PUBLIC HEARING: Res. #22-237 Adopting a Street Reconstruction and Overlay Plan and Issuance of General Obligation Street Reconstruction Bonds and Res. #22-238 Providing Sale of $12,075,000 General Obligation Street Reconstruction Bonds, Series 2022A

Purpose:  To provide funding for street reconstructions and bituminous overlays via the issuance of Street Reconstruction Plan Bonds.

Background:  Over the past several years, much discussion has taken place over the financing of street improvements.  These needed improvements:  Overlays and Reconstructions are based on the 60-year Long-Term Street Maintenance Program that the engineering department had compiled on all of the city's streets based on a PASER rating (the lower the PASER rating, the worse the road). 

Street Reconstruction Bubble (From Public works Committee Meetings June 21, 2022 & July 19, 2022)
Between 1975 and 1985 approximately 40-percent of all City streets were constructed.  At the time these streets were constructed their anticipated useful design life was 40-years, after which reconstruction would be required.  These streets have all now either reached, or are nearing, the end of their useful lives.  This means approximately 40-percent of City streets need to be reconstructed now or in the immediate future.  And while it has generally been known for a decade or more that this “street reconstruction bubble” was approaching, it has become even more apparent this year that current Pavement Management Program funding levels need to be increased to acceptably maintain the condition of City streets.  Based on the Engineer's estimate, these projects totaled approximately $12.8M.

Included in the draft document of the City's 2023-2032 Capital Improvement Plan is over $37 million of Pavement Management Improvement Projects including the $12.8M projects noted above.

During the 2023 budget city council worksessions, it was the consensus of council to "front-load" funding these projects due to the large amount of streets that are in need of repair.  The agreement was to not only levy the annual pavement management levy that is approximately $1.7 million but also to issue debt so that there would be funding available to get ahead on improving  a major section of these roads over the next three to four years.  The average debt needed was determined to be approximately $12M.  The annual debt service levy on the property tax would be approximately $1.145M for 15 years.  The $1.145M debt levy for payable 2023 was included in the Preliminary 2023 Property tax levy that was adopted by City Council on September 27.
  
The city is looking to issue General Obligation Street Reconstruction Bonds. 
 
There are requirements that need to be followed when issuing Street Reconstruction Plan Bonds.  The requirements are:  1.  A Five-Year Street Reconstruction and Overlay Plan (SROP) must be prepared.  The City's five year as presented, is based on the highest priority street projects that Engineering has outlined in the City's draft 2023-2032 Capital Improvement Plan (CIP).  2.  City Council must hold a public hearing on the issuance of the bonds and Street Reconstruction and Overlay Plan. The public hearing request is the first step of the bonding process that needs to be undertaken for financing the street improvements with is what is being requested at tonight's meeting.  The major requirement to allow the city to issue this debt is that the City Council must approve the sale of the street reconstruction bonds by at least two-thirds vote of the membership present (need 4 approval votes if 6 members present; 5 votes if 7 members present).

Like a Capital Improvement bond, the Street Reconstruction bond is not required to have a referendum, but is subject to a 30-day reverse referendum after the public hearing.  If a petition bearing the signature of at least 5 percent of the votes cast in the last general election is filed with the City Clerk within 30 days after the public hearing regarding the bonds (November 11, 2022) the bonds may not be issued unless approved by voters.

The City's preliminary levy that was adopted September 27, 2022, included an estimated annual debt levy of $1,145,607 that was applicable to this bond being sold to fund approximately $12M of City street reconstruction and overlay projects. When sold, if the annual debt levy is determined to be higher than the $1,145,607 the levy amount for 2023 cannot be increased, but the remaining 14 years of annual levies would offset the difference.

If authorized, the GO Street Reconstruction Bonds are scheduled to be sold the morning of November 15, 2022, with approval of the sale and terms brought forward to the City Council for their approval that same evening of November 15, 2022 for which a special City Council meeting will be held.  The original sale date was to be December 13, 2022, but due to possible additional interest rate increases the sale date was moved up. 

 

The City Council authorized the calling of the public hearing for the intention to issue GO Street Reconstruction Bonds and the proposal to adopt a street reconstruction plan at its regular meeting of September 27, 2022.

Ehlers and Associates, the city's financial consultant, has prepared a Five-Year Street Reconstruction Overlay Plan (SROP).  This document was based on the 2023-2027 street reconstructions and overlays depicted in the city's draft 2023-2032 Capital Improvement Plan (CIP) that was prepared by the City's Engineering department.  The Five-Year Street Reconstruction Overlay Plan (SROP) is required by State Statute as it outlines only those projects that bond funds may be spent on.  The total estimated costs of these projects is $24.3M and thus the Plan is written that the City may issue Street Reconstruction Bonds not to exceed $25M.  The City is proposing to issue $12M of this amount.  Having the Five -Year Plan allows that if in the future the city desires to issue any debt for the other projects included in the SROP and up to $13M in debt issuance ($25M allowance - $12M current request)  a public hearing and new plan do not need to be created.  

The Five-Year Street Reconstruction and Overlay Plan 2023-2027 shows bonding schedules for each of these respective years.  Statute states that a Five-Year plan must be produced outlining projects and costs for the next five years.  If the city does not wish to follow this schedule (with the projects that are listed) over the next five years a new five-year plan will need to be devised.  For example, if projects A-E are included in the five-year plan and the city wishes to do project F instead of B, the plan needs to be amended and the public hearing process will need to be undertaken again on the revised plan.  

#1.  Motion to Adopt Resolution #22-237 Adopting the Street Reconstruction Plan and Approving the Issuance of General Obligation Street Reconstruction Bonds (5-Year Plan Requirements)
        and
       Motion to Adopt Resolution #22-238 Providing the Sale of $12,075,000 General Obligation Street Reconstruction Bonds 

#2.  Motion to not Adopt Resolutions #22-237 and #22-238 at this time.