HomeMy WebLinkAboutCOW 2014-08-25 Item 4D - Powerpoint Presentation Shown at Meeting - Urban Renewal Tukwila International Boulevard RedevelopmentCity of Tukwila
Urban Renewal Project
Tukwila International Boulevard (TIB) Redevelopment Project
PFD.
Public Financial Management, Inc.
1200 5th Avenue, Suite 1220
Seattle, WA 98101
(360) 445 -0238
Susan Musselman, Director
August 19, 2014
Overview
I. Interest Rate Overview
II. Financing Overview
III. Taxable vs Tax Exempt Financing
IV. Financing Options
V. Recommendation
Financin• Plan Overview
The City will acquire a number of properties, demolish the current improvements and offer the vacant land for
sale, subject to development conditions, estimated at a cost of $6.1 million.
Recommended Finance Plan
• $3.85 million to be financed as a 20 year taxable bond issuance in October
• The remaining $2.25 million to be financed with a 3 to 5 year taxable line of credit
• Line of credit to be drawn on as needed and repaid with proceeds from the sale of property
Financing Considerations
• Could the City use tax exempt financing for any part of the project in order to reduce underlying cost?
• Should the City finance all of the $6.1 million long term or can a short term financing be used for the
$2.25 million expected to be recovered from property sales?
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Interest Rate Overview
8.0%
7.0%
6.0%
5.O%
4.O%
3.0%
Historical Rates (Since 1993)
2.0%
94, �9�, 1, 9G 1, �9G -94, 1, 9� -1, �9� "94, 94, 9G 9� �9G 1‹, 94, 90 14, 94,
Sfr, s e s o o a 47 e O. s o o 9
30 year MMD - 30 year Treasury
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Interest Rate Overview
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Taxable vs Tax Exempt Municipal Yield Curve
8/18/2014
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Differential AAA Taxable Municipal AAA GO
• Below shows the impact of taxable vs tax - exempt financings; assuming 20 year Bond with level debt service, no early
redemption or defeasance:
Taxable Combination Tax Exempt
Estimated TIC: 3.88% 3.36% 3.25%
Estimated Annual Debt Service: $449,000 $430,000 $424,000
3.84%
3.13%
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Taxable versus Tax Exem•t Borrowin
• Certain restrictions result from tax exempt eligibility including restrictions on the following:
• Use of proceeds
• Timing of sale of property
• Who may buy the property
• Ongoing agreements with purchasers of the property
• Difference in tax exempt vs taxable yields are near historical lows
• The difference in debt service using a combination taxable and tax exempt borrowing versus an all taxable
borrowing would be approximately $19,000 per year
• The City would be best served by using a fully taxable financing
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Financin• O•tions
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Scenario
Number
Description of Scenario
Total Debt Service
Issue $6,100,000 of 20 -year bonds in
2014. Use proceeds of property
sales to prepay bonds on the first
possible date, in 10 years
Borrow $6,100,000 for short term in
2014. Issue long term bonds for the
net amount of borrowing (est.
$3,850,000) in 2017
Issue $3,850,000 of 20 -year bonds in
2014 and enter into a $2,250,000
Line of Credit in 2014, due in 2017
$8,220,361
$7,870,365
$8,063,175
$6,171,160
$5,703,787
$6,029,711
• Lock in today's rates
• Minimize interest rate risk
• Potential higher total debt service overall
• Higher near -term payments
• Lower short term interest rates
• If long term rates rise less than 1.50% to
1.85% between 2014 and 2017, lower
total D/S
• High degree of interest rate exposure on
$3,850,000
• Lock in today's rates on $3,850,000 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 rates, savings estimated
at $165,000. Even if short term rates rise
to 3.85 °l° (from about 1.0% today), same
cost as Scenario 1
tM
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Recommendation
• Given the City's goals, we recommend Scenario 3
• A combination of short term financing of $2,250,000 and long term financing of $3,850,000
• $3.85 million to be financed as a 20 year taxable bond issuance in October
• The remaining $2.25 million to be financed with a 3 to 5 year taxable line of credit
• Line of credit to be drawn on as needed and repaid with proceeds from the sale of property
• The interest rate risk for this scenario is limited to the smaller amount and for a shorter term
• Expected to provide overall debt service savings compared to a long term issuance of $6,100,000 of bonds
Scenario 1 (1)
Scenario 1 b (2)
Total Debt Servic
$8,220,361
$6,171,160
$9,035,194
$9,035,194
(1) Assumes the $2,250,000 in property sale proceeds are escrowed to the first call date for the Bonds
(2) Assumes the $2,250,000 in property sale proceeds are not used to call Bonds prior to maturity
$7,870,175
$5,703,787
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Contact Information
Susan Musselman, Director
Public Financial Management, Inc.
1200 Fifth Avenue !Suite 1220 1 Seattle, WA 98101
Phone 360.445.0238 1 musselmans@pfm.com 1 www.pfm.com
Johanna Roodzant, Senior Financial Advisory Associate
Public Financial Management, Inc.
1200 Fifth Avenue 1 Suite 1220 1 Seattle, WA 98101
Phone 206.858.5363 I roodzantj @ pfm.com 1 www.pfm.com
Marc Ragan, Analyst
Public Financial Management, Inc.
1200 Fifth Avenue 1 Suite 1220 1 Seattle, WA 98101
Phone 206.858.53621 raganm @ pfm.com 1 www.pfm.com
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