View Agenda Item

7.4.

CC Regular Session

Meeting Date:: 07/12/2022
By:: Diana Lund, Finance

Information

Title:

Adopt Resolution #22-157 Authorizing the Issuance of Charter School Lease Revenue Refunding Bonds to Finance and Refinance a Public (Charter) School Project Pursuant to Minnesota Law, and Authorizing the Execution of Various Documents in Connection Therewith (Pact Charter School Project)

Purpose/Background:

Council will be considering the Preliminary Plat, Final Plat and Site Plan for Pact Charter School immediately prior to this council case. If approval is given for the project, 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.

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.

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 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, and the public hearing was held on June 14, 2022.

Following the public hearing, the City Council gave Preliminary Approval and not final approval on the issuance and sale of the Charter School Lease Revenue Refunding bonds as final approval was to be brought forward to the same meeting that City Council considered the PACT School project site plan and plat approvals.

The following documents relating to the bond issuance also need to be executed. They are as such: Loan Agreement, Indenture of Trust, Mortgage-Security Agreement and Assignment of Rents, Bond Purchase Agreement, and the Preliminary Official Statement. These are all standard documents that are filed in these type of financing and are put in place so as the city is not placed at risk in any way, financially or legally, in appearance or fact. The city's bond council, Taft, Stettinius & Hollister LLP, has drafted and overseen all related documents.

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.

Notification:

The Public Hearing notice was published in the Anoka County UnionHerald on May 27, 2022 and the Public Hearing was held on June 14, 2022.

Representatives From Pact and their bond underwriter from Robert W. Baird will be present.

Time Frame/Observations/Alternatives:

Alternative #1: Adopt Resolution #22-157 Authorizing the Issuance of Charter School Lease Revenue Refunding Bonds (PACT Charter School).

Alternative #2: Deny issuance of Charter School Lease Revenue Refunding Bonds (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.

Funding Source:

Incurred expenses will be paid by Pact Charter School.

Recommendation:

If the Preliminary Plat, Final Plat and Site Plan for PACT Charter School is approved, staff recommends adopting Resolution #22-157 Authorizing the Issuance of Charter School Lease Revenue Bonds in a not to exceed amount of $43 million.

Outcome/Action:

Attachments

Form Review

Inbox	Reviewed By	Date
Brian Hagen	Brian Hagen	07/07/2022 10:45 AM

Form Started By:: Diana Lund
Started On:: 07/05/2022 07:13 AM
Final Approval Date:: 07/07/2022