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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