HomeMy WebLinkAbout6.e. Private Activity Tax-Exempt Financing PolicyAGENDA ITEM: Private Activity Tax Exempt Financing
Policy
AGENDA SECTION:
Consent
PREPARED BY Jeff May, Finance Director
AGEN l
r
ATTACHMENTS: Proposed Policy
APPROVED BY: fr/
RECOMMENDED ACTION: Motion to adopt a Private Activity Tax Exempt Financing
Policy for the City of Rosemount
�CROSEMOLIN "1'
CITY COUNCIL
City Council Meeting Date: February 21, 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 consider the adoption of 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 asking 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 realizes by using the government's name
and tax exempt status
The City has recently been contacted by both a 501(c)(3) organization (MRCI) and a manufacturing
organization (Fhnt 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 apphcation and
begin the process necessary to complete the transaction.
SUMMARY
Staff 1s recommending that the City Council approve the attached Pnvate Activity Tax Exempt Financmg
Pohcy for the City of Rosemount.
ROSEMOUNT, MINNESOTA
PRIVATE ACTIVITY
TAX EXEMPT FINANCING POLICY
February 21, 2006
Rosemount, Minnesota
Private Activity
Tax- Exempt Financing Guidelines
PART 1
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 quahfied 501(c)(3) organizations
Under Minnesota Statutes, Chapter 462C (the "Housing Act the City is authorized to issue housing revenue
bonds to finance mule- 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 ments 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 II
GUIDELINES
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 m Part IV of these Guidelines
3 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 washes to retain or expand within the
City, considenng employment opportunities, incentive for further development, impact on City
services, and support for the industrial, 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 apphcauon 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 recommendauon 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 represenung the applicant at the pre apphcauon
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
apphcauon fees required under state law m 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° o of bond issue
amount Notwithstanding anything to the contrary herein, the adrmnistratve 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 ehgible 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 Apphcauons 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
apphcant 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 tune 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 III
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
2 Refundings. The City Council will normally approve the refunding of atax- exempt issue but
only upon a showing by the applicant of (i) substantial debt service savings, (u) the removal of
bond covenants significanth impairing the financial feasibility of the project. or (m) both (i) and
(u). In the case of refunding of bonds for which the administrative fee listed in paragraph 6 of
Part II have been paid m full, a reduced administrative fee of 25 °,0 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 pnor to closing the refunding bonds
3 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 Pohtical Subdivision The City will consider requests for tax exempt financing
of protects 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 Deadhnes. 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 subnutted, 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
u 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 V
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 protect, 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