5. EDSR 10-08-2007 - Laserfiche WebLink

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Bank Qualification: Because the federal government restricts banks from investing in "non-bank qualified bonds", we are recommending that the first bond issue for the referendum be limited to $10,000,000. The reduction in the size of the issue should result in .2% to .25% savings in the interest rate which equates to a reduction in debt service costs of approximately $280,000 in present value dollars. In early 2008, the EDA can issue the final $2,000,000. TermlCall Feature: The Bonds are being issued fora 25-year period. Principal on the Bonds will be due on February 1 in the years 2016 through 2033. Bonds maturing February 1, 2018, and thereafter will be subject to prepayment at the discretion of the City on February 1, 2017. The remaining $2,000,000 of debt will be amortized from February 1, 2009 to 2015, thereby allowing the City and EDA to lock in the lower, longer term rates now. 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. Currently, the estimated interest rates would result in an annual debt service that would be $20,000 less than shown in the ballot question. Bond proceeds of $11,790,000 are higher than expected as well because the capitalized interest for the Bonds was able to be eliminated. 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.