PUBLIC HEARING:  Consider Issuance of Charter School Lease Revenue Bonds (PACT Charter School) 

Minnesota Statutes, Sections 469.152 through 469.165 allows cities to issue bonds and loan the proceeds to nonprofit corporations to finance capital expenditures.  This procedure is known as the issuance of conduit debt.  By issuing tax-exempt bonds through the City, the non-profit reduces their borrowing costs due to the tax-exempt status of a city.    Pact Charter School is asking for the City to authorize the issuance of a not-to-exceed amount of $43 million in Lease Revenue Bonds of which $11 million will be used to advance refund the outstanding Lease Revenue Bonds on the current Pact Charter School located at 7250 East Ramsey Parkway and $32 million of Lease Revenue Bonds to finance the acquisition of 18 acres of vacant land and the construction of an approximately 115,000 square foot school facility located at or about 7633 161st Avenue.  The current Pact Charter School will serve grades kindergarten through fifth grade and the proposed new Pact Charter School will serve grades sixth through twelfth. When Pact School was constructed in 2004, Lease Revenue Bonds were issued in the amount of $11.5 million via conduit debt with the City in February 2004.   This issue was advanced refunded in August 2013, in the amount of $11.5 million, again via conduit debt with the City. The Pact Charter School agrees to pay all principal and interest on the bonds, whereas the City is merely a conduit and the money and obligations are between Pact and the Trustee for the bondholders. The bonds, is and when issued, will not constitute a charge, lien, or encumbrance upon any property of the City, except the Project (PACT), and will not be a charge against the general credit or taxing powers of the City.   Pact Charter School will be held responsible for all fees that are incurred for the issuance of this bond and per the signed Indemnification Letter of Agreement, holds the City and its officers, employees and agents harmless in connection with this issuance.  Per the city's conduit debt policy, Pact Charter School would have been required to pay the City 1% of the par of the bonds (or as negotiated based on the size of the issue).  A 1/2% fee has been negotiated to cover administrative costs over the life of the bond.  Pact Charter School is also required to pay the city for any additional interest costs that the city may incur if the City determines that they need to bond a portion of the water treatment plant (placeholder of up to $10 million as the total costs of project have not been determined at this time).  If the City did need to issue debt, the city would incur an additional interest expense due to the city's debt issuance now being considered non-bank qualified instead of bank qualified.  To remain bank qualified, which offers lower interest rates, the City must not borrow more than ten million dollars in any one calendar year.  The issuance of conduit debt is factored in when determining the city's debt issuance for a calendar year.  Thus, Pact's $43M will exceed the ten million dollar cap and if the city does indeed issue debt in 2022, the city will pay an extra estimated 1/4% in interest rates on its issuance.  Pact would hold these additional costs in escrow, until it is determined if the city will be issuing their own debt. The City is required to hold a public hearing on the issuance of conduit debt and the City Council authorized the call of the public hearing at its regular meeting of May 10, 2022. Following the public hearing, the City Council is being asked to give Preliminary Approval and not final approval on the issuance and sale of the Charter School Lease Revenue Refunding bonds.  The final approval will be brought forward to the same meeting that City Council considers the PACT School project site plan and plat approvals.  Authorizing Preliminary Approval of the Lease Revenue bonds, at this time, allows bond counsel (Taft Stettinius & Hollister, LLP) to proceed with making the required application to DEED per section 469.153 (2b) of the MN Statutes noted above.  NOTE:  Preliminarily Approving the Issuance and Sale of the lease revenue bonds is not giving preliminary approval to the site plan, preliminary plan or variance request for a New Pact School 6-12th Grade Campus.

The Public Hearing notice was published in the Anoka County UnionHerald on May 27, 2022.

Alternative #1:  Adopt Resolution #22-141 Preliminarily Approving the Issuance and Sale of Charter School Lease Revenue Refunding Bonds (PACT Charter School).

Alternative #2:  Deny issuance of Conduit Debt for Pact Charter School.  Pact would have to find another government agency to issue on their behalf to take advantage of lower interest rates via conduit borrowing.  

Incurred expenses will be paid by Pact Charter School.

Staff recommends adopting Resolution  #22-141 Authorizing Preliminary Approval on the Issuance and Sale of Charter School Lease Revenue Refunding Bonds (Conduit Debt) (Pact Charter School Project) 

Adopt Resolution #22-141 Authorizing Preliminary Approval on the Issuance and Sale of Charter School Lease Revenue Refunding Bonds (Conduit Debt) (Pact Charter School Project)