09-27-2021 Council Work Session Packet

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To: Ron Olson, City of Orono From: Nick Anhut, Ehlers Date: September 23, 2021 Re: City of Orono Facilities Financing Future Facility Project Financing The City has identified facilities needs and may consider issuing debt to provide financing for the project(s). MN Statutes gives a City Council the authority to finance substantial renovation, improvement or new construction of a variety of essential purpose facilities using bonds to be repaid from its tax levy. In doing so, the City may utilize its General Obligation (G.O.) pledge which currently carries a “Aaa” credit rating. The G.O. pledge provides the City’s full faith and credit backing to a bond issue, which potentially accesses the lowest interest costs and most favorable bond terms available in the marketplace. This approach to financing is consistent with city practices to bond for large capital projects like public facilities, street reconstruction and other infrastructure. Bonding – Statutory Authority Under Chapter 475 of the Minnesota State Statutes, Cities have options to issue debt subject to approval by referendum or the approval of the governing body using various designated statutory authorities. M.S. Chapter 475.521 provides one such authority for City Councils to approve financing certain essential purpose facilities through what are referred to as “Capital Improvement Bonds” (CIP Bonds). Qualifying facilities are a city hall, library, public safety and public works buildings. Other non-essential function municipal facilities like parks, arts, transit, parking and recreational facilities are excluded. The City must hold a public hearing on the adoption of a Capital Improvement Plan which identifies any projects proposed for financing through general obligation bonds over the next five-year period. It requires publication of a hearing notice in the local paper at least 14, and no more than 28, days prior to the hearing. Further, the council’s authority is also subject to a 30-day petition period starting after the public hearing where voters numbering at least 5% of the votes cast in the last general election may petition to make the bonding subject to a future referendum. The City utilized this statutory authority to finance the Public Safety Annex project in 2014, and included the amount within its General Obligation Bonds, Series 2014A. Bonding Structure and Statutory Limits The total amount of the CIP Bonds being authorized must be designated in the public hearing notice, CIP Plan, and adopting resolution. If a designated project undergoes a change order or other increase in cost that requires a higher bonding amount, a new public hearing process is required. Tax-exempt bonds can be structured for repayment as long as the useful life of the facility or 30 years, whichever is lower. The Council has the flexibility to choose a shorter duration if desired. In any one year, the TOTAL amount of debt service a City may carry for its CIP Bonds is limited to 0.16% of the City’s assessed Estimated Market Value (EMV). The City’s Pay 2021 EMV is over