HomeMy WebLinkAbout2.c. Private Activity Tax-Exempt Financing PolicyAGENDA ITEM: Pnvate Activity Tax Exempt Financing
Policy
AGENDA SECTION:
Discussion
PREPARED BY: Jeff May, Finance Director
AGEF) f(4 2
ATTACHMENTS: Draft Document, Fees Comparison
Worksheet
APPROVED BY:
/rr
RECOMMENDED ACTION: Discussion only.
xROSEMOUNrr
CITY COUNCIL
City Council Work Session February 15, 2006
EXECUTIVE SUMMARY
ISSUE
The issue before the City Council is the implementation of fees and procedures when private organizations
issue debt using the City's name and tax exempt status in order to reduce interest costs.
BACKGROUND
This item is on the agenda for Council to review the proposed policy that Springsted Incorporated,
financial advisors, and Briggs Morgan, bond counsel, have helped us prepare. More and more,
manufacturing and 501(c)(3) organizations are aslung government entities for their assistance when issuing
debt for improvements that occur within that taxing entity's geographic boundaries Government agencies
are making it part of their operating practice to recoup all of the expenses that they incur to assist the
apphcant. They are also commonly charging an admuustrative fee for the privilege of using their agency's
name and tax exempt status on the debt This administrative fee is typically only a small amount when
compared to the actual savings that the private organization reahzes by using the government's name and
tax exempt status.
The City has recently been contacted by both a 501(c)(3) organization and a manufacturing organization
(Flint Hills) that have an interest in the City assisting them in issuing this type of debt. We hope to have
this policy in place by the end of this month so both parties can fill out the apphcauon and begin the
process necessary to complete the transaction.
SUMMARY
After discussion this evening, staff will be bringing a final draft of the guidelines for the City Council to
approve at the February 21" meeting
ROSEMOUNT, MINNESOTA
PRIVATE ACTIVITY
TAX- EXEMPT FINANCING POLICY
February 15, 2006
Rosemount, Minnesota
Private Activity
Tax Exempt Financing Guidelines
PART I
GENERAL
Under the Minnesota Municipal Industrial development Act, Minnesota Statutes, Sections
469 152 to 469 1651 (the "Industrial Development Act the City of Rosemount, Minnesota has
authority to issue revenue bonds or notes to attract or promote economically sound industry and
commerce to the City, including the development of facilities by qualified 501(c)(3)
organizations
Under Minnesota Statutes, Chapter 462C (the "Housing Act the City is authorized to issue
housing revenue bonds to finance multi family residential housing projects for low and moderate
income persons and elderly persons
The City Council is aware that such financing for certain private activities may be of benefit to
the City and will consider requests for tax exempt financing subject to these Guidelines The
City Council considers tax exempt financing to be a privilege, not a right.
It is the judgment of the City Council that tax exempt financing is to be used on a selective basis
to encourage certain development that offers a benefit to the City as a whole, including
employment and housing opportunities It is the applicant's responsibility to demonstrate the
benefit to the City. The applicant should understand that although approval may have been
granted by the City for the issuance of financing for a similar project or a similar debt structure
that is not a basis upon which approval will be granted. Each application will be judged on the
merits of the project as it relates to the public purposes of the Housing Act or the Industrial
Development Act and the benefit to the City at the time the request for financing is being
considered
PART!!
GUIDELINES
1. The City Council will consider tax exempt financing for manufacturing and health
care facilities, and other facilities operated by qualified 501(c)(3) organizations, under
the Industrial Development Act, and housing projects under the Housing Act An
applicant for tax exempt financing pursuant to the Industrial Development Act must
submit to the City the application contained in Part IV of these Guidelines.
2. The project must be a positive benefit to the City The project must be of a nature
that the City wishes to attract, or an existing business which the City wishes to retain
or expand within the City, considering employment opportunities, incentive for further
development, impact on City services, and support for the industnai, commercial or
health care operations currently located in the City A housing project must provide
significant housing opportunities for low and moderate income persons or the elderly.
3 The City Council will, if requested, grant an applicant a pre application review The
purpose of the pre application review is to inform applicants of the possibility of
rejection or the possible basis for such a rejection. The fact that the project is not
rejected at the pre application stage is not to be construed as approval of the project
or as an indication that the project will be approved upon formal request to the
Council Requests for tax exempt financing may be rejected by the City whether or
not the project was submitted to a pre application review and regardless of the
outcome or recommendation of that pre application review
A request for pre application review must be in writing, addressed to the City Finance
Director, and set forth the name of the project, the type of project intended and the
name, address and telephone number of the person who will be representing the
applicant at the pre application review, together with such additional information as
the applicant desires to submit
The City will appoint bond counsel for the bond issue, which will normally be the
City's regularly retained bond counsel
4 Pursuant to the Industrial Development Act and the Housing Act, consideration of an
application for tax exempt financing must be done at a public hearing held by the
Board
5. The City is to be reimbursed and held harmless for and from any out -of- pocket
expenses related to the tax exempt financing including, but not limited to legal fees,
financial advisor fees, bond counsel fees, the City's expenses in connection with the
application, and any deposits or application fees required under state law in order to
secure allocation of bonding authority A non refundable application fee in the
amount of $5,000 must be included with the submission of the application
Prior to closing and delivery of the bonds for the project, the applicant must pay to
the City, or commit to pay, as the case may be, a one -time administrative fee equal
to 1% of bond issue amount Notwithstanding anything to the contrary herein, the
administrative fees required by this paragraph will be reduced to the extent needed
to ensure that the fee does not affect the tax exempt status of the bonds under
Internal Revenue Code of 1986, amended and related regulations
6. Should the tax exempt financing request for a 501(c)(3) project cause the City's total
bonding for the year to exceed $10,000,000 in a year that the City would otherwise
be eligible to issue bank qualified bonds, (bonds with tax incentives to banks), any
interest rate differential between bank qualified and non -bank qualified bonds shall
be estimated and the difference paid by the borrower If the City would have
exceeded this amount without the tax exempt issue, no differential would be
calculated or paid by the borrower.
7. Applications for financing must be made on the forms attached to these Guidelines.
In addition, the applicant must furnish a description of the project, together with a
brief description of applicant and the proposed financing in such form as required at
the time of application
8. The City may, in its sole discretion, withdraw its preliminary approval of a project any
time if in its judgment the purposes of the Act will not be served by going forward
with the project and it's financing
9 The City may, in its sole discretion, reduce the administrative fee in cases where the
borrower's request is related to a partnership with the City and provides a public
service benefit to the community as a whole
PART 111
MISCELLANEOUS MATTERS
1 Ratings The City will give its most favorable consideration to proposed tax exempt
bond issues that have a credit rating in the "A" category or higher by Moody's
Investment Service or Standard Poor's Corporation Issues carrying lower ratings
or non -rated issues may be sold only to institutional or other investors on a private
placement basis and must be in denominations of at least $100,000 The City
Council may depart from this guideline when, in its judgment, the project is of a level
of merit and public purpose to justify the departure, and in case of such a departure,
the City Council must state its reasons therefore in the resolution awarding the sale
of bonds
Refundinqs The City Council will normally approve the refunding of a tax exempt
issue but only upon a showing by the applicant of (i) substantial debt service savings,
(n) the removal of bond covenants significantly impairing the financial feasibility of the
project, or (m) both (i) and In the case of refunding of bonds for which the
administrative fee listed in paragraph 6 of Part II have been paid in full, a reduced
administrative fee of 25% of the bond issue amount is required, and, the full non-
refundable application fee must be paid together with all City expenses in excess of
that fee If any fees related to the initial bond issue have not been paid, such fees
must be paid in full prior to closing the refunding bonds
Subsequent Proceedings Where changes to the underlying documents or credit
facilities of outstanding bond issues are to be made and require Council action
(including changes that are a "deemed reissuance" under Internal Revenue Service
regulation), no administrative fee is charged but a non refundable fee of $2,500 must
be deposited with the City to cover administrative costs No formal application form
is required.
4. Issue by Another Political Subdivision. The City will consider requests for tax exempt
financing of projects in the City by other political subdivisions. In these cases the
non refundable application fee must be paid and all procedures through the approval
of the preliminary resolution followed. No administrative fee is charged. At the
Council's discretion, all or part of the application may be waived if there are offsetting
benefits resulting from this financing.
5. City Contact Initial contacts about tax exempt financing are made by contacting:
City Finance Director
City of Rosemount
2875 145th Street West
Rosemount, MN 55068 -4997
(651) 322-2031
6. Deadlines The City Council considers all tax exempt financing matters at regularly
scheduled City Council meetings held on the first and third Tuesdays of each month
Documents for City Council consideration must be at the City office no later than the
Friday 10 days prior to next regular Council meeting at which the matter is to be
considered In the case of a publicly offered bond issue, the documents, when
submitted, may specify a maximum price and maximum effective interest rate if
prices and rates have not yet been established
PART IV
CITY OF ROSEMOUNT, MINNESOTA
APPLICATION FOR TAX EXEMPT FINANCING
(Commercial, Industrial, Educational or Health Care)
1. APPLICANT
a. Business Name
b. Business Address
c. Business Form (corporation, partnership, sole proprietorship, etc.)
d. Authorized Representative
e. Principal contact person and telephone number
2. PURPOSE OF REQUESTED FINANCING
a. New Facility (describe)
b Expansion (describe)
c. Refunding (attach explanatory letter)
3 GIVE BRIEF DESCRIPTION OF NATURE OF BUSINESS, PRINCIPAL
PRODUCTS, ETC
4. ESTIMATED SOURCES AND USES PROJECT COSTS. (Not required for
refunding)
SOURCES:
Bond proceeds
Cash
Other Loans
Total Sources
USES'
Land
Building
Equipment
Architectural, Engineering
Cost of Issuance
Capitalized Interest
Other
Total Uses
5, TOTAL FINANCING REQUESTED of project
costs)
6 TYPE OF FINANCING PROPOSED
Bonds Tax Exempt Mortgage
Expected Term of Financing Years
Security.
Mortgage
Letter of Credit
Guaranty (third party)
Guaranty (personal)
Unsecured
Other (specify)
7 BUSINESS PROFILE (Not required for refunding)
a. Is the business located within City Boundaries?
b. Number of employees within the City of Rosemount geographic boundaries
i. Before this project
ii. After this project
c Approximate annual sales
d. Length of time in business
e. Length of time in City
f Do you have business operations in other locations? If so, where?
8 NAMES OF
a Underwriter (name and contact person)
b. Corporate Counsel
c. Underwriter's Counsel
9. WHAT IS YOUR TARGET DATE FOR
a Construction start
b. Construction completion
10, ATTACHMENTS
a. Project description materials
b. Draft resolution calling for public hearing
c Notice of public hearing
d Draft of preliminary resolution
e Draft application to Department of Trade and Economic Development
necessary attachments
f Financial feasibility letter
g. Preliminary bond counsel opinion
h. Initial filing fee (to be set by City Council)
i. Indemnification Letter of Agreement
The applicant further states that it has been furnished a copy of the City of Rosemount's Private
Activity Tax Exempt Financing Guidelines and is aware of its content and agrees to be bound by
its terms and the terms of the indemnification letter
For further information, contact
City Finance Director
City of Rosemount
2875 145th Street West
Rosemount, MN 55068 4997
(651) 322 2031
BY
DATE
Applicant
City of Rosemount Mayor
And Members of the Council
PART VI
INDEMNIFICATION LETTER OF AGREEMENT
RE. Application of for Tax Exempt Revenue Bond Financing by the City of
Rosemount
Dear Mayor and City Council Members:
This letter of agreement is given by a under the
laws of Minnesota "Applicant as required by the City of Rosemount in connection with its
consideration of an application for tax exempt revenue bond financing for the project described
in the application.
Applicant hereby covenants, warrants and agrees as follows.
1 Applicant agrees to pay or reimburse the City for any and all costs and expenses
which the City may incur in connection with its consideration of the project and the
granting of tax exempt revenue bond financing therefore, whether or not the project
is preliminarily approved by the City, whether or not the project is approved by the
Sate of Minnesota, whether or not revenue bond financing is finally approved by the
City, whether or not the bonds are issued and sold, and whether or not the project is
carried to completion.
2 Applicant agrees to indemnify and hold the City, its officers, employees and agents
harmless against any and all losses, claims, damages, expenses or liabilities,
including attorneys fees incurred in their defense, to which the City. its officers,
employees and agents may become subject in connection with the City's
consideration, issuance or sale of the bonds for Applicant's project and the carrying
out of the transactions contemplated by this agreement and any resolutions adopted,
or agreements executed by the City in connection with the issuance of its bonds for
this project.
3. Applicant here by releases the City, its officers, agents and employees from any
claims, causes of action, losses, damages, or liabilities which it may have against the
City, its officers, agents, and employees or which it may incur in connection with. the
City's consideration of the application for industrial development revenue bond
financing for Applicant's project, the failure of the City, in its discretion, to issue tax
exempt revenue bonds for Applicant's project, the issuance and sale of the bonds,
the construction of the project, or any other matter or thing of any type or nature
whatsoever which may arise in connection with the foregoing
4 Applicant is aware of the City's application and administrative fee structure for tax
exempt financing and agrees and covenants that all such fees will be paid in the
amount and at the times required
Dated: (Applicant)
By
Its
Service Fees for 501(c) Tax Exempt Debt Issuance 7-18-05 (2) (3) xis
Annual I Semi-Annual
1 1 Total
t
Resit
_LI
Fee Per
i Fee Per
Estimated
of
Outstanding 1
I Outstanding
Fee's on
Application 4--
Actual
One-Time
Principal Principal
$6 Million
City Fee Actual
Fee
Balance Balance
Minimum Maximum
Issue/20 yr
Andover
0 50%
30,000
Bloomington
1 00%
Up to $5 Million
55,000
0 50%
1 Over $5 Million
I
1
Refinancing is 50% of above costs
I
1
I
1
Burnsville Yes
15 5,000
5,000
Cottage Grove
Crystal
Eagan
2,5001±
I Yes
1 00%
411- 11 5 3,000
60,000
4 0 125%
94,449
5,00D
-4
5,000
Grand Rapids -1
Hutchinson
1,000
Yes
1 00%11
2,500 1 61,000
I 60,000
Yes
1 00%,
Jordan 2,500 Yes
11 0 125%
91,449
4--
i l 60,000
65,000
Lauderdale
Yes
1 00%
00%
1
Lino Lakes
5,000
Little Canada
1 DO%
i
«t 60,000
1 60,000
Mankato
F
Yes
1 00%
Maple Grove
5,000
Yes
1 00%
65,000
174,065
1 30,000
Minneapolis
0 00%
0 125%
111-1
New Hope
0 50%
Robbinsdale -'-t1
(Charges 5% at issuance
Rochester
0 125%
ri -1-
91,449
11- 135,872
_L_ 0 50%
125% each
0 125%
5% at 1st yr then
yr thereafter)
L
4
1 15,000
Yes
0 25%
1
5,000 25,000
Bartell
Scott County 1
050° 11 14
30,DM
50,000 4,
1, 103,949
0 25%
0 125%
White Bear Lake
1
White Bear Township
I
0 25%
I
1 1s,000
1-
0 25%,
15,000
1
I 4--
11 1
,1.- -i
TOTAL INTEREST PAID
BY ORGANIZATION
FOR
t
$6,000,000
BOND ISSUE OVER 20 YEARS: 1
Difference from 5%:
I
H -1 5 00%
3,761,078
4,197,364 436,286
5 50%
5 75% 1
1 4,419,439 1 658,361 1
6 00%
1 4,644,110 T 883,032
I
I
Service Fees for 501(c) Tax Exempt Debt Issuance 7-18-05 (2) (3) xis
6,000,000 20 YR BOND ISSUE
1
Semi Annual Outstanding Principal Balance
1.000%
0 500%
0.250%
0.125%
0.125%
6,000,000
30,000
15,000
7,500
7,500
5,941,715
7427
5,846,231
29,231
14,616
7.308 1 7,308
5,748,360 i
7,185 7
7,060 060
6,932
5,648,042
28,240
14,120
5,545,216
1
5,439,820
27,199 13,600
6,800, T$ 6,800
5331,788
6,665
5,221,056
26,105 13,053
6,526 I 6,526
f7
6,239
6,239
4,991,217 _f
24,956 12,478
4,871,971
4,749,743
L
1 6,090
I
rf-
23,749 11,874
5,937
5,937
4,624,460 r
y
j
I 5,781
5,620
5,456
5,287_
5,114
4,937
5,620
4,496,044
-t
22,480 11,240
4,364,418
10,574
5,287
4,229,502
21,148
4,091,213
I-
3 949,4666
I-
19,747
9,874
4,937
3,804,176
4,755
3,655,253
18,276
9,138
4,569 4,569
3,502,607
4,378
3,346,146
16,731 8,365
4,183
4,183
3,185,772
3,982
3,021,390
15,107 7,553 3,777
3,777
2,852,898
3,566
2,680,193
13,401
6,700 3,350
3,350
2,503,171
2321,723
3,129
11,609 5,804 2,902
2,902
2,135,739
2,670
1,945,
9,726I 4,863 2,431
2,431
1,749,707
2,187 j
1,549,422
7,747 3,874
1,937 I I 1,937
1,344,131
1,680
1,133,707
5,669 1 2,834
1,417 1,417
918,023
1,148
696,947
3,485 1,742
871 871
470,344
588
238,075
1,190
595 298 298
355,795
I 177,898 S 174,065
88,949
1 000% 0 500%
0.250% 0.125%
0.125%
Service Fees for 501(c) Tax Exempt Debt Issuance 7 -18 -05 (2) (3) xls