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<br /> <br />Item # 8.2. <br /> <br />MEMORANDUM <br /> <br />TO: Mayor and City Council <br /> <br />FROM: Lori Johnson, Finance and Administrative Services Director/Interim <br />City Administrator <br /> <br />DATE: December 19,2005 <br /> <br />SUBJECT: Request from Elk River Utilities to Adopt Resolution Giving <br />Preliminary Approval to a Project Undertaken by Utilities <br /> <br />The Elk River Municipal Utilities is undertaking capital improvement projects and needs to issue <br />$3.5 million in electric revenue bonds. The Utility Commission does not have authority to issue <br />bonds. Therefore ERMU must request that the city issue on its behalf. All bonds issued for ERMU <br />are treated the same as all other city debt and remain on the city's books and are included along with <br />all of the city's debt for coverage calculations and reporting requirements. <br /> <br />The city has issued bonds several times for ERMU. The normal process is that ERMU informs the <br />city of the amount of bonds it needs to issue and the [mance staff does all of the work and <br />preparation in issuing the bonds. The city's bond counsel and [mancial advisor prepare the legal and <br />fiscal documents for the issuance. <br /> <br />Recendy, the Minnesota Municipal Utilities Association established a bond pool to assist electric <br />utilities in issuing debt. At the November 9, 2005, Elk River Municipal Utilities Commission <br />meeting, this issue was brought to the Commission along with information on the advantages of <br />issuing with the pool. After reviewing the information, it was determined that it was more expensive <br />to issue fixed rate debt with the pool than to issue standalone debt through the city. There is a very <br />slight advantage to the pool if enough of the debt is issued as variable rate debt. However, the <br />issuance of variable rate debt is very unusual for cities and carries a risk of increased interest costs. It <br />also requires much more administrative time for monitoring and reporting. <br /> <br />The Utility Commission approved a motion to issue $3.5 million of bonds through the MCMU pool <br />with 72% issued at a fixed rate and 28% at a variable rate. John Dietz voted against the motion <br />stating that he would request that the City Council not approve the Utility's request to issue variable <br />debt through the pool. <br />