Title
A resolution of the City of Colorado Springs, Colorado repealing Resolution No. 43-21 and approving the issuance of debt by the Barnes Center Metropolitan District in the form of Limited Tax General Obligation Bonds in an aggregate amount not to exceed $1,313,796.51
Presenter:
Carl Schueler, Comprehensive Planning Manager, Planning & Community Development Department
Body
Summary:
This is a request to essentially re-authorize issuance of privately placed formal debt by the Barnes Center Metropolitan District, originally approved in March of 2021, but not yet issued. The new approval will increase the not-to-exceed amount of the bonds and allow for an increase in the maximum interest rate. Other provisions and limits associated with the March 2021 approval will not change, The City’s Special District Policy and the District’s service plan require that City Council’s approval be obtained prior to issuing any debt.
The maximum interest rate is proposed to be increased from 5.0% to 6.5%, with principal amount of the bonds increasing from. $1,237,120.00 to $1,313,796.51.
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 Article 7-100.
This agenda item was introduced at a December 14, 2021 Council Budget Committee meeting during which there were questions, but no requests for follow-up information. This item was then introduced at a January 24, 2022 Council Work Session at which time there was limited discussion and questions, followed by a consensus to place this item on the February 8, 2022 consent agenda.
Background:
City Council resolutions authorizing issuance of privately placed debt, customarily include strict limits on the amount of debt issues and the interest rate. Subsequent to the original March 2021 approval, this district has identified a limited amount of eligible additional reimbursable costs and has reviewed their interest rate options. Because of the “cash flow” structures of these bonds, all pledged revenues are obligated to these bonds while they are outstanding, with no other costs being eligible for reimbursement during this period. The District is asking for the higher interest rate in part in response to recent changes in the interest rate market, but also as a strategic choice. However, the District has provided opinions that the rate remains below that of the market for taxable bond issues.
The Barnes Center Metropolitan District provides financing and a source of reimbursement for qualifying public improvements within a development located just west of Powers Boulevard near Barnes Road. This district was originally created in 2017 with the expectation that it would be limited to commercial uses. However, this particular service plan was approved with a self-imposed limit of 30.0 mills for debt service rather the than the normal 50.0 for commercial districts. Recently, the proposed uses have been changed to a combination of multi-family and a hotel. Therefore, the maximum Gallagher adjusted debt service mill levy for this district must be limited to no more than 30.0 mills in any case.
This is expected to be the first and potentially only bond issuance by this District. The proceeds from these bonds would be used to reimburse public improvements costs primarily related to extension of the roadway and utilities necessary to develop this site. Zoning and development approvals are in place to support the multi-family and hotel development anticipated to be completed with the next few years. The service plan authorizes up to $3,000,000 in debt authorization.
The Series 2022 bonds would not be rated or marketed, and instead would be privately placed with this developer with a coupon interest rate of now 6.5 percent. An opinion of an External Financial Advisor, as the competitiveness of this rate and terms has been provided as required by the service plan and Special District Policy. These bonds are being structured as taxable, primarily to simplify the issuance process and costs.
This issuance has a term of 30 years, with an anticipated maturity date of December 2050. Because there will be residential uses in this district, the bonds are now structured to have discharge dates of no later than December 2058, after which there would be no further obligation of taxpayers, regardless of whether any principal or interest was outstanding at that time. This will maintain consistency with service plan provision for the Maximum Debt Service Mill Levy Imposition Term of no longer than 40 years. This District first certified a debt mill ley in 2018 for collection in 2019.
The debt service mill levy available and now modeled as necessary to service these bonds is limited to a “Gallagher adjusted” 30 mills (along with associated specific ownership tax). The current debt service mill levy is 20 mills.
These Series 2022 bonds will be structured to be “callable”, such that a future potentially resident board might possibly be in a position to refinance these obligations, subject to future financial conditions. The bonds will be structured to allow for refunding in as few as 5 years.
Financial projections are attached, along with an exhibit depicting the public improvements costs to be reimbursed from bond proceeds.
The City Council Budget Committee discussed this updated request at their December 14, 2021, meeting and had questions but no requests for additional information.
At the January 24, 2022 Work Session staff and the District’s representative responded to a few clarifying questions, and Councilwoman Henjum also asked about the current composition of the existing metropolitan district board. Mr. Walker stated there are no resident owners on the board at this time, but some positions will be open for residents interested in running this May.
Included as attachments are the following documents:
• Draft new Council resolution
• Transmittal letter from District
• District bond resolution
• Financial projections
• External advisor opinion
Financial Implications:
Pursuant to the District’s Service Plan, the City Special District Policy, and the loan documents, the issuance of this debt does not constitute a financial obligation of the City. The documents will contain the “limited default” provisions required by the City’s Special District Policy. These bonds will be marketed to third party investors.
The bond resolution is structured so that any risk beyond the maximum capped mill levy and the associated specific ownership tax will not accrue to the property owners.
City Charter Article 7-100 requires that the total debt of any proposed district shall not exceed ten percent (10%) of the total assessed valuation of the taxable property within the District unless approved by at least a two-thirds vote of the entire Council.
Board/Commission Recommendation:
N/A
Stakeholder Process:
The staff-level Special District Committee has been provided with the materials associated with this request. As of the date of this staff report, there have been no comments or questions from the Committee on this request.
Previous Council Action:
City Council approved a consolidated service plan for the Barnes Center Metropolitan District on September 12, 2017 (Resolution 99-17). Council approved the original resolution authorizing this bond issuance on March 23, 2021 (Resolution 43-21).
Alternatives:
• Approve the resolution as presented
• Deny the resolution
• Approve the resolution with modifications to the bond issuance
Recommended Action
Proposed Motion:
Move Adoption of the Resolution Repealing Resolution No. 43-21 and Approving the Issuance of Debt by the Barnes Center Metropolitan District in the form of Limited Tax General Obligation Bonds in an Aggregate Amount Not to Exceed $1,313,796.51.
Summary of Ordinance Language
N/A