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HomeMy WebLinkAboutAgenda - 03-17-2009 - 4m ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: March 17, 2009 Action Agenda Item No. 4 - m SUBJECT: Adoption of Resolution Approving Alternative Financing for Capital Projects and Equipment DEPARTMENT: Financial Services PUBLIC HEARING: (YIN) No ATTACHMENT(S): INFORMATION CONTACT: Resolution Gary Humphreys 919-245-2453 Robert Jessup 919-933-9891 PURPOSE: To adopt a resolution approving the Financing for Capital Projects in the amount of $30,917,000. BACKGROUND: The Orange County Board of Commissioners has previously approved the capital projects and the issuance of alternative financing by the use of an installment contract as authorized under section 160A — 20 of the North Carolina Statutes to finance capital projects and equipment in an amount not to exceed $33,617,000 as shown below: • Acquisition and equipping of the county portion of the Gateway Center, county office building, and library known as the County Campus Project $25,000,000 • Parks and Open Space projects $5,500,000 • Affordable Housing projects $1,400,000 • Property Management and Information System (PIMS) $1,500,000 • Solid Waste Equipment $217,000 In addition the Board has made the necessary findings of fact and conducted a Public Hearing concerning the projects and proposed financing as prescribed under the guidelines of the Local Government Commission. The next step is for the Board to make a determination to proceed with financing and direct staff to execute documents and complete the closing of the financing through the adoption of the attached resolution. Pending Board approval, the Local Government Commission would subsequently consider approval of the financing arrangements at its April 7, 2009 meeting. Normally banks are not allowed to deduct the interest expense of carrying tax-exempt municipal obligations. There is a small issuer exception under the tax code (known as bank qualified) which allows a bank to deduct 80% percent of interest expense of carrying a qualified tax- exempt municipal obligation. The American Recovery and Reinvestment Act of 2009 (ARRA) raised the small issuer exemption for tax exempt financing to $30 million. This enables the banks to offer a better rate. 2 The request for proposal asked for both bank qualified and non-bank qualified rates for terms of both 15 and 20 years. The County received proposals from six banks. After evaluating the financing proposals, staff determined the most advantageous way to proceed and achieve the lowest interest cost was to take the following steps: • Proceed with alternative financing for the Parks and Open Space and Affordable Housing projects rather than pursue General Obligation Financing. • Approve bank qualified rates for the tax exempt capital project financings for a 15 year term The savings for the County of borrowing at the bank qualified rates being recommended is $1,399,000 as compared to the lowest non-bank qualified rates proposed. The lowest rates for each financing alternative are shown below with the recommended alternative underlined in bold: 15 Yr 20 Yr 16 Mo 59 Mo 59 Mo Capital Capital Taxable Equip PI MS Rate Type Projects Projects Bank Qualified 3.60% 4.37% 3.050% 3.05% Non Bank Qualified 4.17% 4.87% 5.26% 2.975% 2.975% Staff and Bond Counsel recommend approval to proceed with the following financing proposal with BB&T: 1. $28,200,000 at a bank qualified tax exempt rate of 3.6% for a term of 15 years a) County Campus $25,000,000 b) Parks and Open Space $ 2,800,000 c) Affordable Housing $ 400,000 2. $1,000,000 at a taxable rate of 5.26% for a term of 16 months for Affordable Housing (Eno Haven project) 3. $1,717,000 at a bank qualified tax exempt rate of 3.05% for a term of 59 months a) Property Mgt Info System $1,500,000 b) Solid Waste Equipment $ 217,000 You will notice the recommended rate of 3.05% for#3 above is slightly higher than a non- bank qualified rate of 2.975% that was proposed by another bank. Staff has made this recommendation because interest savings over the life of the loan of approximately $3,600 is more than offset by additional fees and costs in completing a separate financing. In order to qualify for the small issuer exemption, staff is proposing to decrease the Parks and Open Space amount from $5.5 million to $2.8 million. The remainder of $2.7 million for Parks and Open Space would be issued when financing is sought for elementary 11 in the first part of 2010. The $2.8 million being financed should be more than sufficient to cover project expenditures until the remainder is financed. However, should expenditures exceed this amount before the next financing, funds can be advanced and be reimbursed when the remainder is 3 financed. Staff recommends an appropriation of the full $5.5 million for Parks and Open space projects be brought to the Board to allow this flexibility. The Parks and Open Space projects to be financed are: • Lands Legacy $2,800,000 • Twin Creeks Park $1,000,000 • Fairview Park $ 700,000 • Homestead Aquatics Center and Park $ 500,000 • Northern Human Service Center Park $ 500,000 FINANCIAL IMPACT: The debt service for the recommended financing proposals would require $1.725 million in FY 2009-10 with the highest debt service payment of $3.189 million falling in FY 2011-12. The tax rate equivalent of the highest debt service payment in FY 2011-12 is estimated to be approximately 1.92 cents. The tax rate equivalent for FY 2009-10 debt service is estimated at approximately 1.12 cents. These tax rate equivalents are lower than the estimated tax rate equivalents of 2.33 cents for the highest debt service payment and 1.39 for FY 2009-10 provided on March 3, 2009. RECOMMENDATION(S): The Manager recommends the Board authorize staff to proceed with the recommended financing proposals by adopting the resolution directing staff to execute documents and complete the closings of the financings. 4 Resolution Providing Final Approval of Terms and Agreements For County's 2009 Alternative Financing WHEREAS: The Orange County Board of Commissioners has previously determined to undertake certain capital projects (together, the "Project"), as further described below: Project Approximate Amount To Be Financed Acquisition and equipping of County $25,000,000 portion of Gateway Center, County office building and library, and library development Parks and open space projects $2,800,000 Affordable housing projects $1,400,000 Solid waste equipment $217,000 Property management information system $1,500,000 The Board has previously made a preliminary determination to finance costs for these projects by the use of an installment contract, as authorized under Section 160A-20 of the North Carolina General Statutes. The County has solicited competitive proposals from banks to provide the desired financing, and Branch Banking and Trust Company (the "Bank") has submitted the best overall proposal. BE IT RESOLVED by the Board of Commissioners of Orange County, North Carolina, as follows: 1. Determination To Proceed with Project-- The Board confirms its decision to carry out the Project. The County will carry out the Project with financing from the Bank, substantially in accordance with the financing proposal from the Bank dated March 2, 2009. 5 Under the financing plan, the Bank will make funds available to the County for use on Project costs. The County will repay the amount advanced, with interest, over time. The County will grant to the Bank a mortgage-type interest in the new County office building, the new library and the County's interest in the Gateway Center to secure the County's repayment obligation. 2. Direction To Execute Documents -- The Board authorizes and directs the Board's Chair, the County Manager and the County Finance Officer, or any of them, to act on the County's behalf and execute and deliver all appropriate Agreements and other documents (the "Agreements") for the proposed financing. It is the Board's understanding that the Agreements will be in forms acceptable to the North Carolina Local Government Commission, and substantially similar to those used by the Bank in similar financings provided to the County and other North Carolina local governments. The execution and delivery of any document by an authorized County officer will be conclusive evidence of the approval of the final form of such document. The Agreements in final form, however, must provide (a) for the amount financed not to exceed $30,917,000, (b) for a financing term not to extend beyond December 31, 2024, and (c) for annual interest rates not to exceed the applicable rates stated in the Bank's proposal (in the absence of a default, or a change in tax status). 3. Authorization to Officers To Complete Closing — The Board authorizes and directs the Finance Officer and all other County officers and employees to take all proper steps to complete the financing pursuant to the Agreements and as contemplated by this resolution. The Board authorizes and directs the Finance Officer to hold executed copies of all documents and instruments authorized or permitted by this resolution in escrow on the County's behalf until the conditions for their delivery have been completed to such officer's satisfaction, and thereupon to release the executed copies of such documents and instruments for delivery to the appropriate persons or organizations. Without limiting the generality of the foregoing, the Board specifically authorizes the Finance Officer to approve changes to any documents previously signed by County officers or employees, provided that such changes do not conflict with this resolution or substantially alter the intent of the document from that expressed in the form originally signed. The Finance Officer's authorization of the release of any such document for delivery will constitute conclusive evidence of such officer's approval of any such changes. In addition, the Finance Officer is authorized and directed to take all appropriate steps for the efficient and convenient carrying out of the County's on-going responsibilities under the Agreements. This authorization includes, without limitation, contracting with third parties for reports and calculations that may be required under the (0 Agreements. 4. Resolutions As To Tax Matters; Obligations are "Bank-Qualified" -- (a) The County will not take or omit to take any action the taking or omission of which will cause its obligations to pay principal and interest (the "Obligations") under the Agreements to be "arbitrage bonds," within the meaning of Section 148 of the "Code" (as defined below), or "private activity bonds" within the meaning of Code Section 141, or otherwise cause interest components of the installment payments to be includable in gross income for federal income tax purposes. Without limiting the generality of the foregoing, the County will comply with any Code provision that may require the County at any time to pay to the United States any part of the earnings derived from the investment of the financing proceeds. In this resolution, "Code" means the United States Internal Revenue Code of 1986, as amended, and includes applicable Treasury regulations. (b) The County designates its payment Obligations as "qualified tax-exempt obligations" for the purpose of Code Section 265(b)(3), which provides certain tax advantages for financial institutions providing financing to the County. (c) Notwithstanding the foregoing, the County intends that $1,000,000 of the amount financed for affordable housing purposes will be financed as taxable financing. The Board directs the Finance Officer to take appropriate steps to confirm such portion as taxable financing. S. Miscellaneous Provisions -- All County officers and employees are authorized and directed to take all such further action as they may consider necessary or desirable in furtherance of the purposes of this resolution. All such prior actions of County officers and employees are ratified, approved and confirmed. Upon the absence, unavailability or refusal to act of the County Manager, the Board's Chair or the Finance Officer, any other of such officers may assume any responsibility or carry out any function assigned in this resolution. All other Board proceedings, or parts thereof, in conflict with this resolution are repealed, to the extent of the conflict. This resolution takes effect immediately. Resolution supporting an application to the Local Government Commission for its approval of alternative financing arrangements for the County WHEREAS, The Orange County Board of Commissioners has previously determined to undertake certain capital projects, as further described below: Project Approximate Amount To Be Financed Acquisition and equipping of County $25,000,000 portion of Gateway Center, County office building and library, and library development Parks and open space projects $5,500,000 Affordable housing projects $1,400,000 Solid waste equipment $217,000 Property management information $1,500,000 system The Board has previously made a preliminary determination to finance costs for these projects by the use of an installment contract, as authorized under Section 160A-20 of the North Carolina General Statutes. Under the guidelines of the North Carolina Local Government Commission, this governing body must make certain findings of fact to support the County's application for the LGC's approval of the County's proposed financing arrangements. BE IT RESOLVED by the Board of Commissioners of Orange County, North Carolina, that the County confirms its preliminary determination to carry out and finance the projects described above. The Board will make a final determination of the projects and amounts to be financed, and make a final approval of financing terms and conditions, by a subsequent resolution. BE IT FURTHER RESOLVED that the Board of Commissioners makes the following findings of fact: (1) The proposed projects are necessary and appropriate for the County under all the circumstances. The Gateway Center, office building and library projects will provide needed space for County functions in a cost-effective manner. The parks, open space and affordable housing projects will help carry out County policies that have been repeatedly approved by the Board. The solid waste and property management information system projects will provide needed equipment useful in maintaining and improving the efficiency of County operations. (2) The proposed installment financing is preferable to a bond issue for the same purpose under all the circumstances. The County has no meaningful ability to issue general obligation bonds for the Gateway Center, office building, library, solid waste equipment or PIM system. These financings are for discrete facilities and therefore particularly suitable for installment financing. Although the parks, open space and affordable housing projects represent projects for which the County's voters have approved general obligation bonds, it is more cost effective to finance those projects in this larger installment financing than to proceed with a separate bond financing for the relatively small amount of authorized bonds. None of these projects will produce any revenues that could be used to support a self-liquidating financing. The County has chosen to finance these projects through installment financing as part of a balanced capital finance program that includes both installment financings and voter-approved bonds. (3) The estimated sums to fall due under the proposed financing contract are adequate and not excessive for the proposed purpose. The County will obtain competitive lending proposals, and will closely review proposed lending rates against market rates with guidance from the LGC. Amounts to be financed for each project will reflect contract prices or other firm costs, except that the amount to be financed now for the PIM system reflects an estimate of initial financing needs and may be supplemented. (4) As confirmed to the Board at this meeting by the County's Finance Officer, (a) the County's debt management procedures and policies are sound and in compliance with law, and (b) the County is not in default under any of its debt service obligations. (5) The County estimates that debt service on this financing will have a maximum tax rate equivalent impact of approximately 2.33 cents. This debt service impact will be higher in initial years, although the County expects to complete financing arrangements that reduce debt service payable in the 2009-2010 fiscal year. This debt service impact is contemplated in the County's existing capital investment program and is consistent with the Board's previously-approved debt policies. (6) The County Attorney is of the opinion that the proposed projects are authorized by law and are purposes for which public funds of the County may be expended pursuant to the Constitution and laws of North Carolina. BE IT FURTHER RESOLVED that all actions of the County's Finance Officer and other County representatives in filing an application with the LGC for its approval of the project and the proposed financing arrangements, and otherwise in furtherance of the completion of the contemplated financing, are ratified, approved and confirmed, and that this resolution takes effect immediately. * * * * * * * I certify that the foregoing resolution was duly adopted at a meeting of the Board of Commissioners of Orange County, North Carolina, duly called and held on March 3, 2009, and that a quorum was present and acting throughout such meeting. Such resolution remains in full effect as of today. Dated this day of i /, , 2009. rSFAL} \ \ ,/.61 ,6Z,______ kDonna Baker Clerk, Board of Commissioners v ,, tI Orange County, North Carolina