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VII.1. Authorize the Sale of $2,245,000 General Obligation Refunding Bonds, Series 2019B; BishopNovember 4, 2019 Council Report 2019-115 AWARD THE SALE OF $2,245,000 GENERAL OBLIGATION REFUNDING BONDS, SERIES 2019B Proposed Action Staff recommends approval of the following motion: Adopt Resolution No. 2019-084 Awarding the Sale of General Obligation Refunding Bonds, Series 2019B, in the Original Aggregate Principal Amount of $2,245,000; Fixing Their Form and Specifications; Directing Their Execution and Delivery; Providing for Their Payment; and Providing for the Redemption of Bonds Refunded Thereby. With this motion the sale of the bonds will be awarded based on the recommendation of Ehlers and Associates, Inc., financial advisor for this project. The 2009A GO Bonds and 2010A GO Permanent Improvement Bonds will be called and prepaid. Overview The City previously issued 2009A GO Bonds and 2010A GO Permanent Improvement Bonds that funded water system, sanitary system and street improvements. The debt is being paid from utility revenues, special assessments and property taxes. The refunding is expected to save the water and sewer funds $35,058 over the next six years and reduce the debt service tax levy by $30,044 over the next seven years. The bonds are being issued with a seven year term, the same as original bonds. The payments will continue to come from utility revenues, special assessments and property taxes. On October 23, 2019 Standard & Poor’s reaffirmed our AA+ bond rating with a stable outlook. At the October 1, 2019 Council Meeting, the Council authorized the sale of $2,245,000 G.O. Refunding Bonds. The bids will be accepted until 9:30 am on November 4, 2019 at which time they will be reviewed and the recommendation incorporated into Resolution 2019-084. Primary Issues to Consider At this time, there do not appear to be any primary issues relating to the award of the bond sales. Any significant issues affecting the sale will not be known until after the closing of the bids on November 4, 2019. Supporting Information • Resolution No. 2019-084 • S&P Rating Report ______________________________ Nicholas Bishop, CPA Finance Director Financial Impact: $ 66,102 total savings____________ _ Budgeted: Y/N No _ Source: Utility Revenues, Special Assessments, Taxes Related Documents: None EXTRACT OF MINUTES OF A MEETING OF THE CITY COUNCIL OF THE CITY OF HOPKINS, MINNESOTA HELD: November 4, 2019 Pursuant to due call and notice thereof, a regular meeting of the City Council of the City of Hopkins, Minnesota was called and held at the City Hall in Hopkins, Minnesota on Monday, the 4th day of November, 2019, at 7:00 p.m., for the purpose, in part, of awarding the sale of the City’s General Obligation Refunding Bonds, Series 2019B, and directing their execution and delivery. The following members were present: and the following were absent: * * * * * * * * * The Mayor announced that the next order of business was consideration of the proposals which had been received for the purchase of the City’s General Obligation Refunding Bonds, Series 2019B, to be issued in the original aggregate principal amount of $_________. The City Manager presented a tabulation of the proposals that had been received in the manner specified in the Terms of Proposal for the Bonds. The proposals are attached hereto as EXHIBIT A. After due consideration of the proposals, Member _________ then introduced the following written resolution, the reading of which was dispensed with by unanimous consent, and moved its adoption: 614214v4HP110-102 2 RESOLUTION NO. 2019 - 084 A RESOLUTION AWARDING THE SALE OF GENERAL OBLIGATION REFUNDING BONDS, SERIES 2019B, IN THE ORIGINAL AGGREGATE PRINCIPAL AMOUNT OF $_________; FIXING THEIR FORM AND SPECIFICATIONS; DIRECTING THEIR EXECUTION AND DELIVERY; PROVIDING FOR THEIR PAYMENT; AND PROVIDING FOR THE REDEMPTION OF BONDS REFUNDED THEREBY BE IT RESOLVED By the City Council of the City of Hopkins, Hennepin County, Minnesota (the “City”) as follows: Section 1. Sale of Bonds. 1.01. Authority. (a) Pursuant to Minnesota Statutes, Chapters 475 and 444, as amended (collectively, the “Utility Revenue Act”), including Section 475.67, subdivision 3, the City issued its General Obligation Bonds, Series 2009A (the “Prior Utility Revenue Bonds”), dated December 15, 2009, in the original aggregate principal amount of $3,295,000, of which $840,000 in principal amount is currently outstanding and subject to prior optional redemption. The proceeds of the Prior Utility Revenue Bonds were used to finance water system and sanitary sewer system improvements and refinance storm water system improvements (collectively, the “Utility Improvements”). (b) Pursuant to the Minnesota Statutes, Chapter 475, as amended (collectively, the “Improvement Act”), and Section 7.14, subdivision 2 of the Charter of the City (the “Charter”), the City issued its General Obligation Permanent Improvement Revolving Fund Bonds, Series 2010A (the “Prior PIR Bonds”), dated November 17, 2010, in the original aggregate principal amount of $2,710,000, of which $1,355,000 in principal amount is currently outstanding and subject to prior optional redemption. The proceeds of the Prior PIR Bonds financed the costs of the City’s 2008 and 2009/2010 street and utility improvement projects and the 5th Street South reconstruction projects (collectively, the “Assessable Improvements”) through the City’s Permanent Improvement Revolving Fund (the “PIR Fund”). (c) The City is authorized by Minnesota Statutes, Section 475.67, subdivision 3 to issue and sell its general obligation bonds to refund obligations and the interest thereon before the due date of the obligations, if consistent with covenants made with the holders thereof, when determined by the City Council to be necessary or desirable for the reduction of debt service costs to the City or for the extension or adjustment of maturities in relation to the resources available for their payment. (d) It is necessary and desirable for the reduction of debt service costs to the City that the City issue its General Obligation Refunding Bonds, Series 2019B (the “Bonds”), in the original aggregate principal amount of $________, pursuant to the Charter and the Utility Revenue Act (together, the “Act”), specifically Section 475.67, subdivision 3, to (i) redeem and prepay the outstanding principal amount of the Prior Utility Revenue Bonds on December 10, 2019 (the “Redemption Date”), thereby refinancing the Utility Improvements; and (ii) redeem 614214v4HP110-102 3 and prepay the outstanding principal amount of the Prior PIR Bonds on the Redemption Date, thereby refinancing the Assessable Improvements. (e) The City is authorized by Section 475.60, subdivision 2(9) of the Act to negotiate the sale of the Bonds, it being determined that the City has retained an independent municipal advisor in connection with such sale. The actions of the City staff and municipal advisor in negotiating the sale of the Bonds are ratified and confirmed in all aspects. 1.02. Award to the Purchaser and Interest Rates. The proposal of ______________ (the “Purchaser”) to purchase the Bonds is hereby determined to be a reasonable offer and is accepted, the proposal being to purchase the Bonds at a price of $___________ (par amount of $___________, [plus original issue premium of $__________,] [less original issue discount of $__________,] less underwriter’s discount of $___________). Year Interest Rate Year Interest Rate 2020 % 2024 % 2021 2025 2022 2026 2023 True interest cost: ____________% 1.03. Purchase Contract. The sum of $___________, being the amount proposed by the Purchaser in excess of $________, shall be credited to the accounts in the Debt Service Fund hereinafter created or deposited in the Redemption Fund hereinafter created, as determined by the City’s Finance Director in consultation with the City’s municipal advisor. The Finance Director is directed to retain the good faith check of the Purchaser, pending completion of the sale of the Bonds, and to return the good faith checks of the unsuccessful proposers. The Mayor and City Manager are directed to execute a contract with the Purchaser on behalf of the City. 1.04. Terms and Principal Amounts of the Bonds. The City will forthwith issue and sell the Bonds pursuant to the Act, specifically Section 475.67, subdivision 3, in the total principal amount of $___________, originally dated November 26, 2019, in the denomination of $5,000 each or any integral multiple thereof, numbered No. R-1, upward, bearing interest as above set forth, and which mature serially on February 1 in the years and amounts as follows: Year Amount Year Amount 2020 $ 2024 $ 2021 2025 2022 2026 2023 (a) $________ of the Bonds (the “Utility Revenue Refunding Bonds”), maturing in the amounts and on February 1 in the years set forth below, are being issued to refund the Prior Utility Revenue Bonds and thereby refinance the Utility Improvements: 614214v4HP110-102 4 Year Amount Year Amount 2020 $ 2023 $ 2021 2024 2022 2025 (b) The remainder of the Bonds in the amount of $_____ (the “PIR Refunding Bonds”), maturing in the amounts and on February 1 in the years set forth below, are being issued to refund the Prior PIR Bonds and thereby refinance the Assessable Improvements: Year Amount Year Amount 2020 $ 2024 $ 2021 2025 2022 2026 2023 1.05. Optional Redemption. The Bonds are not subject to optional redemption prior to maturity. [1.06. Term Bonds. To be completed if requested by the Purchaser.] Section 2. Registration and Payment. 2.01. Registered Form. The Bonds will be issued only in fully registered form. The interest thereon and, upon surrender of each Bond, the principal amount thereof, is payable by check or draft issued by the Registrar described herein. 2.02. Dates; Interest Payment Dates. Each Bond will be dated as of the last interest payment date preceding the date of authentication to which interest on the Bond has been paid or made available for payment, unless (i) the date of authentication is an interest payment date to which interest has been paid or made available for payment, in which case the Bond will be dated as of the date of authentication, or (ii) the date of authentication is prior to the first interest payment date, in which case the Bond will be dated as of the date of original issue. The interest on the Bonds is payable on February 1 and August 1 of each year, commencing February 1, 2020, to the registered owners of record as of the close of business on the fifteenth day of the immediately preceding month, whether or not that day is a business day. 2.03. Registration. The City will appoint, and will maintain, a bond registrar, transfer agent, authenticating agent and paying agent (the “Registrar”). The effect of registration and the rights and duties of the City and the Registrar with respect thereto are as follows: (a) Register. The Registrar must keep at its principal corporate trust office a bond register in which the Registrar provides for the registration of ownership of Bonds and the registration of transfers and exchanges of Bonds entitled to be registered, transferred or exchanged. (b) Transfer of Bonds. Upon surrender for transfer of a Bond duly endorsed by the registered owner thereof or accompanied by a written instrument of transfer, in form satisfactory to the Registrar, duly executed by the registered owner thereof or by an attorney duly authorized by the registered owner in writing, the Registrar will authenticate and deliver, in the name of the designated transferee or transferees, one or more new Bonds of a like aggregate principal amount and maturity, as requested by the transferor. The Registrar may, however, close the books for 614214v4HP110-102 5 registration of any transfer after the fifteenth day of the month preceding each interest payment date and until that interest payment date. (c) Exchange of Bonds. When Bonds are surrendered by the registered owner for exchange the Registrar will authenticate and deliver one or more new Bonds of a like aggregate principal amount and maturity as requested by the registered owner or the owner ’s attorney in writing. (d) Cancellation. Bonds surrendered upon transfer or exchange will be promptly cancelled by the Registrar and thereafter disposed of as directed by the City. (e) Improper or Unauthorized Transfer. When a Bond is presented to the Registrar for transfer, the Registrar may refuse to transfer the Bond until the Registrar is satisfied that the endorsement on the Bond or separate instrument of transfer is valid and genuine and that the requested transfer is legally authorized. The Registrar will incur no liability for the refusal, in good faith, to make transfers which it, in its judgment, deems improper or unauthorized. (f) Persons Deemed Owners. The City and the Registrar may treat the person in whose name a Bond is registered in the bond register as the absolute owner of the Bond, whether the Bond is overdue or not, for the purpose of receiving payment of, or on account of, the principal of and interest on the Bond and for all other purposes, and payments so made to a registered owner or upon the owner ’s order will be valid and effectual to satisfy and discharge the liability upon the Bond to the extent of the sum or sums so paid. (g) Taxes, Fees and Charges. The Registrar may impose a charge upon the owner thereof for a transfer or exchange of Bonds sufficient to reimburse the Registrar for any tax, fee or other governmental charge required to be paid with respect to the transfer or exchange. (h) Mutilated, Lost, Stolen or Destroyed Bonds. If a Bond becomes mutilated or is destroyed, stolen or lost, the Registrar will deliver a new Bond of like amount, number, maturity date and tenor in exchange and substitution for and upon cancellation of the mutilated Bond or in lieu of and in substitution for any Bond destroyed, stolen or lost, upon the payment of the reasonable expenses and charges of the Registrar in connection therewith; and, in the case of a Bond destroyed, stolen or lost, upon filing with the Registrar of evidence satisfactory to it that the Bond was destroyed, stolen or lost, and of the ownership thereof, and upon furnishing to the Registrar an appropriate bond or indemnity in form, substance and amount satisfactory to it and as provided by law, in which both the City and the Registrar must be named as obligees. Bonds so surrendered to the Registrar will be cancelled by the Registrar and evidence of such cancellation must be given to the City. If the mutilated, destroyed, stolen or lost Bond has already matured or been called for redemption in accordance with its terms it is not necessary to issue a new Bond prior to payment. 2.04. Appointment of Initial Registrar. The City appoints Bond Trust Services Corporation, Roseville, Minnesota, as the initial Registrar. The Mayor and the City Manager are authorized to execute and deliver, on behalf of the City, a contract with the Registrar. Upon merger or consolidation of the Registrar with another corporation, if the resulting corporation is a bank or trust company authorized by law to conduct such business, the resulting corporation is authorized to act as successor Registrar. The City agrees to pay the reasonable and customary charges of the Registrar for the services performed. The City reserves the right to remove the Registrar upon thirty (30) days’ notice and upon the appointment of a successor Registrar, in which event the predecessor Registrar must deliver all cash and Bonds in its possession to the successor Registrar and must deliver the bond register to the successor Registrar. On or 614214v4HP110-102 6 before each principal or interest due date, without further order of the City Council, the Finance Director must transmit to the Registrar monies sufficient for the payment of all principal and interest then due. 2.05. Execution, Authentication and Delivery. The Bonds will be prepared under the direction of the City Manager and executed on behalf of the City by the signatures of the Mayor and the City Manager, provided that all signatures may be printed, engraved or lithographed facsimiles of the originals. If an officer whose signature or a facsimile of whose signature appears on the Bonds ceases to be such officer before the delivery of any Bond, that signature or facsimile will nevertheless be valid and sufficient for all purposes, the same as if the officer had remained in office until delivery. Notwithstanding such execution, a Bond will not be valid or obligatory for any purpose or entitled to any security or benefit under this resolution unless and until a certificate of authentication on the Bond has been duly executed by the manual signature of an authorized representative of the Registrar. Certificates of authentication on different Bonds need not be signed by the same representative. The executed certificate of authentication on a Bond is conclusive evidence that it has been authenticated and delivered under this resolution. When the Bonds have been so prepared, executed and authenticated, the City Manager will deliver the same to the Purchaser upon payment of the purchase price in accordance with the contract of sale heretofore made and executed, and the Purchaser is not obligated to see to the application of the purchase price. Section 3. Form of Bond. 3.01. Execution of Bonds. The Bonds will be printed or typewritten in substantially the form attached hereto as EXHIBIT B. 3.02. Approving Legal Opinion. The City Manager is authorized and directed to obtain a copy of the proposed approving legal opinion of Kennedy & Graven, Chartered, Minneapolis, Minnesota, and cause the opinion to be printed on or accompany each Bond. Section 4. Payment; Security; Pledges and Covenants. 4.01. Debt Service Fund. The Bonds will be payable from the General Obligation Refunding Bonds, Series 2019B Debt Service Fund (the “Debt Service Fund”) hereby created. The Debt Service Fund shall be administered and maintained by the Finance Director as a bookkeeping account separate and apart from all other funds maintained in the official financial records of the City. The City will maintain the following accounts in the Debt Service Fund: the “Utility Revenue Account” and the “PIR Account.” Amounts in the Utility Revenue Account are irrevocably pledged to the Utility Revenue Refunding Bonds, and amounts in the PIR Account are irrevocably pledged to the PIR Refunding Bonds. (a) Utility Revenue Account. The City will continue to maintain and operate its Water Fund, Sanitary Sewer Fund, and Storm Water Fund to which will be credited all gross revenues of the water, sanitary sewer, and storm water systems, respectively, and out of which will be paid all normal and reasonable expenses of current operations of such systems. Any balances therein are deemed net revenues (the “Net Revenues”) and will be transferred from time to time to the Utility Revenue Account of the Debt Service Fund, which Utility Revenue Account shall be used to pay the principal of and interest on the Utility Revenue Refunding Bonds and any other bonds similarly authorized. There will always be retained in the Utility Revenue Account a sufficient amount to pay principal of and interest on the Utility Revenue Refunding Bonds, and the Finance Director must report any current or anticipated deficiency in the Utility Revenue Account to the City Council. There is appropriated to the Utility Revenue Account a pro rata portion of amounts over the minimum purchase price paid by the Purchaser, to the extent designated for deposit in the Debt Service Fund in accordance with Section 1.03 hereof. 614214v4HP110-102 7 (b) PIR Account. Proceeds of the ad valorem taxes hereinafter levied (the “Taxes”) for the payment of the PIR Refunding Bonds and, following the Redemption Date, special assessments levied (the “Special Assessments”) for the Assessable Improvements are hereby pledged to the PIR Account of the Debt Service Fund, and such amounts shall be used to pay the principal of and interest on the PIR Refunding Bonds. There is also appropriated to the PIR Account a pro rata portion of amounts over the minimum purchase price paid by the Purchaser, to the extent designated for deposit in the Debt Service Fund in accordance with Section 1.03 hereof. 4.02. Redemption Fund. All proceeds of the Bonds, less the appropriations made in Section 4.01 hereof and the costs of issuance of the Bonds, will be deposited in a separate fund (the “Redemption Fund”) to be used solely to redeem and prepay the Prior Utility Revenue Bonds and the Prior PIR Bonds (collectively, the “Prior Bonds”), on the Redemption Date. Any balance remaining in the Redemption Fund after the redemption of the Prior Bonds on the Redemption Date shall be deposited in the Debt Service Fund herein created. 4.03. Prior Debt Service Funds. (a) The debt service fund heretofore established for the Prior Utility Revenue Bonds pursuant to the resolution providing for the issuance and sale of the Prior Utility Revenue Bonds (the “Prior Utility Revenue Bonds Resolution”) shall be closed following the redemption of the Prior Utility Revenue Bonds, and all monies therein shall be transferred to the Utility Revenue Account of the Debt Service Fund herein created. (b) The debt service fund heretofore established for the Prior PIR Bonds within the City’s PIR Fund pursuant to the resolution providing for the issuance and sale of the Prior PIR Bonds (the “Prior PIR Bonds Resolution”) shall be closed following the redemption of the Prior PIR Bonds, and all monies therein shall be transferred to the PIR Account of the Debt Service Fund herein created. 4.04. Prior Resolution Pledges. The pledges and covenants of the City made by the Prior Utility Revenue Bonds Resolution relating to the ownership, protection of, and other particulars governing the operation and financial management of the water, sanitary sewer, and storm water systems of the City and the Utility Improvements are restated and confirmed in all respects. The pledges and covenants of the City made by the Prior PIR Bonds Resolution relating to the Special Assessments levied for the Assessable Improvements are restated and confirmed in all respects. The provisions of the Prior Utility Revenue Bonds Resolution and the Prior PIR Bonds Resolution are herby supplemented to the extent necessary to give full effect to the provisions hereof. 4.05. General Obligation Pledge. For the prompt and full payment of the principal of and interest on the Bonds, as the same respectively become due, the full faith, credit and taxing powers of the City will be and are hereby irrevocably pledged. If the balance in the Debt Service Fund is ever insufficient to pay all principal and interest then due on the Bonds and any other bonds payable therefrom, the deficiency will be promptly paid out of monies in the general fund of the City which are available for such purpose, and such general fund may be reimbursed with or without interest from the Debt Service Fund when a sufficient balance is available therein. 4.06. Pledge of Tax Levy. For the purpose of paying a portion of the principal of and interest on the PIR Refunding Bonds, there is levied a direct annual irrepealable ad valorem tax upon all of the taxable property in the City, which will be spread upon the tax rolls and collected with and as part of other 614214v4HP110-102 8 general taxes of the City. Such Taxes will be credited to the PIR Account of the Debt Service Fund above provided and will be in the years and amounts attached hereto as EXHIBIT C. 4.07. Certification to Taxpayer Services Division Manager as to Debt Service Fund Amount. It is hereby determined that the estimated collection of the foregoing Net Revenues, Taxes , and Special Assessments will produce at least five percent (5%) in excess of the amount needed to meet when due the principal and interest payments on the Bonds. The tax levy herein provided will be irrepealable until all of the Bonds are paid, provided that at the time the City makes its annual tax levies the Finance Director may certify to the Taxpayer Services Division Manager of Hennepin County, Minnesota (the “Taxpayer Services Division Manager”) the amount available in the Debt Service Fund to pay principal and interest due during the ensuing year, and the Taxpayer Services Division Manager will thereupon reduce the levy collectible during such year by the amount so certified. 4.08. Cancellation of Levy for Prior PIR Bonds. Following the payment in full of all outstanding principal of and interest due on the Prior PIR Bonds on the Redemption Date, the Finance Director is hereby directed to certify such fact to and request the Taxpayer Services Division Manager to cancel any and all tax levies made by the Prior PIR Bonds Resolution. 4.09. Certification of Taxpayer Services Division Manager as to Registration. The City Manager is directed to file a certified copy of this resolution with the Taxpayer Services Division Manager and to obtain the certificate required by Section 475.63 of the Act. Section 5. Refunding of Prior Bonds; Findings; Redemption of Prior Bonds. 5.01. Purpose of Refunding. On the Redemption Date, the Prior Utility Revenue Bonds will be called for redemption in the principal amount of $840,000, and the Prior PIR Bonds will be called for redemption in the principal amount of $1,355,000. It is hereby found and determined that based upon information presently available from the City’s municipal advisor, the issuance of the Bonds, a portion of which will be used to redeem and prepay the Prior Bonds, is consistent with covenants made with the holders of the Prior Bonds and is necessary and desirable for the reduction of debt service costs to the City. 5.02. Application of Proceeds of Bonds. It is hereby found and determined that the proceeds of the Bonds deposited in the Redemption Fund, along with any other funds on hand in the debt service funds established for the Prior Bonds, will be sufficient to prepay all of the principal of, interest on and redemption premium (if any) on the Prior Bonds. 5.03. Redemption; Date of Redemption; Notices of Call for Redemption. The Prior Bonds maturing after the Redemption Date will be redeemed and prepaid on the Redemption Date. The Prior Bonds will be redeemed and prepaid in accordance with their terms and in accordance with the terms and conditions set forth in the forms of Notice of Call for Redemption attached hereto as EXHIBITS D-1 and D-2, respectively, which terms and conditions are hereby approved and incorporated herein by reference. The registrars for the Prior Bonds are authorized and directed to send a copy of the respective Notice of Call for Redemption to each registered holder of the Prior Bonds at least thirty (30) days prior to the Redemption Date. Section 6. Authentication of Transcript. 6.01. City Proceedings and Records. The officers of the City are authorized and directed to prepare and furnish to the Purchaser and to the attorneys approving the Bonds certified copies of proceedings and records of the City relating to the Bonds and to the financial condition and affairs of the 614214v4HP110-102 9 City, and such other certificates, affidavits and transcripts as may be required to show the facts within their knowledge or as shown by the books and records in their custody and under their control, relating to the validity and marketability of the Bonds and such instruments, including any heretofore furnished, will be deemed representations of the City as to the facts stated therein. 6.02. Certification as to Final Official Statement. The Mayor, the City Manager, and the Finance Director are hereby authorized and directed to certify that they have examined the Final Official Statement prepared and circulated in connection with the issuance and sale of the Bonds and that to the best of their knowledge and belief the offering materials are a complete and accurate representation of the facts and representations made therein as of the date of the offering materials. 6.03. Other Certificates. The Mayor, the City Manager, and the Finance Director are hereby authorized and directed to furnish to the Purchaser at the closing such certificates as are required as a condition of sale. Unless litigation shall have been commenced and be pending questioning the Bonds or the organization of the City or incumbency of its officers, at the closing the Mayor, the City Manager, and the Finance Director shall also execute and deliver to the Purchaser a suitable certificate as to absence of material litigation, and the Finance Director shall also execute and deliver a certificate as to payment for and delivery of the Bonds. 6.04. Payment of Costs of Issuance. The City authorizes the Purchaser to forward the amount of Bond proceeds allocable to the payment of issuance expenses to KleinBank, Chaska, Minnesota, on the closing date for further distribution as directed by the City’s municipal advisor, Ehlers and Associates, Inc. Section 7. Tax Covenant. 7.01. Tax -Exempt Bonds. The City covenants and agrees with the holders from time to time of the Bonds that it will not take or permit to be taken by any of its officers, employees or agents any action which would cause the interest on the Bonds to become subject to taxation under the Internal Revenue Code of 1986, as amended (the “Code”), and the Treasury Regulations promulgated thereunder, in effect at the time of such actions, and that it will take or cause its officers, employees or agents to take, all affirmative action within its power that may be necessary to ensure that such interest will not become subject to taxation under the Code and applicable Treasury Regulations, as presently existing or as hereafter amended and made applicable to the Bonds. 7.02. Rebate. The City will comply with requirements necessary under the Code to establish and maintain the exclusion from gross income of the interest on the Bonds under Section 103 of the Code, including without limitation requirements relating to temporary periods for investments, limitations on amounts invested at a yield greater than the yield on the Bonds, and the rebate of excess investment earnings to the United States. 7.03. Not Private Activity Bonds. The City further covenants not to use the proceeds of the Bonds or to cause or permit them or any of them to be used, in such a manner as to cause the Bonds to be “private activity bonds” within the meaning of Sections 103 and 141 through 150 of the Code. 7.04. Qualified Tax-Exempt Obligations. The Bonds are deemed to be qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code because the City determines that: (a) the Refunded Bonds were qualified tax-exempt obligations; 614214v4HP110-102 10 (b) the Bonds are not taken into account in determining the status of the City as a “qualified small issuer” within the meaning of Section 265(b)(3) of the Code, because the amount of the Bonds does not exceed the outstanding amount of the Refunded Bonds; (c) the average maturity date of the Bonds is not later than the average maturity date of the Refunded Bonds; and (d) the Bonds have a maturity date which is not later than the date which is thirty (30) years after the date the Refunded Bonds were issued. 7.05. Procedural Requirements. The City will use its best efforts to comply with any federal procedural requirements which may apply in order to effectuate the designations made by this section. Section 8. Book-Entry System; Limited Obligation of City. 8.01. DTC. The Bonds will be initially issued in the form of a separate single typewritten or printed fully registered Bond for each of the maturities set forth in Section 1.04 hereof. Upon initial issuance, the ownership of each Bond will be registered in the registration books kept by the Registrar in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York, and its successors and assigns (“DTC”). Except as provided in this section, all of the outstanding Bonds will be registered in the registration books kept by the Registrar in the name of Cede & Co., as nominee of DTC. 8.02. Participants. With respect to Bonds registered in the registration books kept by the Registrar in the name of Cede & Co., as nominee of DTC, the City, the Registrar and the Paying Agent will have no responsibility or obligation to any broker dealers, banks and other financial institutions from time to time for which DTC holds Bonds as securities depository (the “Participants”) or to any other person on behalf of which a Participant holds an interest in the Bonds, including but not limited to any responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any Participant or any other person (other than a registered owner of Bonds, as shown by the registration books kept by the Registrar), of any notice with respect to the Bonds, including any notice of redemption, or (iii) the payment to any Participant or any other person, other than a registered owner of Bonds, of any amount with respect to principal of, premium, if any, or interest on the Bonds. The City, the Registrar and the Paying Agent may treat and consider the person in whose name each Bond is registered in the registration books kept by the Registrar as the holder and absolute owner of such Bond for the purpose of payment of principal, premium and interest with respect to such Bond, for the purpose of registering transfers with respect to such Bonds, and for all other purposes. The Paying Agent will pay all principal of, premium, if any, and interest on the Bonds only to or on the order of the respective registered owners, as shown in the registration books kept by the Registrar, and all such payments will be valid and effectual to fully satisfy and discharge the City’s obligations with respect to payment of principal of, premium, if any, or interest on the Bonds to the extent of the sum or sums so paid. No person other than a registered owner of Bonds, as shown in the registration books kept by the Registrar, will receive a certificated Bond evidencing the obligation of this resolution. Upon delivery by DTC to the City Manager of a written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., the words “Cede & Co.” will refer to such new nominee of DTC; and upon receipt of such a notice, the City Manager will promptly deliver a copy of the same to the Registrar and Paying Agent. 8.03. Representation Letter. The City has heretofore executed and delivered to DTC a Blanket Issuer Letter of Representations (the “Representation Letter”) which will govern payment of principal of, premium, if any, and interest on the Bonds and notices with respect to the Bonds. Any Paying Agent or Registrar subsequently appointed by the City with respect to the Bonds will agree to take all action 614214v4HP110-102 11 necessary for all representations of the City in the Representation Letter with respect to the Registrar and Paying Agent, respectively, to be complied with at all times. 8.04. Transfers Outside Book-Entry System. In the event the City, by resolution of the City Council, determines that it is in the best interests of the persons having beneficial interests in the Bonds that they be able to obtain Bond certificates, the City will notify DTC, whereupon DTC will notify the Participants, of the availability through DTC of Bond certificates. In such event the City will issue, transfer and exchange Bond certificates as requested by DTC and any other registered owners in accordance with the provisions of this resolution. DTC may determine to discontinue providing its services with respect to the Bonds at any time by giving notice to the City and discharging its responsibilities with respect thereto under applicable law. In such event, if no successor securities depository is appointed, the City will issue and the Registrar will authenticate Bond certificates in accordance with this resolution and the provisions hereof will apply to the transfer, exchange and method of payment thereof. 8.05. Payments to Cede & Co. Notwithstanding any other provision of this resolution to the contrary, so long as a Bond is registered in the name of Cede & Co., as nominee of DTC, payments with respect to principal of, premium, if any, and interest on the Bond and notices with respect to the Bond will be made and given, respectively in the manner provided in DTC’s Operational Arrangements as set forth in the Representation Letter. Section 9. Continuing Disclosure. 9.01. Execution of Continuing Disclosure Certificate. “Continuing Disclosure Certificate” means that certain Continuing Disclosure Certificate executed by the Mayor and City Manager and dated the date of issuance and delivery of the Bonds, as originally executed and as it may be amended from time to time in accordance with the terms thereof. 9.02. City Compliance with Provisions of Continuing Disclosure Certificate. The City hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of this resolution, failure of the City to comply with the Continuing Disclosure Certificate is not to be considered an event of default with respect to the Bonds; however, any Bondholder may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this section. Section 10. Defeasance. When all Bonds and all interest thereon have been discharged as provided in this section, all pledges, covenants and other rights granted by this resolution to the holders of the Bonds will cease, except that the pledge of the full faith and credit of the City for the prompt and full payment of the principal of and interest on the Bonds will remain in full force and effect. The City may discharge all Bonds which are due on any date by depositing with the Registrar on or before that date a sum sufficient for the payment thereof in full. If any Bond should not be paid when due, it may nevertheless be discharged by depositing with the Registrar a sum sufficient for the payment thereof in full with interest accrued to the date of such deposit. 614214v4HP110-102 12 The motion for the adoption of the foregoing resolution was duly seconded by Member _______, and upon vote being taken thereon, the following voted in favor thereof: and the following voted against the same: whereupon said resolution was declared duly passed and adopted. 614214v4HP110-102 13 Passed and adopted this 4th day of November, 2019. Mayor Attest: City Clerk 614214v4HP110-102 A-1 EXHIBIT A PROPOSALS 614214v4HP110-102 B-1 EXHIBIT B FORM OF BOND No. R-___ UNITED STATES OF AMERICA $___________ STATE OF MINNESOTA COUNTY OF HENNEPIN CITY OF HOPKINS GENERAL OBLIGATION REFUNDING BOND SERIES 2019B Rate Maturity Date of Original Issue CUSIP February 1, 20__ November 26, 2019 Registered Owner: Cede & Co. The City of Hopkins, Minnesota, a duly organized and existing municipal corporation in Hennepin County, Minnesota (the “City”), acknowledges itself to be indebted and for value received promises to pay to the Registered Owner specified above or registered assigns, the principal sum of $__________ on the maturity date specified above, with interest thereon from the date hereof at the annual rate specified above (calculated on the basis of a 360 day year of twelve 30 day months), payable February 1 and August 1 in each year, commencing February 1, 2020, to the person in whose name this Bond is registered at the close of business on the fifteenth day (whether or not a business day) of the immediately preceding month. The interest hereon and, upon presentation and surrender hereof, the principal hereof are payable in lawful money of the United States of America by check or draft by Bond Trust Services Corporation, Roseville, Minnesota, as Registrar, Paying Agent, Transfer Agent and Authenticating Agent, or its designated successor under the Resolution described herein. For the prompt and full payment of such principal and interest as the same respectively become due, the full faith and credit and taxing powers of the City have been and are hereby irrevocably pledged. This Bond is not subject to optional redemption prior to maturity. This Bond is one of an issue in the aggregate principal amount of $__________ all of like original issue date and tenor, except as to number, maturity date, and interest rate, all issued pursuant to a resolution adopted by the City Council on November 4, 2019 (the “Resolution”), for the purpose of providing money to refund the outstanding principal amount of certain general obligation bonds of the City, pursuant to and in full conformity with the home rule charter of the City, including Section 7.14, subdivision 2 thereof, and the Constitution and laws of the State of Minnesota, including Minnesota Statutes, Chapters 429, 444, and 475, as amended, specifically Section 475.67, subdivision 3. The principal hereof and interest hereon are payable in part from net revenues from the water, storm water, and sanitary sewer systems of the City, ad valorem taxes, and special assessments, as set forth in the Resolution to which reference is made for a full statement of rights and powers thereby conferred. The full faith and credit of the City are irrevocably pledged for payment of this Bond and the City Council has obligated itself to levy additional ad valorem taxes on all taxable property in the City in the event of any deficiency in net revenues, taxes, and special assessments pledged, which additional taxes may be levied 614214v4HP110-102 B-2 without limitation as to rate or amount. The Bonds of this series are issued only as fully registered Bonds in denominations of $5,000 or any integral multiple thereof of single maturities. The City Council has deemed designated the issue of Bonds of which this Bond forms a part as “qualified tax-exempt obligations” within the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended (the “Code”) relating to disallowance of interest expense for financial institutions. As provided in the Resolution and subject to certain limitations set forth therein, this Bond is transferable upon the books of the City at the principal office of the Registrar, by the registered owner hereof in person or by the owner’s attorney duly authorized in writing, upon surrender hereof together with a written instrument of transfer satisfactory to the Registrar, duly executed by the registered owner or the owner’s attorney; and may also be surrendered in exchange for Bonds of other authorized denominations. Upon such transfer or exchange the City will cause a new Bond or Bonds to be issued in the name of the transferee or registered owner, of the same aggregate principal amount, bearing interest at the same rate and maturing on the same date, subject to reimbursement for any tax, fee or governmental charge required to be paid with respect to such transfer or exchange. The City and the Registrar may deem and treat the person in whose name this Bond is registered as the absolute owner hereof, whether this Bond is overdue or not, for the purpose of receiving payment and for all other purposes, and neither the City nor the Registrar will be affected by any notice to the contrary. IT IS HEREBY CERTIFIED, RECITED, COVENANTED AND AGREED that all acts, conditions and things required by the home rule charter of the City and the Constitution and laws of the State of Minnesota to be done, to exist, to happen and to be performed preliminary to and in the issuance of this Bond in order to make it a valid and binding general obligation of the City in accordance with its terms, have been done, do exist, have happened and have been performed as so required, and that the issuance of this Bond does not cause the indebtedness of the City to exceed any constitutional, charter, or statutory limitation of indebtedness. This Bond is not valid or obligatory for any purpose or entitled to any security or benefit under the Resolution until the Certificate of Authentication hereon has been executed by the Registrar by manual signature of one of its authorized representatives. IN WITNESS WHEREOF, the City of Hopkins, Minnesota, by its City Council, has caused this Bond to be executed on its behalf by the facsimile or manual signatures of the Mayor and City Manager and has caused this Bond to be dated as of the date set forth below. Dated: November 26, 2019 CITY OF HOPKINS, MINNESOTA (Facsimile) (Facsimile) Mayor City Manager _________________________________ 614214v4HP110-102 B-3 CERTIFICATE OF AUTHENTICATION This is one of the Bonds delivered pursuant to the Resolution mentioned within. BOND TRUST SERVICES CORPORATION By Authorized Representative _________________________________ ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this Bond, will be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT _________ Custodian _________ (Cust) (Minor) TEN ENT -- as tenants by entireties under Uniform Gifts or Transfers to Minors Act, State of _______________ JT TEN -- as joint tenants with right of survivorship and not as tenants in common Additional abbreviations may also be used though not in the above list. ________________________________________ ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto ________________________________________ the within Bond and all rights thereunder, and does hereby irrevocably constitute and appoint _________________________ attorney to transfer the said Bond on the books kept for registration of the within Bond, with full power of substitution in the premises. Dated: Notice: The assignor’s signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without alteration or any change whatever. Signature Guaranteed: 614214v4HP110-102 B-4 NOTICE: Signature(s) must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program (“STAMP”), the Stock Exchange Medallion Program (“SEMP”), the New York Stock Exchange, Inc. Medallion Signatures Program (“MSP”) or other such “signature guarantee program” as may be determined by the Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended. The Registrar will not effect transfer of this Bond unless the information concerning the assignee requested below is provided. Name and Address: (Include information for all joint owners if this Bond is held by joint account.) Please insert social security or other identifying number of assignee _________________________________ PROVISIONS AS TO REGISTRATION The ownership of the principal of and interest on the within Bond has been registered on the books of the Registrar in the name of the person last noted below. Date of Registration Registered Owner Signature of Officer of Registrar Cede & Co. Federal ID #13-2555119 614214v4HP110-102 C-1 EXHIBIT C TAX LEVY SCHEDULE YEAR * TAX LEVY 2020 $ 2021 2022 2023 2024 2025 __________________________________ * Year tax levy collected. 614214v4HP110-102 D-1-1 EXHIBIT D-1 NOTICE OF CALL FOR REDEMPTION FOR THE PRIOR UTILITY REVENUE BONDS $3,295,000 City of Hopkins, Minnesota General Obligation Bonds Series 2009A NOTICE IS HEREBY GIVEN that, by order of the City Council of the City of Hopkins, Minnesota (the “City”), there have been called for redemption and prepayment on December 10, 2019 all outstanding bonds of the City designated as General Obligation Bonds, Series 2009A, dated December 15, 2009, having stated maturity dates of February 1 in the years 2020 through 2025, both inclusive, totaling $840,000 in principal amount, and with the following CUSIP numbers: Year of Maturity Amount CUSIP Number 2020 $125,000 439866 ZS6 2021 135,000 439866 ZT4 2022 135,000 439866 ZU1 2023 145,000 439866 ZV9 2024 145,000 439866 ZW7 2025 155,000 439866 ZX5 The bonds are being called at a price of par plus accrued interest to December 10, 2019, on which date all interest on said bonds will cease to accrue. Holders of the bonds hereby called for redemption are requested to present their bonds for payment at the main office of Bond Trust Services Corporation, 3060 Centre Pointe Drive, Roseville, Minnesota 55113, on or before December 10, 2019. Important Notice: In compliance with the Economic Growth and Tax Relief Reconciliation Act of 2003, the City is required to withhold a specified percentage of the principal amount of the redemption price payable to the holder of any Bonds subject to redemption and prepayment on the Redemption Date, unless the City is provided with the Social Security Number or Federal Employer Identification Number of the holder, properly certified. Submission of a fully executed Request for Taxpayer Identification Number and Certification, Form W-9, will satisfy the requirements of this paragraph. Dated: November __, 2019. BY ORDER OF THE CITY COUNCIL OF THE CITY OF HOPKINS, MINNESOTA By: /s/ Michael Mornson City Manager City of Hopkins, Minnesota 614214v4HP110-102 D-2-1 EXHIBIT D-2 NOTICE OF CALL FOR REDEMPTION FOR THE PRIOR PIR BONDS $2,710,000 City of Hopkins, Minnesota General Obligation Permanent Improvement Revolving Fund Bonds Series 2010A NOTICE IS HEREBY GIVEN that, by order of the City Council of the City of Hopkins, Minnesota (the “City”), there have been called for redemption and prepayment on December 10, 2019 all outstanding bonds of the City designated as General Obligation Permanent Improvement Revolving Fund Bonds, Series 2010A, dated November 17, 2010, having stated maturity dates of February 1 in the years 2020 through 2026, both inclusive, totaling $1,355,000 in principal amount, and with the following CUSIP numbers: Year of Maturity Amount CUSIP Number 2020 $190,000 439866 C36 2021 200,000 439866 C44 2022 180,000 439866 C51 2023 190,000 439866 C69 2024 190,000 439866 C77 2025 200,000 439866 C85 2026 205,000 439866 C93 The bonds are being called at a price of par plus accrued interest to December 10, 2019, on which date all interest on said bonds will cease to accrue. Holders of the bonds hereby called for redemption are requested to present their bonds for payment at the main office of Bond Trust Services Corporation, 3060 Centre Pointe Drive, Roseville, Minnesota 55113, on or before December 10, 2019. Important Notice: In compliance with the Economic Growth and Tax Relief Reconciliation Act of 2003, the City is required to withhold a specified percentage of the principal amount of the redemption price payable to the holder of any Bonds subject to redemption and prepayment on the Redemption Date, unless the City is provided with the Social Security Number or Federal Employer Identification Number of the holder, properly certified. Submission of a fully executed Request for Taxpayer Identification Number and Certification, Form W-9, will satisfy the requirements of this paragraph. Dated: November __, 2019. BY ORDER OF THE CITY COUNCIL OF THE CITY OF HOPKINS, MINNESOTA By: /s/ Michael Mornson City Manager City of Hopkins, Minnesota 614214v4HP110-102 STATE OF MINNESOTA ) ) COUNTY OF HENNEPIN ) SS. ) CITY OF HOPKINS ) I, the undersigned, being the duly qualified and acting City Clerk of the City of Hopkins, Minnesota (the “City”), do hereby certify that I have carefully compared the attached and foregoing extract of minutes of a regular meeting of the City Council of the City held on November 4, 2019, with the original minutes on file in my office and the extract is a full, true and correct copy of the minutes insofar as they relate to the issuance and sale of the City’s General Obligation Refunding Bonds, Series 2019B, in the original aggregate principal amount of $______. WITNESS My hand officially as such City Clerk and the corporate seal of the City this ____ day of November, 2019. City Clerk City of Hopkins, Minnesota (SEAL) Summary: Hopkins, Minnesota; General Obligation Primary Credit Analyst: Emily Powers, Chicago + 1 (312) 233 7030; emily.powers@spglobal.com Secondary Contact: Caroline E West, Chicago (1) 312-233-7047; caroline.west@spglobal.com Table Of Contents Rationale Outlook Related Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 23, 2019 1 Summary: Hopkins, Minnesota; General Obligation Credit Profile US$2.245 mil GO rfdg bnds ser 2019B dtd 11/26/2019 due 02/01/2026 Long Term Rating AA+/Stable New Hopkins GO Long Term Rating AA+/Stable Affirmed Rationale S&P Global Ratings assigned its 'AA+' long-term rating to Hopkins, Minn.'s series 2019B general obligation (GO) refunding bonds. At the same time, we affirmed our 'AA+' rating on the city's previously issued GO bonds. The outlook is stable. The bonds are secured by the city's full faith and credit pledge and ability to levy unlimited ad valorem property taxes. Officials intend to pay debt service with net revenues of the water and sanitary sewer systems and with special assessments and a property tax levy; however, the rating is based on the unlimited ad valorem tax pledge. The city's existing GO debt also includes various other pledged revenues such as tax increment, tax abatement, special assessment revenues, and various enterprise fund revenues, but in each case, we rate to the city's GO pledge. Proceeds will be used to refund the city's 2009A and 2010A GO bonds for interest cost savings. Hopkins has maintained a strong history of mostly stable operational performance, complete with very strong reserves. The city is backed by a strong management team that has implemented robust policies and practices, helping it maintain stability in operations. The local economy also supports the city's operations, having experienced a fair amount of growth in recent years given its prime location in the greater Twin Cities metropolitan statistical area (MSA). The city maintains a sizable general fund receivable, including loans to the Arts Center fund, water fund, and various other governmental funds. In our analysis, we have removed these funds from our available fund balance calculations and, thus far, the city has been able to maintain very strong reserves. However, if these interfund loans are not managed and continue to grow, there could be significant pressure on the city's general fund, which could potentially have downward rating pressure. The 'AA+' rating reflects our assessment of the city's: • Very strong economy, with access to a broad and diverse MSA; • Very strong management, with strong financial policies and practices under our Financial Management Assessment (FMA) methodology; • Adequate budgetary performance, with operating results that we expect could improve in the near term relative to fiscal 2018, which closed with operating deficits in the general fund and at the total governmental fund level; • Very strong budgetary flexibility, with an available fund balance in fiscal 2018 of 20% of operating expenditures; WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 23, 2019 2 • Very strong liquidity, with total government available cash at 75.8% of total governmental fund expenditures and 4.8x governmental debt service, and access to external liquidity we consider strong; • Weak debt and contingent liability position, with debt service carrying charges at 16.0% of expenditures and net direct debt that is 240.1% of total governmental fund revenue, but rapid amortization, with 76.3% of debt scheduled to be retired in 10 years; and • Strong institutional framework score. Very strong economy We consider Hopkins' economy very strong. The city, with an estimated population of 18,808, is in Hennepin County in the Minneapolis-St. Paul-Bloomington MSA, which we consider to be broad and diverse. It has a projected per capita effective buying income of 120% of the national level and per capita market value of $114,093. Overall, market value grew by 5.8% over the past year to $2.1 billion in 2019. The county unemployment rate was 2.5% in 2018. Hopkins' proximity to the Twin Cities allows easy access for employment and retail opportunities, and will become more easily accessible with the development of the Minneapolis METRO light-rail system, which will include a new stop in Hopkins that is expected to open in the early 2020s. Hopkins' tax based is composed of primarily residential (40%), and commercial/industrial (36%) valuations. Growth in the city has primarily reflected residential development, including the completion of new apartment complexes, coupled with valuation growth for existing properties. Such growth has helped boost both taxable and economic market values, a trend that we expect to continue given the city's location and participation in the Minneapolis-St. Paul MSA economic base. Therefore, we expect our view of the local economy to remain very strong. Very strong management We view the city's management as very strong, with strong financial policies and practices under our FMA methodology, indicating financial practices are strong, well embedded, and likely sustainable. Highlights of the city's financial practices and policies include: • Use of at least three years of historical information in the formulation of the upcoming year's revenue and expenditure assumptions with the help of outside sources and a line-by-line approach to budgeting; • Quarterly reporting of budget-to-actual performance to the council with the ability to make amendments to the budget as needed; • A five-year, long-term financial plan that projects revenues and expenditures and is updated on an annual basis; • A rolling five-year, long-term capital plan that addresses capital needs of the city with sources and uses of funds identified; • Formalized investment management policy with quarterly reporting of investments and holdings; • Formalized debt management policy that sets guidelines for short-term borrowing, maturity lengths, and minimum allowable coverage on revenue debt; and • Formalized fund balance policy to maintain 42% of expenditures for cash-flow needs. While the city fell slightly below this level at fiscal year-end 2018, we expect it to return to compliance in fiscal 2019. Failure to do so could alter our view of the city's FMA. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 23, 2019 3 Summary: Hopkins, Minnesota; General Obligation Adequate budgetary performance Hopkins' budgetary performance is adequate, in our opinion. The city had operating deficits of negative 1.7% of expenditures in the general fund and negative 5.7% across all governmental funds in fiscal 2018. Our assessment accounts for the fact that we expect budgetary results could improve from 2018 results in the near term. We adjusted general fund expenditures and total governmental fund revenues to account for annually recurring transfers. We also adjusted for one-time capital spending in total governmental fund expenditures financed with bond proceeds. We note that total governmental fund performance largely reflects capital spending in the permanent improvement fund and other similar capital-related funds; some of this spending also involves various utility enterprise funds. In fiscal 2018, the Arts Center fund had a $1.2 million deficit fund balance, all of which was marked as a loan from the general fund. The city realizes economic benefits from the Arts Center, so management plans to continue providing financial support for it from the general fund. While the 2019 budget did not account for any improvement in the fund deficit, management anticipates implementing a direct levy in the 2020 budget that will begin to pay down the receivable owed to the general fund. Management indicates the fund is on track to erase its negative balance by 2023, but this timeline is subject to change based on council discussions. Additionally, the general fund has receivables from the water fund and various other governmental funds, all of which (including the Arts Center fund receivable) amount to $2.7 million, showing a slight increase over 2017. The receivable from the water fund increased sizably from $790,000 in 2017 to $1.0 million in the city's 2018 audit, although management noted that this amount is inflated due to an increase in the water fund's cash position that could be allocated to pay down the receivable to the general fund. Even so, the amount due did see an increase over 2017. Having completed a utility rate study, management expects to increase water rates in 2020, with annual rate increases thereafter, to begin paying down the amount owed to the general fund. The remainder of the receivable to the general fund, totaling roughly $464,000, is accounted for in various nonmajor governmental funds, the negative balances of which primarily reflect timing of bond proceeds. This portion of the receivable improved from 2017. Management expects the general fund total receivables to remain unchanged for fiscal 2019, but anticipates the overall amount will begin decreasing in 2020 with the implementation of higher utility rates and the increase in the levy to be allotted to the Arts Center fund. General fund results for fiscal 2018 came out slightly worse than the break-even budget, mainly due to salary and benefit expenses that were higher than expected and some under-budgeted revenues in public safety and general governments. While the deficit was relatively minimal, management plans to address these operational items in future years by looking more closely at employee salaries and benefits and including higher contingency measures in future budgets. Actual results for fiscal 2019 are currently tracking closely with the nearly break-even budget; officials anticipate close to break-even general results in the general fund, possibly increasing fund balance up to $85,000 come year-end. The preliminary budget for fiscal 2020 is also calling for a break-even result in the general fund, which currently includes the increase to the levy to support the Art Center fund. Management isn't expecting any major trend deviations across all governmental funds. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 23, 2019 4 Summary: Hopkins, Minnesota; General Obligation While performance was slightly weaker in 2018 than 2017, overall, the city has maintained mostly stable operations in recent years, responding well to budgetary pressures. We expect it will continue to manage its personnel and related expenses, as well as its capital expenses, to maintain consistent budgetary performance and general fund reserves. Additionally, we expect it will manage its overall operating budget to alleviate any potential pressure on the general fund, and ease its reliance on interfund loans. Should interfund loans and negative operations in the other funds rise in such a way that we believe the city's budgetary performance is compromised, it could lead to a weakening in our view of its overall credit quality. City operations are funded primarily by property taxes, which was 78% of fiscal 2018 general fund revenue, followed by intergovernmental revenue (10%). Very strong budgetary flexibility Hopkins' budgetary flexibility is very strong, in our view, with an available fund balance in fiscal 2018 of 20% of operating expenditures, or $2.7 million. We have reduced the city's available fund balance to account for interfund loans to its Arts Center fund, water fund, and various other governmental funds, which amounted to roughly $2.7 million in 2018, growing roughly 2% over the prior year. Even with this portion removed from the available fund balance, the city's reserves have been historically maintained at levels we consider very strong, but have experienced decreases in each of the last three fiscal years. We note that the interfund loans have increased year over year and if they continue to rise, they could put downward pressure on what we consider the available fund balance. Additionally, if the amount we consider available continues to decrease, our view of the city's budgetary flexibility could worsen, although we do not anticipate that occurring over the two-year outlook period. Very strong liquidity In our opinion, Hopkins' liquidity is very strong, with total government available cash at 75.8% of total governmental fund expenditures and 4.8x governmental debt service in 2018. In our view, the city has strong access to external liquidity if necessary. The city's available $25.6 million in available cash and investments (after removing unspent bond proceeds) were held primarily in federal and municipal securities, money market accounts, and certificates of deposit, which we do not consider aggressive. Based on past issuance of debt, we believe the city has strong access to capital markets to provide for liquidity needs if necessary. It has no direct-purchase or variable-rate debt that we expect could pose a liquidity risk and we expect its liquidity profile will remain very strong. Weak debt and contingent liability profile In our view, Hopkins' debt and contingent liability profile is weak. Total governmental fund debt service is 16.0% of total governmental fund expenditures, and net direct debt is 240.1% of total governmental fund revenue. Approximately 76.3% of the direct debt is scheduled to be repaid within 10 years, which is, in our view, a positive credit factor. We calculate total direct debt at about $76.6 million; when excluding self-supporting GO debt paid from the city's enterprise funds, net direct debt amounts to about $73.4 million. Management noted that the city could potentially WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 23, 2019 5 Summary: Hopkins, Minnesota; General Obligation issue up to $19.0 million in new-money GO bonds in the next two years for street reconstruction projects. Despite rapid amortization, we believe the city's debt profile will likely remain weak over the next two fiscal years. Hopkins' combined required pension and actual other postemployment benefit (OPEB) contributions totaled 3.5% of total governmental fund expenditures in 2018. Of that amount, 2.9% represented required contributions to pension obligations, and 0.6% represented OPEB payments. The city made its full annual required pension contribution in 2018. Hopkins participates in the General Employees Retirement Fund (GERF) and the Public Employees Police and Fire Fund (PEPFF), which are cost-sharing, multiple-employer, defined-benefit pension plans administered by the Public Employees Retirement Association of Minnesota (PERA). Required pension contributions to these plans are determined by state statute. Contributions are not based on an actuarial determined contribution (ADC) and have not been keeping up with the plans' increasing liabilities, which indicates that employer contributions may rise. The state recently passed pension legislation that will marginally increase contributions (for PEPFF only), reduce the investment rate of return to 7.5% (from 8%), and reduce some employee benefits (primarily cost-of-living adjustments). While we view these as positive changes for future plan funding levels, the lack of an actuarial funding policy remains a weakness in these plans. For more information about the reforms included in the 2018 omnibus retirement bill and the potential for future cost increases, see our article titled, "Minnesota’s New Pension Bill Is A Positive Step Toward Sustainable Funding" (published on June 7, 2018, on RatingsDirect). The GERF and PEPFF were 79.5% and 88.8% funded, respectively, in fiscal 2018. The city's proportionate share of the net pension liability for these plans totaled $7.6 million in fiscal 2018, the most recent year for which data are available. We consider historical plan funding levels somewhat weak, and we believe that the history of pension contributions below the ADC increases the risk of payment acceleration. Despite these weaknesses, we believe Hopkins has sufficient taxing and operational flexibility to manage future increases in pension contributions. However, if pension contributions come to absorb a larger share of the city's budget, our view of its debt and contingent liability profile could weaken. Hopkins also maintains a single-employer defined-benefit plan, administered by the Hopkins Fire Department Relief Association. The plan is available to all members of the Hopkins Fire Department. At fiscal year-end 2018, the plan was overfunded with an asset of roughly $814,000. The city's OPEBs are funded on a pay-as-you-go basis. Strong institutional framework The institutional framework score for Minnesota cities with a population greater than 2,500 is strong. Outlook The stable outlook reflects our view that that Hopkins' strong management policies and practices will enable it to maintain strong operating performance and very strong budgetary flexibility. In addition, we believe the city's access to the broad and diverse Minneapolis-St. Paul MSA provides further rating stability. Therefore, we do not expect to change the rating within the two-year outlook period. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 23, 2019 6 Summary: Hopkins, Minnesota; General Obligation Downside scenario We could lower the rating if budgetary pressures outside of the general fund, such as the enterprise and Arts Center funds, continue to drain general fund resources, and if debt continues to grow. Upside scenario We could raise the rating if the city's balance sheet improves and economic measures, such as its income levels and per capita market values, were to improve to levels commensurate with those of higher-rated peers, all other credit factors remaining equal. Related Research • S&P Public Finance Local GO Criteria: How We Adjust Data For Analytic Consistency, Sept. 12, 2013 • Incorporating GASB 67 And 68: Evaluating Pension/OPEB Obligations Under Standard & Poor's U.S. Local Government GO Criteria, Sept. 2, 2015 Ratings Detail (As Of October 23, 2019) Hopkins GO bnds Long Term Rating AA+/Stable Affirmed Hopkins GO bnds ser 2017B dtd 07/13/2017 due 02/01/2033 Long Term Rating AA+/Stable Affirmed Hopkins GO imp bnds Long Term Rating AA+/Stable Affirmed Hopkins GO tax abatement bnds Long Term Rating AA+/Stable Affirmed Hopkins GO tax increment rev rfdg bnds Long Term Rating AA+/Stable Affirmed Hopkins GO Long Term Rating AA+/Stable Affirmed Hopkins GO Long Term Rating AA+/Stable Affirmed Hopkins GO Long Term Rating AA+/Stable Affirmed Hopkins GO Long Term Rating AA+/Stable Affirmed Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. 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