Item 6: URA - Resolution Authorizing Tax Increment Bonds for LCC Projects

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if rates remain low because interest rate savings can be achieved. A current estimate of the amount of savings is approximately $300,000 over the remaining life of the bonds. The savings from the refinancing will allow the URA to expedite repayment of its maximum indebtedness. Because the URA is issuing bonds for the LCC grant, and because the URA is making the debt service payments on these bonds, there is an opportunity to include a parking bonds refunding with this bond sale with minimal additional cost. Security Provisions: In consultation with our financial advisor and bond counsel, the resolution included in Attachment A contains several security provisions designed to achieve the best possible terms from a lender for the proposed borrowings. Some of these provisions are routine and included in most borrowings. URA borrowings, however, are more risky for lenders, and as a result, require a higher level of assurance that the tax increment revenues will be sufficient to repay the debt. The resolution includes delegation to the Agency Director to agree to some restrictions on future URA policy choices. In particular, Section 3(10) would allow the Agency Director to enter into covenants that: (i) require the Agency not to reduce collection of tax increment levels below specified amounts; (ii) prohibit future borrowings that would have a lien on the tax increment revenues of the Downtown District that would be superior to the lien that secures the bonds; (iii) limit the amount of borrowings that may be issued with a lien on the tax increment revenues of the Downtown District that is equal to the lien securing the bonds; (iv) restrict the deposit and application of the tax increment revenues of the Downtown District to insure timely payment of the bonds; and (v) limit the Agency’s ability to reduce the area of the Downtown District which would reduce District revenues, until the Agency has sufficient funds to pay off the bonds. These security provisions would mean that current and future councils would not be able to take actions that would voluntarily reduce tax increment revenues in the Downtown District or issue additional debt for other projects without the lender’s approval. Given the current policy direction to fund the projects in the current plan as quickly as possible and to then terminate the District, these restrictions should not have an impact on District operations through its remaining life; however, the Agency should be aware that some future policy choices would be limited by this borrowing. Additionally, to provide sufficient assurance to the lender that revenues over time will be adequate to repay the debt, it is likely that the borrowing will have a final maturity that is longer than was projected in the 2010 plan amendment. The reason for this is to provide the lender with a cushion for annual revenues, so that projected revenues are more than the amount needed to repay the debt. The Agency will, however, ask the lender for the ability to prepay the debt from tax increment revenues as quickly as possible, without penalty. Although the borrowing will have a stated maturity of longer than 2017, financial projections continue to show that the Agency should be able to pay the debt off by 2017. RELATED CITY POLICIES Downtown revitalization and the projects referenced in this material are supported by the Downtown Plan, council’s 2009 Vision & Goals, the Downtown Urban Renewal Plan, and a number of other plans and reports related to downtown. The City’s debt policies also apply to the URA. Those debt policies include provisions about when it is appropriate to refinance debt, maximum maturities, and selection of method of sale. The proposed resolution and subsequent URA borrowing would comply with the City’s debt policies. \\Cesrv500\cc support\CMO\2011 Council Agendas\M110411\S1104116.doc