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Finance Department <br /> <br /> <br />MEMORANDUM <br /> <br /> <br />DATE: August 8, 2017 <br /> <br />TO: Manager Lotter <br />Mayor <br />Members of the Council <br /> <br />FROM: Brenda Davitt, Finance Director <br /> <br />SUBJECT: Remaining 2007B TIF Debt Refinance Option <br /> <br /> <br />In 2007, the City issued $14,985,000 in General Obligation Tax Increment Bonds. The initial bonds were issued <br />with an average interest cost of 4.47%. As time progressed and the economy started to recover, interest rates <br />started to decrease. In 2016, the City took advantage of the smaller interest rates and did a partial advance <br />refunding of $8,705,000 which included the higher interest bonds from the original issuance. This left <br />$5,000,000 of principal remaining consisting of bonds with an average interest cost of 4.16%. <br /> <br />The 2016 partial refunding was done to take advantage of the lower interest rates allowed for issuances being <br />considered as “bank qualified”. In order to receive the bank qualified (BQ) rates, a municipality can only issue <br />up to $10 million in debt annually. <br /> <br />The economy continues to improve and interest rates are now even lower than the 2016 refinancing. I asked <br />Jason Aarsvold from Ehlers, our financial advisor, to prepare a refinancing analysis on the remaining $5 million <br />between a competitive market rate issuance and a flat rate bank offering. <br /> <br />Included in the Worksession packet is the analysis, a copy of the Wells Fargo term sheet for a bank offering, <br />and detail of a proposed bank offering debt issuance. As you will note, interest rate costs have decreased and <br />are at 1.8%. The issuance of a bank placement bond has a net present value benefit of $421,100 which is <br />slightly greater than a competitive sale. The reason for this higher benefit is due to the lower issuance costs <br />associate with bank placements. The analysis also shows the present value as a percentage to the refunded <br />principal with both issuance types being greater than 8% which is in compliance with our debt service policy <br />needing at least 3%. <br /> <br />I am recommending to Council to refinanced the bonds using the bank placement method. Jason Aarsvold <br />from Ehlers will review in more detail the differences in the issuance types and Jim Mulrooney from Wells <br />Fargo will also be available to answer any questions Council may have regarding bank placements. <br /> <br />