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HomeMy WebLinkAbout1985-12-13 MinutesMINUTES OF A SPECIAL MEETING OF THE FAYETTEVILLE CITY BOARD OF DIRECTORS AND NORTHWEST ARKANSAS RESOURCE RECOVERY AUTHORITY A joint meeting of the Fayetteville City Board of Directors and the Northwest Arkansas Resource Recovery Authority was held on Friday, December 13, 1985 at 1:00 P.M. in Room 326 of City Hall, 113 West Mountain Street, Fayetteville, Arkansas. PRESENT: Mayor Noland; City Directors Bumpass, Hess, Lancaster, Martin and Orton (presentfor the City Board and the Authority); Acting City Manager James Murphy, Finance Director Scott Linebaugh, City Attorney Jim McCord; Authority Members Butch Bartholomew and George Brooks (as proxy for Peg Anderson; Project Director Louis Watts, members of the press and audience ABSENT: Director Johnson Mayor Noland called a special meeting of the Fayetteville Board of Directors to order, with six Directors present. Chairperson Marion Orton called the meeting of the Northwest Arkansas Resource Recovery Authority to order, with three present. Finance Director Linebaugh noted that the purpose of the meeting was to consider final approval for the issuance and sale of $22,405,000 in tax exempt bonds by the Authority. Linebaugh explained the sale of the bonds before December 31 is necessary to preserve the present advantages of tax exempt financing for the construction of a solid waste disposal and resource recovery facility. Linebaugh reported that Manufacturers Hanover Trust Company has agreed to purchase all of the $22,405,000 bond issue - to be sold at par as one-year "put" bonds, to be re -marketed as long term bonds one year from the date of delivery. Linebaugh stated the interest rate on the "put" bonds is fixed at 6% for one year. Linebaugh noted if escrow is "broken" early, the bondholder (Manufacturers Hanover) will have to be "made whole", i.e. paid an amount equivalent to the additional interest which would have accrued over the remainder of the year plus any expenses incurred by the bondholder due to the early "break". Linebaugh explained that the "made whole" payment can be minimized by breaking escrow for only the amount needed from bond proceeds to make monthly payments to the contractor -- and by using Fayetteville sanitation fund surplus monies to make the first payments to the contractor. The City Attorney, in answer to a question from Director Lancaster, explained that no new tax reform law has yet been passed -- that the 40 403.1 403.2 403.3 403.4 403.5 404 404.1 December 13, 1985 House Ways and Means Committee has adopted a final version and the Administration has a slightly different tax proposal. McCord explained that, under both proposals, there would be adverse consequences to tax exempt financing. McCord noted that if the proposed tax reform legislation is not adopted this year but is introduced again next year, it still impairs the ability of bond counsel to render unqualified opinions. 404.2 Linebaugh noted the long term bonds will be sold as variable rate securities with a provision for conversion to a fixed interest rate. Linebaugh stated if a construction contract is not executed within one year, the "put" bonds will be redeemed from bond proceeds and investment earnings. Linebaugh stated it had been hoped initially that net bond proceeds and investment earnings would be sufficient to pay all principal and interest. Because of recent adverse market changes, the investment earnings under a guaranteed investment contract plus net bond proceeds will not be sufficient to pay all principal and interest should there be a mandatory redemption at the end of the one year escrow period. Linebaugh reported that any "shortfall" should be less than $50,000, if the project does not go forward. City Attorney McCord pointed out that, if the project goes forward, all initial issuance costs will be recouped from investment earnings during the escrow and construction periods. 404.3 In answer to a question from Director Lancaster, City Attorney McCord explained that this type financing preserves the ability to finance the project with tax exempt bonds which, when compared to conventional financing, would save approximately $500,000 in annual debt service, or $12 million in total debt service. 404.4 Director Lancaster asked, if the project does not go forward, is there a guarantee that the "shortfall" costs would be no more than $50,000. Charles Crow explained the borrowing rate is guaranteed, but that the question at this time is the investment rate. Crow added that when that rate is known, the exact amount of the shortfall can be calculated. Crow explained that conditions are such that. Crow noted that, as a result, banks are giving very conservative investment bids, ranging from 7.01 to 7.60. 404.5 Linebaugh referred to a detailed explanation (in his December 13 memo to the Board) of issuance costs for the project, totaling $433,525. Linebaugh pointed out some project expenses which are not issuance costs: HDR Engineer of Record fee, not to exceed $70,000, and LeBoeuf law firm fee of about $68,000 for drafting and negotiating construc- tion and management agreements. Linebaugh noted that HDR had submitted a statement thus far in the amount of $38,000. Linebaugh added that both these fees would have to be paid regardless of whether the project goes forward. City Attorney McCord noted these expenses are eligible • December 13, 1985 to be paid out of bond proceeds upon permanent financing. In answer to a question from Director Bumpass, Linebaugh stated that about $500,000 had been expended on the project to date. Linebaugh explained the bond purchaser is requiring that, at closing, an amount equivalent to issuance costs be deposited with the trustee and pledged toward payment of the principal and interest on the bonds. Linebaugh explained this means $433,525 would have to be deposited in an escrow account to insure that there are no "non -asset" bonds should the Treasury Department issue a ruling which requires redemption of the "put" bonds prior to expiration of the one year escrow period. Linebaugh added that this means the Fayetteville Board of Directors would have to adopt a resolution, appropriating $433,525 out of the Sanitation Fund surplus. City Attorney McCord explained that, as investment income from invested bond proceeds accrues, the need for this "hedge" reduces accordingly. Crow, after conferring by telephone, advised the Board that the investment rate of 7.90% he quoted earlier is no longer a firm rate. McCord advised that the Board of Directors cannot be expected to make a decision, until a commitment can be obtained for an investment rate on the bond proceeds, and the amount of any shortfall can be determined. Crow stated that Monday, December 16, would probably be the earliest time more information would be forthcoming. McCord suggested that, if the Board wished to eliminate the need for calling another meeting, they could choose to approve a resolution, contingent upon obtaining an investment contract that limited the potential shortfall to a specified dollar amount. Crow advised that, as of today, Manufacturers Hanover is offering a rate of 6%, which Crow noted may not remain firm until Monday. Crow noted that the Board would be "very fortunate" to obtain an investment contract at a 7.75% rate. Linebaugh estimated the shortfall to be approximately $74,000, based on that rate. Director Orton stated she would be in favor of voting for the 6% offered by Manufacturers Hanover if the amount of shortfall does not exceed $75,000. Orton suggested that, if the shortfall resulted in an amount above $75,000, the Board would meet again to consider the matter further. Crow calculated that, at an investment rate of 7.75%, the exact amount of shortfall would be $77,461. It was agreed that Crow would contact the bank in an attempt to obtain a firm commitment. Director Bumpass commented that "the economics made sense" at the time he initially voted against, but that now the economics don't make sense. Mayor Noland commented that the economics made sense from the standpoint that "we're potentially losing $80,000 to retain tax-exempt status". Director Martin commented that, although there are two investment advisors for the project, only one of them has 4 03 405.1 405.2 405.3 405.4 405.5 405.6 405.7 kOU December 13, 1985 406.1 been heard from at this time. Louis Watts stated that Chuck Devers, of A. G. Edwards, is checking into State and Local Government rates at this time. Director Martin commented that he didn't think the Board was in the business of "taking open-ended financial risks with taxpayers' money". 406.2 Crow reported that, as a result of a telephone call to the bank, he learned that "no bond purchaser wants to hold a bond purchase agreement over the weekend" and he was unable to obtain a commitment to the 6% rate over the weekend. Crow added that he should have more information by 1:00 P.M. on Monday, December 16. 406.3 It was decided that the Board would meet again on Monday, December 16 at 2:00 P.M. 406.4 The meeting was adjourned at about 2:40 P.M.