HomeMy WebLinkAboutAgenda - 03-01-1994-IX-B 1
ORANGE COUNTY
BOARD OF COMMISSIONERS
Action Agenda
ACTION AGENDA ITEM ABSTRACT Item No =x-a
Meeting Date: March 1, 1994
SUBJECT: Options for Sale of Additional 1992 School Bonds
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DEPARTMENT Manager/Finance/Budget PUBLIC HEARING YES NO x
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ATTACHMENT(S) INFORMATION CONTACT
Possible Bond Sale Calendar Rod Visser, ext 2300
Graphic Summary of Potential Ken Chavious, ext 2450
Debt Service Payments Sally Kost, ext 2152
TELEPHONE NUMBER
Hillsborough 732-8181
Chapel Hill 968-4501
Mebane 227-2031
Durham 688-7331
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PURPOSE: To consider options for selling the remaining school bonds
that were authorized by Orange County voters during the November 1992
referendum.
BACKGROUND: In March 1993, the County sold the first $22 million of
the $52 million in school bonds approved by Orange County voters in
November 1992. The amount of the first installment was established
based on bond project cash flow projections prepared by the two school
systems for the period March 1993-March 1994. Actual expenditures of
these funds have been somewhat slower than those projections.
Therefore, proceeds remaining from the first sale are sufficient to
cover school project activity at least through June 1994, based on
recently revised cash flow needs submitted by the two school systems.
Staff' s original assumption was that the $52 million would be sold in
three installments - one each in Spring 1993, Spring 1994, and Spring
1995. If the County stays with the original plan, cash flow
requirements would dictate sales of $15.5 million in late Spring 1994,
and the remaining $14.5 million in Spring 1995.
In addition to the original plan, there are a number of other options
the County may consider for selling the remaining bonds. One option
which staff would like specifically to put forth for consideration by
the Board would be the sale of all remaining bonds in June 1994. There
are a number of possible advantages to this approach, including:
* Savings on issuance costs. Each time the County sells bonds, there
are significant administrative, legal and advertising costs, which may
run from $45,000-$65,000, depending on the size of the issue. The
County could realize these dollar savings, and significant savings in
staff time, by pursuing only one, rather than two, bond sales.
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* Savings on interest payments. While this is by no means a certainty,
indications (such as the Federal Reserve Board' s recent action to raise
short-term interest rates) are that interest rates will rise somewhat
in the year ahead. If that proves true, it is likely that the County
could achieve savings in debt service costs by selling all bonds in
June 1994 , rather than holding some back for sale in Spring 1995 when
interest rates may be higher. By way of example, if interest rates are
just one half percentage point higher next year, the County could save
roughly three quarters of a million dollars over the life of the bonds
if all bonds were sold in June 1994 rather than following the original
plan. Of course, if the difference in interest rates between Spring
1994 and Spring 1995 is larger or smaller than one half percent, the
County' s potential savings would be more or less significant than the
$750,000 figure cited here.
* Eligibility for "bank qualification" in calendar year 1995. Under
Internal Revenue Service regulations, a local government can make
itself eligible for tax-exempt interest rates on debt instruments
obtained from lending institutions in any calendar year in which its
total debt issued is less than $10 million. If the County sells all
remaining bonds in 1994, the County should be in a position to be "bank
qualified" in 1995. On the other hand, should the County sell $15.5
million in late Spring 1994 and $14.5 million in Spring 1995, the
County could not be "bank qualified" until 1996. Bank qualification in
1995 could prove helpful as an alternative approach for directly
funding the construction of the new CHCCS elementary school. This
financing concept of "private placement" is a realistic option, based
on conversations between representatives of several banks and the
County Finance Director. If the County can be "bank qualified" in
1995, the County can obtain proposals for both Certificate of
Participation (COP) and private placement financing of the elementary
school, and select the option that is more advantageous (assuming, in
either case, that the General Assembly passes proposed local
legislation authorizing the County to finance school construction under
NCGS 160A-20) .
If the County pursues the June 1994 bond sale of $30 million, the tax
rate impact for 1994-95 is estimated to range from 1.67 cents to 1.83
cents, and the 1995-96 tax rate impact is estimated to range from an
additional 4.75 cents to 4.9 cents. Thus, the peak additional debt
impact from the sale of the remaining bonds might total roughly 6.4
cents to 6.7 cents. Combined with the 1993-94 tax rate impact of about
5 cents for debt service on the first installment of $22 million, this
would lead to a total peak tax rate impact from 1992 school bonds of
11.4 cents to 11.7 cents. This compares favorably with the 15 cent tax
rate impact that was originally projected in 1991 and cited in the bond
education literature.
If the County pursues the original bond sale plan, with a May 1994 sale
of $15.5 million, the tax rate impact for 1994-95 is estimated to range
from 3.45 cents to 3.62 cents. Sale of the remaining $14 .5 million in
May 1995 is estimated to create a 1995-96 tax rate impact of an
additional 3. 13 cents to 3.28 cents. Under this option, the peak
additional debt impact from the sale of the remaining bonds would
probably range from 6.6 cents to 6.9 cents.
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With a May sale date, the proceeds would be received in June and there
would be a full debt service payment (two semi-annual interest
payments and one annual principal payment) due in FY 1994-95. With a
June sale date, the proceeds would be received in July and there would
be only one semi-annual interest payment (January 1995) due in FY 1994-
95.
County staff have met with the Director of the Local Government
Commission (LGC) and his staff to discuss both options. The LGC
expressed its support of pursuing one bond sale provided there is
reasonable assurance that the projects to be funded by bonds will
progress with timely spend down of the bond proceeds. Based on staff ' s
consultation with the two school systems' staffs and architects, we
believe that the LGC will be satisfied in that regard. Bid award and
beginning of construction for the new Orange County middle school are
expected within the next several months, and for the new Chapel Hill-
Carrboro high school by July 1994.
The LGC has provided two tentative dates for bond sales (May 17 and
June 14 ) , although other dates could be arranged. The County' s bond
counsel has provided schedules of intermediate steps leading up to a
bond sale for either of these two dates.
RECOMMENDATION: The Manager recommends that the Board approve the sale
of the remaining $30 million in school bonds at a June 14, 1994 bond
sale.
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orange county
6uagested School Bond Sale Schedules
For sale on Nay 17, 1994:
March 28 - information for official Statement from
County to LGC.
April 8 - Mail first draft of Official Statement to
working group.
April 13 - 3Wstinq or conference call on official
Statement.
April 25 - Complete official Statement.
April 29 - Official Statement mailed by printer.
Nay 2 - Board of Commissioners to pass sale
resolution.
Kay 17 - sale.
June 7 - Closing.
For sale on June 14, 1994:
April 25 - Information for Official Statement from
County to LGC.
may 6 - Mail first draft of Official Statement to
xorking group.
May 23 - Meeting on conference call on Official
Statement,
May 25 - Complete official Statement.
May 17 - Official Statement mailed by printer.
acne 6 - Board of Commissioners to pass sale
resolution.
June 14 - Sale.
July 6 - Closing.
t
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Additional Annual Debt Service Payments Based
on $15.5M bonds sold May 1994 and
$14.5M bonds sold in May 1995
$3,500,000
0$15.5M 5/94 ®$14.5M 5/95
$3,000,000 Total Payback
$2,500.000 $48.1 M
$2,000,000
$1,500,000
$1,000,000
$500,000
$o � c1ba'% albCpgp ` otio'lo°` ohdbol% 0000 ,,Z, �.tiNIbN% Nb
Fiscal Year Ending 19_
(1)Based on interest rate of 5.5%for May 1994 sale
and 6%for May 1995 sale
Additional Annual Debt Service Payments Based
on $30M bonds sold in June 1994
$3,500,000
Total Payback
$3,000,000 $47.31VI
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
Fiscal Year Ending 19_:
(1)Based on interest rate of 5.5%