HomeMy WebLinkAboutAgenda - 09-15-2009 - 4oORANGE COUNTY
BOARD OF COMMISSIONERS
ACTION AGENDA ITEM ABSTRACT
Meeting Date: September 15, 2009
Action Agenda
Item No. ~ -p
SUBJECT: Approval of the Preliminary Steps Necessary to Seek Qualified School
Construction Bond Financing for the Carrboro High Cultural Arts Win
DEPARTMENT: Finance PUBLIC HEARING: (Y/N) No
ATTACHMENT(S): INFORMATION CONTACT:
1) Projected Financing Schedule
2) Resolution Supporting Financing Gary Humphreys 919-245-2453
Bob Jessup 919-933-9891
PURPOSE: To approve the preliminary steps necessary to seek Qualified School Construction
Bond Financing for the Carrboro High Cultural Arts Wing.
BACKGROUND: Upon the request of the Chapel Hill Carrboro School System (CHCSS) the
Board during the budget process in June committed to the construction of the $4.6 million
Carrboro High School Arts Wing contingent upon the availability of federal economic stimulus
Qualified School Construction Bonds (QSCB). At that time the expectation was that the CHCSS
allocation of QSCB funding for 2009 and 2010 would be approximately $5.0 million. The Chapel
Hill Carrboro School System applied to the Department of Public Instruction (DPI) and received
approval to use its 2009 QSCB allocation of $1.9 million for the Arts Wing project. There is $86
million left statewide from the 2009 QSCB program which DPI is awarding in a second round
process. CHCSS submitted an application signed by the Chair for the remainder of the funding
needed for the project. Notification regarding the application is expected by mid September.
The Qualified School Construction Bonds are tax credit bonds. The issuer receives a tax credit
at an interest rate established by the Treasury Department at the time of issuance. The issuer
then provides the tax credit to the purchaser of the bonds. The potential purchaser(s) will
evaluate the financing including the issuer, the project and the tax credit rate. The potential
purchaser(s) will determine whether to purchase the QSCB, if the tax credit rate is sufficient or if
a higher interest rate is needed to make the financing. If the tax credit rate is accepted then the
interest rate paid by the issuer will be zero. If a higher rate of interest is needed then the issuer
would have to agree to pay interest on the debt at the difference between the tax credit rate and
the rate the purchaser requires. The tax credit rates are lower now than earlier in the year. This
makes it more likely that some interest would be paid on a QSCB financing. Orange County can
anticipate the interest rate for financing might be anywhere from 0% to 2.0% depending on what
occurs with the rates set by the Treasury Department.
The QCSB is a new program and there have been very limited number of participants
purchasing these bonds. Staff attended a meeting in August hosted by the NC Association of
County Commissioners along with DPI and the Local Government Commission (LGC).
Guggenheim Partners Asset Management made a presentation at the meeting. At the current
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time Guggenheim appears to be the only significant purchaser of QSCB. BB &T is expected to
make a decision regarding entering this market in September. The current approach for this
type of financing is to negotiate terms directly with the purchaser. At the current time most of
the QSCB projects are being purchased so the County should be able to finance the project
whether or not BB &T enters the market.
All QSCB financing for the funds allotted for 2009 must occur by December 31, 2009 in order to
retain the allotment. This issuance of QSCB financing must follow the normal steps through the
Local Government Commission. There will be a number of entities seeking to issue this type of
financing prior to the end of the year. There are at most only two potential financing sources
and it is anticipated there will be many discussion items at the December LGC meeting.
Therefore staff and bond counsel believe it would be prudent to put the County in the position to
complete the financing as early as possible. Staff and bond counsel are proposing a schedule
(see attached) which would enable this financing to be presented to the LGC for approval at its
November meeting which occurs November 3, 2009. Because issuance will take place prior to
December 31 there may be an interest payment due in the current fiscal year. This payment
should be under $50,000.
Bond Counsel has prepared the attached resolution which:
1) Makes a preliminary determination to proceed with financing for the Carrboro High
Arts wing project;
2) Makes certain findings of fact to support the financing;
3) Authorizes the Finance Officer to proceed with an application to the LGC and seek
financing proposals and other steps necessary to move forward with the financing;
4) Sets a public hearing for October 6, 2009; and
5) Provides for reimbursement of project expenditures from financing proceeds.
The Board will need to consider an additional resolution approving the financing which is
scheduled for consideration on October 6, 2009. The School Board will also need to hold a
public hearing and approve the financing plan. The School Board may also need to approve a
transfer of the property.
FINANCIAL IMPACT: There is no financial impact until the Board gives final approval to the
financing. It is possible that the financing will require payment of a low rate of interest. The
Board will need to consider this in giving final approval to the financing. Given the fact that the
upcoming budget and ensuing budgets are expected to be difficult the Board may wish to
consider taking the required debt service for this financing from the CHCSS portion of pay as
you go revenue. This would eliminate any potential tax impact of the financing.
RECOMMENDATION(S): The Manager recommends that the Board adopt the attached
resolution which:
1) Makes a preliminary determination to proceed with financing for the Carrboro High Arts
wing project;
2) Makes certain findings of fact to support the financing;
3) Authorizes the Finance Officer to proceed with an application to the LGC and seek
financing proposals and other steps necessary to move forward with the financing;
4) Sets a public hearing for October 6, 2009; and
5) Provides for reimbursement of project expenditures from financing proceeds.
Projected Carrboro High Arts Wing School Financing Schedule
County makes initial contact with LGC As soon as possible
State Board approves applications By mid-September
School Board develops construction As soon as possible and in any event by
estimates mid-September
County Board: adopt findings September 15 BOCC meeting
resolution, which includes
reimbursement declaration and call
for public hearing
Advertise for school board hearing By September 15
Publish notice of County public hearing By September 22
School Board: hold public hearing; October 1 school board meeting
adopt resolution approving financing
plan [and property transfer, if
necessary]
County Board holds public hearing; October 6 BOCC meeting
adopts resolution providing final
approval to financing terms and
documents
County's preliminary application due to By October 9
LGC
LGC approval November 3 (full Commission)
First available closing date November 4
R~S-aoo~-o~2 ~"
Resolution supporting an application to the Local Government Commission
for its approval of school financinE arrangements for the County
WHEREAS,
Representatives of the Chapel Hill - Carrboro Schools have described to County
staff and the Board of Commissioners the benefits of undertaking capital improvements
for City schools under the federal "Qualified School Construction Bond" program. This
program provides zero-interest or very low-interest financing for school projects. The
City Schools have applied for authorization to use up to $4.6 million in such financing to
finance the proposed arts wing at Carrboro High School.
The County is likely to undertake this financing, if it goes forward, pursuant to the
installment. financing provisions of Section 160A-20 of the North Carolina General
Statutes. The North Carolina Local Government Commission would have to approve any
such financing arrangements.
Under the LGC's guidelines, this governing body must make certain findings of
fact to support the County's application for the LGC's approval of the financing
arrangements.
BE IT RESOLVED by the Board of Commissioners of Orange County, North
Carolina, that the County makes a preliminary determination to carry out and finance the
school projects as described above. The Board will make a final determination as to
whether to proceed with this financing by a subsequent resolution. If the financing
proceeds, the Board will also make a final determination of the projects and amounts to
be financed, and give final approval to 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 proposed arts wing has been included in the County-approved
capital plan for several years, pending the availability of financing.
(2) The proposed installment financing is preferable to a bond issue for the
same purpose under all the circumstances.
The County has no ability to issue general obligation bonds for these projects
without referendum approval, and there is no time to conduct a bond referendum before
the December 31 deadline (under federal law) for completing this financing. This project
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therefore lends itself to the use of installment financing. This financing will be in keeping
with the County's approach to balance school project financing between voter-approved
bonds and installment financings.
(3) The estimated sums to fall due under the proposed financing contract will
be adequate and not excessive for the proposed purpose. The contemplated financing will
proceed only as qualified school construction bond financing carrying a zero or very low
interest rate. Amounts to be financed for each project will reflect contract prices or well-
developed engineering or architectural estimates acceptable to the County.
(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 this financing will have no tax rate impact, in
that the repayment of the amounts. financed will be within the existing resources
dedicated to school capital projects.
(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, as follows:
(a) The Finance Officer is authorized and directed to take all appropriate steps
toward the completion of the financing, including (i) completing an application to the
LGC for its approval of the proposed financing, and (ii) soliciting one or more proposals
from financial institutions to provide the financing. All actions of the County's Finance
Officer and other County representatives in furtherance of the completion of the
contemplated financing are ratified, approved and confirmed.
(b) The County intends that the adoption of this resolution will be a declaration
of the County's official intent to reimburse project expenditures from financing proceeds.
The County intends that funds that have been advanced for project costs, or which may
be so advanced, from the County's general fund, or any other County fund, may be
reimbursed from the financing proceeds.
(c) The Board will hold a public hearing on this matter on October 6, 2009.
The Clerk to this Board is authorized and directed to publish a notice of such public
hearing in the manner provided for by law.
(d) 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 September
15, 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 September, 2009.
[SEAL]
Donna S. Baker
Clerk, Board of Commissioners
Orange County, North Carolina