Consideration and Possible Adoption of Ordinance No. 2014-03: An ordinance of the Council of the City of Flagstaff, Coconino County, Arizona, approving and authorizing the sale and issuance of City of Flagstaff, Arizona General Obligation Bonds, Series 2014A and General Obligation Refunding Bonds, Series 2014B, in the total aggregate principal amount of not to exceed $34,300,000 and all matters related thereto; prescribing certain terms and conditions of such bonds including the delegation to the Management Services Director of the City to designate the final principal amount, maturities, interest rates and yields and other matters with respect to such bonds as well as certain matters with respect to certain bonds being refunded with the proceeds of the sale thereof; awarding a contract for the purchase of such bonds and ratifying the distribution of a Preliminary Official Statement and approving a final Official Statement. (Authorizing sale/issuance of bonds for projects)

This ordinance allows for the issuance of General Obligation debt as approved by voters in 1996, 2004, and 2012. In addition it allows for refunding a portion of the $31.5 million in bonds originally issued in 2006 to achieve interest savings for the City.

Series 2014A will be issued as New Money Bonds in an amount not to exceed $22.8 million to include all or a portion of the following: 
1996 authorization -  $1.1 million for Recreation purposes
2004 authorization - $5.5 million for Observatory Mesa and $2.2 million for FUTS/Open Space
2012 authorization - $14 million for a Core Services Maintenance Facility

Series 2014B will be issued as Refunding Bonds in an amount not to exceed $11.5 million to refund a portion of bonds issued in 2006.

These bonds will be issued as General Obligation Bonds and will be repaid through secondary property tax collections.

Fund existing and consider expanded recreational services
Address Core Services Maintenance Facility
Effective governance

Council approved all bond questions that went to the voters.
Council approved the purchase of the Observatory Mesa. 
Council approved the FY2014 budget which considered both the projects and the debt to pay for these projects.

• Approve the Ordinance as written allowing the City to move forward with the issuance of New Money Bonds and Refunding Bonds as General Obligation debt.
• Recommend changes to the Ordinance modifying the issuance of either the New Money Bonds and/or the Refunding Bonds
• Do not approve the issuance of General Obligation Debt.

On November 5, 1996 the City of Flagstaff voters approved $8.2 million in General Obligation bonding authority to address various recreation projects throughout the City.  Of this, $7.1 million has been issued.  This current ordinance contemplates the issuance of the remaining $1.1 million in bonding authority to provide improvements to Bushmaster Park.

On May 18, 2004 the City of Flagstaff voters approved 10 projects.  Nine of these projects were approved to be issued as General Obligation (GO) debt payable through secondary property tax and the tenth was the USGS Campus enhancements to be paid through lease proceeds generated on that site. It is important to note that even through debt is authorized and issued as General Obligation debt, the repayment source is not always secondary property tax.  For the water/wastewater projects noted below, the Utility fund pays the debt payment.

The status of the nine GO projects approved in 2004 is as follows:
$23.1 million for upgrades to our reclaimed system plant (Wildcat) - complete
$8.5 million for water wells - complete
$15 million for water rights (Red Gap) - complete
$16.8 million for Fire Fighting Facilities - complete
$7.6 million for Open Space and FUTS; $5.4 million issued to date, $2.2 million proposed;
$5.5 million for Observatory Mesa - $5.5 million proposed
$6.1 million Multi Generational Rec Center - complete
$8.6 million Aquatic Center - complete
$2.8 million Lake Mary Regional Park - not under current consideration

This ordinance contemplates the issuance of $2.2 million in the remaining Open Space/FUTS authority to be used both for the Observatory Mesa purchase and to continue the expansion of our City's FUTS trail system. The full $2.2 million in FUTS/Open Space bonds may not be issued dependent on the work program for the FUTS trail construction over the next two years. As authorized in this ordinance,  Barbara Goodrich, Management Services Director will finalize this decision before the  final bond sale.   In addition the $5.5 million dedicated to the Observatory Mesa purchase is also proposed for issuance. 

In 2012, the City voters approved $24 million in General Obligation bonds to be issued.  $14 million for a Core Services Facility and $10 million for the Forest Health project.  The City has issued the initial $2 million to advance the Forest Health project and this funding is believed to be adequate for the next two years.  This ordinance contemplates the issuance of $14 million for the Core Services Facility.  The entire amount is proposed at this time as the City is currently considering the responses on the site proposal RFP for this facility.  The final amount that will be issued will be dependent on future decisions regarding the acceptance or rejection of the proposal responses. Again, as authorized in this ordinance,  Barbara Goodrich, Management Services Director will finalize the amount to be issued before the  final bond sale.

The $11.5 million in Refunding contemplates redeeming the principal amounts scheduled for July 1, 2017, 2018, 2019, 2020, and 2021 from the Series 2006 General Obligation bonds.  There is no redemption premium what will need to be paid on these maturities.  The redemption funds will be held in trust for these maturities to be paid to the current bond holders on July 1, 2016 as a redemption is not allowed before this date.

The proposed ordinance includes the maximums contemplated to be issued to provide the greatest flexibility in both amount and timing.  The City successfully used this strategy in  the bonds sold in 2012 allowing us to go into the market with the most favorable factors in play including market saturation, rates, and ratings.

The City has advanced the $5.5 million in funds for the Observatory Mesa purchase and needs to reimburse itself as Council authorized in the Reimbursement Resolution 2013-27 on November 5, 2013. 

The $2.2 million in FUTS/Open dollars may be issued in whole or part dependent on the work program for the remainder of this fiscal year.
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The $1.1 million for the Recreation/Bushmaster project may be issued in whole dependent on the progress this project has made within the City, the Parks and Recreation Commission, and Council.

The $14 million for the Core Services facility may be issued in whole or part dependent on the progress this project has made within the City and the Council.

Refunding Bonds:  The City practice when contemplating a refunding to to save a minimum of 3% of the bonds being refunded after all costs are paid and/or a minimum of $150,000 in today's dollars.   The savings currently calculated for the City are in excess of $300,000 meeting the 3% criteria. 

The New Money Bonds will be paid through the assessment of secondary property taxes.  The cumulative decline in secondary assessed valuation since 2010 has been 27.5%.  As the City holds the secondary property tax rate flat, there has been a corresponding decline in the annual levy (revenue).  While this revenue loss has been manageable within the existing City debt, the City is becoming increasingly challenged to fund the debt service on these new  projects.  In addition, the City did not anticipate issuing the Observatory Mesa debt as this land was not offered for consideration by the State Land Department and until this last year, it was presumed that this property would never become available.  To meet the promise made to the public to hold the secondary property rate flat, the City will use a number of strategies including using the secondary property tax reserves, extending the repayment term from 20 years to 25 years, and/or delaying the repayment of principal until capacity is available from the completed payments on existing debt.  These measures will likely result in an increased rate for this issue in comparison to the rates the City achieved in both 2012 and 2013.

Once the fund balance reserve has been spent, the City will not be able to replenish it.  Legislation passed this last year now caps the annual assessed valuation increase and it sets a maximum levy amount annually to match the current debt payments and the payments anticipated through new issues. The City will no longer be able to use the leveler concept in setting this rate.  The current $8 million dollar fund balance will be drawn down to approximately $1 million dollars over the next four to five years by holding the rate flat and employing the other strategies noted above.

The community benefits by having the City complete the projects as promised to the voters in the 1996, 2004, and 2012 elections.

The process to authorize the issuance of debt is to INFORM the public.

The process to select the projects that were voted on by the public involved the other aspects of community involvement including:
CONSULT, INVOLVE, COLLABORATE, and EMPOWER.

• Approve the Ordinance as written allowing the City to move forward with the issuance of New Money Bonds and Refunding Bonds as General Obligation debt.
• Recommend changes to the Ordinance modifying the issuance of either the New Money Bonds and/or the Refunding Bonds
• Do not approve the issuance of General Obligation Debt.