HomeMy WebLinkAboutFIN 2021-07-26 Item 1B - Public Safety Plan - Update on Debt Issuance for Public Works ShopsCity of Tukwila
Allan Ekberg, Mayor
INFORMATIONAL MEMORANDUM
TO: Finance Committee
FROM: Vicky Carlsen, Finance Director
CC: Mayor Ekberg
DATE: April 20, 2021
SUBJECT: Approve Ordinance to Issue Debt to Fund General Fund Portion of PW Shops
Phase I Project, Refund Outstanding 2011 Limited Tax Obligation Bonds,
Refund Outstanding 2014 Limited Tax Obligation Bonds
Updated for July 26, 2021
ISSUE
Delegate authority to the Finance Director, through the end of September, to issue limited tax
obligation bonds (LTGO) to issue debt to fund the general fund portion of the PW Shops Phase I
project, refund the City's outstanding 2011 LTGO bonds, and refund the City's outstanding 2014
LTGO bonds via a direct placement process. Refunding the 2011 and 2014 bonds would only
occur if total debt service would be lower than currently structured.
BACKGROUND
During the 2021-2022 budget process it was determined that, due to the current interest rate
environment, the general fund portion ($2,850,000) of funding the PW Shops Phase I project
would be financed.
The City also has an opportunity to refund two outstanding LTGO issues, if debt service savings
can be achieved, net of issuance costs.
1). The City issued $4,620,000 LTGO bonds on December 28, 2011, to refund 2003 Series A
bonds that were issued to fund street improvements. Bonds were issued with an interest rate
ranging from 2.00% to 4.00%; interest rates are higher during the last few years of the repayment
schedule. Interest rates for the remaining life of the bonds range from 3.00% to 4.00%. Final
payment for these bonds is December 2023. These bonds have a call provision that allows the
bonds to be called on December 1, 2021. Given that current interest rates are lower than the rate
the City is paying on these bonds, it is the City's best interest to pursue a refunding of these
bonds.
2). The City issued $3,850,000 LTGO bonds in December 2014 to fund land acquisition and
capital costs of redevelopment activities withing the City's Urban Renewal area. Bonds were
issued with an interest rate ranging from 0.85% to 4.86% through 2024. After 2024, the interest
rate is adjusted to the 5 -year Advance Fixed Bullet Rate, as quoted by the Seattle Federal Loan
Bank, divided by 0.65. Interest rates for the remaining life of the bonds range from 4.32% to
4.86% through 2024. Final payment for these bonds is December 2034. These bonds were a
private placement with Zions Bank and there is no prepayment penalty for refunding them after
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INFORMATIONAL MEMO
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December 2020. Given the current interest rate environment and the uncertainty of future interest
rates, it is the City's best interest to pursue a refunding of these bonds.
Per the City's current debt policy, adopted by Resolution No. 1840, the City will refinance debt to
achieve debt service savings as market opportunities arise.
DISCUSSION
As of May 2021, the outstanding balance of the 2011 LTGO bonds is $1,545,000 plus total interest
of $98,700. The 2014 refunding LTGO bonds have an outstanding principal amount of
$3,101,000 and total interest is estimated to be $748,907. Total interest is subject to change
depending on the interest rate in effect from 2025 through 2034.
An RFP will be circulated to banks at the end of April 2021 to determine what banks are interested
in submitting a proposal. Review of the proposals is tentatively scheduled for May 20, 2021, with
an expected closing date of June 8, 2021, for the component related to the PW Shops Phase I
project and a closing date of September 2, 2021, for refunding the 2011 and/or 2014 outstanding
bond issues.
The draft ordinance delegates authority to the Finance Director to select the proposal that is in
the best interest of the City (if any) and to approve the interest rate and terms of the bond within
the parameters set forth in the ordinance.
If a proposal is accepted, the Finance Director will report back to the full Council on the details of
the agreement.
Updated Information on Issuing Debt for PW Shops Phase I and Refunding Two Issues
The City successfully issued debt to fund the PW Shops Phase I project. The City was also
successful in refunding both the 2011 and 2014 LTGO bonds and the deal closed on June 8,
2021. The City received bids from 4 banks and the lowest bid for the combined three issues was
from Capital One.
Debt issued for the PW Shops Phase I project came in very close to budget. Total debt service
payments over the life of the 10 -year bonds will average just over $314 thousand each year with
an interest rate of 1.70%.
Total savings, after taking into consideration the debt refinancing costs, is approximately $97
thousand total for refunding both the 2011 and 2014 LTGO bonds. Interest rates for the refunded
bonds range from 1.15% to 2.70%, which a reduction from 3.0% to 4.86%.
RECOMMENDATION
The Council is being asked to approve the ordinance and consider this item at the May 10, 2021,
Committee of the Whole meeting and subsequent May 17, 2021, Regular Meeting.
ATTACHMENTS
Draft Ordinance
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