12-02-85 agenda
r '
CITY OF RICHFIELD, MINNESOTA
Office of City Manager
Council Letter No. X64
Agenda December 2, 1985
The Honorable Mayor
and
Members of the City Council
.City of Richfield
Subject: (1) $18,675,000 General Obligation Temporary
Redevelopment Bonds Series 1985
(2) $6,225,000 General Obligation Refunding
Bonds of 1985
Council Members:
I. $18,675,000 GO Temporary Redevelopment Bonds, Series
1985
Sealed bids for the purchase of the $18,675,000 General,
Obligation Temporary Redevelopment Bonds will be received
until 11:30 a.m. on Monday, December 2, 1985. The bids
• will be opened and tabulated for consideration by the
city council at a special meeting at 5:30 p.m. on the
same day.
The purpose of the bonds is to provide funds for the
temporary financing of the public redevelopment costs
connected with the redevelopment tax increment district
known as the ILN. The bonds will be general obligations of
the city, for which its full faith, credit, and taxing powers
are pledged. Of course, the expected tax increment from the
tax increment district are planned to meet the debt service
. requirements.
The bonds will be issued carrying a date of December 1, 1985,
will be in denominations of $5,000 and will mature on December
1, 1988. '
This temporary three-year bond issue with the one year call
feature has been developed so that it will tie in with the
terms spelled out with CDR in the developers agreement. If
the developer is unable to arrange his financing and under-
- take the project, the city will be able to recall the bonds
and pay off all issuance and bond costs. If the project is
successful and proceeds, the city at some point over this
three-year period will replace the temporary bond issue with
a long term bond issue.
The purpose of this bond issue is to provide temporary financing
for right-of-way acquisition and public improvements to be made
in the ILN tax increment district. The proceeds of the issue
are planned to be used as follows:
Capalitized interest $ 3,641,625
Issuance Costs and Under-
writers Discount $ 215,063
Net project cost $14,818,312
$18,675,000
If the city goes to long-term financing, the city could use the
form of a single issue or a series of smaller issues depending
upon the progress of the development. As I have said before,
the use of temporary bond proceeds and ultimate permanent
financing,- is tied to the successful development performance
and assurance of new evaluation to create the tax increment
needed for long-term debt service.
The temporary redevelopment bonds are being sold at this
time to avoid possible restrictions on the sale and use of
this type of tax-exempt financing which might be imposed in
1986 by virtue of changes in legislation now under discussion
by Congress. '
It is the intention of the city not to use proceeds of the
temporary issue until such time as the city is assured that
development resulting and anticipated evaluation in tax
,increment will occur. In current market conditions, proceeds ~I
of the temporary issue can be invested at rates higher than the
net interest rate which the city will pay on the issue.
Therefore, these positive arbitrage earnings can be used to
off-set issuance and interest costs on the bonds. i
On Wednesday, November 27, 1985, Wayne Burggraaff of Evensen
Dodge, received a telephone call from Bob Stanley of Moody's
Investment Services reporting that the city will continue
its Aa rating.
Evensen Dodge is estimating that the net interest rate may
.fall in the range of 6 1/2~ t~o 7 percent. Because of the
possibility of shifts in the market that cannot be foreseen,
Evensen Dodge cannot predict what the actual rate of interest
will be when the bonds are sold on December 2, 1985. As all
members of the council and HRA are aware, there is a flood of
tax-exempt bond issues going to market at this time.
II. $6,225,000 GO Refunding Bonds of 1985
Sealed bids for the purchase of the $6,225,000 GO Refunding
bonds of 1985 will be received until 11:30 a.m. on Monday,
December 2, 1985, in the office of the city manager. Bids
will be opened and tabulated for consideration by the city
council at a special meeting at 5:30 P•m. on the same day.
The purpose of the bonds is to provide funds to refund in
advance of maturity the outstanding principal amount of the
city's general obligation redevelopment bonds of 1984, dated,
August 1, 1984. The 1984 issue was used to provide funds to
develop Godfather block redevelopment.
Council members may wish to refer to the official statement
which was provided to each member of council at the Monday,
November 25, 1985, city council meeting. The official
statement on both bond issues contains a great deal of
information that may be of interest to council members.
R ectfull b ~ted,
~ ~
ohn G. Cartw t
City Manager
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