HomeMy WebLinkAboutApprove Resolution No. 4175
Commission Memorandum
REPORT TO: Honorable Mayor and Commission Members
FROM: Anna Rosenberry, Finance Director
Chris Kukulski, City Manager
SUBJECT: Resolution No. 4175 – Resolution Authorizing Participation in the Board
of Investments of the State of Montana Annual Adjustable Rate Tender
Option Municipal Finance Consolidation Act Bonds (INTERCAP
REVOLVING PROGRAM), Approving the Form and Terms of the Loan
Agreement and Authorizing the Execution and Delivery of Documents
Related Thereto.
MEETING DATE: June 15, 2009
RECOMMENDATION: Adopt Resolution No. 4175 authorizing the loan necessary to
complete the construction of Fire Station #3.
BACKGROUND: The Montana Board of Investments - Intercap Program has approved the
City’s request for a loan of up to $890,000, for the completion of Fire Station #3. This resolution
is required by the Board in order to secure the loan.
On July 21, 2008, the City awarded the bid to construct Fire Station #3 to Martel Construction.
At that time, we anticipated having over $2.6 Million cash available for the project from Fire
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Impact Fees. With total project costs of $3.5 Million, we anticipated needing to borrow
approximately $890,000 to complete construction. This borrowing and its effect on the City’s
debt limit has been described in detail in the FY09 Budget Document, the FY10-14 Capital
Improvement Plan, and in the Commission Memo awarding the construction bid.
USE OF INTERCAP: Because current state statutes do not provide specific authority for cities
to borrow against streams of impact fee revenues, we need to borrow the funds under the city’s
general borrowing authority (general obligation) MCA 7-7-4104. Under this authority, the City
could borrow up to $1,953,341 without a vote of the public. This loan of $890,000 falls within
the loan requirements of the statute, as presented in Exhibit A. This loan is ultimately secured
by the City’s General Fund; we intend to use Fire Impact Fees collected during each year to
make the debt service payments, but if those should fall short the General Fund would be
required to make the payment. There is no penalty for early payment, and it continues to be our
intention to pay off this loan as quickly as possible.
FISCAL EFFECTS: Under current Intercap rates, a loan of $890,000 will require annual debt
payments of $105,670 (10 year term, 3.25%). However, this rate is variable and changes each
February. Since 1987, Intercap has had rates as high as 7.5% (would require an annual payment
of $130,000) and as low as 2.7%, with an average interest rate of 3.99% (would require an
annual payment of $108,800.) The program’s rate history is attached to this memo.
From FY00 to FY09-to-date (10 Years), Fire Impact Fee Collections have averaged $267,000
per year; if collections continued at the average, we could retire the debt within approximately 4
years. However, we don’t anticipate that level of collections in the near future. In the current
fiscal year, Fire Impact Fee collections are $167,000 with just a few weeks of the year
remaining. This amount would still be enough to cover the required debt service payment.
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Going forward, Fire Impact Fee revenue could decline by an additional 36% and the city would
still have Fire Impact Fee cash available to make the Intercap loan payment without assistance
from the General Fund. If Impact Fee collections decline by more than 36% from their FY09
levels, the City’s General Fund will be relied on to assist in making up any deficiency.
DEBT SERVICE RESERVE: In order to mitigate any use of General Fund dollars, we propose
to utilize any remaining construction project contingency money to fund a debt service reserve
within the Fire Impact Fee Fund. This amount will be known once construction is complete.
This would be utilized to decrease any possible dependence on the General Fund to make the
debt payments in FY10. Depending on how much is available from impact fee collections in
future years, we may be able to add to the reserve until a full year’s payment has been
accumulated; making any future General Fund contribution that might be necessary in the future,
easier to plan for.
Report compiled on: June 8, 2009
Attachments: Resolution No. 4175
Intercap Rate History Sheet
Exhibit A – Loan Limitations under 7-7-4104
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Montana
Board of Investments
INTERCAP LOAN RATE* HISTORY
Year Loan Rate
1987 5.625%
1988 6.625%
1989 7.950%
1990 7.500%
1991 6.350%
1992 4.950%
1993 4.350%
1994 4.500%
1995 6.400%
1996 4.850%
1997 4.750%
1998 4.850%
1999 4.300%
2000 5.600%
2001 4.750%
2002 3.150%
2003 2.850%
2004 2.700%
2005 3.800%
2006 4.750%
2007 4.850%
2008 4.250%
2009
Overall Average 4.911%
Average past 10 years 3.995%
*variable rate changes every February 16.
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Exhibit A ‐ Fire Station #3 Intercap Loan
Loan Limitation Calculations
Under Sect 7‐7‐4104
7‐7‐4104 (3)a:Amount Borrowed Does not exceed 10% of the General Fund Budget for FY08 or FY07
Amount Borrowed 10% FY08 Budget 10% FY07 Budget
890,000.00$ 1,953,341.10$ 2,004,447.90$
7‐7‐4104 (3)b: Debt service payments do not exceed 2% of General fund Revenue for FY08 or FY07
Debt Service Payment 2% FY08 Revenues 2% FY07 Revenues
105,670.00$ 384,458.66$ 385,779.56$
A. Rosenberry 6/10/2009106