7.4. SR 12-17-2007 - Laserfiche WebLink

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Description: The Bonds are being issued pursuant to Minnesota Statues, Chapter 469 and 475. The Bonds are anticipated to be rated by Moody's at an "Aa3" level. Bank Qualification: Because the federal government restricts banks from investing in "non-bank qualified bonds", the EDA sold the first bond issue for this project in 2007 with a principal amount of $10,000,000. The separation of the two issues resulted in a savings of debt service of approximately $280,000 in present value dollars. In 2008, the EDA is granted another bank qualified limit of $10,000,000. We expect these bonds to be bank qualified as well. Term/Call Feature: The combined amortization of the 2007 and 2008 Bonds is fora 25-year period. The longer maturities were sold in the 2007 Bonds. Principal on the 2008 Bonds will be due on February 1 in the years 2009 through 2015. The Bonds will not be callable before maturity. Funding Sources: The Bonds are general obligations of the EDA/City and as such are secured by a pledge of the EDA/City's full faith, credit and taxing powers, with or without payments from the YMCA. It is the intent of the EDA to levy property taxes to support the two-thirds of the debt service beginning with taxes payable in 2008 for the interest payment due August 1, 2008. The bond resolution will show the EDA levying 100% of the debt service, which can be written down an annual basis from YMCA and County funding. Discussion Issues: The Bonds will be deemed 501(c)(3) bonds due to the involvement of a non-profit (the YMCA) in payment of the debt. The non-profit designation requires a public hearing, limits costs of issuance to 2% paid from bond proceeds, and changes restrictions on earning interest on the Bonds (arbitrage). Arbitrage: With increasing short-term investment rates, IRS rules regarding the amount of interest that the City may earn on bond proceeds is more of a concern. If the City spends the bond proceeds within 24 months according to specific measurements each six months, interest earned on the proceeds above the bond interest rate does not need to be rebated or repaid interest (the excess interest earnings are known as arbitrage). The City will also need to keep its debt service funds within IRS parameters to avoid penalties on carrying too high of a balance during the life of the issue.