Item 4C: Resolution Authorizing Issuance of Parks, Athletic Fields and Open Space Bonds

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acquisition might occur. The IRS requires tax-exempt bond issuers to meet several tests, such as that the issuer has a “reasonable expectation” that 5% of the bond proceeds will be spent within six months, and that the issuer believes they can spend 85% of the bond proceeds within three years. Because of the heavy emphasis on property acquisition in this measure, there is significant uncertainty about when the bond proceeds will be spent. On the other hand, staff must be certain that the funds will be available when the acquisitions are made. In addition, bond counsel advises that property acquisitions can sometimes contain terms that would make those acquisitions ineligible for tax-exempt financing. For the reasons stated above, bond counsel has recommended that the City develop a flexible issuance plan that would include the ability to issue short-term debt or long-term debt. One approach would be that the funds could be borrowed in a manner similar to a line of credit. The City could repay the short- term debt either through a property tax levy, or by refunding it with long-term debt. Issuance of short- term debt would not carry the same IRS requirements about the rate of spending. In addition, bond counsel has recommended that the City have the ability to issue taxable debt, if that is required by the terms of any of the property acquisitions. City staff is continuing to work with its bond counsel and financial advisor to develop the issuance plan. The attached resolution would allow the City the flexibility to issue short- or long-term debt, and to issue taxable or tax-exempt debt, as appropriate according to IRS tax laws. The resolution also allows the City Manager to issue the debt as needed to fund the projects, without further council authorization. Staff would, however, notify the council through a Council Newsletter item when any debt is issued under the authorization. In the materials presented to voters for the bond measure, it was estimated that the average tax rate over the life of the bonds would be about $0.15 per $1,000 of assessed value. In developing a bond issuance plan, staff will attempt to keep the average tax rate at or below the level estimated in the bond measure materials. Oregon law does not require the council to authorize spending authority for the proceeds of a General Obligation Bond issue if the proceeds are spent in the same fiscal year as the bond election. Therefore, staff will not bring an FY07 supplemental budget to council for this item. The FY08 budget may include additional spending of bond proceeds, depending on the issuance strategy that is ultimately developed with the City’s bond counsel and financial advisor. RELATED CITY POLICIES The Budget Committee approved a set of debt issuance guidelines in February 2004. Those guidelines limit the amount of net direct debt outstanding to 1% of the City’s real market value. Issuance of the Parks, Athletic Fields and Open Space Bonds for $27,490,000 would not cause the City to violate this policy, as there is sufficient room under the debt limit for this purpose. The debt issuance guidelines state that voter-approved General Obligation bonds will be sold by competitive bid. Those policies assumed that General Obligation bonds would always be sold as long- term debt, and did not foresee a situation like the current one where a short-term, line of credit-type of debt instrument might be needed in order to meet IRS rules for tax-exempt financing. A line of credit cannot be sold by competitive bid. Therefore, approval of the attached resolution will mean that council is granting an exception to the policy of requiring a competitive bid for these Parks, Athletic Fields and L:\CMO\2007 Council Agendas\M070108\S0701084C.doc