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CR 2004-132 Public Hearing Sale Of Revenue Bond G \ T Y o {-- August 11, 2004 ~ Council Report 2004-132 NOPKINS e PUBLIC HEARING: SALE OF REVENUE BOND, MAIN STREET SCHOOL OF PERFORMING ARTS Proposed Action Staff recommends approval of the following motion: adopt Resolution 2004-060, authorizing the issuance and sale of a school facility revenue note to provide funds for a project on behalf of the Main Street School of Per fanning Arts, subject to staff conditions as detailed in Council Report 2004-132. Overview St. Joseph's Church has executed a lease of the former the Jolm heland School building to a new charter school, the Main Street School For Performing Arts. To facilitate this transaction, they are completing a variety of improvements to the existing school. The total cost of the improvements will be $2.45 million_ In April of this year the City Council held a public hearing and approved issuance of a revenue bond on behalf of St. Joseph's Church for this project. It was discovered after this action, however, that the church had not secured the necessary 50 lc3 non-profit status for the school. As a result, the subject bond issue could not be sold. Tax exempt status has now been secured for the school; however, there are still tax concerns with the church being the issuer. As a result, it is being proposed to issue the bond on behalf of the Main Street School of Perfol111ing Arts. The only other difference from the previous Council action is that the amount of the bond has increased from $2.4 to $2.45 million. e Pdmarv Issues To Consider . What is the Main Street School For Perf0TI11ing Arts? . What is the purpose of this financing? . Does the project meet the requirements of City policy regarding taxable/tax exempt financing? . What arc the implications to the City as relate to this action? . Has legal counsel reviewed this matter? Supporting Documents . Resolution 2004-060 . Memo from Stefanic Galey, Faegre & Benson Jim Ke;~.tt;an c Development Director Planning & EconOl . ~i Financial Impact: $ 0 N/ A _ Budgeted: Y IN _ Source: Related Documents (CIP, ERP, etc.): Notes: Not a financial obli.gation of the City. Coullci] RepOli 2004-132, August 11, 2004 ~ Page 2 . Primary Issues To Consider . What is the Main Street School For Performing Arts? This is a new charter school, which is a collaborahve effort of Hopkins School District 270 and the Hopkins Center For Perfonning Arts. It will be a four-year high school oriented to students interested in the perfonning arts. The school will open with ninth through tenth grades, with approximately 202 students. It is estimated that total enrollment when fully operational with all four grades will be approximately 424. The first classes will begin this fall. . What is the purpose of this financing? Local units of govemment are authorized to issue tax-exempt revenue bonds to facilitate projects that are felt to be beneficial to the community. To utilize this type of financing tool, the applicant must meet very specific federal requirements. The bond financing is, for the most part, available only for certain types of industrial or housing projects or for the benefit of certain non-profit, tax- exempt organizations. Financing through this method provides for a lower interest rate than could be secured at a private lending institution. . Does the project meet the requirements of City policy regarding taxable/tax exempt financing? e Thc City of Hopkins has a policy relating to revenue bond financing. The policy allows the City to consider financing for any existing business within the City that is proposing to expand, relocate, or rehabilitate an existing building. The proposed project would meet the requirements of the policy. . What are the implications to the City as relate to this action? Revenue bonds are secured by a pledge of repayment strictly from the proposed project. The City is not liable to make any payment should there be a default. The City has not been in[ornled that the owner of the subject property is presently in default on any bond payments for the existing revenue bond that they are obligated to repay. . Has legal counsel reviewed this matter? The City Attorney has reviewed the document related to this transaction. Stefanie Galey of Faegre & Benson is also representing the City as bond counsel. . \Vhat are the staff conditions? Staff is recommending that, consistent with the previous action on this item, the application administrative fces be waived with approval of this resolution. These fees, in accordance with the policy, are as follows: . Application fee: $5,000 Administrative fee: 1/8 of 1 % of the outstanding principal balancc ofthc bonds _ _.. ____ nn__. Council Report 2004-132, August 11, 2004 - Page 3 . The reason staff is recommending this fee waiver is to demonstrate City support for this project and to make it more financially feasible. With this waiver it would be understood that the City would still be reimbursed for all out-of-pocket expenses relating to this financing, including but not limited to legal fees, financial analyst fees, and bond counsel fees. Alternatives The City Council has the following alternatives regarding this action: 1) Approve the action as recommended by staff. 2) Deny the approval for the sale of bonds. 3) Continue for additional infornlation. . . . FAEGRE & BENSON LLP 2200 WELLS FARGO CENTER, 90 SOUTH SEVENTH STREET MINNEAPOLIS, !vIrNNEsoTA 554lJ2 3901 TELE1'I10NE 612.766.70UO FACS1Mll_E Ii 12_766.16 00 STEFAN IE N_ GALEY sga!cy0:!racgrc.com w\v\v.faegrc.com 6121766-7661 August 17, 2004 City of Hopkins Attn: Jim Kerrigan 1010 South First Street Hopkins, MN 55343 $2,450,000 City of Hopkins, Minnesota School Facility Revenue Note (Main Street School of Performing Arts Project) Series 2004 The City of Hopkins has been requested to give its approval to the issuance of an approximately $2,450,000 School Facility Revenue Note (Main Street School of Performing Arts Project), Series 2004 (the "Note") for the purpose of providing pennanent financing for the renovation of . the school building owned by The Church o[St. Joseph of Hopkins (the "Church") and leased to the Main Street School of Performing Arts (the "Borrower") in the City. The Council is being requested to hold a public hearing as required by state and federal law, and to give its final approval to the issuance and sale of the Note at its meeting of September ih. At its meeting of April 20, 2004, the City Council approved the issuance of a revenue bond to finance the same renovation project on behalf of the Church, but because of certain tax-exemption issues, that revenue bond was unable to be issued. Therefore, the requested approval of the Note in effect replaces the approval of the financing given at the meeting of April 20th. I have reviewed the documentation to be entered into by the City in connection with the issuance of the Note, and such documents clearly establish that the Note will be secured solely by payments made by the Borrower under its Loan Agreement with the City, and further that no City funds, revenues or taxes will be pledged or made available to pay the Note. By issuing the Note, the City will assist the Borrower by reducing its debt service costs with respect to its proposed borrowing. If you or any member of the Council have any questions regarding the Note, please feel free to call me. Sincerely, , . fJ: ~ ~'~'l-{~~ --c(_ /.~ v, 0 Stefame N. Galey / . SNG:melbj MI:1131983_01 'vfiuncsota Colorado lou'a London Frankfurt Shanghai . CITY OF HOPKINS Hennepin County, Minnesota RESOLUTION NO. 2004-060 RESOLUTION PROVIDING FOR THE ISSUANCE AND SALE OF A SCHOOL FACILITY REVENUE NOTE, TO PROVIDE FUNDS FOR A PROJECT ON BEHALF OF MAIN STREET SCHOOL OF PERFORMING ARTS BE IT RESOLVED by the City Council of the City of Hopkins, Minnesota (the "City"), as fol1ows: 1. Authority. The City is, by the Constitution and laws of the State of Minnesota, including Minnesota Statutes, Sections 469.152 to 469.1651, as amended (the "Act"), authorized to issue and sel1 its revenue bonds for the purpose of financing costs of authorized projects and to enter into agreements necessary or convenient in the exercise of the powers granted by the Act. 2. Authorization of Proiect: Documents Presented. Main Street School of . Perfonning Arts, a Minnesota nonprofit corporation (the "School"), has proposed to this Council that the City issue and sell its City of Hopkins School Facility Revenue Note (Main Street School of Performing Arts Project), Series 2004 (the "Note"), in an aggregate principal amount not to exceed $2,450,000 pursuant to the Act and loan the proceeds thereof to the School in order to finance costs incurred in the renovation and equipping of the building located at 1320 Main Street in the City (referred to general1y herein, together with any related site improvements, as the "Project"), which is owned by St. Joseph Catholic Church, and leased to the School. Forms of the following documents have been submitted to the City and are now on file in the office of the City Clerk: (a) Loan Agreement (the "Loan Agreement") between the City and the School, whereby the City agrees to make a loan to the School and the School agrees to pay amounts in repayment of the loan sufficient to provide for the full and prompt payment of the principal of, premium, if any, and interest on the Note when due; (b) Pledge Agreement (the "Pledge Agreement ") from the City to the lender named therein (the "Lender"), by which the City assigns to the Lender its interest in the Loan Agreement; . M 1: I] 23337_02 1 AUTHORIZING RESOLUTION . (c) Guaranty (the "Guaranty") from The Church of St. Joseph of Hopkins to the Lender; (d) Escrow Agreement (the "Escrow Agreement") between the School and the Lender, by which the Lender will disburse proceeds of the Note to the School for the Proj ect; and (e) the Note. 3. Findings. It is hereby found, determined and declared that: (a) There is no litigation pending or, to the best of its knowledge, threatened against the City relating to the Note, the Loan Agreement or the Pledge Agreement or questioning the due organization of the City, or the powers or authority of the City to issue the Note and undertake the transactions contemplated hereby. (b) The execution, delivery and performance of the City's obligations under the Note, the Loan Agreement and the Pledge Agreement do not and will not violate any order of any court or other agency of government of which the City is aware or in which the City is a party, . or any indenture, agreement or other instrument to which the City is a party or by which it or any of its property is bound, or be in conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument. (c) The Note will be issued by the City upon the terms to be agreed upon by the Lender and the School provided that the interest rate shall not exceed 5.5% per annum, and the City's interests in the Loan Agreement (except for its rights to indemnity and payment of expenses and repayment of advances) will be pledged to the Lender as security for the payment of principal of, premium, if any, and interest on the Note. (d) The Loan Agreement provides for payments by the School of such amounts as will be sufficient to pay the principal of, premium, if any, and interest on the Note when due. (e) Under the provisions of the Act, and as provided in the Loan Agreement, the Note is not to be payable from nor charged upon any funds other than amounts payable pursuant to the Loan Agreement which are pledged to the payment thereof, the City is not subject to any . liability thereon; no owners of the Note shall ever have the right to compel the exercise of the taxing power of the City to pay any of the MI:II23337.02 2 AUTHORIZING RESOLUTION . Note or the interest thereon, nor to enforce payment thereof against any property of the City (other than the interest of the City in the Loan payments to be made by the School under the Loan Agreement); and the Note shall recite that such Note, including interest thereon, shall not constitute or give rise to a charge against the general credit or taxing powers of the City. (t) As required by the Act and Section 147(f) of the Internal Revenue Code of 1986, as amended, the City Council of the City conducted a public hearing on Tuesday, September 7, 2004, on the proposal to undertake and finance the Project after publication in the official newspaper and a newspaper of general circulation in the City of a notice setting forth the time and place of hearing; stating the general nature of the Project and an estimate of the principal amount of bonds or other obligations to be issued to finance the Project; stating that a draft copy of the proposed Application to the Minnesota Department of Employment and Economic Development (the "Department"), together with all attachments and exhibits thereto, was available for public inspection at the offices of the City, at all times between the hours of 8:00 a.m. to 4:30 p.m. each day except Saturdays, Sundays and legal holidays to and including the day of hearing; and stating that all parties who appear at the public hearing shall . have an opportunity to express their views with respect to the proposal. (g) It is hereby found, determined and declared that the Proj ect furthers the purposes set forth in the Act. 4. Approval and Execution of Documents. The fom1s of Note, Loan Agreement and the Pledge Agreement, referred to in paragraph 2, are approved. The Loan Agreement and the Pledge Agreement shall be executed in the name and on behalf of the City by the Mayor, the City Manager and the City Clerk, or executed or attested by other officers of the City, in substantially the form on file, but with all such changes therein, not inconsistent with the Act or other law, as may be approved by the officers executing the same, which approval shall be conclusively evidenced by the execution thereof and then shall be delivered to the Trustee. 5. Submission of Application. In accordance with the requirements of the Act, officers of the City are hereby authorized and directed to submit the proposal for the Project to the Department to request its approval thereof, and City officers, employees, and agents are hereby authorized to provide the Department with such information as it may require. . 6. Approval, Execution and Delivery of Note. Upon receipt of the Department's approval, the City shall proceed forthwith to issue the Note, in a principal MI:I123337_02 3 AUTHORIZING RESOLUTION . amount not to exceed $2,450,000. The Mayor, City Manager, City Clerk and other City officers are authorized and directed to prepare and execute the Note, and deliver it to the Lender upon receipt of the purchase price therefor. Principal of and interest on the Note shall be payable at the office of the registered owner thereof as it appears on the registration records maintained by the City Clerk in lawful money of the United States. The proposal of the Lender to purchase the Note is hereby found and determined to be reasonable and is hereby accepted. The Note shall contain a recital that it is issued pursuant to the Act, and such recital shall to the extent pennitted by law be conclusive evidence of the validity and regularity of the issuance thereof 7. Registration Records. The City Clerk, as registrar, shall keep registration records which shall set forth the name and registered address of the registered owner of the Note from time to time. Transfer of the Note shall be made only as provided in Section 9 below. 8. Mutilated. Lost. Stolen or Destroyed Note. Ifthe Note is mutilated, lost, stolen or destroyed, the City may execute and deliver to the registered owner a new Note of like amount, date, number and tenor as that mutilated, lost, stolen or destroyed; provided that, in the case of mutilation, the mutilated Note shall first be surrendered to the City, and in the case of a lost, stolen or destroyed . Note, there shall be first furnished to the City and the School evidence of such loss, theft or destruction satisfactory to the City and the School, together with indemnity satisfactory to them. The City and the School may charge the owner with their reasonable fees and expenses in replacing any mutilated, lost, stolen or destroyed Note. 9. Transfer of Note; Person Treated as Owner. The Note shall be transferable by the owner only on the registration records of the City, upon presentation of the Note for notation of such transfer thereon at the office of the City Clerk, as Note registrar, accompanied by a written instrument of transfer in form satisfactory to the City Clerk duly executed by the registered owner or its attorney duly authorized in writing. The Note shall continue to be subject to successive transfers in such manner at the option of the registered owner of a Note. No service charge shall be made for any such transfer, but the City Clerk may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith, which the School shall pay under the Loan Agreement. The person in whose name a Note shall be issued or, if transferred, shall be registered from time to time shan be deemed and regarded as the absolute owner thereof for all purposes, and payment of or on account of the principal of, premium, if any, and interest on the Note shan be made only to or upon the order of such owner thereof, or its attorney duly . authorized in writing, and neither the City, the School, nor the Lender shall be affected by any notice to the contrary. All such payments shall be valid and MI:1123337.02 4 AUTHORIZING RESOLUTION . effectual to satisfy and discharge the liability upon the Note to the extent of the sum or sums so paid. The Note shall be initially registered in the name of the Lender. 10. Amendments, Changes and Modifications to Documents and this Resolution. Except pursuant to the Loan Agreement, the City shall not enter into or make any change, modification, alteration or termination of the Loan Agreement, the Pledge Agreement or this Resolution. 11. Covenants with Holder; Enforceability. All provisions of the Note and of this Resolution and all representations and undertakings by the City in the Loan Agreement and the Pledge Agreement are hereby declared to be covenants between the City and the Lender and successor holders of the Note and shall be enforceable by the Lender or any such holders in a proceeding brought for that purpose. 12. Definitions and Interpretation. Terms not otherwise defined in this Resolution but defined in the Loan Agreement shall have the same meanings in this Resolution and shall be interpreted herein as provided therein. In case any provision of this Resolution is for any reason illegal or invalid or inoperable, such illegality or invalidity or inoperability shall not affect the remaining . provisions of this Resolution, which shall be construed or enforced as if such illegal or invalid or inoperable provision were not contained herein. 13. Certificates, etc. The Mayor, City Manager, City Clerk and other officers of the City are authorized and directed to prepare and furnish to bond counsel and the purchaser of the Note, when issued, certified copies of all proceedings and records of the City relating to the Note, and such other affidavits and certificates as may be required to show the facts appearing from the books and records in the officers' custody and control or as otherwise known to them; and all such certified copies, certificates and affidavits, including and heretofore furnished, shall constitute representations of the City as to the truth of all statements contained therein. 14. Oualified Tax-Exempt Obligations. The Note is hereby designated as "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. The Note is to be issued on behalf of an organization described in Section 501 (c )(3) of the Code and is to be issued as "qualified 501 (c )(3) bonds" under Section 145 of the Code. The City, together with all subordinate entities thereof, does not reasonably expect to issue tax-exempt obligations, including the Note (other than private activity bonds not constituting "qualified 50l(c)(3) bonds"), which, when added . together with all such obligations heretofore issued by the City, or such Ml:II13337_01 5 AUTHORIZING RESOLUTION . subordinate entities, in calendar year 2004, will be in an aggregate amount exceeding $10,000,000 in calendar year 2004. . . 1\1]:1123337_02 6 AUTHORIZING RESOLUTION ----- - . Adopted by the City Council of the City of Hopkins this ~ day of September, 2004. BY: Gene Maxwell, Mayor ATTEST: Teny Obermaier, City Clerk . . MI:1123337_02 7 AUTHORIZING RESOLUTION . The motion for the adoption of the foregoing resolution was duly seconded by Councilmember 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, and was signed by the Mayor and attested to by the City Clerk. . . MI:1123337.02 8 AUTHORIZING RESOLUTION