Title
A Resolution of the City Council of the City of Colorado Springs Approving Issuance of Limited Tax General Obligation Series 2020 Bonds by the Interquest Town Center Business Improvement District in an Amount Not to Exceed $2,860,000
(Legislative Item)
Presenters:
Carl Schueler, Comprehensive Planning Manager, Planning & Community Development
Peter Wysocki, Planning and Community Development Director
Body
Summary:
This is a request to approve issuance of debt by the Interquest Town Center Business Improvement District (“District”) in the form of privately placed, tax-exempt Limited Tax General Obligation Series 2020 Bonds in an amount not to exceed $2,860,000.
The bonds will be repaid from a combination of limited BID property tax and specific ownership tax along with property and a public improvement fee (PIF) of 1.5%. The bond proceeds would be used to reimburse previously expended public improvements costs and also as a source of funds to support ongoing and future qualifying improvements within and in the vicinity of the District.
The City’s Special District Policy and the District’s approved Operating Plan and Budget require that City Council’s approval be obtained prior to issuing any debt. Approval of this debt issuance will require a 2/3rds majority of the entire City Council (at least six affirmative votes) pursuant to City Charter Section 7-100.
This item was presented to the May 26, 2020 City Council Budget Committee meeting. The Budget Committee specifically requested additional background and justification pertaining to the proposed interest rate of 7.0% (see below).
Background:
BIDs are created under Colorado Statute and City Policy to finance and/or maintain certain public improvements in non-residential areas, typically utilizing a property tax mill levy as one 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 other applicable laws.
The 2020 Operating Plan and Budget for this BID, as approved by Council on October 22, 2019, contemplated a debt issuance of up to $4,000,000 in 2020.
This BID is authorized to levy up to 50.0 mills for debt service, and 5.0 mills for operational purposes. This will be the first issuance of debt by this District; however, it has accumulated developer advances. This BID currently levies 40.0 mills for debt services, However, the maximum cap of 50.0 mills will be pledged toward this debt. Additionally, it should be noted that the attached financial projections contemplate the need for only 7.00 mills to service this debt. District representatives have indicated they expect to certify a lower mill levy in this range, beginning next year.
The draft form of the bond resolution is attached. This debt is anticipated to be in the form of privately placed bonds to be held by this developer.
The requested tax exempt annual interest rate for these bonds would not exceed 7.00%. Because the bonds will not be marketed, an opinion from an external financial advisor is provided to address the competitiveness of the interest rate and other provisions of the issuance.
In addition to the pledged debt service mill levy, the associated specific ownership tax will also be pledged toward repayment of this debt along with a public improvement fee (PIF) of 1.5%.
The $2,860,000 in debt authorized to be issued under this approval, falls within the overall $4,000.000 in maximum debt authorized as established by the ordinance creating this District.
The term of the bonds is anticipated to be 30 years, with a final maturity date of 2049. However, the bonds will be structured such that term could be extended in the event revenues were insufficient to meet required principal and interest payment over the expected term. Conversely, the bonds are structured to allow for redemption at any time, although this would be a choice of the District board, eligible electors, and bondholders at the time.
The improvements costs to be financed are generally summarized in an attached document. They consist of water, sewer and street improvements. A proportion of these improvements have been installed, with the remaining cost expected to be incurred in the near future. An exhibit depicting the primarily internal, non-City maintained street improvements, is also attached. Altogether, the combined costs of installed and pending improvements, slightly exceed the net proceeds that will be available from this bond.
Zoning and related development approvals are in place for this property. Currently, this commercial project is about 25% built out, with complete absorption currently projected within the next few years.
This item was presented to the City Council Budget Committee on May 26th. They asked clarifying questions and requested the following information:
-Additional documentation of the project costs
-Additional justification for the 7.00% interest rate.
City staff were also asked to provide information on the comparative interest rates for other recently issued privately placed special district bonds in the City. A summary is attached (Attachment 10), but with the disclaimers that each case has unique factors and circumstances, and noting that current post-COVID bond market is not necessary comparable with recent experience.
Previous Council Action:
The BID, with its initial operating plan and budget was established by Ordinance 17-105 adopted by Council November 14, 2017 and made effective on November 28, 2017. The most recent annual 2020 Operating Plan and Budget for this BID was approved by City Council in October of 2019.
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 and the pledged TIF revenues, will not accrue to the property owners.
Board/Commission Recommendation:
The City’s staff-level Special District Committee has been provided copies of these materials. 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:
Move adoption of a resolution of the City Council of the City of Colorado Springs approving issuance of Limited Tax General Obligation Series 2020 Bonds by the Interquest Town Center Business Improvement District in an amount not to exceed $2,860,000
Summary of Ordinance Language
N/A