HomeMy WebLinkAboutM-90-080136,
CITY OF MIAMI, FLORIDA
INTER -OFFICE MEMORANDUM
TO ; Honorable Mayor and Members DATE : ��'' ; - 5 1990 FILE
of the City Commission v
SUBJECT:
Public Hearing
FROM : Cesar H. Odio REFERENCES:
City Manager
ENCLOSURES:
The Urban League of Greater Miami, Inc. has referred to us the
attached proposal by the bond underwriting firm of Stephens, Inc.
with the purpose of having the City of Miami sell taxable bonds
at rates of 3 to 4 percent, or less than half of the going rate
for taxable bonds. Bond proceeds are to be used to purchase
various securities that will pay rates approximating 8 to 9
percent and to fund a program to fight drugs as part of the
League's Operation P.O.P. (Push Out the Pushers).
The key elements of this transaction are:
.' The ability to sell taxable bonds at rates much lower than
market, which will require bond holders to forego
significant amounts of interest. Possible interested
parties would be foundations, large financial organizations
willing to make a contribution to the community and other
philanthropic institutions.
Obtaining final opinion from the City Attorney and bond
counsel as to the "public purpose" of the bond issuance
under State of Florida Statutes, including successful
completion of validation process. (See attached discussion
memo from City Attorney's office).
Identifying specific programs to be implemented by. the -City
to achieve goals of the "Operation P.O.P."
Selection of bond underwriters for the transaction.
This 'issue was scheduled as a, discussion item `on the September,.7'.
City Commission meeting, at which time the City Commission,.
requested the Administration to reschedule it as a "Public.
Hearing"
At
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� � ` .syY s .. j„ i i .• w C .^•Sfi Y . r a Y ♦ 3 i s s .i t � � ,
CITY OF MIAMI. FLORIDA
INTER -OFFICE MEMORANDUM
TO : Carlos Garcia DATE : August 7, 1990 FILE A-90-517.,
Director, Finance Department
sua,Ecr : Issuance of Revenue Bonds .-
Stephens, Inc.
FROM Rafael O. Diaz i%�i'
p � REFERENCES:
Chief Assistant City Attorney
ENCLOSURES:
You have asked us to determine whether: a) the City can
raise funds through the issuance of revenue bonds where the
proceeds from the sale of the bonds is to be used for the fight
against drugs; and b) such bonds must be validated pursuant to
Florida Statutes.
1. TSSUANCE OF REVENUE FUNDS FUR A rUl3Llt: rutcrua�
Please note that in researching this issue we focused on
I°
taxable revenue bonds similar to the bond scheme proposed by
Stephens, Inc. in their letter to the Urban League dated May 17,
f' 1990.
it The must important criteria governing the issue of bonds by
a municipality is whether a public purpose is served by such
i issuance. Therefore, we need to determine whether the fight
against drugs is a "public purpose" as that term is 'defined by
the case law interpreting the applicable provisions Florida
Constitution.
We also direct your attention to our memo dated July 20,
1990 (our file No. A-90-518) in which we outlined for you the
Constitutional and statutory constraints placed on'the City, in,
r
its ability to issue bonds.
{' We have determined, after reviewing all pertinent statutes
as well as the case law, that the Florida courts have not dealt
with the issue of the fight against drugs in the context of their.
}' "public purpose" determinations. The Courts have,. however,
developed general tests to be applied in deciding whether a
public purpose is served in a particular instance. Some of the
tests developed by the courts are whether: a) the work to be
performed with bond proceeds. is required for the general good of
all inhabitants of the City; b) such expenditures confer a
?(: direct benefit a significant part of the public; and c) the bond
issuance serves a paramount public purpose.
i
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f.Yy 1 4
i.ax...z e5'1f•`�.e14:..M�-rL",
Rafael 0. Diaz
Chief Assistant City Attorney
August 7, 1990
Page 2
Section 159.822, Florida Statutes gives the City the general
grant of power to issue taxable bonds for a public purpose as
follows:
1. The ability of governmental units to
issue bonds is essential to their
ability to finance public improvements
and other projects that serve important
public purposes and benefit the social
and economic well-being of the people.
!j( 5. The purpose to be achieved by taxable
bonds in compliance with the provisions
of this act are predominantly designed
i to serve the public purposes stated in
this section, and such purposes under
j' the State Constitution, . . of
f 2rovid;ng for the health, safety, and
welfare of the people.
1,
2. $OND VALIDATION
{
It is safe to assume that, given the inexactness of the case
f law in defining "public purpose", the bonds issued for the
purpose stated above should be validated in accordance to the
procedures set forth in Chapter 75, Florida Statutes.
i
3. CONCLUSION
There is no specific case law on whether a public purpose is
served by raising money to fight drugs. Therefore, we cannot
categorically state that said object will be deemed a ;'public
purpose" within the criteria outlined above and such bonds should
be validated in the manner provided by law.
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Stephen's Inc.
Ernic Butler
i:xecutive Vice President
Finmtciul Novices
Mr. T. Willard Fair
11re--. bent & Chief Executive: Officer
_ Urh:-n Lcaguc of Greater Miami, inc.
85(10 N.W. 25th Avenue
Miami. i"irrida 331747
Dcar Ti1..
i,ii.i. 1• yc-u for inviting Stephens Inc. to Miami to visit with you regarding a taxable 1-mid
St Ill.., I*..*!*: similar to that proposed to Freeport, Illinois. . We think that the Urban Uagn
of i",r_•nt.r Miami in conjunction with the City of Miami can provide a public purpose
that will enable you to further your endeavors to combat drug related probic:iis
wilYn ;our city.
_ r
We propose to assist you in a financing, which if issued by a municipal entity, will h,:
str••, :ttrcd so that the municipal issucr will not infringe upon any outstanding debt lindia-
tior , ror will the issucr have any obligation to pay principal and/or interest for the: til'cs
of ;lac bonds. Stephens Inc. has served as placement agent for similar issuers and li.t•.
opinions from three accounting firms and bond counsel in two states supportil;
r ,sition. Of'coursc, for your particular issue, that decision will be dctcrniincd M, i!to
is :ucr's accountants and bond counsel.
Foi our review, we hnvc outlined sonic of the options that may be available to the t. 'ts
and Urban Lcaguc of Grentcr Miami. As you pursue the prograin and
uses for funds to be generated, there will be other variations which resp"I' !
— -r and investor parameters.
T t:, li;;c!i;lood of purchasers should be significantly increased the higher the interest rite
ara presenting to you two (2) structure options to consider. Foi discussion purpos•:c..
markc; rites as of May 16, 1990 have been; used to calculate the. GNMA and strip!' •dl
Tr ca: is -y prices. Herb again, requirements of the investor will influence the suitability eit'
cacao structure.
The t'irst structure assumes the issuance ofi,taxabie capital appreciation bonds with a par
ar�ornt of $10,600,00.0 and 3% interest compounded annuslty. Bond}proceeds are used to
pu, r't f e ;;ripped-U.S.
Treasuries, pay cost of issuance and to fuiR your public pur6w.c
project. "'lie investor receives no prineipuliand/or interest -until the.maturityof the bond.
As you can see by comparing the chart, the; longer the maturity, the more dollars will ttc:
avr.il; ! it •o fulfill the public purpose of the. issue. For example, ; if orc$10d 0,0rs illwil::
5-year �1•turity is sold, the proceeds to the Issuer will be' in excess or $2,400,000 whercm,
if :0- c-ir maturity is sold, the proceeds io the Issuer will be in excess of $4,000,000.
rs
114 Fast Capitol Avcnno P. n. BnxV3507e1(t ittlelRock, Arkansas; 72203 501-177-2 ►•t'r
9,0
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-� s
. - � �..w...»ws....•.a...,,..u.:«.:«.�:+c.�,r....»rah.�ar�tu++.aa.�MpF
£_1l,OGMO. Capital A00rer,_ial.1 ijn ttclyds.CompoundIng
at 3% Annuntly
te•,:•rity cf 0omi-Years
5
I 6
7
8
9
to
nit h.•1cr of Stripped Treasury fiends
63.2500
$6.4062
53.4607
49.0312
oar ':-jtvo of stripped Treasury Bonds
11,592,741
11,940.523
12.298,739
12.667,701 ~ •13,041,7S'T.
i'..+'. ►�:•+
Cr^t of Stripped Treasuries
7,332,409
6,974.012
6,575,9132
6.211.132
5,855,1741
cost of issuance
200,000
200,000
200,000
200,000
200,0011
.!ou,ftdu
Prcceeis to Urban league
2,467,591
21025,988
3,224,018
3,588,66B
3,944,1130
1;I,:;%I
10, 000, 000
10, 000, 000
10, 000, 000
10, 000, 000
10, no11, n(10
1.1.11 )", 0
Poter•irt Purchasers
1. Concerned citizens
2.. correrned corporations
3. "rni:s
G. Pennfon funds
The ,_eond structure assumes a bond issue sizc.of $100,000,000 with an annual intcrest
ratc or 4%. Bond proceeds arc used to purchase a combination of stripped U.S. Trcasurie!.
and GNMA's. The flow generated by the monthly payments of principal and interest will
be i,cd .to make monthly payments of interest and the excess will be reinvested to1 i>;1j•
pri- (:;pal at maturity or collapse date. if at any time during the 10-ycnr period, the
stripped governments and the GNMA's (the collateral) can be sold at a price which added
to the invested funds equals to the par amount of the outstanding bonds, the collatt-1-;11
•,':1! be sold and the bond issue collapsed. Any amount received nbove par will he paid tc,
the •r•,estor as an incentive to purchase the bonds which are being issued at a below
ma -;act rate. This option does not provide as much money to the project, but it is r-.u-
siderably more; attractive for nn investor.
Municipal Bond
• % �'•=+^t
1 O 060, 000
70, 000, 000
50, 000, 000
30.000, 000
20,1100 , +Ili f
Ma•u-ity of Bond -Years
10'
10
10
10
In
Lr.;_rest Pate
4.00X
4.00%
4.00%
4.00%
r,.ctL'S
Unit Price of Stripped Treasury Bonds
41.1256.
41.1250
41.1250
41.1250
41.1...q
P-.r• vatue of StrippedtTressury Bonds
M l3,440,ur;u
67,200,000
47,040,000
33;600,000
20,160,000
unit•Price of 8 1/2% CNMA
93.34 '
93.34
93.34
»"
93
93.34 __.
- Pius eccured interest
O.SO :
0.50
0.50
0.50
Per VoLue of CNMAss
54,000,000
37;800,000
27,000,000
16,200,000
10,000,+'nt
!
Cos* of ru:'Als 8 1/2% due in 30 years
Cos*
50,675,625
358472,937
10,135,1?�
25,337,812
15,202,688
(If s::ripped Governments
27,636,000
19,345,200
13,818,000
8,290,800
Cost of I
1,250,000
5,527,kUu
Proreedc to Urban
n lcegua
20,438,375
875,000
750,000
450,001)
350,un9
14,306,862
10,094,187
6,056,517.
P:,R »40UNT OF ISSUE
100, 000, 000
70, 000, 000
50, 000, 000
30, 000, t100
"1
�iYYk:
5•Y.tar Tnxebte Municipal) Bons!
- ...
Per `klwunt
100,000,000
70,000,000
50,000,000
30,1100,000
20,0011.0111
Maturity of Bond -Years
S
5
5
5
Inter^.! Rete
4.00%
4.00%
14.00%
4.00%
►(;r
!ni• ':t Stripped Trenswy h1-:wh
63.7012
63.7812
63.71112
61.7812
63. r"i•,
j: of Stripped Treasury Ourls
55,000,000
38,500,000
27,500,000
16,51111,000
11,001j. ill)
L1:i t Price of 8 1/2% GNMA - — _ aY_
93.3431
93.3437
93.3437
..__ 93..5 •37 _......
'J'S
P.It— +:cured interest
0.5001)
0.5000
0.5000
U.5n(l0
1),':'.01
Pc, 'Atie of GNMA's . 54,000,000 37,800,000 27,000,000 16,200,000 lll,ltllu :,d:
Corr of C11114's 8 1/2% due to 30 years 50,675,625
35,472,937
25,337,812
15,202,688
10,135.1t;
Cos: C? ":•:s;.ped Goverrtwnts 35,079,688
24,555,781
17,539,844
10,523,906
7,015.,,I
Cos; ' 'v trance 1,250,000
$75,000
750,000
450,000
350,ui;0
Frocnods to Urban League 12,994,07
9,096,281
6,372,344
3,823,406
2,498,1!17
i.", AKOUNT OF ISSUE 100,000,000 70,000,000 50,000,000 30,000,n00 20,000,:,o(l
Prt.n:i:t ?urchasers for the 5-year or 10•Year Maturity
1. .:nrirned citizens
^.nn:erned corporations
3. yanks
4. P,nsfon funds
S. Foundations
As we discussed in our meeting, we feel that this financing could be used to open 0,4:
or other matching grants and gifts. Attached is a list of foundations domiciled Iii
1'::,-;Ia. This is a' constantly changing list, but it will give you an indication of
petc-:inl investors and/or donors for your program.
;n,-.'vc had the opportunity to review this information, we want to heat with y0ll
;.: 't t • r:•view your plan for use of the funds to be generated for the targeted e0l11.•
.uso, after you have selected the other parties to be involved, we will procecd to
cr a successful financing.
?';ie i-sa-,rice of these bonds by the City of: Miami will require, in addition to other- ;t,..
wovrls. validation under Florida state law. Completion of the process of approvals, steal
• irir.2,, r irketing and validation will require a minimum of 90 days front -the date dw
rrpropriate parties are approved to proceed.;
:cok forward to having we opportunity to work with you and to provide funds far t:i :
i'urthe-ance of your worthy projects.
If vot, !)ave any questions, picnsc feel free to call me or Johnnie 1101comb at any time:
Sincerely,
Ernie Butler
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