City Commission Passes Resolution, Ordinance, & Authorization Agreement on Topic of General Public Bonds

Jennifer Lamer -

At Monday's City Commission Meeting, Commissioners considered a 3-part resolution/ordinance on the topic of general public bonds. They included:

A)Resolution No. 23-8135, authorizing the offering for public sale of general obligation bonds.

B) First reading of Ordinance No. 23-11155, authorizing the issuance and delivery of approximately $3,175,000 principal amount of general obligation internal improvement bonds.

C) Authorize the City Manager to enter into an agreement with Stifel, Nicolaus & Company, Incorporated to provide Financial Advisor services for the City of Salina for the Issuance of the 2023 general obligation bonds.

BACKGROUND: Generally there are five (5) Commission action steps for a project financed with debt.

1. Budget and Capital Improvement approval - departments recommend projects they deem necessary for the next 5 years as part of the budget process.

2. Project Authorization - sets the maximum amount of funding (excluding financing costs) that a project may incur.

3. Temporary Note financing - to provide cash flow for the project and to enable the City to determine the final cost to be permanently financed. (This step may be skipped if the City has cash on hand to temporarily fund a project)

4. Contract Award - contractually commits City to the project (on occasion we may award a contract prior to issuance of temp notes if sufficient funds are on deposit to satisfy the cash basis law).

5. Permanent (Bond) Financing after the project is complete and final costs can be determined

The process for the City to issue Temporary Notes and Bonds includes approximately 2.5 months of preparation (calendar attached). This step allows the process to formally begin and the process culminates with the City Commission accepting the bids for the sale of the Notes and Bonds in late-July.

Resolution 23-8135 authorizes the offering for public sale of the Bonds, and also provides for the preparation of the sale materials necessary for the offering of the Bonds, including the official statement, which is the document that describes and offers the issues to potential investors.

Cities must issue bonds pursuant to an ordinance. Ordinance No. 23-11155, to be considered on first reading, authorizes the issuance and delivery of general obligation bonds.

The second reading of the ordinance is scheduled for July 24, 2023, which coincides with the consideration of the bids on the bonds. The ordinance will be updated on the day of the bond sale to reflect the final terms of the bonds.

The Bonds: General obligation bonds will permanently finance the following projects which are all in Step 5 of the financing process:

The total amount of Bonds to be issued will be approximately$ 3,175,000 subject to final adjustments and cost of issuance.

The current debt service payment paid from taxes and special assessments is approximately $5.5 to $7.0 million per year. That amount fluctuates over the next 20 years based on the payment schedule of every bond issue of the City.

The following table identifies total future debt payment estimates including Construction of Fire Station #4 and completion of the Wastewater Plant:

These debt payments are supported by the following sources of revenue:

  • Taxes
  • Special Assessments
  • Enterprise Fund Revenues (Water/Wastewater, Solid Waste, Sanitation)

Tax supported debt currently issued by the City is funded by the levy of a current property tax mill levy, delinquent tax collections, motor vehicle property tax collections, sales tax and transient guest tax collections.

The following graphs show the effect on the revenues needed from Property Tax and Special Assessments before and after the new debt is added, including estimated debt for Fire Station No. 4 construction.

Depending on delinquent and motor vehicle tax collections, the City may need to utilize Debt Service Fund fund balance ($1.5 million at 12/31/22) or allocate additional property tax to Debt Service over the next few years.

During the annual budget process, staff budgets and subsequently transfers into the Debt Service Fund the amount needed to make the scheduled debt payment from the Enterprise Funds for the budget year. Staff also budgets and transfers a flat $650),000 per year plus the scheduled debt payment amount for designated projects from the Sales Tax Capital Fund into the Debt Service Fund.

The amount required from Property Tax for the next year is estimated annually during the budget process as follows:

*Delinquent and motor vehicle taxes are deposited in the debt service fund based on the levy allocation for those particular taxes when received from the County. Transient Guest Tax is deposited to the debt service fund at the time of receipt based on the allocation set by the City Commission (currently 12.9% of collections).

The following table identifies the anticipated Property Tax requirement over the next 5 years:

The following variables will affect the future Property Tax mill levy rate required to support debt:

  • Future issuance of debt supported by Property Taxes
  • Collection of other sources of taxes
  • Availability of Debt Service Fund fund balance (currently $1.5 million) (Target $800,000)
  • Interest rate of debt

1 Mill currently provides $503,000 in Property Taxes.
$1,000,000 in debt carried over 20 years costs approximately $70,000/year.

The current Debt Service Fund mill levy is 6.736. With the addition of the 2023 debt, the current debt service mill levy may change if any of the above variables fluctuate or fund balance is utilized. This rate is determined during the annual budget process.

The following graph shows the historical Debt Service Fund mill levy rates:

Financial Advisory Services: Stifel, Nicolaus & Company, Inc. has provided financial advisory services to the City of Salina for many years as it relates to cash management, investments and debt issuance. In accordance with the Municipal Securities Rulemaking Board (MSRB), including MSRB Rule G-2, Stifel, Nicolaus & Company, Inc. is required to enter into a Financial Advisory Services Agreement, which outlines the scope of work, the fees and other disclosures, with the City to perform duties for each issuance of debt.

Services to be provided by Stifel, Nicolaus & Company, Inc. include, but are not limited to, financial analysis and structuring, issuing official statements and offering documents, and coordination of all parties involved in the process.

FISCAL NOTE: The cost of issuance will be added to the financing total at the time of issuing bonds. Debt payments will be supported as noted in the above tables.

The resolution, ordinance, and authorization agreement each passed 5-0 on their first readings.