To: Honorable Mayor and Members of Town Council
From: Trish Muller, Director of Finance
Title
Ordinance Authorizing A First Amendment To A Previously Executed Lease Agreement, Site and Improvement Lease, And Providing Other Matters Relating Thereto. (Second Reading) (Release of Town Hall Parking Collateral)
Body
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Executive Summary
In July, 2013 Council approved Ordinance No. 2013-22,(Attachment B) which authorized a 20 year term for the repayment of the sale of the $10 million in Certificates of Participation (“COPS”) to supplement revenue for the construction of the Fieldhouse at the P.S. Miller Park. Part of any COP issuance is the identification of an essential Town asset to be used as collateral for the COP purchasers and the Trustee. Town Hall and the adjacent parking lot was identified as the collateral for the 2013 COP’s.
Council also gave staff direction in mid-2017 to proceed with a Request for Proposal (RFP) for the development of the land south of Town Hall in order to provide additional public parking for downtown. Following this direction, Town Staff has been in communication with the selected developer to discuss possible public / private partnership for private redevelopment and publicly-owned downtown parking spaces. The project under discussion is located on parking lot currently used as collateral for the 2013 COP’s. In order to unencumber the parking lot and clear title for a potential public/private partnership agreement, staff is requesting Council to approve a substitution of the 2013 COP collateral from Town Hall and the related parking lot to the Police and Municipal Court Facility. There will be no effect on the operations or services provided by police due to the change in collateral.
No other changes will be made to the 2013 COP’s at this time. As of December 31, 2017, the outstanding balance on the COP”s for the construction of the Fieldhouse is $7,865,000, with annual payments of approximately $390,000, funded with Park and Recreation Impact Fees.
The change in collateral will be executed through the First Amendment to Site and Improvement Lease (Exhibit 1) and the First Amendment to the Lease Agreement (Exhibit 2).
Going forward, if Council chooses to enter into a public/private partnership for the redevelopment of the parking lot area to include additional public parking spaces, the Town may consider issuing new COP’s to fund the construction of such a structure. Preliminary discussions include re-encumbering Town Hall and/or the new parking structure upon the issuance of new COP’s. These COP’s would be funded from new sales and property tax revenues generated by the redevelopment project, not existing revenue streams.
Discussion
Background on Certificates of Participation
COP’s are different from General Obligation Debt or Revenue Bonds in many ways. This method of funding does not require voter authorization and is not considered a general obligation, other indebtedness, or multiple fiscal year financial obligation of the Town within the meaning of any constitutional, statutory or Charter debt limit. Rather, the debt service on the COP’s is subject to annual appropriation by Town Council.
COP’s are structured as a "lease, lease back" of an essential Town asset. In other words, the Town entered into a lease of a current asset which the Town currently owns (the “Site Lease”) with the COP purchasers, utilized a bank (in this case UMB Bank) as the Trustee for the benefit of the COP purchasers for a defined term of time (30 years). In exchange, the COP purchasers paid a lump sum payment ($10 million) for the use of Site Lease, which the Trustee payed to the Town to finance the Fieldhouse project. Concurrently, the Town entered into an annually renewable lease with the Trustee to lease the Site Lease back over a 20-year time period. The annual lease payments (the “Base Rental Payments”) made by the Town are equal to the annual debt service on the COPs. The Base Rental Payments received from the Town go to the Trustee bank and are used to pay the COP purchasers. Once the Base Rental Payments are paid in full, or at the end of the Site Lease, whichever occurs first, the Site Lease is terminated and the asset reverts back to the Town. Should the Town decide anytime during the Lease not to annually appropriate Base Rental Payments, the Town is required to vacate the Site Lease premises and the Trustee is charged with renting or selling the Site Lease in order to generate revenues to pay back the COP purchasers.
Part of any COP issuance is the identification of an essential Town asset to be used as collateral for the COP purchasers and the Trustee. The term “essential” in this case refers to an asset used for core operations of the government and not easily vacated. We originally considered using the Fieldhouse as the collateral in the transaction. However, after discussions with our underwriters and legal counsel, too many issues came up that would potentially run afoul of the IRS tax regulations and jeopardize the tax-exempt nature of the COP. Rather, at that time they recommended we use Town Hall and the related parking area as collateral. Given the current redevelopment discussions which involve the parking lot, it is important to remove the encumbrance to proceed with a potential public /private partnership. This collateral designation will be switched to the Police and Municipal Court Facility and will have no effect on the operations or services provided by Police.
Budget Impact
Staff has engaged First Southwest, the Town’s Financial Advisor, and Butler Snow, the Town’s bond Counsel, to advise and implement the collateral substitution for the COP’s. The estimated cost of the transaction is $35,000 to $40,000 and will be paid out of the General Fund, Non-departmental Division.
Staff Recommendation
Staff is recommending Council approve Ordinance No. 2018-009 and direct staff to proceed with the substitution of collateral for the 2013 issuance of the Certificates of Participation.
Proposed Motion
I move to approve Ordinance No. 2018-009: An Ordinance Authorizing A First Amendment To A Previously Executed Lease Agreement, Site and Improvement Lease, And Providing Other Matters Relating Thereto. (Second Reading)
Attachments
ATTACHMENT A: Ordinance 2018-009
Exhibit 1: First Amendment to Lease Agreement
Exhibit 2: First Amendment to Site and Improvement Lease
ATTACHMENT B: Ordinance 2013-22