Adopt Resolution 14-10-217 Providing for the Sale of $875,000 General Obligation Equipment Certificates, for 2015-2017 Capital Equipment Purchases (50% funding)

Purpose:  To call for the sale of capital equipment certificate debt whose proceeds will be used to fund 50% of the city's capital equipment to be purchased over the next three years 2015-2017.  Total funding will come from the city's Revolving Fund and the issuance of Capital Equipment Certificates.  It should be noted that this is for the call for the sale and not final approval of the debt.  The acceptance of the debt and terms will be brought to City Council for approval at its meeting of November 12, 2014.

Background:  On September 9, 2014, the City Council adopted the 2014 Preliminary General Fund Budget and Property Tax Levy.  Included in the preliminary levy was a debt service levy of approximately $110,000 attributed to the funding of capital equipment for the years 2015-2017.  The City Council direction at previous budget worksessions was to have the city's capital equipment needs for 2015-2017 be funded 50% from the issuance of debt and 50% from the City's Equipment Revolving Fund.  The rationale for the 50% funding scenario is twofold:
     1.  The City's Equipment Revolving Fund would be depleted in three years if 100% funding was from this source.
     2.  Retain the Equipment Revolving Fund for additional years when interest rates for borrowing will most likely be much higher
          and take advantage of the present low interest rates (rational of why three years of capital needs is being
          addressed at this time).

Included in the 2015 General Fund budget is $545,000 of capital equipment expenditures.  Budgeted items include:  squad car, copiers, ATV, 800 MHZ Radio System (3-year funding), Engineering truck, Plow truck and Sidewalk machine.

The total of the three years (2015-2017) equipment purchases to be funded totals $1,664,975 (listing of equipment for 2015-2017 is attached).  As stated, the Equipment Certificates would fund 50% or $832,488 and the Equipment Revolving Fund the other $832,488.  The amount of certificates to be issued to  fund the capital items is proposed to be $875,000 which covers the principal costs of the capital items and underwriting costs.  The certificates would be for a ten-year time frame and levied to the property tax for years 2015-2024.  The annual debt as currently proposed in the presale report shows an annual levy of approximately $102,000.  As the city is selling by competitive bid, this number is subject to change when the final bond sale is held November 12.

A pre-sale report from Ehler's, the city's financial consultant on this issue, is attached that outlines the debt structure and time frame.

  Alternative #1.  Call for the Sale of the bonds with the bond sale to be brought forward for approval on November 12, 2014.  The 2015 preliminary budget and levy included the issuance of debt to cover 50% of capital needs for 2015-2017.

  Alternative #2.  Wait for the call and sale of debt until the budget and levy are finalized in December.  Interest rates may rise and levy amount cannot be increased.

  Alternative #3.  Not issue debt.  Look at using the city's Equipment Fund for 100% of funding noting that the fund will be depleted by year 2017.

2015-2017 Capital Equipment will be funded from the City's Equipment Revolving Fund and from the issuance of Capital Equipment Certificate debt.

Staff's recommendation is to authorize the call for the sale of the bonds and to bring the sale of the certificates forward to the City Council meeting of November 12, 2014.

Approve Resolution #14-10-217 Providing for the Sale of $875,000 General Obligation Equipment Certificates, Series 2014A.