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HomeMy WebLinkAboutAgenda - 10-05-2010 - 4k REVISED 1015110 1 Abstract Only ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: October 5, 2010 Action Agenda Item No. Lf SUBJECT: Approval of the Preliminary Steps Necessary to Seek Qualified School Construction Bond Financing for the Chapel Hill --Carrboro City Schools and Orange County Schools DEPARTMENT: Financial Services PUBLIC HEARING: (Y/N) No ATTACHMENT(S): INFORMATION CONTACT: 1) Projected Financing Schedule Clarence Grier, 919-245-2453 2) Resolution Supporting Financing Bob Jessup, 919-933-9891 PURPOSE: To approve the preliminary steps necessa ry to seek Qualified School Construction Bond financing for various school construction projects for Chapel Hill — Carrboro City Schools and Orange County Schools. BACKGROUND: Upon the request of Chapel Hill Carrboro City Schools (CHCCS) and Orange County Schools (OCS), the Board of County Commissioners, during the budget process in June, committed to the construction of various school projects contingent upon the availability of federal economic stimulus Qualified School Construction Bonds (QSCB). At that time the expectation was that the CHCCS and OCS allocations of QSCB funding for 2009 and 2010 would be approximately $10 million. Chapel Hill Carrboro City Schools applied to the Department of Public Instruction (DPI) and received approval to use its 2010 QSCB allocations of $4.0 million for roofing projects at McDougle Middle School and various other projects. Orange County Schools applied to the Department of Public Instruction (DPI) and received approval to use its 2009 and 2010 QSCB allocations of $5.4 million for auditorium renovations at CW Stanford Middle School and various other projects. 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 and further determine whether the tax credit rate is sufficient or if a higher interest rate is needed to make the financing. 2 If the tax credit rate is accepted then the interest rate paid by the issuer will be zero. If a higher i 9 rate of interest s needed, the issuer would have to agree to pay interest on the debt of the difference between the tax credit rate and the rate the purchaser requires. The tax credit rates are lower now than they were earlier in the year. This makes it more likely that some interest would be paid on QSCB financing. Orange County can anticipate the interest rate for financing these bonds could be anywhere from 0% to 2.0%, depending on the setting of the rates by the Treasury Department. The QCSB is a new federal program and there have been a very limited number of participants purchasing these bonds. Branch, Banking & Trust (BB&T) is expected to be the purchaser of this issuance and was also the issuer of the previous QSCB issuance for the Carrboro High School Arts Wing. The current approach for this type of financing is to negotiate terms directly with the purchaser. All QSCB financing for the funds allotted for 2010 must occur by December- 31, 2010 in order to retain the allotment. This issuance of QSCB financing must follow the required steps through the Local Government Commission (LGC). 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, 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 16, 2010. Bond Counsel has prepared the attached resolution which: 1) Makes a preliminary determination to proceed with financing for the CHCCS and GCS construction projects; 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 November 4, 2010; 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 November 4, 2010. 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 CHCCS and OCS 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 ado the attached resolution which: 1) Makes a preliminary determination to proceed with financing for the CHC . g CS and OCS construction projects; 2} Makes certain findings of fact to support the financing; pp 3] Authorizes the Finance Officer to proceed with an application to the LOC and Pp seek financing proposals and other steps necessary to move forward with the financing;Sets a public hearing f or November 4, 2g 1 O; and 5) Provides for reimbursement of project expenditures from financing proceeds. c�)(n eo4 4 Proiected CHCCS and OCS 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 resolution, October 5 BOCC meeting which includes reimbursement declaration and call for ublic hearing Advertise for school board hearing By October 19 Publish notice of County public hearing By October 19 i School Board: hold public hearing; adopt First Board Meeting in November for both resolution approving financing plan [and School Boards property transfer, if necessary] County Board holds public hearing; adopts November 4 BOCC meeting resolution providing final approval to financing terms and documents County's preliminary application due to By October 19 LGC LGC approval November 16 (full Commission) First available closing date December 6 00 (0- (0 7S A--Rachmen+ 5 Resolution supporting an application to the Local Government Commission for its awDroval of financin arran ements far ublic school im rovement ro`ects WHEREAS— Orange County has been asked by the Boards of Education for both Orange g County Schools and the Chapel Hill — Carrboro City Schools to cooperate in the construction and financing of various public school improvements, including construction of a new auditorium wing at Stanback Middle School, various roof replacements and renovations for orange County Schools, and various roof replacements for the Chapel Hill---Carrboro City Schools. The total amount to be financed would be approximately $9,899,440. The Count will undertake this financing pursuant to the installment financing p rovisions of Section 160A--20 of the North Carolina General Statutes. The North Carolina Local Government Commission would have to approve any such financing arrangements. The County would expect this financing to qualify as a "Qualified School Construction Bond" (a "QSCB" under federal tax law and thereby allow the County to borrow the money at a very low effective interest rate, and possibly an effective interest rate of zero. Under the LGC's guidelines, this governing body must make certain findings of fact to support the County's application for the- L GC's approval of the financing arrangements. BE IT RESOL VELD by the Board of Commissioners of Orange County,.North • Carolina, that the County makes a preliminary determination to proceed with the' construction and financing of the various public school improvements described above. The Board will make a final determination to approve 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. (2) The proposed installment financing is preferable to a bond issue for the same purpose under all the circumstances. The County has no existing capacity to issue general obligation bonds for this project. Financing this project as an installment financing is consistent with the County's policy of using both general obligation bonds and installment financing for school capital needs. The small amount of financing needed makes it impractical to proceed as a separate bond issue. The availability of QSCB financing means that there would be no 6 interest rate advantage to proceeding with a general obligation bond issue. In addition,, using installment financing for this project will allow the County to better match the timing of the financing to the timing of the project, and to take advantage of current g favorable conditions in the construction market. (3) The estimated sums to fall due under the proposed financing contract will be adequate and not excessive for the proposed purpose. All amounts to be financed will reflect contract prices or well--developed estimates acceptable to the County and the LGC. The County will closely review debt service levels with the LGC. (4) As confirmed to the Board at this meeting the County's Finance Officer, g y ty (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 a maximum tax rate impact of less than 1 cent per $100 of assessed valuation, although this does not necessarily mean that County taxes will be increased as a result of this financing. The County will continue to work to minimize the tax impact of the contemplated financing, g in a manner consistent with other County needs. The County believes that given the need for the projects and the availability of QSCB financing, such a tax rate impact is reasonable under all the circumstances. (6) The County Attorney is of the opinion that the proposed project is - p roJ authorized by law and is a purpose for which public funds of the County may be Y . expended pursuant to the Constitution and laws of North Carolina. (7) The Board currently stimates thai the maximum amount to be financed for "'= Y o this project will be $9,899,440. This amount is an estimate; the final amount to be financed may be somewhat higher or lower than the estimate to match the final amounts allocated to the County by the State Department of Public Instruction for the issuance of QSCBs. RE IT FURTHER RESOLVED, as follows: (a) The Finance Officer is authorized and directed to take all appropriate ste s p toward the completion of the financing, including completing an application to the LGC for its approval of the proposed 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. l (c) The Board will hold a public hearing on this matter. The County Manager ger is authorized and directed to schedule the public hearing in his discretion. The Clerk . g to this Board is authorized and directed to publish a notice of such public hearing in in p g the manner provided for by law, in consultation with the County Manager. (d) This resolution takes effect immediately. y I certify that the foregoing resolution was dui adopted at a meeting of the B . y p g Board of Commissioners of Orange County, North Carolina, dui called and held on October 5 y , 2010, and that a quorum was present and acting throughout such meeting. Such resolution remains in full effect as of today. Dated this day of October, 2010. [SEAL] Clerk, Board of Commissioners Orange County, North Carolina