HomeMy WebLinkAbout1985-10-09 MinutesMINUTES OF A SPECIAL MEETING OF THE BOARD OF DIRECTORS
332.1 A special meeting of the Fayetteville City Board of Directors was held
for the purpose of approving the issuance and sale of Water and Sewer
Refunding Bonds, on Wednesday, October 9, 1985, in Room 326 of City Hall,
113 West Mountain Street.
PRESENT: Mayor Noland; Directors Bumpass, Hess, Johnson, Lancaster,
Martin and Orton; Assistant City Manager McWethy, City
Attorney McCord, Finance Director Linebaugh, City Clerk
Kennedy, members of the press and audience.
332.2 The meeting was called to order at 1:30 P.M. by Mayor Noland, with six
Directors present. Director Bumpass arrived at about 2:00 P.M.
332.3
Les Baledge spoke on behalf of the Rose Law Firm. He explained that,
in connection with the issuance of the Sales and Use Tax bonds for the
Wastewater Treatment Plant, it was proposed that the city refinance all
its outstanding water and sewer debt - being four prior issues which were
issued in 1963, 1966, 1969 and 1975. Baledge explained the primary reason
for the refunding was because the contracts written in connection with
those bonds included "rate covenants" of 133% which had to be met to incur
additional debt. On the basis of the assumption that the refunding would
be financed from the new bond issue, Baledge explained the city commissioned
Black and Veatch to conduct a water and sewer rate study. Then, Baledge
noted, the Supreme Court invalidated proposed financing under one state
law - and the city subsequently issued the new bonds under Amendment 62
which did not permit the inclusion of refunding the water and sewer debt.
Baledge explained that this left the city with a situation wheke they
had a rate study which was prepared based on an erroneous assumption,
and the city was faced with fairly immediate rate increases. Because
of that problem, Baledge explained that the staff began working with A. G. Ed-
wards and the Rose Law Firm to develop a financing program. Baledge noted
that, in August, it was the consensus of the Finance Committee to spend
some of the projected "net present value savings" to effect rate relief
for present customers.
332.4 Baledge pointed out that President Reagan's proposed tax reforms, if made
into law, will prevent the city from using this type of advance refunding
after January 1, and the city would be forced to abide by the 133% rate
covenant until the prior bonds were repaid.
332.5 ;Baledge noted the only change since August is the inclusion of a $50,000
rate study (which has subsequently been determined to be a requirement
for the issuance of the bonds). Baledge noted that the financing proposal
would accomplish the following:
October 9, 1985
1. Would tailor the debt service on the bonds to the expected revenues
of the city, with the result that the necessity for a rate increase
will be totally eliminated;
2. • Will save the city approximately $160;000 in "present value
savings", and approximately $2;000,000 in "gross•dollars"; and
3. Will give the city maximum flexibility in the.future.to conduct
its affairs pertaining to the water and sewer system and to
future capital costs.
Baledge introduced Jonathan Savage, Vice President of A. G. Edwards and
Sons. The Board was presented with a copy of the Preliminary Official
Statement, a Comparison of Yields on "AAA" Insured Bonds Sold through
Negotiated Offering, and Final Budget Estimates which showed total expenses
and their recoverable amounts. Savage explained that under IRS regulations,
refunding bonds permit an issuer to recoup issuance costs from arbitrage
earnings.
Savage reported that the size of the bond issue is $4,335,000; the total
escrow cost to pay off old bond issues is $6,064,026,91; the underwriters
discount is $121,380 and is 2.8% of the principal amount of the bonds;
the recoverable issuance expense is $127,250 and is $15,000 more than
was initially contemplated (due to the Black and Veatch study); the insurance
premium is $66,713.19 which increased by $10,006 from the original assumption;
and the unrecoverable expenses are $15,746.34 which only increased by
$746. In addition, Savage reported the net absolute savings to be in
the amount of $2,117,458.56, and the present value savings, which is dis-
counted, to be $164,429.32.
Mayor Noland asked what restrictions existed with respect to local invest-
ments. Finance Director Scott Linebaugh explained the only restriction
would be that investments must be 116% collateralized.
In answer to Director Martin, Linebaugh stated he envisioned the bonds
would be repaid before they mature. Linebaugh added that the city hopes
for additional grant money from EPA to help repay the bonds.
The City Attorney read the ordinance for the first time. Director Bumpass,
seconded by Johnson, made a motion to suspend the rules and place the
ordinance on second reading. Upon roll call, the motion passed, 7-0.
The ordinance was read for the second time. Director Bumpass, seconded
by Johnson, made a motion to further suspend the rules and place the ordinance
on third and final reading. Upon roll call, the motion passed, 7-0.
The ordinance was read for the third time.
The Mayor asked for a vote on passage of the ordinance, again noting that
the financing would tailor the city's debt service to the revenues expected,
that cumbersome covenants under existing bond ordinances would be eliminated,
thereby achieving maximum flexibility for the next twenty years, and would
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October 9, 1985
eliminate the need to increase rates to pay for the existing debts. Upon
roll call, the, ordinance passed,, 7.-0,_
ORDINANCE NO. 3134 APPEARS ON PAGE 410 ...OE ORDINANCE & RESOLUTION BOOK
XXIII
ADJOURNMENT
334.1 With no other business., the meeting was adjourned at about 2:5O P.M.
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