Town Council Regular Session


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  Item # 4.       
Meeting Date: 10/03/2018  
Requested by: Stacey Lemos Submitted By: Stacey Lemos, Finance
Department: Finance  

Information
SUBJECT:
DISCUSSION AND POSSIBLE ACTION REGARDING RESOLUTION NO. (R)18-43, AUTHORIZING THE EXECUTION AND DELIVERY OF AN AGREEMENT, A TRUST AGREEMENT, A PLACEMENT AGENT AGREEMENT, AND AN OBLIGATION PURCHASE AGREEMENT; APPROVING THE SALE, EXECUTION AND DELIVERY OF EXCISE TAX REVENUE OBLIGATIONS, SERIES 2018, EVIDENCING A PROPORTIONATE INTEREST OF THE OWNERS THEREOF IN AN AGREEMENT BETWEEN THE TOWN OF ORO VALLEY, ARIZONA AND A TRUSTEE; AUTHORIZING AND RATIFYING THE TAKING OF ALL OTHER ACTIONS NECESSARY TO THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS RESOLUTION; AND DECLARING AN EMERGENCY
RECOMMENDATION:
Staff recommends approval.
EXECUTIVE SUMMARY:
The adopted FY 2018/19 annual budget includes capacity to issue excise tax revenue obligations to fund existing system Water Utility capital improvements totaling $6 million, as well as construction completion of the Police evidence and substation facility for an additional $2 million, for a total issue of not to exceed $8.2 million, including obligation delivery costs.

This item requests Council approval of the resolution to authorize Town staff to take the necessary steps to complete the placement, execution and delivery of the excise tax revenue obligations. These obligations will be repaid over a 15-year term. Although the Town is pledging its excise tax revenues to the repayment of the obligations, the Town anticipates actual repayment of the obligations to come from Water Utility revenues and Police impact fees, with annual debt service payments totaling approximately $718,000 per year. The estimated annual debt service attributable to the Water Utility portion is approximately $540,000, and the estimated annual debt service attributable to the Police evidence facility portion is approximately $178,000 based on an estimated interest rate of 3.5%. 
BACKGROUND OR DETAILED INFORMATION:
The Water Utility plans to utilize approximately $6 million of the obligation proceeds to fund existing system improvements outlined in the current adopted Capital Improvement Plan (CIP) for various projects planned over the next three (3) fiscal years including, but not limited to the following:  replacement well construction, tank replacements, meter replacements, water wheeling facility construction, and water line relocation for the La Cholla Blvd. road widening project. Financing these improvements are recommended in order to preserve the cash reserve balance in the Water Utility Enterprise Fund, and to spread the cost of these improvements over future generations of rate payers who will receive the benefit of these improvements.

The remaining approximate $2 million in obligation proceeds will be utilized to complete construction on the police evidence and substation facility, a project that began construction earlier this summer. The construction budget of approximately $5.4 million is included in the adopted FY 2018/19 budget, consisting of $2.7 million in cash on hand in the Capital Fund, $650,000 in police impact fees, and $2 million in obligation proceeds.

The Town will follow a private placement method for issuing these obligations. This method involves the firm of Stifel, Nicolaus & Company, Inc. serving as the placement agent on behalf of the Town. In this capacity, Stifel will solicit competitive bids from banks and financial institutions using the term sheet attached to this communication and will work with staff to award the purchase to the institution that bids the most advantageous interest rates and terms. The Town and Stifel have been successful using the private placement method in the past, most recently in 2017 with the issuance of the Series 2017 Excise Tax Revenue Refunding Obligations in the amount of $14.3 million at a 2.43% interest rate. Prior to that, the Town issued the Series 2016 Excise Tax Revenue Obligations in the amount of $2 million at a 2.2% interest rate for the financing of the energy efficiency improvements at the Oro Valley Community Center. This type of financing also results in lower costs of issuance to the Town since there is no need to prepare an official statement or solicit a bond rating.

Attached to this communication are the following draft standard documents supporting the execution and delivery of the obligations:
  • Trust Agreement - agreement between the Town and a Trustee bank related to securing payment of the obligations.
  • Agreement - agreement between the Town and a Trustee bank where the Town agrees to installment payments over time.
  • Placement Agent Agreement - agreement whereby the Town engages Stifel to collect proposals from qualified bidders for the placement of the obligations.
Approval of the attached resolution delegates the authority to Town staff to negotiate the terms and conditions with the successful bidding financial institution and execute all duties related to the issuance of the obligations, including the selection of a Trustee bank based on a competitive bidding process. The anticipated closing date for the sale is tentatively scheduled for the week of October 22, 2018.
FISCAL IMPACT:
The annual debt service on these obligations has been estimated at approximately $718,000 per year for 15 years based on an estimated interest rate of 3.5% used for planning purposes. This interest rate is not locked in until the bids are received and negotiated with a successful bidder. Therefore, the actual debt service may be lower or higher depending on market conditions and bids received. Although the Town is pledging its excise tax revenues to the repayment of the obligations, the Town anticipates that actual annual debt service payments on these obligations will be paid with Water Utility revenues (estimated at $540,000 per year) and police impact fees (estimated at $178,000 per year).
SUGGESTED MOTION:
I MOVE to (approve/deny) Resolution No. (R)18-43.
Attachments
(R)18-43 Oro Valley ET Rev Obligs 2018 - Authorzing Resolution
Draft Trust Agreement
Draft Agreement
Draft Placement Agent Agmt
Term Sheet


    

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