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HomeMy WebLinkAbout26 - Professional Services Agreements - Baker Tilly Advisory Group, LP - Housing Revenue Bond Proof of Concept for Affordable Mu SCOPE APPENDIX to Professional Services Agreement dated: April 8th, 2025 Between City of Bozeman, Montana, and Baker Tilly Advisory Group, LP Page SA 1 | 9 RE: Housing Revenue Bond Proof of Concept for Affordable Multifamily Housing DATE: June 18, 2026 This Scope Appendix is attached by reference to the Professional Services Agreement dated April 8th, 2025 (“Agreement”) between the City of Bozeman, Montana ("City," or the “Client”) and Baker Tilly Advisory Group, LP (BTAG) and relates to services to be provided by both BTAG and Baker Tilly Municipal Advisors, LLC (BTMA), collectively (Baker Tilly). For consideration of the following Scope Appendix, it should be understood that we will be acting as your Municipal Advisor in all capacities. 1. PURPOSE The purpose of this Scope Appendix is to develop a proof of concept for the use of housing revenue bonds to support affordable multifamily housing projects in the City. The proof of concept will focus on the financial modeling, policy rationale, and practical feasibility of a housing revenue bond structure. The work will illustrate how project revenues, affordability restrictions, public participation, and other available project sources may be organized to support repayment of bonds issued for affordable multifamily housing. This scope is not intended to evaluate a broad menu of financing alternatives. Rather, it is intended to test and explain a specific concept: whether and how housing revenue bonds could be used as a replicable financing tool for affordable multifamily housing projects in the City. 2. SCOPE FOCUS The scope will focus on the following core question: Can a housing revenue bond structure be modeled in a way that demonstrates a feasible, understandable, and potentially repeatable method for financing affordable multifamily housing projects in the City, in furtherance of the policy objectives and needs of the City? The analysis will emphasize: • Bond sizing. • Project revenues available for debt service. • Affordability and rent restrictions. • Operating cash flow. • Debt service coverage. • Capital stack feasibility. • Public subsidy or gap financing requirements. • Sensitivity to interest rates, construction costs, rents, operating costs, and occupancy. • Project-level repayment capacity. • Conceptual implementation requirements. Since the basis of this review is to provide information to assist the City in potential policy or legal changes, discussion of potential issuance authorities will be limited and included only to frame how a housing revenue bond could be issued. The scope will not include a detailed legal analysis or comparison of all potential issuers. Docusign Envelope ID: 48EA5251-BFA6-8253-82FA-F8F1F20DF771 SCOPE APPENDIX to Professional Services Agreement dated: April 8th, 2025 Between City of Bozeman, Montana, and Baker Tilly Advisory Group, LP Page SA 2 | 9 3. PROJECT OBJECTIVES The proof of concept will pursue the following objectives: 1. Develop a clear housing revenue bond concept for affordable multifamily housing in the City. 2. Prepare illustrative financial models showing how bond proceeds could support one or more affordable multifamily projects. 3. Estimate bond repayment capacity based on projected project revenues and available repayment sources. 4. Identify the level of affordability that may be supportable under different project assumptions. 5. Identify the amount of public, philanthropic, deferred, or subordinate funding that may be required to make a project feasible. 6. Demonstrate the relationship among rents, operating expenses, debt service, reserves, and affordability restrictions. 7. Provide a practical framework that City officials, housing partners, developers, and financial advisors may use to evaluate future housing revenue bond opportunities. 8. Identify next steps required to move from proof of concept to a project-specific financing plan. 4. SCOPE OF WORK Baker Tilly will perform the following: Task 1: Project Initiation and Assumption Setting The project team will meet with the City, if necessary, to confirm the purpose, audience, and intended use of the proof of concept. This task will establish the working assumptions to be used in the housing revenue bond model. Activities may include: • Confirming the target project type or prototype. • Establishing sample unit counts, bedroom mix, affordability levels, and rent assumptions. • Identifying likely development cost assumptions. • Establishing operating expense, vacancy, replacement reserve, and management assumptions. • Identifying potential sources of repayment. • Confirming whether the model should assume new construction, acquisition-rehabilitation, preservation, or a mixed-income structure. • Confirming the desired affordability targets, such as households at specified area median income levels. • Confirming presentation format and intended stakeholders. Deliverable: Assumptions memorandum or assumptions matrix for use in the proof -of-concept model. Docusign Envelope ID: 48EA5251-BFA6-8253-82FA-F8F1F20DF771 SCOPE APPENDIX to Professional Services Agreement dated: April 8th, 2025 Between City of Bozeman, Montana, and Baker Tilly Advisory Group, LP Page SA 3 | 9 Task 2: Housing Revenue Bond Concept Framework The project team will prepare a concise conceptual framework describing how a housing revenue bond structure could be used to finance affordable multifamily housing. The framework will address: • General structure of a housing revenue bond transaction. • Potential issuer role, addressed only at a high conceptual level. • Use of bond proceeds for eligible project costs. • Project revenues available for debt service. • Security and repayment concepts. • Affordability restrictions. • Reserve requirements. • Relationship between bond proceeds and other project funding sources. • Conceptual flow of funds. • Key project risks and mitigation concepts. Discussion of issuance authority will be limited to identifying the type of public entity or authority that may be relevant to a housing revenue bond structure. The scope will not include a detailed legal determination of issuer eligibility, statutory powers, or required approvals. Deliverable: Housing revenue bond concept summary, including a transaction structure diagram or narrative flow of funds. Task 3: Development of Illustrative Project Model The project team will prepare an illustrative project-level financial model for an affordable multifamily housing project in the City. The model will be designed to demonstrate how housing revenue bonds could fund project costs and how repayment may be supported by project revenues. The model may include: • Development budget. • Sources and uses of funds. • Estimated bond proceeds. • Estimated interest rate and amortization assumptions. • Capitalized interest, cost of issuance, debt service reserve, and other bond-related assumptions. • Rent schedule by unit type and affordability level. • Gross potential rent. • Vacancy and collection loss. • Operating expenses. • Net operating income. • Annual debt service. • Debt service coverage ratio. • Replacement reserves. • Operating reserves. • Net cash flow after debt service. • Funding gap or surplus. • Affordability term assumptions. Docusign Envelope ID: 48EA5251-BFA6-8253-82FA-F8F1F20DF771 SCOPE APPENDIX to Professional Services Agreement dated: April 8th, 2025 Between City of Bozeman, Montana, and Baker Tilly Advisory Group, LP Page SA 4 | 9 • Summary of feasibility constraints. Deliverable: Illustrative housing revenue bond financial model. Task 4: Bond Sizing and Repayment Capacity Analysis The project team will evaluate how much bond debt the sample project may be able to support under the agreed-upon assumptions. The analysis will consider: • Maximum bond size based on project revenues and debt service coverage. • Impact of different amortization periods. • Impact of different interest rate assumptions. • Effect of rent restrictions on repayment capacity. • Effect of operating expenses and vacancy assumptions. • Need for funding or gap financing. • Potential impact of reserves and issuance costs on net project proceeds. • Relationship between bond sizing and affordability outcomes. Deliverable: Bond sizing analysis showing estimated debt capacity under base-case and alternative scenarios. Task 5: Affordability and Scenario Modeling The project team will prepare limited scenario modeling to test how the housing revenue bond concept performs under different affordability, cost, and financing assumptions. Scenarios may include: • Different affordability mixes/assumptions. • Different unit count or project sizes. • Different operating expenses. • Different interest rate assumptions. • Different debt service coverage requirements. The purpose of the scenario analysis will be to identify which project conditions are most likely to support a feasible housing revenue bond structure. Deliverable: Limited scenario comparison table and summary of key feasibility drivers. Docusign Envelope ID: 48EA5251-BFA6-8253-82FA-F8F1F20DF771 SCOPE APPENDIX to Professional Services Agreement dated: April 8th, 2025 Between City of Bozeman, Montana, and Baker Tilly Advisory Group, LP Page SA 5 | 9 Task 6: Proof-of-Concept Memorandum The project team will prepare a proof -of-concept memorandum summarizing the housing revenue bond model and its potential application to affordable multifamily housing in the City. The memorandum will include: • Executive summary. • Purpose and scope of the proof of concept. • Description of the housing revenue bond concept. • Summary of project assumptions. • Sources and uses summary. • Bond sizing summary. • Debt service and coverage analysis. • Affordability scenario results. • Funding gap analysis. • Key feasibility drivers. • Limited discussion of issuance considerations. • Risks, constraints, and mitigation strategies. Deliverable: Draft and final proof -of-concept memorandum. Task 7: Stakeholder Presentation The project team will prepare a presentation summarizing the housing revenue bond proof of concept for City leadership, City staff, or other stakeholders. The presentation will explain: • What a housing revenue bond is. • How bond proceeds could fund affordable multifamily housing costs. • How project revenues could repay the bonds. • Why affordability restrictions affect bond sizing. • What assumptions drive feasibility. • What level of gap funding may be required. • What decisions are needed before advancing housing objectives and legislative efforts. • What additional professional review would be required before issuance. Deliverable: Presentation deck and one stakeholder presentation meeting. 5. POTENTIAL OUTPUTS The proof-of-concept package may include: • Housing revenue bond concept summary. • Transaction structure diagram. • Flow of funds summary. • Project assumptions matrix. • Sources and uses model. • Operating pro forma. Docusign Envelope ID: 48EA5251-BFA6-8253-82FA-F8F1F20DF771 SCOPE APPENDIX to Professional Services Agreement dated: April 8th, 2025 Between City of Bozeman, Montana, and Baker Tilly Advisory Group, LP Page SA 6 | 9 • Bond sizing model. • Debt service coverage analysis. • Affordability scenario comparison. • Sensitivity analysis. • Risk and mitigation summary. • Limited issuance considerations checklist. • Final memorandum and presentation materials. 6. ASSUMPTIONS This scope assumes: • The analysis will focus on a housing revenue bond concept and will not evaluate unrelated financing structures. • Financial models will be illustrative and intended for proof -of-concept purposes only. • The project team will rely on certain assumptions provided by the City, supplemented by reasonable modeling assumptions and market information where necessary. • Bond interest rates, issuance costs, reserves, and coverage assumptions will be estimated for modeling purposes. • Any discussion of issuance authority will be limited and conceptual as it is understood the basis of this work is to inform constituents for consideration of legislative adjustments. • Legal and tax conclusions will require separate review by bond counsel. • No bond issuance, rating, tax opinion, or legal opinion is provided under this scope. • The model may include non-bond sources only to the extent necessary to demonstrate total project feasibility and the amount of funding required beyond bond proceeds. 7. CLIENT AND PARTNER RESPONSIBILITIES The City will provide, as available: • Housing policy goals and affordability targets. • Operating model assumptions (owner-operate, or contract operator) • Desired affordability restrictions. • Review comments on draft materials. • Direction regarding preferred modeling scenarios. Docusign Envelope ID: 48EA5251-BFA6-8253-82FA-F8F1F20DF771 SCOPE APPENDIX to Professional Services Agreement dated: April 8th, 2025 Between City of Bozeman, Montana, and Baker Tilly Advisory Group, LP Page SA 7 | 9 8. ANTICIPATED SCHEDULE The proof of concept is expected to be completed over approximately six weeks following authorization to proceed and receipt of requested information. A sample schedule is as follows: • Week 1: Kickoff and confirmation of assumptions (if needed). • Weeks 1–2: Development of housing revenue bond concept and base model. • Weeks 2–3: Bond sizing and repayment capacity analysis. • Weeks 3–4: Affordability and sensitivity scenarios. • Week 4: Draft proof-of-concept memorandum. • Week 5: Review meeting and revisions. • Week 6: Final memorandum and stakeholder presentation. 9. KEY QUESTIONS TO BE ANSWERED The proof of concept will be designed to answer the following questions: 1. How could a housing revenue bond structure be used to fund affordable multifamily housing in the City? 2. What project revenues may be available to repay the bonds? 3. How much bond debt could a sample project support? 4. What affordability levels are feasible under different assumptions? 5. How large is the remaining funding gap after modeled bond proceeds? 6. What assumptions most affect project feasibility? 7. What level of public or other support may be required? 8. What limited issuance considerations should be reviewed? 9. What characteristics should a pilot project have to support a housing revenue bond financing? 10. What additional analysis is required before moving from proof of concept to implementation? 10. COMPENSATION AND INVOICING Fees for services set forth in this Scope Appendix will be billed based on work performed at a blended hourly rate of $370 per hour, not-to-exceed Nine Thousand Dollars ($9,000). BTMA will invoice the Client for out-of-pocket expenses such as travel, copies, faxes, conference calls, credit reports, the cost of research information or other expenses necessary to complete this Scope Appendix. Additional work requested and authorized by the Client outside this scope of services shall be agreed upon separately. For general matters related to the work herein, the Client will not be billed for mileage or meals directly related to travel by Steve Scharff. All travel will be approved by the City prior to booking. 11. BILLING PROCEDURES Normally, you will receive a monthly statement showing fees and costs incurred in the prior month. Occasionally, we may bill on a less frequent basis if the time involved in the prior month was minimal or if arrangements are made for the payment of fees from bond proceeds. The account balance is due and payable on receipt of the statement. For this work, we will bill upon completion of services. Docusign Envelope ID: 48EA5251-BFA6-8253-82FA-F8F1F20DF771 SCOPE APPENDIX to Professional Services Agreement dated: April 8th, 2025 Between City of Bozeman, Montana, and Baker Tilly Advisory Group, LP Page SA 8 | 9 Nonattest Services As part of this engagement, we will perform certain nonattest services. For purposes of the Agreement and this Scope Appendix, nonattest services include services that the Government Auditing Standards refers to as nonaudit services. We will not perform any management functions or make management decisions on your behalf with respect to any nonattest services we provide. In connection with our performance of any nonattest services, you agree that you will:  Continue to make all management decisions and perform all management functions, including approving all journal entries and general ledger classifications when they are submitted to you.  Designate an employee with suitable skill, knowledge, and/or experience, preferably within senior management, to oversee the services we perform.  Evaluate the adequacy and results of the nonattest services we perform.  Accept responsibility for the results of our nonattest services.  Establish and maintain internal controls, including monitoring ongoing activities related to the nonattest function. Conflicts of Interest BTMA is unaware of any additional conflicts of interest related to this Scope Appendix that exist at this time outside of what has been stated in the Agreement. Termination Notwithstanding termination provisions contained in the Agreement, this Scope Appendix is intended to be ongoing and applicable individually to specific services including debt issuance, continuing disclosure, (Sub- engagements) as if they are the sole subject of the Scope Appendix. As such, termination may occur for a specific Sub-engagement without terminating the Scope Appendix itself. On termination of a Sub -engagement or the Scope Appendix, all fees and charges incurred prior to termination shall be paid promptly. Unless otherwise agreed to by the Client and Baker Tilly, the scope of services provided in a Sub -engagement performed under this Scope Appendix will terminate 60 days after completion of the services for such Sub- engagement. If this Scope Appendix is acceptable, please sign below and return one copy to us for our files. We look forward to working with you on this important project. Signature, BAKER TILLY MUNICIPAL ADVISORS, LLC Steve Scharff, Director Docusign Envelope ID: 48EA5251-BFA6-8253-82FA-F8F1F20DF771 SCOPE APPENDIX to Professional Services Agreement dated: April 8th, 2025 Between City of Bozeman, Montana, and Baker Tilly Advisory Group, LP Page SA 9 | 9 Signature Section: The services and terms as set forth in this Scope Appendix are agreed to on behalf of the Client by: Name: ______________________________ Title: ______________________________ Date: ______________________________ Docusign Envelope ID: 48EA5251-BFA6-8253-82FA-F8F1F20DF771 City Manager 7/15/2026