The URL can be used to link to this page

Home My WebLink AboutCOW 2014-08-25 Item 4D - Resolution - Financing Plan for Urban Renewal Tukwila International Boulevard Redevelopment ProjectCOUNCIL AGENDA SEVOPSIS Aleetlyq, Date Prepared by Mayor's review, Couthal review 08/25/14 PMC , \ 11 0.)1(Y )/■,//, iron AN Dal, 08/25/14 :Ilig 09/02/14 PMC _137d lniard illi Dale Pnbli, I learin All 1),th, Other Alt f; ()die Re,oltaton Al .1';1)cile 09/02/14 Si' l )NS C >It ( oun(/1 iVia).or 11R 0( 0 I vmphe _ I ire 1 1 IT /V* Pon,e PIV Sl'UN;,( )1C`, Approve resolution adopting a financing plan for the urban renewal Tukwila International sil\t\t \to Boulevard (TIB) Redevelopment Project whereby a $2,250,000 taxable line of credit would be obtained and $3,850,000 taxable 20-year bonds would be issued. RI \ 11 1 1) By 1 1 COW Mig. CA&P Owe Z I^66 Owe Transportation (;mtc Ltilitle, Cmte Art,', Comm. Park', Coinin, Planning Comm. DAlk 08/19/14 (:( )mmilikE CI LAIR: SEAL RECOMMENDATIONS: Si' )\,,()R/Al),\IIN 0 )\1\111111 ITEM INFORMATION ITEM No. 4.D. 41 Si \if SP( )\..,( )R. PEGGY MCCARTHY ic,iN \I /1(;1 \I) \ 1) \ it . 08/25/14 , \ ( d N I ) \ 1 H \I Hill Resolution to adopt Boulevard (TIB) a financing Redevelopment plan for the urban renewal Tukwila International Project. , \ 11 0.)1(Y )/■,//, iron AN Dal, 08/25/14 :Ilig Motron Dare 111 Ord/name Alo,Dale _137d lniard illi Dale Pnbli, I learin All 1),th, Other Alt f; ()die Re,oltaton Al .1';1)cile 09/02/14 Si' l )NS C >It ( oun(/1 iVia).or 11R 0( 0 I vmphe _ I ire 1 1 IT /V* Pon,e PIV Sl'UN;,( )1C`, Approve resolution adopting a financing plan for the urban renewal Tukwila International sil\t\t \to Boulevard (TIB) Redevelopment Project whereby a $2,250,000 taxable line of credit would be obtained and $3,850,000 taxable 20-year bonds would be issued. RI \ 11 1 1) By 1 1 COW Mig. CA&P Owe Z I^66 Owe Transportation (;mtc Ltilitle, Cmte Art,', Comm. Park', Coinin, Planning Comm. DAlk 08/19/14 (:( )mmilikE CI LAIR: SEAL RECOMMENDATIONS: Si' )\,,()R/Al),\IIN 0 )\1\111111 Finance Unanimous Approval; Forward to Committee of the Whole COST IMPACT / FUND SOURCE 1, 11 Nt)I i I'M RI Ql111t1 I) AMOUN I 13(1)01 II I) APPROPRIA HON REQuIRLD Fund Source: ominous MTG. DATE RECORD OF COUNCIL ACTION 8/25/14 MTG. DATE ATTACHMENTS 08/25/14 Informational Memorandum dated 08/ / 4 Resolution in Draft Form Minutes from the Finance and Safety Committee Meeting of 08/ 9/ 4 09/02/14 41 42 TO: City of Tukwila Jim Haggerton, Mayor INFORMATIONAL MEMORANDUM Mayor Haggerton Finance & Safety Committee FROM: Peggy McCarthy, Finance Director DATE: August 13, 2014 SUBJECT: Financing Plan for Urban Renewal Tukwila International Boulevard (TIB) Redevelopment Project ISSUE Council is being asked to approve the proposed financing plan for the urban renewal Tukwila International Boulevard (TIB) Redevelopment Project. BACKGROUND In 2013, the City began budgeting for a project intended to reduce crime through acquiring key properties within the City's urban renewal zone. On April 22, 2013 the City Council approved an ordinance authorizing the City to use condemnation, if necessary, to purchase up to seven properties in the urban renewal zone. Those properties were the: Boulevard Motel, Great Bear Motel, Jet Inn Motel, Knight's Inn Motel, Pawn Shop, Smoke Shop, and Spruce Motel, The City then conducted appraisals, contacted the property owners, and began evaluating the properties to determine a purchasing strategy. On August 27, 2013 the City helped the Federal Government seize three crime-involved motels: Boulevard Motel, Great Bear Motel, and Traveler's Choice Motel. As a result of the motel seizures, and the inability to reach a mutually agreeable purchase with the owner of the pawn shop property within the timeframe necessary to meet the needs of a potential commercial tenant, the City ended negotiations on that property and determined instead to purchase the Traveler's Choice motel, the only seized motel that was not originally in the urban renewal plan. The Council was briefed on these matters early in 2014. In August 2014 the City purchased two of the seized motels at the appraised value (the Great Bear and Traveler's Choice) from the Federal Government and is close to completing the purchase of the Boulevard Motel. The City then plans to purchase the Spruce Motel and Smoke Shop. On August 4, 2014, the Council authorized the use of interfund loans to temporarily finance the property purchases until a financing plan could be developed and executed. The current estimated cost of the project, excluding property management costs, is $6,100,000; the estimated proceeds from the future sale of the land is $2,250,000 yielding a net estimated cost to the City of $3,850,000. 43 INFORMATIONAL MEMO Page 2 DISCUSSION The City, in conjunction with its financial advisor the PFM Group, considered various financing options for the redevelopment project. Based on in-depth analyses, the recommended plan is as follows: • Enter into a $2,250,000 taxable line of credit for acquisition costs estimated to be recoverable through future property sales; funds would be drawn as needed and the line would be paid off upon sale of the land, • Issue $3,850,000 20-year taxable bonds for the estimated net cost to the City. • Annual debt service under this plan would approximate $313,000 for 2015 — 2016 and $287,000 for 2018 — 2034. A detailed discussion and analysis of the options is presented in the attached Recommended Financing Plan for Tukwila International Boulevard (TIB) Redevelopment Project. In the Plan, Scenario 3 is the recommended option. RECOMMENDATION Council is being asked to approve the resolution adopting the proposed financing plan and consider this item at the August 25, 2014 Committee of the Whole meeting and subsequent September 2, 2014 Regular Meeting. ATTACHMENTS -Recommended Financing Plan for Tukwila International Boulevard (TIB) Redevelopment Project. -Draft Resolution: Adopting a Financing Plan for the Urban Renewal Tukwila International Boulevard (TIB) Redevelopment Project. 44 mm The PIM Group City of Tukwila, Washington Recommended Financing PIan for Tukwila International Boulevard (TIB) Redevelopment P 'ect August 19, 2014 Overview Financing Goals The City plans to acquire certain improved property on Tukwila International Boulevard for the purpose of redevelopment. As part of its redevelopment plan, the City will demolish the improvements and offer the vacant land for sa|e, subject to certain development conditions. It is estimated that the property acquisitions will occur in 2014 and early 2015 and cost approximately $6.100.000, The City estimates it may take up to three years (or possibly more) to sell the property, which is estimated to produce proceeds of $2.250.000. While the City expects the redevelopment to provide long term strategic benefit to the Chv, the transactions are expected to result in a net cost to the City of $3,850,000. The City wishes to finance the cost for the acquisition of property, estimated at $6.100.000. in order to amortize the cost over a period of twenty years, The City would also like to have the ability to use proceeds from the sale of properties (estimated at $2.250000) to redeem or prepay debt, in order to reduce overall interest cost. Financing Considerations In reviewing the City's financing oodons, we focused on two questiVns, which are addressed in this section: 1) Could the City use lower cost tax-exempt financing for a portion of the p ject under Internal Revenue Service (IRS) ru|en, and under what conditions; and 2) Given the short term nature of an estimated $2.250.000 of p ject cost, can we reduce the term and, therefore, the overall cost, for a portion of the borrowing without taking on an inordinate amount of risk? Taxable versus Tax Exempt Borrowing Considerations While the City can benefit from tax exempt borrowing for pr jects defined by the IRS as "governmental purpooe." certain projects are considered by the IRS to be''non'governmenta|" due to the actual or perceived private benefits of the project. Tax exempt financing offers the City savings in interest cost, but requires that certain restrictions are met in regard to use of the proceeds and to whom the properties will be sold, Taxable financing provides the City with the most flexibility in the use of proceeds, timing of the sale of the properties and who they may entertain bids from in the sale of the property. In order to issue tax exempt bonds, the City must reasonably anticipate the ability to meet IRS restrictions as summarized by Foster Pepper PLLC, the City's Bond Counsel. 1) The properties financed must be sold no later than 18 months after the date of the first expenditures on purchase of the Property; 2) The City may not enter into any kind of agreement with the purchaser of the property to receive additional payments associated with the property (for example, no agreements that the purchaser will pay extra if the property is not developed in three years); and 3) The amount of tax exempt financing does not exceed the actual sale proceeds received by the City when the property is sold, 4) Alternatively, the City could commit to restrict the sale of property to a non-profit purchaser and qualify for tax exempt financing, although this would restrict the potential pool of purchasers, and could result in lower sales prices for the properties. Due to the limitations above, the City would be compelled to meet certain time constraints, limitations in terms, or limitations in who could buy the property, all of which may reduce the overall value and effectiveness of the redevelopment project. Given the expectation that the City would use the proceeds of sale to prepay or redeem debt, effectively the benefit of tax exempt financing would primarily apply to the $3.850.000 of debt financed for a longer term. We evaluated the difference in debt service between an all taxable bond issuance ($6,100,000) and a combination ($2.25 million taxable and $3.85 million tax-exempt) and determined it is approximately $5UO.00Onr$19.00O per year for 2Oyears, On a net present value basis, this benefit would be lower. Given the relatively small potential savings from using a portion of tax exempt bondn, and the level of conditions or restrictions it would impose upon the City, the City would be best served by using a fully taxable financing for the project. Options to F?educe Overall Financing Cost Because a portion of the financing will be paid from proceeds of the sale of property, estimated to occur within three years, we reviewed financing options that included a combination of short term financing ($2.250.000) and long term financing ($3.850.000). as compared to options for long term financing with the option of defeasing or prepaying bonds with sale proceeds, 2 46 The PFM Group These options are summarized bo|ow, and are based on an all-taxable financing p|an, as discussed above. Appendix A includes more detailed descriptions of the three Scenarios, Scen Number --- -- -- Deoc tion of Scenario Total Debt Service Net Present Va|uoO/S Comments Benefits and Risks Issue $S.1OO.OUOof2U-yma bonds in 2014. Use proceeds of property sales to prepay bonds on the first possible date, in 10 years 8.220.361 0.171.18O • Lock in today's ra dea • Minimize interest rate risk • Potential higher total debt service overall • Hi herneer-tenn ^a men to 2 Borrow $6,100,000 for shor term in 2014; issue long term bonds for the net amount of borrowing (est. $3,850,000) in 2017 7.870.385 5.703.787 • Lower short term interest rates • If long term rates rise less than 1.5096 to 1.8596 between 2014 and 2017, lower total DIS • High degree of interest rate exposure on$3.85O.O00 • Lock in todays rates on $3.85O.O00 long term portion • Lower short term rates on $2,250,000 portion • Matches term of each portion with expected need • Interest rate risk on short term portion, but for a short term period • At current market roteo, savings es imaVsd at $185.000. Even if short term rates rise to 3,85% (from about 1.0Y6 today), same cost as Scenario 1 3 Issue $3.850.UOOof2O-yeor bonds in 2014 and enter into a $2.250.000 Line of Credit in 2014, due in 2017 $8.063.175 5.029.711 Recommendation Given the City's goals of financing the acquisition of property, with the ability to use proceeds from the sale of properties (estimated at $2.250.000) to redeem or prepay debt, in order to reduce overall interest cont, we recommend Scenario 3, which is a combination of short term financing of $2.250.000 and long term financing of $3,850,000. The interest rate risk for this scenario is limited to the smaller amount and shorter term, and is expected to provide overall debt service savings compared to a long term issuance of $6,100,000 of bonds today. As shown in Appendix B. Scenario 3 will also provide for a lower annual debt service payment and more effectively spread the financing cost over a twenty year term. 4 48 PFM Group Appendix A Description of Scenario 1: Scenario 1 assumes the City issues all of the estimated $6.1 million in p ject costs up front in a taxable bond issuance (20 year term) in October 2014, The use of the sale proceeds (at the time of sale), estimated at $225 million, will be used to fund an early redemption account, to caiI the bonds at their ten year par caII, This scenario produces approximately $8,220,361 in total debt service over the 20 year Iife of the financing. The present value of the debt service, discounted at 5.8096. is approximately $6.171.510. * Benefits: Mitigate interest rate risk by locking in financing today • Timing of sale proceeds will have minimal effect on overall financing costs • Take advantage of historically low interest rate environment • Simplicity in financing process Risks: • If rates remain the same the financing would have the greatest cost • If $2,250,000 bonds are not prepaid from property sales proceeds, the full $6,1 million will be outstanding for a greater amount of time, creating costs greater than shown here Estimated Average Annual Debt Service 2O15-2OZ4: $451.000 Estimated Average Annual Debt Service 2025 — 2027: $340.000 (excluding prepayment from $2.250.000)EohmateU Average Annual Debt Service 2028 - $52,000 tion of Scenario 2: Scenario 2 assumes the City issues short term financing for the estimated $6.1 million in pr joot costs in October 2014. As properties are soid, the sale proceeds, estimated at $2.25 million, would be used, along with $3.85 million financed as a long term taxable bond isnuanoe, to take out the short term financing. This scenario produces approximateiy $7,870,365 in total debt service over the 20 year life of the financing, The present value of the debt sen/ice, discounted at 3,8096, is approximately $5.703.787. Benefits: • Utiiize short term rates up front • If interest rates remain the same the financing cost would be lower than scenario 1 5 =1=1 The PFM Group Risks: � Take out finance timing is unnertoin, contingent upon sale of property ° Significant interest rate risk � |f interest rates rise more than 1.5U%'1.85% between now and 2017, the overall cost of the financing would be greater than scenario 1. • Interest rates have been 1.596 higher than today's rates approximately 8596 of the time over the past 20 years. Estimated Average Annual Debt Service 2015-2O1O: $93,000 Estimated Average Annual Debt Service 2O1O-2O34: $314.000 Description of Scenario 3: Scenario 3 assumes the City undertakes the financing in two parts in October 2014: 1. A 3 to 5 year line of credit for $2.25 million in pr ject costs in October 2014. The line of credit would be drawn as needed to purchase property and re-paid upon sale of property. Although the line of credit would carry a variable rate of intenant, the current rates are approximately 1.0%. leaving significant buffer for interest rate risk. 2. A $3.85 million 20' year taxable bVnd, also issued in October 2014. This scenario produces approximately $8,063,175 in total debt service over the 20 year life of the financing. The present value of the debt nervioe, discounted at 3.80%. is approximately Benefits: • Mitigate interes rate risk by locking in a Iarge portion of the financing today • Flexibility with the timing of a portion of funding using the line of credit • Take advantage of historically Iow interest rate environment • Lower debt service than Scenario 1 Risks: • More interest rate exposure than Scenario 1, but much less than Scenario 2 • If properties are not sold in 3 to 5 years, the City may need to refinance the debt for long ternn, which may result in higher interest rates over the long term. Estimated Average Annual Debt Service 2015-2V16: $313.000 Estimated Average Annual Debt Service 2018 — 2034: $287.000 6 50 Period Ending 12/1/2015 12/1/2016 12/1/2017 12/1/2018 12/1/2019 12/1/2020 12/1/2021 12/1/2022 12/1/2023 12/1/2024 12/1/2025 12/1/2026 12/1/2027 12/1 /2028 12/1/2029 12/1/2030 12/1/2031 12/1/2032 12/1/2033 12/1/2034 Total Present Value Appendix B Annual Debt Service Schedule Scenario 1 (1) $ 451,439 453,154 450,949 452,396 452,721 451,805 450,123 452,730 454,177 3,079,744 337,694 341,714 339,713 52,005 $8,220,361 $6,171,160 Scenario lb (2) Scenario 2 Scenario 3 $ 451,439 $ 96,197 $ 313,733 453,154 91,119 312,919 450,949 2,338,463 2,556,417 452,396 312,726 288,614 452,721 316,700 285,622 451,805 314,945 286,910 450,123 317,118 287,670 452,730 313,378 287,927 454,177 313,738 287,484 449,744 313,469 286,526 449,565 312,610 285,033 453,585 315,924 288,079 451,583 313,476 285,459 453,876 315,403 287,443 450,242 316,619 288,822 450,857 312,094 289,574 450,490 312,124 284,681 449,302 316,497 284,457 452,278 314,989 288,682 454,184 312,780 287,128 $9,035,194 $7,870,175 $8,063,175 $9,035,194 $5,703,787 $6,029,711 (1) Assumes the $2,250,000 in property sale proceeds are escrowed to the first call date for the Bonds (') Assumes the $2,250,000 in property sale proceeds are not used to call Bonds prior to maturity 7 51 52 RAFT A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, ADOPTING A FINANCING PLAN FOR THE URBAN RENEWAL TUKWILA INTERNATIONAL BOULEVARD (TIB) REDEVELOPMENT PROJECT. WHEREAS, the City of Tukwila plans to, and has, acquired certain improved property on Tukwila International Boulevard for the purpose of redevelopment; and WHEREAS, as part of the redevelopment plan, the City will demolish the improvements and offer the vacant land for sale, subject to certain development conditions; and WHEREAS, it is estimated that the property acquisitions will cost approximately $6,100,000; and WHEREAS, the City estimates it may take up to three years to sell the property, which is estimated to produce proceeds of $2,250,000; and WHEREAS, while the City expects the redevelopment to provide long term strategic benefit to the City, the transactions are expected to result in a net cost to the City of $3,850,000; and WHEREAS, the City wishes to finance the cost of the acquisition of property in order to amortize the cost over a period of 20 years; and WHEREAS, the City would like to have the ability to use proceeds from the sale of properties to redeem or prepay debt in order to reduce overall interest cost; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, HEREBY RESOLVES AS FOLLOWS: W: \Word Processing \Resolutions \Financing Plan for Urban Renewal TIB Project 8 -14 -14 PM:bjs Page 1 of 2 53 The City Council hereby adopts a financing plan for the Urban Renewal Tukwila International Boulevard (TIB) Redevelopment Project whereby the City of Tukwila will secure a 3- to 5 -year $2,250,000 taxable line of credit to finance acquisition costs estimated to be recoverable through future property sales, and whereby a 20 -year $3,850,000 taxable bond will be issued for the estimated net acquisition cost to the City. PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, at a Regular Meeting thereof this day of , 2014. ATTEST /AUTHENTICATED: Christy O'Flaherty, MMC, City Clerk De'Sean Quinn, Council President APPROVED AS TO FORM BY: Filed with the City Clerk: Passed by the City Council: Resolution Number: Rachel Turpin, Assistant City Attorney W: \Word Processing \Resolutions \Financing Plan for Urban Renewal TIB Project 8 -14 -14 PM:bjs 54 Page 2 of 2 Finance & Safety Committee Minutes August 19, 2014 - Page 2 B. Resolution: Adopting a Financing Plan for Urban Renewal Tukwila International Boulevard (TIB) Staff is seeking Council approval of a resolution that would adopt a financing plan for purchase of several properties associated with the Urban Renewal Tukwila International Boulevard Redevelopment Project. On August 4, the Council authorized the use of interfund loans to temporarily finance these purchases until a financing plan could be developed. The current estimated cost of the project is $6,100,000 while the estimated proceeds from the future sale of the land is $2,250,000 yielding a net estimated cost of $3,850,000. The City and its financial advisor, the Public Financial Management Group, considered various options and recommend the following: • Enter into a $2,250,000 taxable line of credit for acquisition costs estimated to be recoverable through future property sales; funds would be drawn as needed and the line would be paid off upon sale of the land. • Issue $3,850,000 20 -year taxable bonds for the estimated net cost to the City. • Annual debt service under this plan would approximate $313,000 for 2015 -2016 and $287,000 for 2018 -2034. Committee members asked clarifying questions and it was determined that adoption of this plan does include flexibility if the City hypothetically did not sell the properties. UNANIMOUS APPROVAL. FORWARD TO AUGUST 25, 2014 COMMITTEE OF THE WHOLE. C. Resolutions: Financial Policies Staff is seeking Council approval of two resolutions relating to financial policies. The first is a housekeeping effort that would restate Resolution 1586 by removing the policies related to debt and fund balances. Debt policies have been rewritten as a standalone and the fund balance policy that is proposed to be removed has already been approved separately in a reserve policy adopted in October 2012. The financial policies remaining will be reviewed and updated in the future. The second proposed resolution contains the standalone debt policy noted above. The policy outlines the purpose, type, and use of debt; responsibilities; methods of bond sales; refunding procedures; structural elements; credit objective; use of service providers; and post- issuance compliance procedures. UNANIMOUS APPROVAL. FORWARD TO AUGUST 25, 2014 COMMITTEE OF THE WHOLE. D. Fire Department Staffing and Overtime As information only, Acting Chief Flores provided an overview of the current conditions and impacts of overtime usage in the Fire Department. Long term vacancies and absences have caused the cost of overtime pay to raise dramatically and well over the budgeted amount. In 2013 the budget for Suppression Division overtime was $408,868.00, then increased by $200,000 via a budget amendment. The actual amount spent on overtime in 2013 was $674,736.36. Future solutions could include increasing the budgeted amount, adding staff, or reducing service. Given that the City is currently undergoing an exploratory process to evaluate fire service delivery models, no recommendation is being made at this time. INFORMATION ONLY. E. Fire Department SAFER Grant Acting Chief Flores informed the Committee about the existence of the FEMA SAFER (Staffing for Adequate Fire and Emergency Response) Grant, which provides funding intended to increase the number of firefighters at the scene of an emergency incident. The application period for 2014 has not yet been announced, but the Fire Department intends to apply for the amount necessary to fund six positions. If awarded, this funding would alleviate the overtime costs discussed in the item above. INFORMATION ONLY. 55