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HomeMy WebLinkAbout04.11.16 Work Session Minutes City Council Workshop Minutes April 11,2016 Mayor Larson called the workshop to order at 6:30 p.m. Present: Larson, Bonar,Donnelly,Pitcher Absent: Bartholomay Also Present: David McKnight, City Administrator;Robin Hanson,Finance Director; Kevin Schorzman, City Engineer; Cynthia Muller, Executive Assistant Debt Overview and Potential Refinancing Opportunities Currently the city has $28.2 million in outstanding debt and the interest rates range from 2%to 4.2%. Final maturities range from 2017(fire truck)to 2030 (195t Street reconstruction bonds). As of December 31,2010,we had$41.5 million outstanding. We have paid down $13.3 million in six years,which is a 32%reduction in principal. The debt management plan target is to have no more than$1,000 per resident in debt outstanding by 2020. Based on the assumptions in play we should reach that by 2018. This does not include the referendum regarding the recreational facility. That would add$10 million in 2017 or 2018 and would be paid out in 15 years. From 2016 to 2019 the scheduled principal payments increase. After that it is a steady decline. The total interest is$5.5 million. To relieve the city of debt would be tremendous. There are five bond issues open to be redeemed February 1,2017. There are three issues which are all over 5%interest. The first bond issue of the three,2007A would have a potential$965,000 in gross interest savings. This bond is for city hall and the First Street garage. The bank account to make payments on these buildings is currently-$50,000. All of the$965,000 in savings will not be realized because of the deficit. We are currently using internal funds to cover the deficit. Finance Director Hanson recommended a typical refinancing. The term stays the same,we get a lower interest rate and lower payments. We will average$35,000-$50,000 per year in debt levy reduction. The last year instead of having to levy$800,000,we would have to levy$400,000. The same rules still remain for renting the expansion space. The second bond issue,2010D would have a potential $9,530 gross interest savings. This bond was for arena improvements. It does not make sense to refund this bond as it only has three years left. It is a$400,000 bond and is$110,000 in the hole. In order to make this whole,we need$535,000 and we only have$405,000. Finance Director Hanson recommended using internal funds to refinance the bond through either the general fund, sewer fund or water fund for three years to pay the bond off. Council reached a consensus to use the sewer fund. The third bond issue will have to wait until next year. City Council Workshop Minutes April 11,2016 Page 2 In the road and bridge fund we have 2008A,2008B and 2010C bonds. This fund's only purpose is to make sure we do not miss a debt service payment on any of these bond issues. No money comes out of this fund until these bonds are paid off. At that time,whatever funds are left will go into the CIP. Right now the fmancial plan shows there will be$1.4 million coming into the CIP in 2026, 2027 for future street projects. There was supposed to be$3 million coming out of the road and bridge fund to go into the CIP, but it didn't because of the VRC assessments. There should have been $1.6 million collected for VRC assessments. There are also Pilot Knob assessments amounting to$50,000 sitting out there waiting for development to happen. Once the road and bridge bonds are paid and any overage moved to the CIP,we will no longer have to rely on the road and bridge fund. With this refunding of bonds,the city can collect zero on the VRC assessments and we still pay every dollar of debt. Each dollar collected from VRC will go into the streets fund. This gives flexibility in negotiating sales in VRC because we do not have the pressure to make debt payments. We could redeem these three issues in February 2017. To pay off the bonds next February we would need$6,390,000. We have the Seed assessment we could use and money in the road and bridge fund which totals$2,700,000. We would use this available cash to pay down the principal. We would have a new bond sale of$3.8 million with a savings of$500,000. The last payment would be made in 2023,which shortens the payments by three years. The$500,000 could be used for another street project. As the Seed property is developed,we may have exposure to approximately$300,000 in assessments. We could bond for only$3,485,000 and we would do the internal loan for $300,000. As the assessments are paid we would pay off the loan. We would close on the bond sale on November 10,2016. Staff suggested a resolution stating if a certain percentage is met, staff can go ahead with the transaction without waiting for a council meeting. This will be brought to council in May or June. To summarize,the non-road and bridge funds are 2007A bonds which financed city hall and the First Street garage. We would receive the money November 10,2016, and it would be used to pay the bonds February 1, 2017. We would refinance the bonds,keep the term the same and lower the annual payment. The 2010D bonds for the arena we would refinance through an internal loan from the sewer fund and get ourselves out of the hole and save some interest. The 2008A,2008B and 2010C bonds which are paired with the road and bridge fund,we would use available cash of approximately$2.7 million to pay down existing principal and we would borrow$3,785,000 which would come from bonds and an internal loan. That maturity would be in 2023 for the new issue. The last bond is not redeemable until February 1, 2018. 2016 Street Light Fund Expenditures The street light utility fund is at a point where we can use the funds. There is$120,000 in the fund with$90,000 available to use. Staff recommends using$55,000 to pay for the TH3 traffic City Council Workshop Minutes April 11,2016 Page 3 signals. The fund was set up to use for street lights and traffic signals. Regarding LED street lights,Dakota Electric now has rates set for decorative street lights and the overhead cobra lights. The decorative street light rates are not at a level that makes sense to convert them. We would have to pay to convert them,then Dakota Electric maintains them into the future. Right now there are 87 overhead lights in Dakota Electric's territory. The rate is dropping from$14.16 per month for the 150 watt down to$8.69 per month for the LED. For the 250 watt it is going from $17.95 down to$13.16. Each of those would have a payback that we would recover over time. Right now the 150 watt LED conversion is about$500 per light and$800 for the 250 watt conversion. Payback would be realized in seven years for the 150 watt and 14 years for the 250 watt. Once they are converted,Dakota Electric is responsible to keep them going and we would not have another conversion cost. Out of the$90,000,we would have$35,000 to start this conversion and it would take about two years. Council agreed with moving forward with this project. Private Street Signs It is common to denote private streets with a different color street sign other than green. Private streets do not follow the typical Dakota county naming system. The biggest benefit is they indicate to residents that they do not live on a city street. These would be placed at intersections with private/city streets. Replacement would be incorporated into the sign replacement program. Council chose black and white signs with private spelled out. Youth on Boards Initiative Mr. Wyatt Cieluch brought this proposed program to the last council meeting. City Administrator McKnight asked council which boards they felt this could work with if any. It was suggested to try this with the Parks and Recreation Commission and the EDA. Council would interview applicants. Youth members would fully participate in the commissions, except for voting. MOTION by Donnelly, second by Bonar to adjourn at 7:50 p.m. APIF,MOTION CARRIED. Respectfully submitted, Cynthia Muller Executive Assistant