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HomeMy WebLinkAbout1978-10-27 MinutesMINUTES OF A SPECIAL MEETING OF THE BOARD OF DIRECTORS 371 A special meeting of the Board of Directors was held on Tuesday, October 24, 1978, at 10:40 A.M., in the Directors Room, City Administration Building, Fayetteville, Arkansas. PRESENT: Directors David Malone, Ernest Lancaster, Philip Colwell, John Todd, Paul Noland, Al Hughes. ABSENT: Director Ann Henry. OTHERS PRESENT: Members of the audience and representatives of the news media. N PUBLIC FACILITIES BOARD CO Mayor Lancaster explained the special meeting was called to discuss the 371.1 possibility of creating a public facilities board to issue revenue bonds to (� finance housing for low and moderate income families. Q Director Malone suggested the Board obtain bond counsel from Friday, 371.2 Q Eldridge, and Clark in Little Rock to advise them as they proceed with the bond issue. City Attorney McCord said he had asked Bill Patton, with Friday, Eldridge, and Clark to come to this meeting. McCord noted that the Board shouldn't take any official action today since one member of the board has not signed the notice and consent of the special meeting. McCord also pointed out that this revenue bond issue for residential housing is very new in the state of Arkansas and the Friday firm is probably as familiar with it as anyone. Bill Patton explained that Act 142 has not been used for residential 371.3 housing until recently. He said Friday,Eldridge, and Clark are involved in this same program in Sebastian, Jefferson, and Crittendon counties with the quorum court and in Jacksonville and Texarkana with the City Board. He said Jefferson County is the only program which has gotten to the stage of preparing official documents. Bill Patton said the first step for the Fayetteville Board of Directors 371.4 to take, if they elect to do so, would be to create a public facilities board. Patton said the City Board will not have very much control over the public facilities board unless they put that stipulation in the ordinance. Patton said the Board of Directors would appoint the initial five members and the public facilities board would then be self-perpetuating. Mr. Patton suggested the City name an underwriter and bond counsel in the ordinance creating the board, for the bonds they will put out: He said he feels the act itself limits the area of participation to the entity which creates the board and he feels the funds should be available in the City limits and near the city limits. Patton said "near" the city limits could mean a housing addition which may in the future be taken into the city limits. Patton stated that he feels the growth area would qualify for these funds. Director Todd quesioned about lending to other towns in Washington County, 371.5 immediately adjacent to Fayetteville and Patton said he didn't know if this would be allowed. He noted that this was the reason Pine Bluff decided to have the quorum court initiate the act. He said they feel the quorum court can allow lending of these funds anywhere in the county. Patton said the,problem with having the quorum court initiate the act is that they have a 90 day referendum period, and the City only has a 30 day referendum period. Malone pointed out the City could write into the ordinance that it would be in effect for the city limits and growth area. • 1 37210/24/78 372.1 Mayor Lancaster asked if the City Board could create a new public facilities board for each bond issue and Patton said he felt they could have the first board make the initial issue of bonds and could work out the amount and the City Board could word the ordinance so the City Board would have final approval. 372.2 Director Todd asked if one lending company could pick up the bonds when the other companies are having trouble meeting their comnittments and Patton said he thought they could. He said, however, the lending companies should make a legitimate committment at the beginning. 372.3 Director Todd asked if the City Board couldspecify what bank any excess funds would be placed in and Patton said if the bonds are rated, they have some fairly rigid requirements on what type of bank is the custodian bank. Patton said it may depend on whether the bank could demonstrate capabilities to handle the bonds. 372.4 Director Malone questioned if the City would have the flexibility of appointing a second board if they do not agree with the actions of the original board. City Attorney McCord said if the City Board wants to fill vacancies on the public facilities board themselves, they should write this into the ordinance. 372.5 In response to Director Todd's question, Mr. Patton said these would be new loans and would be for new housing and . rehabilitating housing. He said they have been restricted usually to single-family, but in some instances, they have allowed duplexes and in one town quadplexes, as long as they are owner -occupied. Patton noted that these loans would have to be new loans and not refinancing. 372.6 Director lodd questioned if they could use the money for major home improvements and Patton said he was not sure. He pointed out that the custodian bank would require the first mortgage on the house. 372.7 Mayor Lancaster asked what would happen if an owner sold a duplex or quadplex as soon as the improvements were madeand Patton said he felt the mortgage would have to be paid off when the property was sold. 372.8 Patton said the cut off point on giving loan to moderate and low income families in Pine Bluff was that the income could not exceed $29,000 annually. He said Pine Bluff had hired two economists to do a survey and this figure is what they came up with. 372.9 Director Todd questioned if it would be important, legally, to have a study made to set up a median income level and Patton said someone should certify what the median adjusted gross income figure would be for the area. He said they feel if the Ctty does not have this study done, they would have someone from the Extension Service of the University of Arkansas at Little Rock certify what they feel would be a median income level. 372.10 Director Todd questioned if a single-family owner could have the mortgage transferred if they sold the property and Patton said he would not have any problem with this. Jim Bell, with First National Mortgage of Little Rock, said loans have to be made to meet secondary mortgage qualifications. He said as long as the original borrower did occupy the house when the loan was given, he felt they could transfer the loan. Bill Patton agreed that someone buying the house should be able to assume the loan. 372.11 Director Malone questioned what would happen if the owner of a qqadplex moved out and the new owner did not occupy the quadplex. Jim Bell said he felt they could still transfer the loan. He noted that 1-4 families are considered single-family in secondary mortgages. The Board was concerned that one person might buy and sell under this bond provision to get the lower interest rate, and questioned what procedure they could use to check this. Patton said he felt the custodian bank would be the ones to enforce keeping someone from misusing the funds. Jim Bell 1 1 ,.. 10/24/78 • . ...,,. 373 said any loan made above 80% has to go through private mortgage insurance and one private mortgage insurance company will be dsed and they keep a III list of persons obtaining loans and will check with the lender if someone applies for several loans in a short period of time. Director Colwell noted that there will be times when the Board owns the 373.1 property when there are foreclosures and condemnations. Director Noland questioned how large of a bond issue Jefferson County 373.2 is considering and Patton said it would be 36 million dollars. Jim Bell noted that it would be the function of the banks and savings and 373.3 loan companies to distribute the funds. Malone said he thought Springdale is thinking about 12 million dollars worth of bonds. Bill Patton said he feels the Board needs to decide what to put in the 373.4 ordinance creating the public facilities board and what authority the City N Board wants to give them. He said they need to decide also, if the City wants CO to approve each bond issue. 10 Bill Patton said the funds would need to be expended between 18 months 373.5 0 and 3 years. Jim Bell said the lenders would be asked to put up fees to assure. delivery of the bonds. Q Director Malone said the City Board's next step would be to have City 373.6 Q Attorney Jim McCord and Bill Patton write an ordinance. He said the City Board needs to decide if they are going to appoint an underwriters bond counsel; if they are going to require the public facilities board to make mortgages only inside the City limits, or also in the growth area; and if they would, want that particular board to do more than one bond issue or if the public 373.7 facilities board should come back before the City Board after one issue. Director Colwell questioned why there is a hurry to create the public 373.8 facilities board. He noted that it may be hard for lower income people to come III up with closing costs, etc. Jim Bell stated that the fees put up by the lenders will be charged 373.9 back to the seller. He said the main reason time is important is this act which was passed in 1975 only gave the state authority to issue bonds and was amended recently to allow cities to use the bonds. Patton said Act 142 has been used for other uses, but has only recently been used for residential housing. Malone stated that it is possible adjacent cities may get lower mortgage rates in their cities if they get the bond issue passed first. Director Colwell said he feels the quorum court should enact the 373.10 bond issue. Director Malone agreed, but noted that Springdale is now proceeding with their issue. Director Todd said he felt the Board of Directors should restrict the 373.11 first issue of bonds as closely as possible. Director Malone stated that the City needs to be sure the issue is large 373.12 enough that the underwriters are willing to take it and get it rated. He said if it is too small, they would not be able to get it rated. City Manager Don Grimes suggested the City use First Southwest as an 373.13 advisor with the understanding they will not be the underwriter. Director Todd said the bond underwriters will collect something so 373.14 presumably there should be proposals from interested underwriters. He said the lending institutions themselves will charge an initial fee and a servicing fee. Patton said the initial fee and servicing fee have always been 1%. Todd stated that he feels the City should have an expert financial advisor present to present the entire proposal to the City Board. IIIDirector Malone said the Board of Directors also need to decide what percentage of loans they want to make inside the City and if any, what percen- tage outside the City. He said the lending institutions may need to estimate if they feel they will get enough loan requests inside the City to limit loans 10/24/78 374 to inside the City. Jim Bell said their suggestion is about 60-40% for inside the City. 374.1 Director Malone said he feels the City needs 300 mortgages and 10 million dollars worth of bonds to get the needed rate. He said he would like to find out from local lenders if they could place this amount of -mortgages in 18 months or so. Jim Bell noted that most lenders will be conservative on their estimate of loans they can place. 374.2 Malone stated that the City needs figures from lending institutions on estimated number of loans they can place before writing an ordinance. He said the City also needs to decide 1) if they want to appoint an underwriter's bond counsel; 2) what percentage of loans to be given for inside and outside the City; and 3) whether the initial public facilities board will be for one bond issue or several. 374.3 Director Todd questioned if there is some way the City can recover expenses paid by the City if the bond issue doesn't come out even. Bob Armstrong, UMIC, said if there are any excess funds those funds could go back to the City when the principal and interest are satisfied. He said in the initial loan, there are also provisions that a mortgage lender can charge a 1% origination fee, 1% service fee, and a 1% participation fee which could go back into the mortgage pool to create more mortgages. Armstrong said the manner in which this 1% participation fee could be used would have to be approved by the bond counsel. He said he feels the City could recoup a portion of that 1% participation fee for the City's increased costs. 374.4 Director Malone said they need some money for contingencies. He said the City Attorney could word the ordinance so that the contingencies left at the end of the bond issue could possibly flow tothe City to take care of increased costs generated by the housing (fire and police protection, water, etc). Director Malone said he would want it in the ordirance that they could release part of the contingency money as some of the bonds are paid off. Bill Patton said once the reserve has maintained a certain level, you could release any additional money as long as the levels stay the same. 374.5 Director Todd pointed out that the City itself could not become liable for any debts and Patton agreed. Todd said the bondholders would be under any obligation of paying the debts. Bill Patton noted that there is a 12% cushion for the bondholders. He explained that the mortgage reserve fund is that which is created as a cushion to handle contingencies and for foreclosures, insurance premiums, etc. Patton said if the servicing institution in making its monthly report to the custodian has a delinquency which he can't satisfy, then the 1% would be used, but would be replaced by insurance when it was collected. Todd said you would have the 1% intact at the end of the bond issue, and it would go to the City, if they write in the ordinance that it will go to the City. Patton said if this is not included in the ordinance, the 1% would be put in the sale agreement and trust indenture. 374.6 Bob Armstrong said the 12% cushion fee is a negotiable number. He said the underwriter will take all the input --size of mortgage, what kind of reinvestment rates are available in government securities, etc., and come up with a definitive number. Todd said the debt service account would be needed to assure bond holders they would have payment for one year. Todd asked if this amount should remain fairly intact and Bob Armstrong said no, if anything, it would increase. 374.7 Bob Armstrong said the capitalized interest fund would be for the interest earned from the date of the bond issue to the actual closing date of the bond issue. Armstrong said this is a fund set aside to pay for any contingencies because the Board will be making loans during the first six months or so, but won't know at what rate. Armstrong said this fund would normally flow into another fund after the first year. 1 10/24/78 375 Bill Patton said the interest reserve fund would probably go back into 375.1 the bond fund. He said he would be very reluctant to have any unused bond proceeds taken out until all funds are at the proper levels and then if the underwriter says they want the money to flow back into the general revenue, they would want to know exactly how much money it would be. He said it is not customary to take what you have for bond security and put it in another account. Malone said the public facilities board would be very important and said 375.2 they need to begin the procedure for selecting the board as they are selecting the underwriter. Bill Patton suggested that people appointed to the Board have a knowledge of the real estate market and financial conditions of the City and county. Bill Patton said a participating lender should not be on the public facilities board, but felt a real estate agent could be. N Director Noland said he feels the City Board should advertise for these 375.3 0') positions. Malone suggested the Board should list qualifications they are (S) looking for --persons who are familiar with the real estate and financial market U and the overall economy of Northwest Arkansas. Malone suggested the lenders should have an input on who should be on the Baord. Director Todd asked if CityBoard members could be on the public facilities 375.4 Q board and Mayor Lancaster said this question was brought out at a previous meeting and it was found this would not be practical. Director Malone said he would beinclined to go with a limited duration 375.5 of the board and Patton noted that if the board only has limited duration, you would have bonds out on several different boards. Director Todd suggested they incorporate this into the housing authority 375.6 legislative change to try to eliminate perpetual boards. OTHER BUSINESS City Manager Don Grimes noted he had passed out the following information: 375.7 1. A memo from the historical society establishing a historical district in Fayetteville, 2. A map of the Community Development eligible project areas and Mr. Grimes pointed out that there are some isolated very small areas scattered around the City which are not shown on the map, 3. A summary of Community Development easement costs to date. Mr. Grimes said he would like to have suggestions as to projects for Community Development funds by the end of the week, if possible, to go to the Community Developmpent meeting on October 30. Director [odd noted that Communiity Develop- ment is trying to come up with tentative projects for the next three years. Mayor Lancaster asked if there has been any word on approving CETA and Mr. 375.8 Grimes said it has been approved by Congress, but there are some changes. The meeting adjourned at 12:15 P.M.