Consideration and Approval of Contract:  Cooperative Purchase Contract with Stifel, Nicolaus & Company, Inc. to provide Underwriting Services for issuing Certificates of Participation debt.  The contract has a maximum total cost not to exceed $900,000. 

1. Approve the Cooperative Purchase Contract for Bond Underwriting Services with Stifel, Nicolaus & Company, Inc. for a fee of $5.00 per $1,000 of bond par issuance for underwriting and $2.00 per $1,000 of bond par issuance for management services for a total of $875,000 plus regulatory and marketing expenses for a maximum total not to exceed an amount of $900,000 utilizing a cooperative contract through the Crane Elementary School District #13 RFP C-005-1718; and
2. Authorize the City Manager to execute the necessary documents.

The City of Flagstaff is anticipating issuing approximately $125 million in Certificates of Participation (COP) Bonds, Series 2020 in the fiscal year 2020-21. These COPs are being issued to pay down the Public Safety Personnel Retirement System Unfunded Actuarial Accrued Liability (UAAL) for both Fire and Police plans.  When issuing COPs of this type, it is not only considered customary but in the best interest of the agency issuing the bonds to contract with an Underwriting firm such as Stifel, Nicolaus & Company, Inc. ("Stifel or Underwriting Firm"). The scope of services to be rendered to the City, by the managing Underwriting Firm will include, but not limited to, the following:

1. Assist the City with distributing the Official Statement (offering document) to prospective investors across the country. 
2. Develop a pre-pricing marketing strategy to educate prospective investors on the offering, including additional information on the City of Flagstaff (economy, budget, liquidity, management, and debt structure). 
3. Manage meetings/conference calls with credit rating agencies, insurance companies, and specific investors to address all credit questions in connection with the transaction.
4. Underwrite (sell COPs) in the public securities market.  Set final interest rates and the amortization schedule consistent with financial planning in connection with the transaction.
5. Assist with closing the transaction and wiring COP proceed funds to PSPRS and related Contingency Reserve Funds to the City for investment.
6. Serve the City with ongoing assistance in connection with the transaction including semi-annual reviews or as required.

Fees paid to the Underwriting Firm for services rendered are based on the par amount of each bond transaction. These fees are allocated to the specific projects or the purpose that the bonds are issued for. Given the anticipated bond issuance of approximately $125 million, in Certificate of Participation Bonds, the Underwriter fee is approximately $625,000 and the Management fee is approximately $250,000.  The not to exceed amount is $900,000. 

Council Goals:

• Personnel: Attract and retain quality staff - Evaluate ways to pay down unfunded pension liabilities in a quick manner

Strategic Plan for Team Flagstaff:

• Invest in Our People
• Foster a Resilient and Economically Prosperous City

No.

• Approve the cooperative purchase contract as recommended,
• Conduct our own City procurement process. This will substantially delay the timing of issuing debt to pay down our pension liability.  
• Not approve the proposed cooperative purchase contract. This stops the process of issuing pension bonds until further direction is provided.

The City of Flagstaff has been seeing a continual increase in our Unfunded Actuarial Accrued Liability (UAAL).  Since June 30, 2002, the UAAL has increase to a June 30, 2019, UAAL of $111,827,764.  There have been administrating policy to help address the annual growth.  For the fiscal year 2020, the Council adopted its first pension policy. 

During this fiscal year, there have been several Council discussions about our PSPRS UAAL and Council was seeking staff recommendations to address the UAAL.  Staff introduced Pension Bonds opportunities as part of the potential 2020 Ballot Measures.  Since that point, staff has worked with Stifel and PSPRS Administration to discuss how Pension Bonds could address the UAAL.  Staff came forward at the April Budget Retreat and provided the option of issuing Pension Bonds in the form of Certificate of Participation debt.  Staff received direction from Council to bring forward an ordinance to issue Certificate of Participation debt to address our UAAL with the potential of having both Fire and Police plans move from less than 40% funded to 100% funded.  

Issuing contracts for Underwriting Services and for Bond Counsel is the first step to move forward. 

Staff worked with Stifel and negotiated a fee for this debt issuance.  Per the Cooperative Purchase Contract, the fees set forth include an adjustment for the length of debt and credit ratings.  Based on staff experience and plan for the debt issuance, the rate would have been estimated at $9.50 per $1,000 of bond par issuance which would have been an estimated cost of $1,187,500 based on $125 million of par bonds issued.  Staff negotiated the fees for the services will be saving $312,500 based on the $125 million of par bonds issued for a total of $875,000 plus regulatory and marketing expenses for a total not to exceed the amount of $900,000. 

By utilizing businesses that specialize in the underwriting of pension bonds, the city benefits by having the assurance that the transactions are in the best interest of the City and provide the best overall interest rates on out debt issuance. 

By issuing pension bond debt the City is able to address the PSPRS UAAL and provide level debt service payments.  Without the pension bonds, the City could see the UAAL continue to increase and the annual required minimum payment increase. 

Inform.