Title
Resolution Approving an Increase in the Aggregate Bond Amount for the USAFA Visitors Center Business Improvement District for Issuance of Series A, B and C Bonds Previously Authorized by Resolution No. 103-19 and Extending the Deadline for Issuance
(Legislative Item)
Presenter:
Carl Schueler, Comprehensive Planning Manager, Planning & Community Development
Bob Cope, Economic Development Officer
Body
Summary:
This is a request to increase the maximum aggregate combined par amount of marketed Series A, Series B and Series C 2019 bonds to be issued by the USAFA Visitors Center Business Improvement District (“District”) previously authorized by City Council. The prior cap of $80,000,000 for all three issues would be increased to no more than $90,000,000. The amended resolution would also further extend the deadline for issuance of debt from no later than October 22, 2021 to no later than December 31, 2021 to be synchronous with Air Force and Colorado Office of Economic Development deadlines that have recently been extended. The provisions of Resolution No. 103-19 as originally approved will otherwise remain effective.
With the exception of this increase in combined aggregate amount of issuance, the prior approval would remain in force and effect including the requirement for this debt to be issued in a manner substantially consistent with the draft bond documents as previously reviewed by Council.
If the District were to need to substantially restructure the terms of these debt issuances, subsequent Council authorization will be required.
This item was presented at City Council Budget Committee meetings on January 12, 2021 and January 18, 2021, and introduced at a January, 25, 2021 Council Work Session.
Background:
In October of 2019 this BID agreed to a combined aggregate par amount of no more than $80,000,000 for their Series A, B, C bond issues, and this limit was included in Resolution 103-19. The BID is now requesting an increase in this limit, to $90,000,000, based on updated information including additional costs incurred and construction cost inflation associated with the delays in initiating this project.
These previously authorized bonds will be repaid from a combination of limited property tax, specific ownership tax, public improvement fees (PIFs) and property and sales tax increment financing (TIF) revenues from both the overlying urban renewal area, and the State Regional Tourism Act. PILOT (Payment in Lieu of Taxes) revenues from agreements with non-profit ownerships or businesses within the BID may also be available. The Series A and B bonds will be issued at parity with each other.
The Series C bonds will be subordinate to the A and B bonds. All of these bonds would be marketed to unrelated investors.
The Series A bonds were originally anticipated to be in the approximate principal amount of $20,000,000. They will be tax exempt with their proceeds used primarily for public infrastructure. The District now anticipates that the par amount of this issuance could be as high as $30,000,000 in order to maintain maximum flexibility to the extent
The Series B bonds were originally anticipated be in the approximate principal amount of $52,000,000. These bonds would be taxable, because their proceeds will be earmarked specifically for Visitor’s Center costs not eligible for tax exempt financing. The anticipated par amount of these bonds has now been revised to be as much as $60,000000 to all upward flexibility, if needed to account for escalating Visitors Center construction and associated bond structuring costs.
The Subordinate Series C bonds were originally expected to be in the amount of $15,000,000, with the amount now revised to be as high as $30,000,000 for purposes of flexibility
Altogether, the individual combined total for the three anticipated Series would be $120,000.000. Because the combined cap would now be no more than $90,000,000, this effectively allows flexibility up to and including major reduction or even elimination of either the A or C Series bonds.
The original “Bond Documents” reviewed by City Council in association with their October 22, 2019 authorization may be found with the original agenda item at:
<https://coloradosprings.legistar.com/View.ashx?M=A&ID=655148&GUID=EC93EEB6-A5E3-45F1-BE4D-65B2A13F3D71>
BIDs are created under Colorado Statute and City Policy to finance and/or maintain certain public improvements in non-residential areas, utilizing a property tax mill levy as the revenue source. BIDs are separate legal entities from the City, but their Operating Plans and the Special District Policy require City Council approval of all formal BID debt. The standard of review of the debt instruments is consistency with the Operating Plan and all applicable laws.
The original bond documents have now been augmented with an updated financial plan (bond run) and cost summary that are attached. The combined par amount of the bonds is now anticipated to be approximately $84.2 Million, with about $22.8 Million needed for non- project fund uses including issuance costs, reserve, capitalized interest, and related contingencies. It should be noted that these numbers are based on the most recent bond run, and a subject to change prior to closing.
Updated information on project costs and overall anticipated sources and uses of funds, has also been provided and is attached.
The originally reviewed bond documents establish not to exceed interest caps of 7.0%, 8.5% and 10.0% for the Series A, B and C bonds, respectively. The most current financial projection anticipates these rates to be 5.25% for Series A, 6.25% for Series B and 7.75% for Series C. Actual rates would be established immediately prior to closing.
The bond documents allow for a 50-mill debt service cap, which is equal to the City Council- authorized maximum cap. Add-on retail and service public improvement fees (PIFs) of 3.0% will also be pledged as revenue to service this debt, along and expected lodging PIF of 2.0%. Also pledged will be urban renewal area property tax TIF (tax increment financing) revenues and a sales tax TIF of 1.75% for the allowable periods.
Because the State Economic Development Commission and Air Force deadlines for issuance of this debt have now been extended through December 31, 2021, an extension of the current October 22, 2021 deadline is also included in the draft City Council resolution.
The City Council Budget Committee discussed this request on January 12, 2021. At this meeting, District representatives verbally updated Committee with respect to evolution of projected construction and financing cost increases subsequent to the original authorization in October of 2019. They also described evolving experience and contingencies associated with the sizing and seniority of the three separate issues. The Committee requested additional information documenting these changes, and set a special meeting for presentation of this on January 18, 2021. This information was provided, and is now attached with this agenda item.
At the January 25, 2021 Work Session Council discussed this item and was briefed on the context and status of an application for tax-exempt revenues bonds that would be associated with vertical development of the proposed hotel, but which are not related to this agenda item. District representatives did note that the tax, TIF and PIF revenues that would be generated from the hotel property, will be integral to the servicing of these proposed BID bonds. At the Work Session, Council had no specific requests for additional information or changes to the draft resolution.
As noted by staff on January 25th, a revised financial projection is now attached to correct the prior version that had one missing principal bond amount.
Previous Council Action:
Council approved the initial Operating Plan and Budget for this BID on August 24, 2018 (Ordinance 18-77). A 2020 Operating Plan and Budget was approved by Council by motion on October 22, 2020), and this original debt authorization was approved by City Council on October 22, 2019 by Resolution No.103-19. On October 22, 2019 Council extended the date by which this debt must be issued to October 22, 2020 (Resolution No. 94-20).
On July 9, 2019 the Council approved an urban renewal plan and cooperation agreement related to this project, and his Board took action to approve the urban renewal TIF pledge subject to the provisions of the cooperation agreement.
Financial Implications:
Pursuant to the District’s operating plan, the City Special District Policy, and the bond documents, the issuance of this debt does not constitute a financial obligation of the City. The documents will contain the limitations required by the City’s Special District Policy. City Charter Section 7-100 provides that the total debt of any special district may not exceed ten percent (10%) of the total assessed valuation of the taxable property within the district unless such debt is approved by at least a two-thirds vote of the entire Council.
The bond documents are structured so that any risk beyond the maximum capped mill levy, the associated specific ownership tax as well as the TIF and PIF and LART requirements, will not accrue to the property owners.
Board/Commission Recommendation:
The City’s staff-level Special District Committee has been informed of this potential extension. All comments received have been in support and/or with no stated concerns.
Stakeholder Process:
N/A
Alternatives:
City Council could choose to approve, deny or modify the proposed resolution.
Recommended Action
Proposed Motion: (for February 8, 2021)
Move adoption of a resolution approving an increase from a maximum of $80,000,000 to a maximum of $90,000,000 in the aggregate bond amount for the USAFA Visitors Center Business Improvement District for Issuance of Series A, B and C Bonds previously authorized by Resolution No. 103-19 and Extending the Deadline for Issuance.
Summary of Ordinance Language N/A