hereby certify that I have examined the City of Rosemount records and the Minute Book of said City for the meeting of the 15th of January, 2013 and that the attached copy of the Resolution 2013 APPROVING ISSUANCE OF REVENUE BONDS BY THE MVTA TO FINANCE EXPANSION OF THE EAGAN BUS GARAGE,AND PROVIDING FOR THEIR ISSUANCE was approved and is a true and correct copy of the City Proceedings relating to said Resolution. IN WITNESS WHEREOF, I have hereunto set my hand and seal of said City this 15th day of January,2013. Amy Domeier,City Clerk City of Rosemount Dakota County,Minnesota 417146v1 SJB MN455-3 4 470 US Bank Plaza 200 South Sixth Street Minneapolis MN 55402 � (612)337-9300 telephone (612)337-9310 fax http://www.kennedy-graven.com CHARTERED MEMORANDUM TO: MVTA Member Cities and Counties FROM: Stephen Bubul, MVTA bond counsel DATE: January 8, 2013 RE: MVTA Bonds The Minnesota Valley Transit Authority ("MVTA") has proposed to issue revenue bonds in early 2013 to finance expansion of its bus garage in the City of Eagan. As you know, the MVTA recently amended its joint powers agreement to establish a separate "MVTA Bond Board" to issue the bonds. (That board is made up solely of elected officials from each member city and county, as required under Minnesota law for a joint powers entity to issue bonds.) The proposed bonds will be payable solely from revenues of MVTA, and issuance of the bonds has no impact on any member city or county, with one exception described in this memo. That exception relates to so-called"bank qualified bonds." Under federal tax law, certain tax exempt bonds may be issued as "bank qualified." Banks receive favorable tax treatment when they purchase those bonds, and they receive almost no benefits from purchasing other tax exempt bonds that are not "bank qualified." Therefore, bank qualified bonds have a larger potential market, and usually bear slightly lower interest rates. (The actual difference in rate varies daily depending on market conditions.) Issuers may designate their tax-exempt-exempt its bonds as bank qualified only if the issuer expects, at the time of issuance, that it will issue no more than $10,000,000 of tax- exempt obligations in that calendar year. The $10,000,000 limit renews each year, so the MVTA bonds create a question only for 2013. The MVTA bonds are unusual, in that they are issued by the MVTA Bond Board, and secured solely by MVTA revenues; but for purposes of federal tax law they are considered to be issued on behalf of all seven member entities. The result is the MVTA MN455-3 bonds must be "allocated" to all members for purposes of determining each member's ability to issue bank qualified bonds. In other words, when each city and county is adding up the bonds it expects to issue in 2013, it must include it's allocable share of the MVTA bonds. All seven members of the MVTA have an equal interest in the MVTA, so each entity is allocated one-seventh of the MVTA bonds for this purpose. The MVTA bonds are expected to be issued in a principle amount not to exceed $7,000,000. Therefore, each member entity will be allocated up to $1,000,000 of those bonds for purposes of that member's $10,000,000 bank qualified bond limit. For example, assume that City X expects to issue $5,000,000 of tax exempt bonds in 2013. Of the MVTA bonds, up to $1,000,000 in principle amount will be allocated to City X, so that City X must now count $6,000,000 toward its $10,000,000 bank qualified bond limit. All of City X's 2013 bonds may still be issued as bank qualified bonds, and the one-seventh allocation of the MVTA bonds has no consequence for City X. Likewise, assume that City Y expects to issue more than $10,000,000 of tax-exempt bonds in 2013. None of those bonds may be designated as bank qualified, because the City already expects to exceed the limit. Therefore, any allocation of MVTA bonds to City Y has no consequence for City Y's ability to issue bank qualified bonds. MVTA staff and consultants have worked with each City and County, and have determined that all members fall into one of those two scenarios: they expect to issue significantly less than $10,000,000 in 2013; or they already expect to issue more than $10,000,000. Therefore, the allocation of one-seventh of the MVTA bonds to each member has no bank qualification consequence—or any other financial consequence— for any MVTA member. Each city council and county board is requested to approve a resolution that expressly authorizes the MVTA Bond Board to issue revenue bonds in an amount not to exceed $7,000,000. In that resolution, each body also agrees to the allocation of one-seventh of the MVTA bonds to that entity for purposes of bank qualification. Note that the MVTA is not requesting that member entities designate any portion of the MVTA bonds as bank qualified, and the MVTA Bond Board does not expect to make such designation for the MVTA bonds. This is because some the members expect to exceed their 2013 bank qualified bond limit, and can't designate their portion as bank qualified. If you have any questions about this memo,please contact MVTA staff or me. MN455-3 Minnesota Valley Transit Authority Member City Request for Authorization to Issue $7 million MVTA Revenue Bonds 1 Purpose of Bond Issue •To finance an expansion of the bus garage in Eagan, MN •Total project cost is approximately $10 million. –Already financed the land and soft costs with funds on hand –Counties Transit Improvement Board (CTIB) and Dakota County Regional Railroad Authority (DCRRA) funds of $2.8 million will be received –Maximum Revenue Bond issue of up to $7 million including issuance costs and debt service reserve to finance remaining costs. 2 How will the bonds repaid? •Pledge of all net revenues of the MVTA operation: –Motor Vehicle Sales Tax-$11 million in 2011 –Capital Monies from National Transit Data Base Funds Available -(Regional Transit Capital Funds passed through from Met Council)-$0.5 million per year –Passenger Fares-$5 million in 2011 –Met Council pledge to retain 25% of the following year’s budgeted expenditures in fund balance at year end for the MVTA. 3 Marketability and Strength of the credit enhanced by: •One year of debt service reserve in place •Estimate of debt service of $600,000 –Assuming 20 years; 5% interest •Pursuing rated bonds and possibly insurance 4 Impact on Member Cities •No General Obligation Pledge. Only MVTA net revenues will be used to repay the bonds. If there is a shortfall, the bondholders will not be able to assess or collect from member cities. 5 Impact on Bank Qualified for member cities Bank Qualified (BQ) bonds sell at lower interest rates; • –Banks receive tax breaks for bank qualified bonds, increasing the pool of interested buyers and reducing the interest rate: issuers save money if they issue less than $10 million in bonds per year; –1/7 share or approximately $1 million to count towards each member city’s $10 million bank qualification cap 6 Impact of Bank Qualified for Member Cities –If a member city is already issuing more than $10 million in bonds •their bonds will already be non-bank qualified and the MVTA bonds will have no impact –If a member city is issuing $9 million or less •their bonds will still be bank qualified, since total issuance is less than $10 million, and there is no impact –If a member city issues between $9 million and $10 million and this issue places you over $10 million •all bonds for the issuer during 2013 must be non-bank qualified, resulting in higher rates. 7 Impact on Bank Qualified for member cities Member CityAnticipated Bond Issuance in 2013 Between $9 and $10 million—Citywill issue for Apple Valley needs over two years and will size 2013 to keep all bonds BQ Burnsville Below $9 million Eagan Over$10 million Rosemount Below $9 million Savage Below $9 million Dakota County and CDA Over $10 million Scott County and CDA Below $9 million 8 Approval Process by Resolution •All member cities must approve the issuance of the MVTA bonds: –Cap of $7 million total; commits each member to count 1/7 of bond amount in their BQ calculation in 2013 for purposes of the BQ act; –Bonds to be priced by September 1; –Springsted Incorporated as financial advisor; Dougherty Markets as underwriter -(selected through an RFP process) 9 Anticipated Timeline ProposedTimelineDescription End of JanuaryApproval by all member entities Early FebruaryConstructionbids received Late FebruaryAward of constructionbids MarchStructurebonds April-MayMarket bonds JunePricing of bonds JulyClosing of bonds 10