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VII.2. Authorize Sale of $8,365,000 General Obligation Bonds Series 2023A; Bishop CITY OF HOPKINS City Council Report 2023-015 To: Honorable Mayor and Council Members Mike Mornson, City Manager From: Nick Bishop, Finance Director Date: January 17, 2023 Subject: Authorize Sale of $8,365,000 General Obligation Bonds Series 2023A _____________________________________________________________________ RECOMMENDED ACTION MOTION TO adopt Resolution 2023-006: Providing for the Sale of $8,365,000 General Obligation Bonds, Series 2023A. OVERVIEW The Series 2023A bonds will be general obligations of the City for which it’s full faith, credit and taxing powers are pledged. The preliminary authorization is for $8.365 million and will be adjusted to reflect actual costs after construction bids are opened on February 10. The bonds are being sold to finance three purposes. • 2023 street and utility reconstruction project in West Central Avenues. The bonds for this purpose will be issued with a 16 year term to come from general tax levy, special assessments and utility revenues. • 2024 mill and overlay projects on 1st St. N and Lot 700. The bonds for this purpose will be issued with a 10 year term to come from a general tax levy. Issuance for 2024 portion is being recommended based on timing of future street projects. • Equipment Purchase (Log Truck). The bonds for this purpose will be issued with a 10 year term to come from a general tax levy. Adopting the resolution will allow City Staff to work with its municipal advisor Ehlers & Associates to prepare an official statement for the bond sale. The City’s last bond rating was AA+ with a stable outlook. Standard and Poor’s will update the rating before the bonds are sold. City Council is scheduled to award the sale of bonds on February 14, 2023. SUPPORTING INFORMATION • Resolution No. 2023-006 • Bond Pre-Sale Report Finance Department CITY OF HOPKINS HENNEPIN COUNTY, MINNESOTA RESOLUTION 2023-006 Resolution Providing for the Sale of $8,365,000 General Obligation Bonds, Series 2023A WHEREAS, the City Council of the City of Hopkins, Minnesota has heretofore determined that it is necessary and expedient to issue the City’s $8,365,0000 General Obligation Bonds, Series 2023A (the “bonds”), to finance the 2023 road and utility reconstruction project, the 2024 mill and overlay project and purchase of a log truck; and WHEREAS, the City has retained Ehlers & Associates, Inc., in Roseville, Minnesota (“Ehlers”), as its independent municipal advisor for the bonds in accordance with Minnesota Statutes, Section 475.60, Subdivision 2(9) NOW THEREFORE BE IT RESOLVED, by the City Council of the City of Hopkins, Minnesota, as follows: 1. Authorization; Findings. The City Council hereby authorizes Ehlers to assist the City for the sale of the Bonds. 2. Meeting; Proposal Opening. The City Council shall meet at 6:30 p.m. on February 14, 2023 for the purpose of considering proposals for and awarding the sale of the Bonds. 3. Official Statement. In connection with said sale, the officers or employees of the City are hereby authorized to cooperate with Ehlers and participate in the preparation of an official statement for the Bonds and to execute and deliver it on behalf of the City upon its completion. Adopted by the City Council of the City of Hopkins this 17th day of January, 2023. By:___________________________ Patrick Hanlon, Mayor ATTEST: _______________________________ Amy Domeier, City Clerk January 17, 2023 PRE-SALE REPORT FOR City of Hopkins, Minnesota $8,365,000 General Obligation Bonds, Series 2023A Prepared by: Ehlers 3060 Centre Pointe Drive Roseville, MN 55113 Advisors: Stacie Kvilvang, Senior Municipal Advisor Jason Aarsvold, Senior Municipal Advisor Keith Dahl, Municipal Advisor BUILDING COMMUNITIES. IT’S WHAT WE DO. Presale Report City of Hopkins, Minnesota January 17, 2023 Page 1 Proposed Issue: $8,365,000 General Obligation Bonds, Series 2023A Purposes: The proposed issue includes financing for the following purposes: To finance the 2023 road and utility reconstruction projects, mill and overlay projects and purchase a log truck Road Improvements - $3,785,000. This portion of the Bonds is being issued for 16 years. Debt service will be paid from special assessments and ad valorem property taxes. Mill/Overlay - $475000. This portion of the Bonds is being issued for 10 years. Debt service will be paid from ad valorem property taxes. Utilities - $3,895,000. This portion of the Bonds is being issued for 16 years. Debt service will be paid from utility revenues. Equipment - $210,000. This portion of the Bonds is being issued for 10 years. Debt service will be paid from ad valorem property taxes. Authority: The Bonds are being issued pursuant to Minnesota Statutes, Chapters: 412.301 - Equipment 429 – Road Improvement 475.58 3b – Mill/Overlay 444 - Utilities 475 – General Bonding Authority 2023 Street Reconstruction Portion: Because the City is assessing at least 20% of the project costs, this portion of the Bonds may be a general obligation without a referendum and will not count against the City’s debt limit. The City intends to levy a total of $1,050,000 in special assessments to benefitting property owners, of which $210,000 (20%) is anticipated to be collected in pre-paid assessments (this portion of the Bond issue was reduced accordingly). The remaining $840,000 of special assessments will be collected in years 2024 to 2038 at a rate of 2% over the True Interest Costs (TIC) of the Bonds. Annual assessments are paid on an equal principal basis. Utility Portion: Chapter 444 allows cities to issue debt without limitation as long as debt service is expected to be paid from water and sewer revenues. EXECUTIVE SUMMARY OF PROPOSED DEBT Presale Report City of Hopkins, Minnesota January 17, 2023 Page 2 Mill/Overlay Portion: The City held a public hearing on March 1, 2022, for the 2022-2026 Street Reconstruction and Overlay Plan (SROP) for the mill and overlay portion of the Bonds, which provides the authority to issue this portion of the Bonds. Equipment Certificate Portion: The City is authorized to issue debt for the purchase of capital equipment. If the amount of equipment certificates being issued is more than .25% of the EMV of taxable property in the City, a public notice must be published, and the issue is subject to reverse referendum. The City’s EMV for Pay 2023 is $2,688,977,400. Currently the City has $2,110,000 in outstanding equipment certificates. Since the amount of the proposed equipment certificate and existing equipment certificates is below the statutory threshold of $6,722,444, the certificate may be issued without public notice and voter approval. Both the Mill / Overlay and the Equipment portion of the Bonds will count towards the City’s statutory debt limit, which is 3% of the EMV. Based upon the Pay 2023 EMV noted above, the debt limit is $80,669,322. As of January 2, 2023, the City had $21,150,000 subject to the legal debt limit (this amount includes the 2014A (SROP portion), 2015A (SROP Portion), 2016C (Equipment Certificate portion), 2017A (SROP portion), 2018A (SROP and Equipment Certificate portions), 2019A (CIP and SROP portions) and 2020A (Equipment Certificate portion) and 2022A (Equipment Certificate/SROP portion)). The Bonds will be general obligations of the City for which its full faith, credit and taxing powers are pledged. Term/Call Feature: The Bonds are being issued for a term of 16 years. Principal on the Bonds will be due on February 1 in the years 2025 through 2039. Interest is payable every six months beginning February 1, 2024. The Bonds will be subject to prepayment at the discretion of the City. Bank Qualification: Because the City is expecting to issue no more than $10,000,000 in tax exempt debt during the calendar year, the City will be able to designate the Bonds as “bank qualified” obligations. Bank qualified status broadens the market for the Bonds, which can result in lower interest rates. Rating: S&P Global Ratings "AA+" The City’s most recent bond issues were rated by S&P Global Ratings. The current rating on those bonds is “AA+”. The City will request a new rating for the Bonds. If the winning bidder on the Bonds elects to purchase bond insurance, the rating for the issue may be higher than the City's bond rating in the event that the bond rating of the insurer is higher than that of the City. Presale Report City of Hopkins, Minnesota January 17, 2023 Page 3 Basis for Recommendation: Based on your objectives, financial situation and need, risk tolerance, liquidity needs, experience with the issuance of Bonds and long-term financial capacity, as well as the tax status considerations related to the Bonds and the structure, timing and other similar matters related to the Bonds, we are recommending the issuance of Bonds as a suitable option. Method of Sale/Placement: We are recommending the Bonds be issued as municipal securities and offered through a competitive underwriting process. We will solicit competitive bids for the purchase of the Bonds from underwriters and banks. We will include an allowance for discount bidding in the terms of the issue. The discount is treated as an interest item and provides the underwriter with all or a portion of their compensation in the transaction. If the Bonds are purchased at a price greater than the minimum bid amount (maximum discount), the unused allowance may be used to reduce your borrowing amount. Premium Pricing: In some cases, investors in municipal bonds prefer “premium” pricing structures. A premium is achieved when the coupon for any maturity (the interest rate paid by the issuer) exceeds the yield to the investor, resulting in a price paid that is greater than the face value of the bonds. The sum of the amounts paid in excess of face value is considered “reoffering premium.” The underwriter of the bonds will retain a portion of this reoffering premium as their compensation (or “discount”) but will pay the remainder of the premium to the City. The amount of the premium varies, but it is not uncommon to see premiums for new issues in the range of 2.00% to 10.00% of the face amount of the issue. This means that an issuer with a $2,000,000 offering may receive bids that result in proceeds of $2,040,000 to $2,200,000. For this issue of Bonds we have been directed to work with staff on the day of sale to determine if the city wants to retain the net premium to reduce the size of the issue or increase the net proceeds for the project. The resulting adjustments may slightly change the true interest cost of the issue, either up or down. The amount of premium can be restricted in the bid specifications. Restrictions on premium may result in fewer bids, but may also eliminate large adjustments on the day of sale and unintended impacts with respect to debt service payment. Ehlers will identify appropriate premium restrictions for the Bonds intended to achieve the City’s objectives for this financing. Review of Existing Debt: We have reviewed all outstanding indebtedness for the City and find that there are no refunding opportunities at this time. We will continue to monitor the market and the call dates for the City’s outstanding debt and will alert you to any future refunding opportunities. Presale Report City of Hopkins, Minnesota January 17, 2023 Page 4 Continuing Disclosure: Because the City has more than $10,000,000 in outstanding debt (including this issue) and this issue is over $1,000,000, the City will be agreeing to provide certain updated Annual Financial Information and its Audited Financial Statement annually, as well as providing notices of the occurrence of certain reportable events to the Municipal Securities Rulemaking Board (the “MSRB”), as required by rules of the Securities and Exchange Commission (SEC). The City is already obligated to provide such reports for its existing bonds, and has contracted with Ehlers to prepare and file the reports. Arbitrage Monitoring: The City must ensure compliance with certain sections of the Internal Revenue Code and Treasury Regulations (“Arbitrage Rules”) throughout the life of the issue to maintain the tax- exempt status of the Bonds. These Arbitrage Rules apply to amounts held in construction, escrow, reserve, debt service account(s), etc., along with related investment income on each fund/account. IRS audits will verify compliance with rebate, yield restriction and records retention requirements within the Arbitrage Rules. The City’s specific arbitrage responsibilities will be detailed in the Tax Certificate (the “Tax Compliance Document”) prepared by your Bond Attorney and provided at closing. The Bonds may qualify for one or more exception(s) to the Arbitrage Rules by meeting 1) small issuer exception, 2) spend down requirements, 3) bona fide debt service fund limits, 4) reasonable reserve requirements, 5) expenditure within an available period limitations, 6) investments yield restrictions, 7) de minimis rules, or; 8) borrower limited requirements. We recommend that the City review its specific responsibilities related to the Bonds with an arbitrage expert in order to utilize one or more of the exceptions listed above. Investment of Bond Proceeds: Ehlers can assist the City in developing a strategy to invest your Bond proceeds until the funds are needed to pay project costs and needed to redeem the refunded obligations. You have retained Ehlers Investment Partners to assist you with managing your bond proceeds. Risk Factors: Special Assessments: We have assumed $210,000 in pre-paid special assessments. If the City receives a significant amount more of pre-paid assessments or does not levy the assessments, it may need to increase the levy portion of the debt service to make up for lower interest earnings than the expected assessment interest rate. Other Service Providers: This debt issuance will require the engagement of other public finance service providers. This section identifies those other service providers, so Ehlers can coordinate their engagement on your behalf. Where you have previously used a particular firm to provide a service, we   Presale Report City of Hopkins, Minnesota January 17, 2023 Page 5 have assumed that you will continue that relationship. For services you have not previously required, we have identified a service provider. Fees charged by these service providers will be paid from proceeds of the obligation, unless you notify us that you wish to pay them from other sources. Our pre-sale bond sizing includes a good faith estimate of these fees, but the final fees may vary. If you have any questions pertaining to the identified service providers or their role, or if you would like to use a different service provider for any of the listed services please contact us. Bond Counsel: Kennedy & Graven, Chartered Paying Agent: Bond Trust Services Corporation Rating Agency: S&P Global Ratings (S&P) Summary: The decisions to be made by the City Council are as follows:  Accept or modify the finance assumptions described in this report  Adopt the resolution attached to this report. Presale Report City of Hopkins, Minnesota January 17, 2023 Page 6 Pre-Sale Review by City Council: January 17, 2023 Due Diligence Call to review Official Statement and Conference Call with Rating Agency: Week of February 6, 2023 Distribute Official Statement: Week of January 30, 2023 City Council Meeting to Award Sale of the Bonds: February 14, 2023 Estimated Closing Date: March 7, 2023 Attachments Estimated Sources and Uses of Funds Estimated Proposed Debt Service Schedule Resolution Authorizing Ehlers to Proceed with Bond Sale RS’ CONTACTS Stacie Kvilvang, Senior Municipal Advisor (651) 697-8506 Jason Aarsvold, Senior Municipal Advisor (651)697-8512 Keith Dahl, Municipal Advisor (651) 697-8595 Silvia Johnson, Senior Public Finance Analyst (651) 697-8580 Alicia Gage, Senior Financial Analyst (651) 697-8551 PROPOSED DEBT ISSUANCE SCHEDULE EHLERS’ CONTACTS