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HomeMy WebLinkAboutA008 - Council Action Form dated September 12, 2006 ITEM # v� DATE 09-12-2006 COUNCIL ACTION FORM SUBJECT: SALE AND ISSUANCE OF ESSENTIAL CORPORATE PURPOSE GENERAL OBLIGATION BONDS PER THE CITY CAPITAL IMPROVEMENT PROGRAM, SERIES 2006A ISSUE IN AN AMOUNT NOT TO EXCEED $5,285,000 BACKGROUND: The budget for FY 2006/07 included General Obligation Bond funded capital improvement projects in the amount of$5,210,380. Projects to be funded by this issue include the following: West Lincoln Way Intersection Improvements $ 170,000 South Duff Area Storm Sewer 880,000 Southeast 16th Street Paving and Bridge 1,500,000 Collector Street Rehabilitation 1,030,000 CyRide Route Reconstruction 750,000 Bloomington Road Widening 75,000 South Duff Avenue Improvements 305,380 Arterial Street Rehabilitation 500,000 Issuance Cost 74,620 Total $ 5,285,000 On the morning of September 12, the City of Ames will accept bids for the bonds per the terms of our offering statement. The bids will be evaluated by our financial advisor, Public Financial Management, bond counsel, and City staff to recommend award to the bidder with the lowest cost. Council must then adopt a resolution accepting bids and authorizing that the sale of bonds be awarded to the recommended bidder. Attached is the City's credit rating report for the bonds. The City again received the highest rating (Aaa) from Moody's Investor Services. Moody's rates approximately 2,300 cities nationwide, 71 of which are rated Aaa. Moody's rates approximately 56 cities in Iowa, of which three are rated Aaa (Ames, Iowa City, and Cedar Rapids). The Aaa rating results in lower interest cost for G.O. debt issued by the City. ALTERNATIVES: 1. City Council may adopt a resolution accepting bids and authorizing the sale and issuance of Essential Corporate Purpose General Obligation Bonds in an amount not to exceed $5,285,000. 2. The Council may reject the bond sale resolution and delay the capital projects. MANAGER'S RECOMMENDED ACTION: Issuance of these bonds is necessary in order to accomplish the City's approved capital improvements this fiscal year. Therefore, it is the recommendation of the City Manager that the City Council adopt Alternative No. 1 , thereby approving a resolution accepting bids and authorizing the sale and issuance of Essential Corporate Purpose General Obligation Bonds in an amount not to exceed $5,285,000. Global Credit Research New Issue -may h"Maeors Service 6 SEP 2006 New Issue: Ames(City of)IA MOODY'S ASSIGNS Aaa RATING TO THE CITY OF AMES(IA'S)$5.3 MILLION G.O.CORPORATE PURPOSE BONDS,SERIES 2006A Aaa RATING AFFECTS$44.0 MILLION OF OUTSTANDING G.O. DEBT, INCLUDING CURRENT OFFERING Ames(City of) IA Municipality IA Moody's Rating ISSUE RATING General Obligation Corporate Purpose Bonds,Series 2006A Aaa Sale Amount $5,285,000 Expected Sale Date 09/12/06 Rating Description General Obligation Unlimited Tax Opinion NEW YORK,Sep 6,2006--Moody's Investors Service has assigned a Aaa rating to the City of Ames'(IA) $5.3 million General Obligation Corporate Purpose Bonds,Series 2006A. Secured by the city's unlimited general obligation tax pledge, bond proceeds will be used to finance various street and storm sewer improvements.Concurrently, Moody's has affirmed the city's Aaa rating,affecting$44.0 million in outstanding general obligation debt, including the current offering.The Aaa assignment, Moody's highest rating, reflects the city's stable economic base characterized by a large university presence;strong financial operations characterized by healthy reserves and ample revenue raising flexibility; and low debt burden with rapid principal amortization. STATE'S SECOND LARGEST UNIVERSITY PROVIDES ECONOMIC STABILITY Moody's expects the city's healthy tax base to remain stable based on a number of factors including the significant institutional presence of Iowa State University;ongoing residential and commercial development including a planned "life style center;"and a sizeable amount of undeveloped land. Iowa State University (ISU),the state's second largest university with over 27,000 students and the city's largest employer with 13,875 employees including both teaching assistants and hourly part-time employees,provides stability to the city's economic base.Over the past five years,the city's tax base(valued at$3.0 billion in 2005)has grown at a healthy rate, averaging 7.9%annually. Moody's expects near-term growth trends to continue as commercial development remains strong.While Moody's recognizes the stability provided by this institutional presence,we note a slight employment concentration with ISU employing approximately 27%of city residents.Similarly, much of the ancillary service businesses are largely supported by the economic activity associated with the university. However,4 of the city's 10 largest taxpayers include manufacturing companies, including 3M Company(senior unsecured Aa1). In addition, despite the large student population, socioeconomic indicators remain strong,with median family income and per capita income at 117%and 96% of state averages, respectively. City unemployment remains low at 2.6%in June 2006,as compared with the state rate of 3.5%for the same time period. STRONG FINANCIAL POSITION CHARACTERIZED BY HEALTHY RESERVE LEVELS AND AMPLE REVENUE RAISING FLEXIBILITY Moody's expects the city to maintain its strong financial operations based on healthy reserves,strong management, and retained revenue raising flexibility.The city ended fiscal 2005 with a General Fund balance of$5.6 million,or a healthy 27%of General Fund revenues.The city had a fiscal 2005 General Fund transfer of$5.6 million,comprised of local option sales tax revenues, PILOTS from its electric utility, and funds related to employee benefits.Assessing the city's General Fund revenues before transfers in, its fiscal 2005 General Fund balance represents an ample 36.9%of revenues,well above the city's goal of maintaining 25%of reserves. Unaudited fiscal 2006 results show an increase in the General Fund balance to $5.8 million,or 36.9%of General Fund revenues before transfers.The city retains substantial financial flexibility as it currently levies only$5.33 of the$8.10 statutory limit on its General Levy;the remaining unlevied$2.77 would provide access to an additional$5.2 million based on the city's 2005 taxable valuation. The city also benefits from a 1%local option sales tax(amounting to over$5 million in revenues for fiscal 2005),of which it utilizes 60%for property tax relief and 40%for general community betterment. Moody's expects the city's prudent management to maintain the city's strong financial position going forward. LOW DEBT BURDEN; RAPID PRINCIPAL AMORTIZATION Moody's expects the city's debt burden to remain manageable based on steady tax base growth, rapid principal amortization,and limited future borrowing.The city's overall debt burden of 2.2%is easily afforded by the tax base,with direct obligations minimal at 1.5%. Payout is rapid, with 93.9%of principal repaid in 10 years.Within its 5-year Capital Improvement Plan,the city expects to borrow approximately$5 million on an annual basis. Given tax base growth and rapid amortization, Moody's does not expect such issuances to have a significant impact on the city's debt profile. KEY STATISTICS: 2004 Estimated population:52,319(3.1%increase from 2000) 2005 full valuation: $3.0 billion 2005 full value per capita:$57,437 Median family income as%of state: 117% Per capita income as%of state: 96% Unemployment(June 2006):2.6%(74%of state) Fiscal 2005 General Fund balance:$5.6 million (27%of General Fund revenues) Overall debt burden:2.2%(1.5%direct) Principal amortization(10 years):93.9% Post-sale general obligation debt outstanding:$44.0 million Analysts Sharone Levy Analyst Public Finance Group Moody's Investors Service Beth A. Dougherty Backup Analyst Public Finance Group Moody's Investors Service Edward Damutz Senior Credit Officer Public Finance Group Moody's Investors Service Contacts Journalists: (212)553-0376 Research Clients: (212)553-1653 ©Copyright 2006, Moody's Investors Service, Inc. and/or its licensors including Moody's Assurance Company, Inc. (together, "MOODY'S").All rights reserved. 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