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11-13-12 CC WS MinCITY OF SHOREWOOD CITY COUNCIL WORK SESSION MONDAY, NOVEMBER 13, 2012 MINUTES 1. CONVENE CITY COUNCIL WORK SESSION Mayor Lizee called the meeting to order at 6:21 P.M 5755 COUNTRY CLUB ROAD COUNCIL CHAMBERS 6:00 P.M., OR IMMEDIATELY FOLLOWING CANVASSING BOARD MEETING A. Roll Call Present. Mayor Lizee; Councilmembers Hotvet, Siakel, Woodruff and Zerby; Interim Administrator Joynes; Finance Director DeJong; Planning Director Nielsen; and, Director of Public Works Brown Absent: None B. Review Agenda Woodruff moved, Hotvet seconded, approving the agenda as presented. Motion passed 510. 2. FINANCIAL CONSULTANT PRESENTATIONS Director DeJong explained that this evening Council will hear a brief presentation from three financial advisory firms about the possibility of refunding the City's outstanding Water Fund bonds to lower the interest rate. Ehlers (Stacy Kvilvang) Director DeJong introduced Stacy Kvilvang from the firm Ehlers. Ms. Kvilvang noted that Bruce Kimmel from Ehlers is also present this evening. She stated if the City chooses Ehlers for this the City would always have two financial advisors assigned to the City in order to provide seamless service. She explained Alicia Gage heads up Ehlers' financial analyst team; it does anything with bond restructuring and bond financing. Gail Robertson heads up Ehlers' arbitrage team; it does all of the arbitrage and IRS compliance. All of the various team members work together to complement each other's skills to ensure that the customer is well served. Ms. Kvilvang reviewed the firm's background. Its motto has always been independence and integrity; it's about fiduciary responsibility and doing things that are in the best interest of Ehlers' clients. Ehlers more times than not is in the business of recommending not to issue bonds or debt. Ehlers has been in business for more than 55 years. It has long -term relationships the Cities of Chanhassen, Edina, Hopkins, Long Lake, Minnetonka Beach, Minnetrista, Mound, Orono, St. Louis Park, and Spring Park. Most traditional financial advisory firms do things such as issue debt and economic development. Ehlers also provides paying agent services (to ensure bond holders are paid in a timely fashion), and it provides investment advisory services. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES November 13, 2012 Page 2 of 6 Ms. Kvilvang stated Ehlers is an employee owned firm (an ESOP); everyone has stock in the company. Therefore, there is the added incentive to make sure the client is well served. Ehlers is very stable and sustainable. There is no risk of turnover in ownership. It grows in a very thoughtful manner. It has long- term staff expertise. Most of the key staff members have over 20 years with Ehlers. Some staff came with local government, state government and education backgrounds. Ms. Kvilvang reviewed Ehlers service areas. They include: debt planning; issuance and compliance; economic development; 10 — 20 years long -range financial planning; providing assistance on fiscal policies and procedures; utility rate studies; and, public participation. Ms. Kvilvang turned the presentation over to Mr. Kimmel, Mr. Kimmel stated one of the things Ehlers is best known for in Minnesota and nationally is its debt advisory work. It is ranked first in Minnesota in terms of the number of competitive bond issues it advises each year. It has been number one for the last 15 - 16 years. It advised on 164 issues between the first of the year and August 14, 2012. It is ranked number 2 in the country in terms of the number of bond issues it advises annually in Minnesota, Wisconsin, Illinois and a little bit of Kansas. Mr. Kimmel explained that for the bond refunding it would do the following. It would start with planning and restructuring. It would then present a presale report to Council identifying the terms and conditions and answer any questions Council may have. It would then prepare the offering statement; the document that is provided to the financial markets. It would work with the City on its credit rating which is currently Aal with Moody's Investor Service. It is one notch less than the highest possible rating. The bond offering would be distributed to the national market. It would take bids, analyze the results and present the bond results to Council and ask for authorization to award the bonds. About three weeks after that the bonds would sell and the City would have the proceeds. He noted that Ehlers is in contact with the rating agencies almost daily. Mr. Kimmel explained the City has two bond issues that are candidates for refunding. The stronger candidate is the 2005A GO Water Revenue Bonds. They are callable starting January 2013 and are eligible for refunding at that point. Based on current interest rates and the cost of issuance the City would realize an estimated savings, net issuance costs, of approximately $160,000. The second candidate is the 2006A GO Water Revenue Bonds. They are callable starting January 2014. Therefore, that would be called an advance refunding. The estimated savings, net issuance costs, is just under $105,000. If those two were combined, the cost of issuance goes down and it would be a more attractive bond issue for the market place to bid on. It's projected the savings would increase on both for those reasons. If it makes sense to Council to refund both, Ehlers recommends a combined refunding. Ehlers recommends a competitive bond offering for this because the City has the General Obligation pledge (the gold standard for municipal bonds) and it has an Aal credit rating (near perfect in this day and age). Mr. Kimmel then explained the City has the 2008A Public Project Lease Revenue Bonds issued for the City Hall renovation. Those bonds are not callable until February 2016. Because interest rates are so low those bonds would be on the cusp of viability. Ehlers does not recommend proceeding with a refunding at this time. The negative aspects of having a refunding so far in advance of the call date almost always offset the savings. If Ehlers was chosen to be the City's financial advisor it would monitor that to determine when it would be best to proceed to lock in the savings. Ms. Kvilvang recommended choosing Ehlers because it has a lot of talented staff with wide - ranging expertise. Ehlers offers comprehensive, independent advisory services. With regard to economic and redevelopment initiatives, it works predominantly for the majority of the metropolitan communities and CITY OF SHOREWOOD WORK SESSION MEETING MINUTES November 13, 2012 Page 3 of 6 most out -state communities. It offers transparent fees competitive with the industry. Ehlers is ready to go and it would be very, very excited to work with the City of Shorewood. She noted she world be the primary representative for the City and Mr. Kimmel would be the second. Mayor Lizdc thanked Ms. Kvilvang and Mr. Kimmel for coming this evening. Northland Securities (Paul Donna) Mr. Donna thanked Council for the opportunity this evening. He stated the presenters were told to try and keep their presentations to 10 minutes. He noted there is a lot of information in the handout distributed that he will not go over because of the time limit. Mr. Donna stated Northland Securities was formed in 2002 with 36 representatives from different firms. There are now more than 200 people employed by the firm. It is based in Minneapolis and it has offices throughout the Midwest and one in the State of Pennsylvania. His group of 40 people focuses primarily on public finance. It provides services to cities, counties and schools throughout the Upper Midwest but mainly in Minnesota. Some of the cities in the area Northland Securities services include Apple Valley, Burnsville, Eden Prairie, Minneapolis, Prior Lake, Montrose, Victoria and Watertown. He started in the public finance business in 1989. His associate, Lee Brundell, who would work with him on this refinancing engagement, has been in the business for 29 years. Mr. Dorma stated the handout highlights the relationship Northland Securities has had with the City. It dates back to 2002 with the financing of the Public Safety Facilities. The then bond attorney for the City thought it was the most complex financings he had ever worked on. It has helped the City refund Water Revenue Bonds and issue new ones. It helped with the refunding of the bonds for the Public Safety Facilities. It helped with the financing for the City Hall renovation. It conducted a street reconstruction financing analysis, and a Water Fund analysis. It has helped other cities with fiscal consolidation. Beyond financing, Northland Securities also provides special project services. Mr. Donna noted that municipal rates are the lowest they have been since the 1960s. Therefore, now would be the time to refund bonds. He explained the 2005A GO Water Revenue Bonds and the 2006A GO Water Revenue Bonds are candidates for refunding with the 2006A Bonds being an advanced refunding. The standard refunding structure that is used to judge all others is the uniform structure. That basically replaces old interest rates with new interest rates; the integrity of the original structure remains in place. The estimated combined net savings for both assuming November 1' market rates and assumed costs built would be approximately $289,000. If the City is not looking for relief in its bonded debt payments, a late structure can be considered. That involves shortening the debt payment period. By shortening the overall structure of a new bond issue by three years there would be an estimated savings of approximately $328,700. Other structure approaches can also be put together for consideration. He noted he intentionally did not pass out details on those two structures, but Director De7ong has been provided with it. Mr. Donna reviewed why the City should retain Northland Securities. Northland Securities has a long- term relationship with the City. There is very little turnover with Northland Securities' client cities. Northland Securities is a known quantity for the City and it provides a high level of service. Northland Securities has done almost 360 refundings in the past three years and 521 in the past five years. He commented that any of the three firms would do a good job for the City. But, there are a lot of subtle things which are hard to quantify that make a difference between firms. He stated he thought Northland Securities would do a better job because of the details. In his firm lie can talk to people at the trading desk who are talking to bond buyers. Therefore, he is able find out what the buyers are looking for and mesh it with what the City is looking for. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES November 13, 2012 Page 4 of 6 Mr. Donna explained with refunding it sometimes makes sense to move a closing date out a little because refunding counts on interest earnings in the escrow account. As an example, for the City of Minneapolis pushing the closing date out 20 days on the sale of bonds represented $100,000 in interest savings. He clarified that size of impact would not happen with the City's bonds; but, there would be an impact. He explained that analyzing when the call date should be can be of more help to the City when refinancing down the road. Knowing where you can get away with a market call without having to pay for it in terms of rates while balancing the City's objectives is going to help. The typical maturity dates in Minnesota on tax levy supported bonds are February and August. Having different maturity dates helps buyers of fixed income bonds. If Northland Securities can make the City's bond issue stand out because it has a payment date that is different than typical dates of February 1 and June I the City may be able to get a little more interest from bond buyers. In today's economy it is all about making an issue more attractive. Northland Securities does a really good job of doing that. Mr. Donna then explained Northland Securities brings a multi- disciplined approach to financing. There are different ways to sell bonds — competitive sales, negotiated sales and private placement. A competitive sale makes sense in this market because there is low supply and high demand. Northland Securities believes its fee schedule is cost effective, and it has had the same schedule in place since 2005. That fee schedule was followed for this proposal. He noted if all three firms stick to their standard fee schedule they will all be in line. Northland Securities can't compete if a firm is going to try and by the City's business. He then noted that Northland Securities doesn't charge for run -of- the -mill advice such as phone calls. Northland Securities has provided a lot of pro -bono work in the past. That is standard practice. Mr. Donna stated Northland Securities is going to want the relationship more. In his office there is not a client number assigned to the City of Shorewood. He believes Northland Securities pays a lot more attention to its clients than other firms do. Northland Securities understands and appreciates the value of a long -term relationship. It wants to maintain that with the City. Northland Securities has kept the City abreast of this opportunity and others in the past. He noted the remainder of the information in the handout is supporting information. Councilmember Woodruff asked Mr. Donna what interest rate range he thought the City could get on the refunding. Mr. Donna responded the average coupon for the combined issue as of November I" under the uniform savings approach and which goes out to 2025 was a 1.22 percent. The outstanding debt that would be replaced is at 4.11 percent (2005A Series) and 4.00 percent (2006A Series). Today the rate would be about 5 basis points better than on November I ". If the late savings approach were used shortening the debt term by three years the rate would be 1.07 percent. He reiterated it was as of November I". Mayor Lizee thanked Mr. Donna for coming. Springsted (Terri Heaton) Ms. Heaton thanked Council for the opportunity to talk about the refunding of bonds. She noted that she put together a proposal that contains a lot of information about Springsted and the refunding itself. She stated the complete service team of four people, including her, is not all present this evening because of the short timeframe. She noted she has been with Springsted for 10 years. She has assisted in the issuance of over 300 bond issues of a multitude of types. Prior to coming to Springsted she worked at the Office of the State Auditor doing auditing work. And then she worked at Bloomington in several capacities including the chief financial officer. She works primarily with Minneapolis and St. Paul suburbs and regional centers. She commented that the other three members of the team are great people. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES November 13, 2012 Page 5 of 6 Ms. Heaton stated Springsted prides itself on providing incomparable services. Its goal is to delight and satisfy its customers so it customers can tell others how great it is. Its core competency has always been the issuance of debt. Its employees are salaried and are not paid commissions. Ms. Heaton stated the three firms were asked to present a proposal to refund two bond issues. It proposes refunding the 2005A GO Water Revenue Bonds and the 2006A GO Water Revenue Bonds in one issue to save money. She reviewed them individually. She explained that for the 2005A issue Springsted estimates an interest rate of 1.43 percent for the remaining 12 -year term. The call date for that issuance is January 1, 2013. Therefore, it would be a current refunding and that means the cash would immediately be refunded. The estimated present value savings is more than $158,000 depending on the bid on the date of sale. The savings as a percent of the refunded debt is 15 percent. For the 2006A issue the estimated interest rate is 1.19 percent because it would be for a nine -year term. The call date for that issuance is January 1, 2014. The estimated present value savings is more than $109,000. Because this would be a crossover it has to meet the minimum percentage. The savings as a percent of the refunded debt is 9.478 percent. Call date is the first time bonds can be refunded without having to pay the cost of holding the bond issue until the call date. Ms. Heaton explained that by doing one bond issue the issuance costs would decrease to $15,500 from $21,500. That is Springsted's proposed fee. For an issuance over $2 million it is a very appealing market. The City's Aal credit rating is very marketable. The combined savings on the two bond issues is estimated to be $268,000. She noted that is conservative, and the savings would probably be higher. The range is from $241,000 to $296,000. Ms. Heaton stated there are a lot of things to consider. The use of cash in the Water Fund (there is a lot of cash in the Fund currently), future capital needs and rates. She explained when going through a process like this there is a lot of planning on the front end. She noted credit rating discussions have become a lot more intense in the last six months. For a finance director who has not had a rating call in the last six months, she goes through a list of approximately 30 questions with them to make sure a credit rating would not be jeopardized by moving forward. Ms. Heaton explained the Shorewood Economic Development Authority (EDA) has issued four GO CIP Refunding Bonds. Three have already been refunded and an issuance can only be refunded once. The only one that could possibly be refunded is the 2008 issuance. The savings would be around $75,000 and the savings as a percent of the refunded debt is 5.24 percent. The call date on the 2008 issuances is 2016. She thought it was worth discussing it more. She noted the municipal rates are probably the lowest they have been in 20 years. She also noted that detailed information about the 2008 GO CIP Refunding Bonds is included in the handout. Ms. Heaton stated the handout contains a list of Springsted's clients who have comparable characteristics to the City first tier metro suburbs, second tier metro suburbs and additional regional centers throughout the State of Minnesota. She then stated Appendix I contains a draft copy of what a recommendation would look like. She highlighted what is included in the recommendation. She stated it is good to have a document as comprehensive as theirs. It provides a really good explanation in the event the City gets audited or there is staff turnover. Appendix 11 is about the potential EDA crossover. Appendix III talks about the many subscription services Springsted has to offer in the areas of organizational management, operational finance, housing and economic development, post issuance compliance, and investments. She explained that in order to give the City a taste of what it has to offer for a cost of $7,000 it can select four service offerings. Examples of offerings include: review water rates, facilitation session 4 — 8 hours, tax increment financing/ abatement revenue projections, pay equipment compliance report, and CITY OF SHOREWOOD WORK SESSION MEETING MINUTES November 13, 2012 Page 6 of 6 recommended fund balances. If that were purchased during the bond refunding process the price would be reduced by $1,500 or $1,500 would be taken off the cost of the bond sales. Ms. Heaton reviewed why she thought Springsted should be given this opportunity. Springsted works with a lot of communities like Shorewood. It gets good references from them. Springsted likes to get to know the clients it works with and it would be a great business partner. The comprehensive services it offers would be very complimentary. Its staff has a lot of depth and a lot of experience. Most of the employees have worked in government. Quality is extremely important to Springsted. Springsted is affordable. She clarified that the offer isn't to get Springsted into the door. She noted she would be the City's contact. Mayor Lizee thanked Ms. Heaton for coming 3. 2013 CAPITAL IMPROVEMENT PROGRAM AND ENTERPRISE BUDGET Due to time constraints this was continued to a November 26, 2012, Council work session. 4. ADJOURN Woodruff moved, Siakel seconded, Adjourning the City Council Work Session of November 13, 2012, at 7:09 P.M. Motion passed 510. RESPECTFULLY SUBMITTED Christine Freeman, Recorder Christine Lizee, Mayor ATTEST William S. 7 City Administrator /Clerk