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Home My WebLink AboutFS 2016-08-16 Item 2C - Discussion - Public Safety Shops FinancingCity of Tukwila Allan Ekberg, Mayor INFORMATIONAL MEMORANDUM TO: Mayor Ekberg Finance & Safety Committee FROM: Peggy McCarthy, Finance Director BY: Vicky Carlsen, Deputy Finance Director DATE: August 10, 2016 SUBJECT: Facilities Plan Financing Options ISSUE Select financing mechanism, either 63:20 lease or Councilmanic bonds, for the Public Works shops facility. BACKGROUND In the Facilities Model Plan B, LTGO bonds were used to fund the $6 million land purchase for the Public Works shops. The design, permitting and construction costs of $20.625 million were funded through a 63:20 lease. The lease payments and debt service over the life of this debt totaled $46.974 million. DISCUSSION If LTGO bond financing were used to fund the entire project, (land and the design, permitting and construction), the debt service over the life of the debt would total approximately $43.817 million. This is $3.157 million less than the 63:20 /LTGO scenario. The annual debt service /lease payment differential is $158 thousand for most of the years the bonds and lease are outstanding. Even though the 63:20 financing is more expensive than Councilmanic bonds, the 63:20 financing is sometimes used when private sector involvement in developing a governmental facility is likely to provide significant benefits compared to a traditional public approach. Some of these benefits include: • 63:20 financing could streamline delivery of a project, as an experienced developer, chosen via a request for proposals (RFP) process, would likely steward the process. • 63:20 financing shifts a significant amount of the project risk from the City to developers. A page from the Facilities Plan discussing 63:20 financing is attached to this memorandum. RECOMMENDATION Council is being asked for consensus on which financing method to utilize for the Public Works shops facility; either 63:20 lease or Councilmanic bonds. The decision will be incorporated into the 2017 -2018 biennial budget process. ATTACHMENT Pages 4 and 5 of the Facilities Model draft, submitted to Council December 14, 2015 Analysis: Comparison of 63:20 /LTGO Financing with All LTGO Financing 13 Im, INVESTING IN TUKWILA I ESSENTIAL GOVERNMENT SERVICES FACILITIES PLAN APPENDIX G - FUNDING AND PHASING OPTIONS Fwuits 2: EXISTING DEBT DEMAND COMPARED TO TOTAL DEBT CAPACITY, 2016 -2041 (NOT INCLUDING ENTERPRISE FUNDS. IN MILLIONS $350,000 i $300,000 �— i i $250,000 o =no Existing L700 Debt (balance f i osastanding) $200,000 '' �, ♦ r r -- LTGO Copadty ($ thousands) $150,000 r r $100,000 Total Debt Capadty ($thousands) $50,000 2016 2021 2026 2031 2036 2041 Source: City of Tukwilo, 2015; Rice Fergus Miller, 2015; and BERi4 2015. Based on the overall CIP needs, a conceptual bond financing plan was developed for both phasing options which found that both options could be completed within existing LTGO debt capacity. However, as LTGO bonds are merely one financing option, it is still prudent of the City to consider additional financing options as part of its facilities phasing plan. Considerations: a One of the benefits of LTGO bonds is that they can be passed by councilmonic ordinance. • LTGO bond copocity Is substantial, but limited. Currently, the Oty of Tukwila has $41 A million in LTGO bond capacity. Given the flexible nature of LTGO debt It is an important tool for the City's ability to read to unexpected expenses. While the City has enough capacity to support either facilities option with LTGO dept, deploying too much of the City' bond capacity will limit its ability to respond to unexpected expenses. • Since bonds are debt, the added costs of Interest will increase project costs long term. ■ The timing of repayment of bonds for these projects would align the projects' payees with the beneficiaries. C 'S►��7 I► U1► to" I t� 63.20 Is a method of obtaining tax - exempt financing that allows public bonds to be used to construct public facilities 0 they are seared by a lease agreement. A nonprofit corporation Issues tax - exempt debt on behalf of a political subdivision for the purpose of financing facilities Generaity, these bonds require a credit -worthy private developer that is willing to enter into a lease to support the bond offering. The nonprofit corporation also manages and operates the building over the lease term. The facility is transferred to the government entity once the debt Is retired. The tenant Is required to be either a governmental entity or a charitable organization. A minimum 90% of the space must be occupied by the governmental entity, as specified by "private use" requirements. DRAFT j Submitted to City Council December 14, 2015 4 15 INVESTING IN TUKWLA ( ESSENTIAL GOVERNMENT SERVICES PAUCITIES PLAN APPENDIX G - FUNDING AND PHASING OPTIONS 63 -20 financed bonds have a higher interest rate and issuance fees due to the perceived higher level of risk compared to the general obligation bond, which has the full backing of the governmental jurisdiction. 63 -20 financed bonds also have a small asset management fee associated with them. Benefits of 63 -20 financing include the ability to realize construction cost savings through using a general contractor /construction manager (GC /CM) project delivery process'compared to the design- bid -build model typically used for government facilities construction. Under this project delivery method, the general contractor guarantees a fixed price for the work and takes on the additional construction risk of subcontracting the project work. In addition, the contractor provides specialized project management, scheduling, budgeting, and other advice early on and thr¢ughout the project design process, which can result In a more eff�cient construction process and less costly project. This project delivery process is especially advantageous for unique or complex projects where governmental agencies may not have experience. The cost savings are not guaranteed, and they vary by project depending on the situation. Lastly, 63 -20 bonds do not count towards a jurisdiction's debt limit, which is advantageous for jurisdictions with limited or no debt capacity. Considerations: 63 -20 bonds may make sense when private sector involvement in developing a governmental facility is likely to provide significant benefits compared to a traditional public approach. These benefits may be most apparent for facilities that. a The obligation to pay rent is not a debt of the agency for the purposes of constitutional and statutory limitations on state debt. 63 -20 bonds offer an option when the agency already carries the debt allowed by statutory regulation. 0 63 -20 financing could streamline delivery of a project, as an experienced developer, chosen via a request for proposals (RFP) process, would likely steward the process. a 63.20 financing shifts a significant amount of the project risk from the City to developers. a The timing of payment of the 63 -20 lease established for a project would align the projects` payees with the beneficiaries. UNLIMITED TAX GENERAL OBLIGATION (UTGO) BONDS — (VOTED) Unllmited tax general obligation (UTGO) bonds are both a financing and funding source as their issuance includes the levy of an additional tax to repay them. These bonds require 601/6 voter approval and may only be used for capital purposes. When residents of a city vote for a bond issue, they are being asked to approves (a) the Issuance of a fixed amount of general obligation bonds and (b) the levy of an additional tax to repay the bonds, unlimited as to rate or amount. Once voter approval is obtained, a municipal corporation is still restricted by constitutional and statutory debt limits with these bonds. The statutory debt limits an this type of debt is 24% of the assessed value of property inclusive of any LTGO (non - voted) debt. The City currently has $32A miifion (2015$) in non-voter approved debt outstanding applicable to Its UTGO debt. Debt Capacity as of May 2015 for UTGO Bond Debt is $90.1 million (2015$). This is not directly additive to LTGO debt capacity. Only $49 million (201 5S) in UTGO bond capacity would be available if LTGO debt capacity was reached. DRAFT I Submitted to City Council December 14, 2015 16 5 City of Tukwila Facilities Plan Public Works Shops Comparison of 63:20 /LTGO Financing with All LTGO Financing - - - -- All Amounts are stated in $ Thousands - - - -- Scenario 1. 63:20ILTGO Combination Scenario 2. All LTGO Projected Cost of Public Works Shops in 2015 $ $ 26,625 17 LTGO 63:20 Lease Total LTGO Total Addition - to fund to fund design, to fund design, al Cost of land permitting, and permitting, and 63:20 construction construction Financing .m,. 2016 $ - $ - $ - $ $ - 2017 - - - - 2018 475 - 475 475 475 2019 475 - 475 663 663 2020 475 1,873 2,349 2,191 2,191 2021 475 1,873 2,349 2,191 2,191 2022 475 1,873 2,349 2,191 2,191 2023 475 1,873 2,349 2,191 2,191 2024 475 1,873 2,349 2,191 2,191 2025 475 1,873 2,349 2,191 2,191 2026 475 1,873 2,349 2,191 2,191 2027 475 1,873 2,349 2,191 2,191 2028 475 1,873 2,349 2,191 2,191 2029 475 1,873 2,349 2,191 2,191 2030 475 1,873 2,349 2,191 2,191 2031 475 1,873 2,349 2,191 2,191 2032 475 1,873 2,349 2,191 2,191 2033 475 1,873 2,349 2,191 2,191 2034 475 1,873 2,349 2,191 2,191 2035 475 1,873 2,349 2,191 2,191 2036 475 1,873 2,349 2,191 2,191 2037 475 1,873 2,349 2,191 2,191 2038 - 1,873 1,873 1,715 1,715 2039 1,873 1,873 1,528 1,528 $ 46,974 $ 43,817 $ 43,817 $ '',31157 $ 9,508 $ 37,466 Projected Cost of Public Works Shops in 2015 $ $ 26,625 17