To: Honorable Mayor and Members of Town Council
From: Trish Muller, Director of Finance
Title
Ordinance Authorizing the Issuance of the Town of Castle Rock, Colorado, Sales and Use Tax Revenue Refunding Bonds, Series 2016; Pledging a Portion of the Sales and Use Tax Revenues of the Town For the Payment of the Bonds; and Providing For the Refunding Certain of the Town's Outstanding Sales and Use Tax Revenue Bonds; and Providing for Its Emergency Adoption on Second and Final Reading (Second Reading)
Body
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Ordinance was approved on first reading by a vote of 7 to 0 by Town Council on May 17, 2016.
Executive Summary
Efficient and effective management of this debt is an important aspect of the Town’s financial management planning and for the Transportation fund a key piece in the long term needs for surface transportation. Based on a review of the Town’s current debt, an opportunity was identified to lower overall carrying costs on the Series 2008 Sales and Use Tax Revenue Bonds through a refunding project, resulting in a potential positive impact on the Transportation fund’s debt service requirements.
Taking advantage of this opportunity, staff has been working with the Town’s financial advisors, First Southwest, to review the 2008 Sales and Use Tax Revenue Bonds, under the premise that a significant amount of annual savings could be achieved. Based upon current market conditions, staff is estimating an overall savings at Present Value of approximately $ 966,941, with the refunding structured to recognize the majority of the savings in 2016, 2017 and 2018. This upfront savings structure will allow the Town to proceed on certain street projects sooner than originally anticipated. Town staff is recommending the savings be utilized to expedite the roundabout project at Plum Creek and Wolfensberger.
The bond refunding project and associated bond ordinance for Council’s consideration will only move forward if the following parameters are met:
• The aggregate principal amount of the Series 2016 Bonds shall not exceed $9,000,000;
• The maximum annual repayment cost of the Series 2016 Bonds shall not exceed $911,000;
• The total repayment cost of the Series 2016 Bonds shall not exceed $10,800,000;
• The Series 2016 Bonds shall mature no later than June 1, 2028;
• The purchase price of the Series 2016 Bonds shall not be less than 98% of the principal amount of the Series 2016 Bonds;
• The first optional redemption date on the Series 2016 Bonds shall not be later than June 1, 2026; and
• The optional redemption price shall not exceed 100% of the principal amount of the Series 2016 Bonds so redeemed.
Although there is no specified interest rate cap presented in the ordinance, for TABOR purposes the refunding bonds must have a lower interest rate than the bonds being refunded.
Staff is presenting the refunding project and the related parameters for Council’s approval.
Discussion
Annually the Town reviews all existing outstanding debt as part of our due diligence to ensure we are being as effective and efficient as possible; this means that the Town is obtaining the best prices and investment practices available in the market. In cooperation with the Transportation Department, Finance staff specifically reviewed the debt of the Transportation Funds. Outstanding principal debt is as follows, as of 4/30/16:
2004 Sales and Use Tax Revenue Bonds
• Principal outstanding: $ 675,000
• Interest Rate: 3% - 4.5%
• Maturity Date: June 1, 2016
• Purpose: Refunding of the Series 1996 Sales & Use Tax Bonds, originally issued to finance the Perry Street Extension project and to preserve the historic downtown area.
2008 Sales and Use Tax Revenue Bonds
• Principal Outstanding: $ 8,345,000
• Interest Rate: 3.75% - 6%
• Maturity Date: June 1, 2028
• Purpose: Finance portions of the Southeast and Southwest Arterial Connection Roads.
2013 Sales and Use Tax Revenue Bonds:
• Principal Outstanding: $ 20,000,000
• Interest Rate: 1.5% - 5%
• Maturity Date: June 1, 2035
• Purpose: Finance a portion of the North Meadows Extension
The overall effect of this interest cost savings would be to generate a net future value savings in debt service of approximately $997,853 (after all costs of issuing such refunding bonds). Approximately $967,822 or 97% of this savings would be recognized in 2016, 2017 and 2018 in order to expedite certain transportation projects. In present value dollars, the net savings is approximately $966,942
again, net of all issuance costs. Preliminary numbers on this refunding are attached to this memorandum.
This upfront savings structure will allow the Town to proceed on certain street projects sooner than originally anticipated. After consideration of the Town’s transportation needs, specific project funding and timeframes, Town staff is recommending the savings be utilized to expedite the construction of the roundabout project at Plum Creek and Wolfensberger.
The Town believes that this is an opportune time to advance refund the Series 2008 Bonds. As a percentage of outstanding principal the percentage savings is 11.96%, which compared to the 3.0% threshold that the Government Finance Officers Association (“GFOA”) believes is a “good” refunding.
The bond refunding project and associated bond ordinance for Council’s consideration will only move forward if the following parameters are met:
• The aggregate principal amount of the Series 2016 Bonds shall not exceed $9,000,000;
• The maximum annual repayment cost of the Series 2016 Bonds shall not exceed $911,000;
• The total repayment cost of the Series 2016 Bonds shall not exceed $10,800,000;
• The Series 2016 Bonds shall mature no later than June 1, 2028;
• The purchase price of the Series 2016 Bonds shall not be less than 98% of the principal amount of the Series 2016 Bonds;
• The first optional redemption date on the Series 2016 Bonds shall not be later than June 1, 2026; and
• The optional redemption price shall not exceed 100% of the principal amount of the Series 2016 Bonds so redeemed.
Although there is no specified interest rate cap presented in the ordinance, for TABOR purposes the refunding bonds have to have a lower interest rate than the bonds being refunded.
The process for proceeding with this advance refunding involves working with the Town’s financial advisors and bond counsel to develop the financing documents for the refunding bonds as well as the preparation of a preliminary and final official statement, which acts as the offering document for the sale of the bonds. Town Council will have to approve the issuance of the refunding bonds by adoption of a bond ordinance, which requires two readings. The staff plans to request an emergency adoption on Second reading, in order to re-issue the bonds with the interest rates currently available.
Should any circumstance arise that is contrary to the parameters noted in the ordinance, or we are unable to complete the refunding with an interest rate lower than the existing refunded bonds, we would wait until all parameters are met and such savings could be reached. In the event the parameters are not met or such savings are not reached, the Town would not be liable for any expense associated with the proposed transaction.
Budget Considerations
The re-issuance of the 2008 Sales and Use Tax Revenue Bonds will create an approximate annual savings of $108,759, $616,412 and $242,650 for 2016, 2017 and 2018 respectively. The total savings over the life of the refunding bonds is approximately $997,853 or $966,941 at net present value. A future budget amendment will be necessary to accommodate the accounting transaction associated with this request.
Staff Recommendation
Staff recommends that Town Council approve Ordinance as written.
Recommended Motion
“I move to Approve An Ordinance Authorizing the Issuance of the Town of Castle Rock, Colorado, Sales and Use Tax Revenue Refunding Bonds, Series 2016; Pledging a Portion of the Sales and Use Tax Revenues of the Town for the Payment of the Bonds; And Providing for the Refunding Certain of the Town’s Outstanding Sales and Use Tax Revenue Bonds; And Providing For Its Emergency Adoption on Second and Final Reading.”
Attachments
Attachment A: Ordinance
Attachment B: Preliminary Refunding Calculations
Attachment C: Timeline