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City of Tukwila <br />INFORMATIONAL MEMORANDUM <br />TO: Finance Committee <br />FROM: Peggy McCarthy, Finance Director <br />CC: Mayor Ekberg <br />DATE: October 11, 2017 <br />SUBJECT: Refinancing Urban Renewal Short Term Debt <br />Allan Ekberg, Mayor <br />ISSUE <br />Approve the issuance of a $2.35 million taxable bond to refinance the urban renewal 3 -year note that <br />matures December 1, 2017. <br />BACKGROUND <br />For the purpose of urban renewal, the City purchased three crime ridden motels in 2014 for $3.6 <br />million and an additional motel and structure in 2015 for $1.6 million for a total of $5.2 million. To <br />finance these purchases, in December 2014 a taxable 20 -year $3.85 million bond was issued to <br />Zions First National Bank and a taxable 3 -year $2.25 million note was issued to Bank of the West. <br />It was anticipated that the 3 -year $2.25 million note would be paid from proceeds of the sale of <br />property. The motel property has not yet been sold and the 3 -year note comes due on December 1, <br />2017. <br />DISCUSSION <br />Based on feedback from the Finance Committee on June 6, 2017, City staff and PFM moved <br />forward with the solicitation of replacement financing. A replacement financing Request For <br />Proposal was published on September 7, 2017 and seven banks responded. Cashmere Valley <br />Bank offered the lowest borrowing costs and most favorable terms. The proposal was accepted and <br />includes these key terms: <br />Amount <br />Interest rates <br />Prepayment Option <br />Year 1-3 <br />Year 4 <br />Year 5 <br />$2,350,000 <br />2.6% <br />2.8% <br />3.0% <br />The bond may be prepaid in whole or in part at <br />any time prior to the maturity date with no <br />prepayment penalty. <br />FINANCIAL IMPACT <br />The 2017-2018 biennial budget models the note as being paid in 2018. The effect of refinancing the <br />note instead of paying it off is additional annual interest expense of approximately $20,000 in 2018, <br />$61,100 in 2019 and 2020, $65,800 in 2021 and $70,500 in 2022, should the bond not be paid early. <br />RECOMMENDATION <br />The Council is being asked to approve the bond ordinance and consider this item at the October 23, <br />2017 Committee of the Whole meeting and subsequent November 6, 2017 Regular Meeting. <br />ATTACHMENTS <br />Draft bond ordinance <br />PFM Presentation <br />3 <br />