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HomeMy WebLinkAboutM-84-0474Mr. Howard Gary April 19, 1984 City Manager � 5 MAF.amn L A, (AA I would like you to place on the agenda for the iI 26 Commission meeting, early in the morning, a Tc[onnneod0tinn by the Administration to move forward OD the sale of o bond issue as early as possible. It is my opinion that we should increase the bond issue from $25 million to $50 million. �� ����T/404/ 84-474 ° . :TY OF h11A�i1. "l_JfilO?� i. l ;-:�•cJ'+ 1c ,.t _ :ei0 ANCUM - J Honorable Mayor and Members of the City Commission - "0'; Howard V. Gary City Manager OATS: January 30, 1984 ;UJJE :T Proposed 1984 General Obligation Bond Sale ;■EFERENCES: ENCLOSURES: Bonds Each year, the City sells General Obligation Bonds to secure the cash necessary to continue construction of approved capital projects. Work has now begun to prepare for a 1984 General Obligation Bond Sale planned for April. or May depending upon market conditions. The bonds being sold were approved by voter referendum in prior years and have been validated by the courts. The projects being funded are those projects included in the capital budget and program hav estimat previously approved by the City Commission. Presently, that we will need $25 M to provide cash for: Storm Drains $ 3 M Housing 8 Streets and Highway 6 Sanitary Sewer 4 Fire 4 25 M Through your help and support a number of very significant events have occurred over the last year which will have a very positive impact on future bond sales. 1. You approved a contract with (Municipal Finance Office Association (MFOA) to assist in developing a comprehensive Official Statement to support the $25M bond sale in May of 1983. The official statement is very important since it is used by the rating agencies, bond analyst and other professionals to assess the marketability of City bonds. 2. Moody's Rating Agency increase the bond rating from A to A+ which is estimated to have saved the City $1.5M over the life of the $25M issue. 3. Received a bid on the $25M issue which was the same as the bid price calculated for the 20 Bond Index. This index reflects the average bid price of 20 selected (usually AA rated) bonds. The City's bid price reflects acceptance by the market of City bonds. B 84 °474 -5-el) 4. Completed the sale and delivery of the $25M issue despite a statement filed by the police and fire unions with the Securities and Exchange Commission (SEC) questioning the City disclosure of certain law suits. 5. Received a letter from the SEC advising they would not conduct any further investigation on this matter and that no further action would be considered by them. This is significant because properly disclosing in the Annual Financial Report, the many suits involved in the "Gages Case" has been a matter of great concern. 6. Three of the four "audit exceptions" have been removed - the only one remaining is the "Gates" Case. A clean, certified ennuil report without exceptions does much to build investor confidence. 7. Received from the Municipal. Fi.nence Officer's Association, a Certificate of Conformance indicating that our eccoun:;ing and financial reports comply with national standeres. To my knowledge this is the first time the City hez received the Certificate since 1957. 8. We have "cleaned up" nearly all past liability and questioned cost on CETA audits. There will be a resolution on the February 9th agenda finalizing many outstanding issues. 9. Maintained a fund balance in excess of $6M for the last several years. Maintaining an adequate fund balance is important because it indicates fiscal solvency (or have money to pay our bills) and provides a cushion (or reason) for the future. Rating agencies and syndicate leaders expect responsible management to always maintain an adequate fund balance. There are several major steps involved in preparing for a bond sale. The participation in bond sale by members of the City Commission is very necessary. The rating agencies and leaders of the bidding syndicates welcome the opportunity to meet with local elected officials. For the proposed 1984 sale, the steps are listed below (not necessarily in the sequence in which they may occur) : 1. Close out records for FY -82 -83 and prepare the Comprehensive Annual Financial Statement. Work is now in progress and on schedule and it is expected this document will be completed by March 15. 2. Visits to the rating agencies (Standard & Poor's and Moody's). 4. Completed the sale and delivery of the $25M issue despite a statement filed by the police and fire unions with the Securities and Exchange Commission (SEC) questioning the City disclosure of certain law suits. 5. Received a letter from the SEC advising they would not conduct any further investigation on this matter and that no further action would be considered by them. This is significant because properly disclosing in the Annual Financial Report, the many suits involved in the "Gates Case" has been a matter of great concern. 6. Three of the four "audit exceptions" have been removed - the only one remaining is the "Gates" Case. A clean, certified annual report without exceptions does much to build investor confidence. 7. Received from the Municipal finance Officers Association, a Certificate of Conformance indicating that our accouning and financial reports comply with national standards. To my knowledge this is the first time the City has received the Certificate since 1957. 8. We have "cleaned up" nearly all past liability and questioned cost on CETIL audits. There will be a resolution on the February 9th agenda finalizing many outstanding issues. 9. Maintained a fund balance in excess of $611 for the last several years. Maintaining an adequate fund balance is important because it indicates fiscal solvency (or have money to pay our bills) and provides a cushion (or reason) for the future. Rating agencies and syndicate leaders expect responsible management to always maintain an adequate fund balance. There are several major steps involved in preparing for a bond sale. The participation in bond sale by members of the City Commission is very necessary. The rating agencies and leaders of the bidding syndicates welcome the opportunity to meet with local elected officials. For the proposed 1984 sale, the steps are listed below (not necessarily in the sequence in which they may occur): 1. Close out records for FY -82 -83 and prepare the Comprehensive Annual Financial Statement:. Work is now in progress and on schedule and it is expected this document will be completed by March 15. 2. Visits to the rating agencies (Standard & Poor's and Moody's). 4444 a. Informal visit early in February to provide an "update" on events taking place in the City. (Union negotiations and "Gates Case ", Bayfront Project, Amendment 1, Approved Bond referendum, etc.). b. March - deliver Comprehensive Annual Financial Statement (copy will be mailed and there should be a follow up visit if requested to answer specific questions). c. April - Make a formal presentation dealing with the specific proposed bond sale. This is the rating presentation and is very critical. This presentation will be made four to six weeks before the expected bond sale. 3. Visit selected syndicate leaders in New York whom we expect will submit bids on City bonds. We will use this as an opportunity to talk about events taking place in the City - particularly economic matters - that will build their confidence in the future of the City. 41. Prepare and submit to the City Commission necessary resolutions and ordinances. This usually occurs three to four weeks before the actual bond sale. 5. Advertise and accept bids to sale the issue. Bids are usually opened at a City Commission meeting and the lowest bidder is awarded the bonds. 6. Finalize the Official Statement, print and deliver the bonds, and collect the proceeds(funds). Immediately upon receiving this check, it will be invested in federally insured securities to earn interest until such time as the cash is needed to fund a project. It is my sincere hope that the effective working relationship that has produced such positive results will continue to grow and produce even greater results for this City. TO FROM Honorable Mayor and Members of the City Commission Howard V. Gary City Manager CITY OF MIAMI, FLORIDA INTER - OFFICE MEMORANDUM DATE• SUBJECT. REFERENCES: ENCLOSURES April 26, 1984 1984 G.O. Bond Sale FILE On January 30, 1984, you received a memorandum which indicated consideration was being given to the possibility of selling $25M in General Obligation Bonds in April or May of this year. At that time no definite date had been established for the sale, and the precise amount of bonds to be sold had not been determined. Since that memorandum was written, we have had numerous discussions with the City's bond advisor, J.J. Lowrey & Co., investment brokers and others who have knowledge and experience in bond sales. The determination of "how much to sell" and when to sell is strongly governed by a number of inter- related factors: 1. Internal Revenue Service (IRS) Arbitrage Requirements These requirements must be complied with to ensure that the tax exempt status of the bonds are maintained. Basically, the Rule of Arbitrage requires that there be "reasonable expectation" that a portion of the borrowed funds will be spent on the project for which it was borrowed within t six months of the bond sale settlement date, and all of he funds borrowed be spent within thirtsix months. The purpose of this Rule is to preclude jurisdictions from excessive borrowing of funds at long- -term rates to be reinvested at short -term rates, which are generally higher than long-term rates. 2. Ability of the City to Effectively Spend Borrowed Funds There is a very definite number of capital projects that can be initiated and effectively managed by the City at a given time. Projects must be planned, specifications developed and many other activities must be accomplished to ensure effective utilization of funds and success of the project. Historically, the City has been able to spend approximately $20 -$25M per year on capital construction. Page 1 of 4 84-474 Honorable Mayor and Members of the City Commission April 26, 1984 3. Presence in the Bond Market It is to the advantage of the City to have a consistent and predictable presence in the New York bond market. It is very helpful in marketing City bonds if it is known that each year the City will be coming to the marketplace with a specific sale. Based upon our present assessment of the City's capital needs, it appears that the City will probably be going to the market to sell $25 -$35M in General Obligation Bonds each 12 to 18 months for the next several years. 4. Bond Ratings The ratings by Standard and Poor's and by Moody's are a very important factor in the marketing of City bonds. The rating agencies expect the City to follow a prudent, well thought out, consistent borrowing program, specifically as it relates to General Obligation Bonds. They expect jurisdictions "to borrow only what they need when they need it." They want to know specifically how the funds will be used and if the projects will be completed as planned. The rating agencies continually evaluate the debt position of the issuer. They are very concerned with the ratio of debt per capita, net debt to assessed value, debt cost as a percentage of revenues, as well as ohter comparative statistics. The issuance of General Obligation debt must be done in such a manner that will be viewed in a positive way by the rating agencies. 5. Interest Rate Expectations An additional factor which may influence the size and timing of a bond sale is 'interest rate expectations. There is no reliable formula to predict market behavior. The interest rates vary from day to day and generally follow either upward or downward trends. When possible, one should attempt to enter the market when interest rates are low and avoid the market, if possible, when rates appear to be high. Although there is some latitude in terms of size and timing of a sale, care must be exercised to avoid attempting to "play the market." KMb1UfNTIAL (COMMUNITY). 84 -474 Honorable Mayor and Members of the City Commission A. Storm Drain Project - $3M AGo LiJc rrjHL ( Lummutu 1.'Y) • April 26, 1984 6. Long-Term Borrowinj The City has a long -term capital program which it expects to fund, in part, by the sale of General Obligation Bonds. Projects included are those approved by the City Commission because of their importance to the well -being of the community. Delaying the funding for needed projects which are part of a long-term capital improvement program simply causes a "doubling up" of funding requirements in future years. What you don't borrow this year you will have to borrow next year. As a general rule, as a regular, long -term capital funds borrower, the City should go the market "for only what is needed when it is needed." RECOMMENDATIONS In assessing the City's situation, all of the above factors were considered. We are recommending that the City sell $30.2M in General Obligation Bonds on June 14, 1984. Specifically, we are recommending that bonds be sold for the purpose and the amount indicated below: These funds will be utilized to complete and /or initiate seven projects. B. Highways and Streets - $7.1M $5M will be utilized for nine projects throughout the City. $2.1M will be utilized on the Overtown - Parkwest project. C. Housing - $18.1M $7M will be used to complete the purchase of land for the $65M Multi - Family Housing Program. $11.1M will be utilized for land acquisition in the Overtown - Parkwest area. 84-474 Honorable Mayor and Members of the City Commission D. Fire Facilities - $2M These funds will be utilized for approved data processing and communication enhancements. date The date of June 14 was se�ectt�ed the market t Bond the interest rates that we can be ready to go on an upward trend and all expectations are thatFxtheC�at end will continue until at least the end of the yea increase in are that after the Congress recesses, it i felt that the market the tax exempt market. Additionally, se ll on may be more stable at time the volume increases June 14, we will be in which may cause interest rates to be higher. KNblUENY'iAL (COMMUNITY). April 26, 198 84-474 Randolph Rosencrantz Assistant City Carlos E. Garcia Director of Finance Housing Bonds Affordable Housing Overtown Park West Streets & Highways City Wide Paving Design Plaza Manor Highway Improvement S.W. 27th Avenue Allapattat-1 Industrial Area Grand Avenue Sidewalk Overtown Highway E. Little Havana Highway S.W. 16th Street Highway Overtown Parkwe ,t Storm Sewers Flagler Storm Mods. Local Drainage E -54 Riverview P.S. Mods. Orange Bowl P.S. Mods Manor Shenandoah LeJeune Station RESIDENTIAL (COMMUNITY). CITY OF MIAMI, FLORIDA INTER-OFFICE MEMORANDUM DATE April 25, 1984 FILE SUMAC' projects to be funded with '84 Bond Sale REFERENCES ENCLOSURES Proceeds of the 198 - $30.2M G.O. Bond Sale are projected to be as follows: $ 7,000,00 11 100 000 - $ 250,000 500,000 700,000 70,000 1,000,00 200,000 400,000 1,000,00 880,000 2 ,100 , 000_ 7,100,00 200,000 800,000 50,000 100,000 600,000 420,000 830 , 000 3,000,000 Fire Bonds New Communications System 2,000,000 Total $ 30, 200,000 84 -4'74