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Minutes - 2012 - City Council - 10/17/2012 - Town Hall EAGLE CITY COUNCIL Town Hall Meeting Minutes October 17,2012 1. CALL TO ORDER: The Mayor calls the meeting to order at 6:05 p.m. The Mayor leads the audience in the pledge of allegiance. 2. ROLL CALL: Present: SEMANKO, GRASSER,BUTLER. Absent: DEFAYETTE. A quorum is present. 3. TOWN HALL MEETING: A. City Hall Tour: Deputy Clerk Osborn leads those in attendance on a tour of the City Hall facility. *B. Bond Election Presentation by Jeff Kunz, Co-Chairman of the Eagle City Hall Task Force. Jeff Kunz reviews a PowerPoint presentation and the findings of the City Facilities Assessment Committee. PowerPoint attached. C. Question and Answer session regarding November City Hall Bond Election. Bond Counsel and a Financial Consultant will be in attendance to answer questions. Cameron Arial answers questions regarding the issuance of bonds, and when that will occur should the bond pass,whether or not private citizens could purchase the bond, The following pose questions: Stan Bastian,unidentified female, John Sayer, Bob VanArnem, Dave Aizpitarte, Ali Shoushtarian. City Clerk/Treasurer Bergmann addresses questions regarding the strategy to offset the bond payment with out raising property taxes. Question and answer period. 4. ADJOURNMENT: Hearing no further business,the Council meeting adjourned at 7:40 p.m. Respectfully submitted: o` OF EA C4 ''• SHARON K. BERGMANN ft-��e•• ��OR A T�• t. CITY CLERK/TREASURER • • o •d. ROVED: , era,S O - _ � . V: - I() %% r`•r)P p„„ \:•:,„.,.•Tq / LO1yp ES D. REYNOL I f `,.1,,,,,,,,,� MAYOR AN AUDIO RECORDING OF THIS MEETING IS AVAILABLE AT CITY HALL UPON REQUEST. Page I K:\COUNCIL\MINUTES\Temporary Minutes Work Area\CC-10-17-12townhallmin.doe What Every Voter Needs To Know About The Eagle City Hall Bond Election ('resented by Jell hunt. Former Co -Chairman Eagle City Hall Location Task Force October 17 16 23. 2012 Eagle City Hall Bond Election Details The Eagle City Hall bond electron is November 6, 2012 Polls open at 8 OOAM and close Itl 8 001'M • • Two-thirds of qualified electors must vote in favor for the proposed bonds to be issued The proposmon authorizes city officials to levy a tax increase to repay the proposed bonds, otherwise, investors would not buy the bonds. However, city officials do not need to increase property taxes because the money spent on lease payments could instead be used to make the bond payments to buy the building Concerning the proposed bonds, the proposition states a'es -s -- nc: ..... -..� ,. .,, 1 r r • __ be F-.aitl ..ver 1 h.• 11I .1 11.e 3' 3,7E3, the 1.0.,. ani. -ant t.:. be rr-p,ia i The "anticipated" interest rale on the proposed bonds is 3 0% per annum, with a range from 2 0% to 5 0% per annum I lowever, recently-pubbshed bond scenario viformauon indicates the "compettttve" interest rate could be closer to 2 0°o per annum ► 2 10/17/2012 1 What Is The Final Purchase Price? How Will The Acquisition Be Financed? The final purchase puce for Eagle City Hall is $1,899,999, which is $515,688 (21 396) less than the contractual purchase price of $2,415,687 if the bond election is successful, the City of Eagle will use the net bond proceeds of $1.446 million and at least $603,278 in cash savings to purchase Eagle City Hall and pay related expenses. UPDATE- The carryover amount from last fiscal year is $948,465, or $290,540 higher than expected. (The anticipated carryover amount from last fiscal year was $603,278) Although city officials must still decide what to do with the higher-than-expected carryover, they could decide to spend part of it on ownership of Eagle City flail Doing so would reduce the pnncipa] amount of the bonds and further minimize bond interest expense Summary bond information' 11ond principal Bond interest otal bond amount Annual bond payment Bond duration 3 Interest rate 2,0% per annum 3 0% per annum ("Competitive") ("Anticipated") $1,500,000.00 $1,500,000 00 1 $241,319 50 $373,763.001 $1,741,319.50 $1,873,763.001 -$116.000 -$125,000 1 15 years 15 ) ears What Are The Land & Building Lease Terms? Although the City of Eagle owns the land underneath Eagle City Ball, the land is currently leased to the building's lessor, llawkins-Smith, lora maximum 50 -year term • The lease rate is $1,000 per year for the next 13 nears, and $12,000 per year thereafter. • If the Citbuys the building, the lease terminates The City occupies the 13,005 -square foot Eagle City Hall on a year-to-year "triple -net" lease, meaning the City pays all taxes, insurance, utilities and maintenance costs in addition to the building lease payments The contractual lease rate is fixed for a maximum 50 -year term al $18 50 per square foot, or $240,592 per year. The lease may be renewed each fiscal year pending a budget appropnation For the current fiscal year, a lower lease rate of $10.95 per square foot, or $142,405 per year, is in effect. At the end of the current fiscal year, the lease rate reverts to the contractual lease rate lithe City buys the budding, the lease terminates The level of property taxes currently being collected fully covers the building's lease payments, whether at the contractual or lower lease rate 10/17/2012 2 What Does Ownership Of Eagle City Hall Mean? Ownership Of Eagle City Hall Means: • Less Cost Than Leasing • No Property Tax Increase • Greater Benefits For Eagle's Future Ownership Means Less Cost Than Leasing . The total cost to own versus (case, operate and maintain Eagle City I hill includes these elements (All monetary figures cited below are annual costs 1 / cCer :he crv< 15 fiscal _years, the Inalchng lease rate Annual i os<n ' u til not ,lures Ise 8240 592 per tray For the current Lease II tri fiscal }car the I„wer lease ram of S1+2 405 pr: tear Total cost elements Eagle Cite Hall Eagle Eagle Cit‘ Hatt Is in effect And If the bond election la unsuccessful, (( city officials aid seek and the lesv.ir i mild grant, It,mdeiecuon costs 51 53331 further Iense con. rsstons. The ouddmg lease rate of ` Land leasenr ments nerved from lessor -82.07 5276% 5211 409 per vent Is a weighted u. rtoo.• of four fiscal y, t t tears at the burr lease rate followed la eleven fiscal'1 But1ng lea. pmmenu paidteIssm 8214, $0( y. -ears at the „mts.Iua! lease rate) Imnal acgwstt,on costs hnrludtng rash do apatmend $1J $309331 Set annual savings Identified b Colnrdman Grasser JI // Rind pnnrgnl and Fim Inter. at tents S 8116 0881 Full lease lamenttun budding S240,5 it oleraang costs u g uuhhesl and mamtenanre costs 574 1 5741411 Insurance costs 54,3501 )(insurance costs $4,3 J $01 Property taus $ 16,604I1r'ptopem• taxes S16,609 $ Total costs that mould p. anprrehaur 5261 5461 'Income Froduerd I g conference room rentals) Still 482;1 4ssume I.F. tear hmd scenano pat meet 8116 D031 bland and/or tattling salvage values .82e1 t -811481' Net annual sats $145,5461 Total 5280,030 5108,2891 . The three elements in gray shading - lease payments, insurance costs and property taxes - are the *current costs" rdentified by Councilman Grasser's net annual savings analysis that would be animated through otvrtershrp. The net annual savings equal $145,546 Erase payments terminate when the City owns the building • Uo+nership reduces insurance costs via Idaho Counties Risk Management Program (ICRMP) The City pa' s no property taxes on land and buildings that it owns The last four elements - insurance costs, property taxes, Income produced (e.g., conference room rentals) and land/bialding salvage values (or "the estimated value an asset will realize• upon its sale at the end of Its useful life" Ilnvestopedia.coml( are zero or offset the total cost ofownership. f 10/17/2012 3 Ownership Means Less Cost Than Leasing (2) lnnual(nal al Owning 511.eneing Eagle 1'd, 11111 Tool (ba d Owning 15. tradng Eagle('YT IIna !minding operating and niainlenan(e costa) pnelnd{ng opermling mod malo(rnane'e costal iatr 14te Y. w e<erax vlw non Id 514 4.. ��rcd1 1 arJ, Ydl Ja 14d — 0: 4ae 1.1I a, II I: ;: 11115 f1 Il6 *B 4.111:1414,1 The graphs show the annual and total costs of owning versus leasing, operating and maintaining Eagle City Hall over the next 15 years, including all previously -defined elements The total cost of leasing (at the contractual lease rate of $18 50 per square foot), operating and maintaining Eagle City Hall is $280,030 per near, or $4,200,457 over the next 15 years • 11 the City buys Eagle City Ilan for $1,899,999 (and issues $1.5 million in bonds at the "competitive" interest rate closer to 2.0% per annum), the total cost of owning, operating and maintaining the building is $108,289 per year, or $1,624,330 over the next 15 years. When total costs are accounted for, the City and taxpayers could realize sayings of $171,741 (61 3%) per year, or $2,576,127 over the next 15 years, by owning versus leasing the building This analysis shows the total cost savings are $20,195 (18 0%) higher per year, or $392,925 higher over the next 15 years, than the net savings identified by Councilman Grasser ► 7 Ownership Means Less Cost Per Household Cost per Household to Own vs. Lease Eagle City Hall (including operating and maintenance costs) Annual cost per household (for 15 years) • Monthly cosi per household (for 180 months) 832 94 S 12 74 S2 75 SI 06 lid Lease Eagle City Hall at contractual lease rate tof Buy Eagle City Hall for 81.899.999 (and issue SI 5 SI8 50 per square foot) million in bonds al "competitive" interest rote closer to 2 0% per annum) n The chart shows the annual and monthly costs per household to own versus lease, operate and maintain Eagle City flail. (There are -8,500 households in Eagle. The per - year and per -month figures cited below are for 15 years and 18(1 months, respectively ) The cost per household to (ease (at the contractual lease rate of $18.50 per square foot), operate and maintain Eagle City Hall is $32.94 per year, or $2.75 per month The cost per household to own (by buying the building for $1,899,999 and issuing $1 5 million in bonds at the "competitive" interest rate closer to 2.0% per annum), operate and maintain Eagle City Hall is $12.74 per year, or $1 06 per month. When total costs are accounted for, each household could realize savings of $20.20 (61 3%) per year, or $1.69 per month, by owning versus leasing Eagle City Hall. ► 8 10/17/2012 4 Ownership Means No Property Tax Increase The preceding total cost analysis shows that owning versus leasing, operating and maintaining Eagle City Hall could save the City and taxpayers $1 71, 741 per year. The money spent on lease payments could instead be used to make the bond payments to buy and own the building, with no increase in property taxes. t The current Eagle City Council cannot commit future City Councils to a particular course of action Consequently, residents must ensure future city officials make bond payments from current revenue, not by increasing property taxes. 9 Ownership Means Greater Benefits For Eagle's Future i\inership of Eagle City Ilall provides significant savings to the City of Eagle, taxpayers :int' households In 15 years or less, the bond payments will cease and we will own our Eagle City !fall, which further reduces our properly lax burden. t These are just a few examples of the greater benefits that ownership provides for our City's future 10 10/17/2012 5 Conclusions ► Ownership of Eagle City Hall means less cost than leasing, no property tax increase and greater benefits for Eagle's future. 10/17/2012 6 Focus on Eagle — City Hall It is unfortunate that the City Hall has been, for some, a contentious issue. It is beautiful and very fitting for such a spectacular and affluent City. Additionally, it is apparently very -well constructed by a firm that builds huge shopping malls. As Mark Bottles, commercial realtor once observed, it is a great place to do the city's business. Three separate attempts at bond elections were unsuccessful as the City tried to move from the old City Hall (the current Senior Center) and temporary conditions into a more useable and customer -friendly setting. And then, unbelievably, Hawkins Smith agreed to build the structure on City property with a year-to-year lease. Upon completion in 2006, the staff moved to the new quarters just in time for the economic downturn now known as the "Great Recession." The City derived its principle income from housing starts and permits when times were good. Then, the economy tanked and with it, the construction of new homes. Income dropped dramatically and the City Council wisely cut expenses to match the new reality. Staff was cut by 40%; all city employees took a 5% pay reduction; the planning and zoning staff took another 5% pay cut in lieu of laying off yet another planner. Things stabilized. Lease rates at the time the City Hall lease was negotiated stood at $17.50 per square foot, or $227,588 annually. When competitive lease rates dropped significantly, the Council voted to attempt to renegotiate the lease with Hawkins Smith. In the fall of 2010, Councilmen Norm Semanko and John Grasser, at the direction of Acting Mayor Mike Huffaker, successfully negotiated a reduced three-year lease rate of $10.95 per square foot, or $142,405 annually. On October 1, 2013, the lease rate returns to $18.50 per square foot. Our new City Council was seated in January of 2012 and discussions focused on what to do about the looming lease rate increase. Hawkins Smith was unmoving from their $2.4 -million selling price, especially after decreasing the lease rate. Councilmen John Grasser and Mark Butler took the initiative to reopen negotiations with Hawkins Smith, and also to look for other suitable space for City Hall. John and Mark made it clear to Hawkins Smith that we were very serious about moving. Finally after a number of meetings and discussions, Hawkins Smith verbally and by e-mail, agreed to a lower price and we believe the contract will be executed very soon. We have approximately $603,000 from accrued carry forward for a down payment. We anticipate that it will require a bond of $1.5 million to cover principle, interest and fees. Additionally, we pay $16,604 in property tax each year and another $4,350 of insurance, because we do not own the building. That will halt when the City owns the building. Here are the numbers: Current Annual Lease Payment - $142,405 10 -1-13 Annual Lease Payment - $240,592 10-1-13 Annual PITI Expense - $261,546 10 -year Bond Annual Payment - $163,000 15 -year Bond Annual Payment - $116,000 Lease Payments 10 years - $2,405,920 Cost over 10 years - $2,615,460 Total Principle and Interest - $1,621,766 Total Principle and Interest - $1,741,319 Come November, you can decide if which direction you wish to City to go. The Nov. 6th bond election to buy Eagle City Hall is quite different from previous ones — it saves the City and taxpayers a lot of money! By Jeff Kunz, former Eagle City Hall Location Task Force Co -Chairman On November 6th, Eagle voters have an opportunity to approve a 15 -year, $1.5 million bond to buy Eagle City Hall. If two-thirds of voters approve the measure, the City of Eagle will use the net bond proceeds and additional cash reserves to buy the building and pay related expenses. Councilmen John Grasser and Mark Butler worked as a team to successfully negotiate a purchase price of $1,899,999 for the building, which is $515,688 (21.3%) less than the contractual purchase price of $2,415,687. There are two major reasons why the upcoming bond election to buy Eagle City Hall is quite different in nature from the three previous bond elections that were defeated. First, the upcoming bond election seeks to buy Eagle City Hall in order to cease the expenditure of funds for lease payments, which can run as high as a quarter of a million dollars annually. Buying the building and eliminating these lease payments represent significant cost reduction opportunities. Councilman Grasser suggests that buying Eagle City Hall results in cost reductions (or "healthy net savings") of approximately $145,000 annually to the City. These net savings could be returned to taxpayers by reducing property taxes or, alternatively, could be used to pay off the bond early. The ballot proposition contains legal language authorizing city officials to levy a tax increase to buy Eagle City Hall; otherwise, investors would not buy the bond. However, this does not mean that city officials must raise property taxes, because the money currently being spent on lease payments could instead be used to make the bond payments to buy Eagle City Hall, without raising property taxes. Voters will need to keep pressure on elected city officials in the future to ensure they make the bond payments to buy Eagle City Hall from current revenues, rather than unnecessarily raising property taxes. Second, during the upcoming bond election, voters have an unprecedented opportunity to buy Eagle City Hall at the record -low price of $1,899,999. The $1.5 million bond amount being sought to finance acquisition of the building is significantly less than the bond amount sought in two of the three previous bond elections, because city officials have already saved $603,278 to buy the building and pay related expenses. Interest rates are also still very low due to the recent recession. Buying the building today under such favorable financial terms is a much more cost-effective use of our taxpayer dollars. Our hard-earned taxpayer dollars should be used to buy and own Eagle City Hall, rather than paying to use (lease) the building. There are additional advantages to buying the building; for example, the City does not pay property taxes on land and buildings that it owns. And once owned by the City, (a) the building can be insured through the Idaho Counties Risk Management Program (ICRMP), which dramatically reduces the insurance premiums (thanks to Councilman Grasser and City Treasurer Sharon Bergmann for being the first ones to point this out); and (b) the building's residual (salvage) value — or the "estimated value the asset will realize upon its sale at the end of its useful life," according to Investopedia.com — will offset the total cost of ownership. In the weeks before the bond election, city officials will host informational sessions and conduct tours of Eagle City Hall. At these sessions, you will able to get your questions answered and learn more about the advantages of buying — rather than leasing — the building. Check the City's website at www.cityofeagle.org for details. The proposal to buy Eagle City Hall enjoys widespread support among community leaders, residents and businesses. The Eagle City Hall Location Task Force has recommended buying Eagle City Hall. Mr. Cameron Arial, Vice President of Zions Bank Public Finance, said that buying Eagle City Hall "makes very logical financial sense." Evidence of just how much "financial sense" it makes to buy the building can be found in the numerous articles published by the local media — more articles are forthcoming. Buying Eagle City Hall represents an important investment in our community's future and makes a direct and positive impact on taxpayers. Lessons learned from previous bond elections inform us that voter turnout is very important. So please mark your calendars and vote "IN FAVOR OF" buying Eagle City Hall on November 6t. (The Eagle City Hall bond election also appears on the absentee ballot.) What is the total cost to own vs. lease Eagle City Hall? Ownership saves the City and taxpayers $171,741 per year! By Jeff Kunz, former Eagle City Hall Location Task Force Co -Chairman EAGLE — On November 6t1i, voters have an opportunity to approve $1.5 million in 15 -year bonds to buy Eagle City Hall. The building's final purchase price is $1,899,999. If two-thirds of voters approve the measure, the City of Eagle will use net bond proceeds of $1.446 million and cash savings of $603,278 to buy the building and pay related costs. The ballot proposition states: "The anticipated interest rate on the proposed bonds is 3.0% per annum. The range of anticipated rates is from 2.0% to 5.0% per annum. The total proposed principal amount to be repaid over the 15 -year life of the bonds is $1,500,000; the total interest anticipated to be paid over the life of the bonds, based on the anticipated interest rate, is $373,763; the total amount to be repaid over the life of the bonds is $1,873,763." The "anticipated" interest rate on the proposed bonds to buy Eagle City Hall is 3.0% per annum, with a range from 2.0% to 5.0% per annum. However, recently -published bond scenario information indicates the "competitive" interest rate could be closer to 2.0% per annum. At a "competitive" interest rate closer to 2.0% per annum, the total proposed principal amount to be repaid over the 15 -year life of the bonds is $1,500,000; the total interest to be paid over the life of the bonds is $241,319.50; the total amount to be repaid over the life of the bonds is $1,741,319.50; and the annual bond payment is $116,000. Last week, Councilman John Grasser Netiannual savings identified by Councilman Grasser: recapped the "Buy Eagle City Hall" project and identified three "current costs" — full lease payments, property taxes and insurance — that we incur today and "would no longer pay if we owned City Hall." We would realize net annual savings of $145,546 by owning City Hall. Full lease payment Property taxes Insurance Total costs that would go away after purchase Assume 15 -year bond scenario payment Net annual savings $240,592 $16,604 $4,350 $261,546 $116,000 $145,546 The analysis presented in this article is different than, but complementary to, Councilman Grasser's analysis. This article analyzes the total cost of owning, operating and maintaining Eagle City Hall over the next 15 years and includes all of the following elements: bond election costs, initial acquisition costs (including the cash down payment), bond and interest costs, operating costs (e.g., utilities), maintenance costs, insurance costs, property taxes, income produced and salvage value.' The last four elements — insurance costs, property taxes, income produced (e.g., from renting the building's conference rooms to various organizations) and salvage value (or "the estimated value that an asset will realize upon its sale at the end of its useful life" as defined by Investopedia.com) are either zero or offset the total cost of ownership. This article also compares the total cost of owning versus leasing Eagle City Hall. Contractually, the City leases the 13,005 -square foot Eagle City Hall for $18.50 per square foot, or $240,592 per year. However, for the past two years, city officials negotiated a lower lease rate of $10.95 per square foot, or $142,405 per year. Next fiscal year, the lease rate reverts to the contractual lease rate. Annual Cost of Owning vs. Leasing Eagle City Hall Total Cost of Owning vs. Leasing Eagle City Hall (including operating and maintenance costs) (including operating and maintenance costs) Lease Eagle City Hall at - 54.500.000 —Least Eagle City Hall at contractual least rate (of c , contractual lease rate (of 5280.030 $4.2o0.4_� S18.50 per square foot) ; 54.000.000 118.50 per square foot) 53.500,000 Lease Eagle City Hall at -- Lease Eagle City Hall at 5208,026 lower least rate (of S; 000 000 - 53.120.391 lower lease rate (of S10.95 per square foot) ` $10.95 per square foot) 5300.000 5250.000 S200.000 5150.000 i 5117.118 5100.000 5108.289 550,000 • SO 0 1 2 3 4 5 6 7 8 9 1011 12 13 14 15 S2,500.000 Buy Eagle City Hall for 51.899.999 (and issue 52.000.000 51.5 million in bonds at "anticipated" interest rate 51,500.000 of 3.0% per annum) —• Buy Eagle City Hall for ; 51.000.000 S1.899.999 (and issue 51.5 million in bonds at "coutpetitive- interest rate closer to 2.0% pa annum) 5500.000 50 f 51.756.773 .624.330 0 1 2 3 4 5 6 7 8 9 101112131415 Buy Eagle City Hall for 51.899.999 (acrd issue 51.5 utilliou iu bonds at "anticipated" interest rate of 3.01. per annum) --- Buy Eagle City Hall for 51.899.999 (and issue 51.5 million is bonds at "competitive" interest rate closer to 2.0°: per annum) The preceding graphs show the annual and total costs of owning versus leasing, operating and maintaining Eagle City Hall over the next 15 years, including all of the previously -defined elements: • The total cost of leasing (at the contractual lease rate of $18.50 per square foot), operating and maintaining Eagle City Hall is $280,030 per year, or $4,200,457 over the next 15 years. • The total cost of leasing (at the lower lease rate of $10.95 per square foot), operating and maintaining Eagle City Hall is $208,026 per year, or $3,120,391 over the next 15 years. • If the City buys Eagle City Hall for $1,899,999 and issues $1.5 million in bonds at the "anticipated" interest rate of 3.0% per annum, the total cost of owning, operating and maintaining the building is $117,118 per year, or $1,756,773 over the next 15 years. • If the City buys Eagle City Hall for $1,899,999 and issues $1.5 million in bonds at the "competitive" interest rate closer to 2.0% per annum, the total cost of owning, operating and maintaining the building is $108,289 per year, or $1,624,330 over the next 15 years. When total costs are accounted for, the City and taxpayers could realize savings of $171,741 (61.3%) per year, or $2,576,127 over the next 15 years, by owning rather than leasing the building. This analysis shows the total cost savings are $26,195 (18.0%) higher per year, or $392,925 higher over the next 15 years, than the net savings identified by Councilman Grasser. What is the cost per household to own versus lease Eagle City Hall? (The per -year and per -month figures cited below are for 15 years and 180 months, respectively. There are -8,500 households in Eagle.) • The cost per household to lease (at the contractual lease rate of $18.50 per square foot), operate and maintain Eagle City Hall is $32.94 per year, or $2.75 per month. • The cost per household to lease (at the lower lease rate of $10.95 per square foot), operate and maintain Eagle City Hall is $24.47 per year, or $2.04 per month. • The cost per household to own (by buying the building for $1,899,999 and issuing $1.5 million in bonds at the "anticipated" interest rate of 3.0% per annum), operate and maintain Eagle City Hall is $13.78 per year, or $1.15 per month. • The cost per household to own (by buying the building for $1,899,999 and issuing $1.5 million in bonds at the "competitive" interest rate closer to 2.0% per annum), operate and maintain Eagle City Hall is $12.74 per year, or $1.06 per month. Each household could realize savings of $20.20 (61.3%) per year (for 15 years), or $1.69 per month (for 180 months), by owning rather than leasing Eagle City Hall. Cost per Household to Own vs. Lease Eagle City Hall (including operating and maintenance costs) Arima) cost per household (for 14 years) =' Monthly cost pei household (fm 180 mouths) 532 94 524.47 513.'5 S1.74 32.75 52.04 51.15 51.06 Lease Eagle City Hall Lease Eagle City Hall Buy Eagle City HaU Bay Eagle City Hall at contractual lease at looser lase rate (of for 51.899.999 and foi 51,599,999 (and rate (of 518.50 pet 510.95 pa square issue S1.5 million in issue 51.5 italliou m square foot) foot) bonds at "anticipated" bonds at iutaest tate of 3.0% "conipetitne" interest pa annum) rate closer to 2.0% per annum) 'The following paragraphs bnefly summarize the major elements and descnbe their effects on the total cost analysis presented to this article: Land and budding Mori Although the City owns the land underneath Eagle City Hall. the land is currently leased to the buddtng s owner. Hawkins -Smith. fora maximum 50-ycar term The land lase rate is 51.000 pa year for the next 13 years. and 512,(88) per year thereafter. lithe Ctty buys the budding, the land lease terminates and the City wt11 lose land lase receipts of 52.467 per year, or 537.0(8) over the next 15 years. Eagle Qty Hall contains 13.005 square feet of space. The City occupies the budding on a year-to-year Lease Rate Annual "triple -net" lease. meaning the City pays all taxa, insurance, utilities and maintenance costs in addition to the Fiscal 1'ear)sI Per Square Foot Lase Rate lease payments. The building lease may be renewed each fiscal year pending a budget appropnation, and the 21813-16..2(8)8.19 518.50 5240.592 contractual lase rate n fixed for a 5(1.year tens at 518.50 per square foot, or 5240.592 pa year. During certain 2009.111 517.50 5227.588 fiscal years, lower budding lease rates have been negotiated (as shown at nght). The building lease me will 2010-11...2012-13 510.95 5142.405 revers to the contractual lase rate next fiscal year (unless the lase rate is renegotiated or the City buys the 2013-14 onward (subtect to nettmutton) 518.50 5240,592 building). lithe City buys the building. the building lase terminates. The level of property taxa currently being collected fully covers these budding lase payments. Bond electron costs The City well Incur bond election costs of approximately 55.(881 to print ballots and other related activates. (These costs relate only to the scenanos that involve buying Eagle City Hall.) lrunal acquisition touts, bond and uuerest c oils. The final purchase puce for Eagle City Hall is 51.899.999. If the bond election is successful. the City will 1a make a cash down payment of 5453.999 towards the purchase puce: (b) issue 51.5 million in bonds to finance the purchase, however. after paying an upfront underwriter's discount 0( 59.000 and upfront bond issuance corn of 545.00(1. the City will realize net bond proceeds 0( 51.446 million: and lc) incur management fees of at last 310.(88). Total ancillary costs and fees will equal at least 564,188). Total bond interest payments well range between 5241,319.50 and 5373,763, depaiding on whether the bond interest rate is closer to the "competitive" tnterat rate of 2.l% pa annum or the "anticipated" interest rate of 3% per annum Initial acquisition costs Including the cash down payment), bond and interest costs and total ancillary fees and costs will range between 5147,021.23 and 155.850.80 per year. or between 52.205,31 x.50 and 52.337.762 over the next 15 years. Operating costs. maintenance costs. morra,ss' costs and proper(v tares The City mous opening costs, such as utilities, and maintenance costs. such as budding repairs. custodul srn•mces, alarm systan monitoring, landscaping and storage rentals, 0(374.141 per year, or 51.112,115 over the next 15 years. lithe City leases the budding, (a) insurance premiums will be 54,351) per yew, or 565.25(1 over the next 15 years: and (b) property taxes will be 516.604 per year, or 5249,060 over the next 15 years. If the City buys the building. (a) insurance premiums will be reduced dramatically bccausc the budding can be insured through the Idaho Counties Risk Management Program (ICRMP): and (b) no property taxa will be paid on land and buildings owned by the Ctty. Income produced The City receives apptoxtmately 5827 per year. or 512,405 over the next 15 years, by renting conference rooms to various organizations. These recetpts offset the total cost of ownership. Soilage sulue. The building has an estimated useful life of 50 years: however. because this analysts covers a tune lwnzon of 15 years (correspondcng to the maximum 15 -year bond duration), it consent:mei : offsets the total cost of ownashcp by the land and'or building book values at the end of 15 years. The City already owns the non -depreciable land whose book value at the end of 15 years equals 5392.700. The land offsets the total cost of ownership by 526.180 pa year, or 5392,700 over the next 15 years. If the City lata the building. the building's salvage value equals zero. If the City buys the building, (a) the building's book value at the end of 15 years equals 51,329.999. calculated as the final purchase pace (0( 51.899.999) las accumulated straight -11w deprecation (of 5570.000): (b) the budding offsets the total cost of ownership by 588,667 per yew. or 51.329.999 over the next 15 years: and (c) together. the land and budding offset the total cost of ownership by 5114,847 pa yea. or 51.722.699 over the next 15 years. Recap of the Eagle City Hall Purchase Project Given that the high-level of interest in the detail surrounding the proposed purchase of the Eagle City Hall, I thought that I would provide a brief recap of the relevant information once more and add a few extra pieces of information as well. First of all, the very good news is that the amended lease/purchase agreement for the purchase of City Hall was reviewed and approved unanimously by those Councilmembers in attendance (Councilman Butler was absent) during our 9/25 City Council meeting. The facts of the proposed purchase are: • The agreement is to purchase our existing City Hall facility from the current owner (Hawkins -Smith Eagle Hall LLC). • The Council authorized Mayor Reynolds to sign the agreement, where the Mayor and the Hawkins representative have both signed. • My fellow Councilmembers appointed me the privilege of negotiating the purchase price and terms. After several meetings and iterations with the owners representative, I am pleased to report that on August 2, we arrived at a mutually agreeable final purchase price of $1,899,999, which results in a $515,688 price reduction from the $2,415,687 contracted right to purchase price, per the original the lease agreement. As I reported in last week's article, Mr. Arial's provided bond scenario information that spelled out options for 10, 15 and 20 year durations. The council has centered it's attention toward the 15 year bond term to both reduce the interest over the life of the bond and minimize the annual bond payment to realize as much saving to the budget as possible. The following is the 15 year bond duration scenario with the corresponding Idaho Bond rates as of 9/4/2012. I hope this information will provide you with a more accurate and realistic snapshot of the financing necessary and associated costs that would be involved for the purchase of City Hall. 15 Year Idaho Bond Bank Scenario Par: $1,500,000 Costs of Bond Issuance and Underwriter's Discount: $54,000 Total Amount Available for City Hall Purchase: $1,446,000 Rates (TIC): 1.99% Interest Cost: $241,319.50 Total P&I: $1,741,319.50 Col: $45,000 Last Maturity: 3/15/2028 Annual Payment: $116,000 Obviously, the amount available resulting from a potential bond issuance would not cover the entire purchase price. However, as many may know if you have followed the efforts of the previous City Council, starting with the 2010/2011 budget, we dedicated ourselves to place as much savings as possible toward the potential purchase of city hall. Given our self-imposed saving efforts, I am pleased to report that as of the start of the 2012/2013 budget year, we have amassed a total of $603,278 that we have specifically ear -marked for the purchase of City Hall!! It does make me proud that we exhibited enough fiscal discipline and management over the last 2+ years to enable us to strike a significantly favorable deal for City Hall and have the ability to apply as much as a 32% cash down payment. So if we couple the amount that could be available from the bond issuance and the total amount we have saved over the last few years, the resulting funds that could be available are as follows: Bond Funds Available $ 1,446,000 City Hall Purchase Savings Fund $ 603.278 Total Funds Available $ 2,049,278 Negotiated City Hall Purchase Price $ 1.899.999 Remainder After Purchase $ 149,279 The remainder demonstrates that we potentially have more than enough funds to complete the purchase transaction. This creates a few options that the Council will need to evaluate and make the ultimate decision on how to structure the financing of the purchase, if the bond measure is passed by the voters. For example, we could consider using the full amount from our savings fund and opt for a reduced bond issuance, thus lowering even more the principal and interest payment. We could also consider using the full bond amount and apply the remainder from our cash savings toward City Hall upgrades or improvements such as co -locating the Eagle Police within the City Hall facility. Overall, our options are many and our financial position is sound. The following are a few more facts (that were missed in last week's article) that you may find useful and interesting. These speak to the current costs we incur today that the City would no longer pay if we owned our City Hall: Full Lease Payment $ 240,592 Property Taxes $ 16,604 Insurance $ 4,350 Total Costs that would Go Away After Purchase $ 261,546 Assume 15yr Bond Scenario Payment (per above) $ 116.000 Net Annual Savings $ 145,546 Given the 15 year bond scenario, you can see that a healthy annual net savings will be realized. I would hope that such a savings would somehow make a direct and positive impact on the property tax payers within our community. Perhaps even a consideration to reduce taxes in proportion to the net annual savings. Now that the agreement is finalized and signed, we will be creating some opportunities to hold informational sessions with the community to explain the terms, costs and savings associated with the purchase of City Hall. The Mayor and Council will conduct at least two open community forums during the month of October. One of those sessions will be offered through our next Town Hall scheduled for October 17, and the other will take place as a pre -council component for our October 23 regular City Council Meeting. These two sessions will give our community the opportunity to take a brief tour of City Hall and learn more about the components of this potential purchase. We will also provide time for interactive Q&A during these sessions. I trust this fact -based information helps everyone in our Eagle community understand a bit better on where we are in the process, and the significant outcome that we are trying to achieve on behalf of our Eagle community. Best Regards, John Grasser Eagle City Councilman CITY HALL BOND ELECTION INFORMATION The City of Eagle will hold a General Obligation Bond Election on Tuesday, November 6, 2012 for the purchase of the City Hall Building. General Obligation Bond in the principal amount of $1,500,000.00 Term of the Bond is a maximum of 15 years Anticipated interest rate at 3.0% per annum which would be $373,763.00 to be repaid over the life of the Bond Proposed principal amount is $1,500,000.00 to be repaid over the 15 year life of the Bond Total amount to be repaid over the life of the Bond, principal and interest, is $1,873,763.00 The Eagle City Council has budgeted for FY 12/13 a reserve amount of $603,276.00 to apply to the purchase of the City Hall Building Acquisition of the City Hall Building will have a potential cost savings to the City as follows (these costs will be eliminated with the purchase of the building) : Full Lease Payment $240,592.00 Property Taxes $ 16,604.00 Insurance $ 3,034.00 Total Savings $260,230.00 Assume 15 yr Bond Scenario Payment $116,000.00 Net Annual Savings $ 144.130.00 City of Eagle, Idaho $1,500,000 General Obligation Bonds Series March 15, 2013 15 Year Scenario Table of Contents Report Debi Scrxice Schedule Pricing Summary Sources & Uses SI.3%1 GO 2012 - I, YearS SINGLE PURPOSE S 701011 S ASI ZION& BANK © PUBLIC FINANCE P B City of Eagle, Idaho $1,500,000 General Obligation Bonds Series March 15, 2013 15 Year Scenario Debt Service Schedule Date 03/15/2013 09/15/2013 03/15/2014 09/15/2014 03/15'2015 09/15/2015 03/15/2016 09/15'2016 03/15/2017 09/15/2017 03/15/2018 09'15/2018 03/15/2019 09/15/2019 03/15'2020 09/15'2020 03/15.2021 09/15/2021 03/15/2022 09/15 2022 03'15 2023 09 15 2023 03 15 2024 09:15 2024 03/152_0_5 09/15.2025 03/15.2026 09/15 2026 03/15.2027 09'15 2027 03 15 2028 Total Yield Statistics Bond Year Dollars Average Life Average Coupon Principal (button Interest Total P+I Fiscal Total 11.831 75 11.831 75 90,000 00 0450°° 11,831.75 101,831 75 113,663.50 11,629 25 11,629 25 - 90,000.0(1 0 540% 11,629 25 101,629 25 113,258.50 11,386 25 11,386 25 - 95,000.00 0 620°%0 11,386 25 106,386 25 1 17,772.50 11,091.75 11,091 75 95,000.00 0 720° o 11,091 75 106,091 75 117,183.50 - 10,749 75 10,749.75 95,000.00 0.940°0 10.749 75 105,749 75 116.499 50 10,3032_5 10,303.25 95,000.00 1.190°6 10,30325 105,303.25 115,606 50 9,738 00 9,738 011 - 95,000.00 1 460°o 9,738 00 104,738.011 114,476. 00 9,044 5(1 9,01.3 50 1(10,000,00 1 700°0 9.044 50 109,044.50 118.089 00 8,194 50 8,194.5(1 100,000.00 1.900°0 8,194 50 108,194 50 116,389 00 7,244 50 7,244 50 100,000.00 2 000°o 7,244 50 107,244 50 114,489 00 6.244 50 6,244 50 1(15,000 00 2 130°a 6,244.50 11 1,244.5(1 117,489 00 5,1262_5 5,126.25 - 105,000 00 2 2_ 10°o 5,126 25 110,126 25 115,252 50 3,966 (10 3,966.0(1 - 110,000.00 2.290°, 3,966 (10 113,966 00 117,932.00 2,706 50 2,706.50 110,000 00 2 370°o 2,706.50 112,706.50 115,413 00 1,403 00 1,403 00 115,000 00 2 440°o 1,403 00 116,403 00 117,806.00 $1,500,000.00 $241,319.50 $1,741,319.50 Net Interest Cost (NIC) True Interest Cost (TIC) Bond Yield for Arbitrage Purposes All Inclusive Cost (A1C) IRS Form 8038 Net Interest Cost Weighted Average Maturity 5) 5M GO 2012 - 15 Year 5 SINGLE PURPOSE 1 8 30 2012 3 58 :Ut ZIONS BANK ®EI PUBLIC FINANCE $12,455 00 8 303 Years 1.937531100 2 0097912% 1 9995209% 1 9197852°% 2 4084737% 1.9375311% 8 303 Years Page 1 City of Eagle, Idaho $1,500,000 General Obligation Bonds Series March 15, 2013 15 Year Scenario Pricing Summary .laturit, Maturih TN De of Bond Coupon Yield Value Price Dollar Price 03/15/2014 Serial Coupon 0 4509'0 0 450% 90,000 00 100 000% 90,000.00 03/15/2015 Serial Coupon 0.540% 0.540% 90,000 00 100 00000 90,000.00 03/15/2016 Serial Coupon 0 620% 0.620% 95,000 00 100 000% 95,000.00 03/15/2017 Serial Coupon 0 720% 0.720% 95,000 00 1110.000% 95,000.00 03/15/2018 Serial Coupon 0 940% 0 940% 05,000 00 100 000% 95,000.00 03/15/2019 Serial ('nupon 1 190% 1 190% 95,000 00 100 00000 95,000.00 03/15/2020 Serial Coupon 1 460% 1.460% 05,000.00 100.000°0 95,000.00 03/15/2021 Serial Coupon 1.700% 1.700% 100,000.00 10(!110(1"„ 100,000.00 03/15/2022 Serial Coupon 1 900% 1 90090 100,000 00 100000°o 100,000 00 03/15/2023 Serial Coupon 2 000% 2 0.00% _ 100,000 00 100.000% 100,000 00 03/15/2024 Serial Coupon 2.130% 2 130% 105,000 00 100 000°o 105.000.00 03/15/2025 Serial ('nupon 2.210% 2 210% 105,000 00 100 000% 105,000.00 03/15/2026 Serial Coupon 2 290% 2 290% 110,000 00 100.000°0 110,000 00 03/15/2027 Serial Coupon 2 370°0 2.3709/0 110,000.01) 100 000% 110,000 00 03/15/2028 Serial Coupon 2.4409'o 2 440% 115,000 00 100 000°0 115.000 00 Total - 51,500,000.00 51,500,000.00 Bid Information Par Amount of Bonds Gross Production Total linden%rtter's Discount (0.600°o) Bid (99 400°o) Total Purchase Price Bond Year Dollars AVeragc Life Average Coupon Net Inlcrest Cost (NI(') True Interest Cost ("I'I(') SI SSI GO'_012-151ear S SINGLERPOSE 8302012 858 AM ZIONS BANK B PUBLIC FINANCE P SI,500,000 00 $1,500,000 00 S(9,000 00) 1,491,000 00 S I ,491,000.00 512,455.00 8 303 Years 1 9375311% 2 0097912% 1.9995209% Page 2 City of Eagle, Idaho S1,500,000 General Obligation Bonds Series March 15, 2013 15 Year Scenario Sources & Uses Dated 03/15/2013 I Delivered 03/15/2013 Sources Of Funds Par Amount of Bonds Total Sources Uses Of Funds Deposit to Project Construction Fund Costs of Issuance Total linden; aster's Discount ((1.60(1°0 Total Uses SI SM GO 2012 - 15 1 ear S SINGLE PURPOSE 4 11) 21)12 s ail ZIONS BANK ©- PUBLIC FINANCE P 51,500,000 00 $1,500,000.00 1,446,000 00 45,000 00 4.000 0)) S1.500,000.00 Pa'e 3 Eagle City Hall purchase, tax payers' viewpoint By: Foad Roghani and Paul Beckman Vote for a bond to purchase City Hall and reduce our taxes at the same time. What a win for Eagle citizens. We applaud the Eagle City Council for not increasing our taxes. However, we believe the City Council can cut our taxes further and still purchase City Hall. We think the voters will approve a bond for the purchase when they are presented the facts. 1. Current economic conditions make interest rates very attractive (below 3%) for General Obligation Bonds. 2. Starting October 15t, the city will be paying $240,000 a year to lease the city hall plus approximately $20,000 a year for property taxes and related expenses for a total of $260,000 a year. Our current tax rates pay for this. 3. Purchasing City Hall would need a Bond approved for $1,500,000. This would result in annual payments of about $120,000 for 15 years. (The city has enough reserve funds to pay the balance of the purchase price.) 4. The City would save $140,000 per year. The City Council can and should approve a tax reduction to take place as soon as the bond is approved and return the savings to the taxpayers. What a win for the community. As Eagle taxpayers and business owners we support this approach and encourage you to support our City Council to make sure this happens. Also don't forget to vote for it in November. What does the bond amortization schedule to buy Eagle City Hall look like? By Jeff Kunz, former Eagle City Hall Location Task Force Co-Chairman EAGLE — On November 6th, Eagle voters will have an opportunity to approve a $1.5 million bond to buy Eagle City Hall. Polls will open at 8:OOAM and will close at 8:OOPM. Two-thirds of qualified electors must vote in favor of the initiative for the bonds to be authorized, issued, sold and delivered. If the bond election is successful, the City of Eagle will issue "serial" (or "installment") bonds to buy Eagle City Hall. The advantage of using "serial" bonds is that a portion of the outstanding bonds mature at regular intervals, enabling the City (as the bond issuer) to pay much less interest over the life of the bonds. The bond amortization schedule shows the amount of principal and interest that comprise each payment to buy Eagle City Hall. (Due to the size of the schedule, the annual rather than semi-annual interest payments are shown. All monetary values have been rounded to the nearest whole dollar.) Interest Paid During Serial Interest Bond # Principal Rate Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Ycar 10 Year 11 Year 12 Year 13 Year 14 Year 15 Total l S90.000 0.45% 5405 5405 2 S90,000 0.54% 5486 5486 S972 3 S95,000 0.62% 5589 $589 S589 51.767 4 $95,000 0.72% 5684 $684 5684 5684 $2,736 5 $95,000 0.94% 5893 5893 S893 $893 S893 54,465 6 595,000 1.19% 51,131 51,131 $1,131 51,131 51,131 51,131 $6,783 7 595.000 146% 51,387 $1,387 51.387 S1,387 51.387 $1.387 $1,387 S9.709 8 5100,000 1.70% 51,700 51.700 51,700 51,700 51,700 51,700 51,700 51,700 513,600 9 5100.000 1.90% 51,900 51.900 51.900 S1,900 51.900 51,900 51,900 51.900 51.900 S17.100 10 S100.000 2.00% 52,000 52,000 52.000 52,000 52.000 52,000 52,000 $2,000 52,000 52.000 $20,000 1I 5105,000 2.13% $2,237 $2,237 S2.237 52,237 52.237 52,237 52,237 $2,237 52.237 52.237 52,237 524,602 12 5105,000 2.21% 52,321 52.321 52.321 $2,321 52.321 52,321 52,321 $2.321 52,321 52.321 52.321 S2,321 S27,846 13 5110,000 2.29% 52,519 $2,519 $2,519 $2,519 S2,519 S2,519 S2.519 S2,519 52,519 S2.519 52.519 52,519 52,519 532.747 14 S110,000 2.37% 52,607 52.607 S2,607 S2,607 52.607 S2,607 52,607 52,607 S2,607 52.607 52,607 $2,607 S2,607 $2,607 536,498 15 S115,000 2.44% S2,806 52,806 S2,806 52,806 52.806 S2,806 52,806 52,806 S2,806 52,806 52,806 52,806 S2,806 S2,806 S2,806 S42,090 Interest Payment S23.664 S23.259 S22.773 S22.184 521.500 S20,607 S19,476 S18.089 516,389 514.489 512,489 S10.253 S7.932 55.413 52,806 S241.320 Principal Payment 590.000 S90.000 595,000 S95.000 595.000 595,000 595,000 S100,000 S100,000 5100,000 5105.000 S 105.000 S 110.000 S110.000 SI 15.000 5 1.500.000 Total Payment 5113.664 5113.259 S117.773 S117.184 5116300 S115,607 S114,476 S118.089 5116.389 5114.489 5117,489 5115,253 S117.932 5115.413 5117.806 51.741.320 Internal Rate of Return (IRR) 1.99% Source: Zions Bank Public Finance. 08/302012 Each row of the bond amortization schedule displays relevant information about a serial bond. The first column (labeled "Serial Bond #") shows each serial bond number. (The serial bond number also indicates the number of years to maturity.) The second and third columns (labeled "Principal" and "Interest Rate") show the amount of principal and the annual interest rate. The intermediate columns (labeled "Year 1" through "Year 15"), show the amount of each annual interest payment. The last column (labeled "Total") shows the total interest payment. For example, serial bond #15 has a principal amount of $115,000, an annual interest rate of 2.44% and a maturity date of 15 years. The annual interest payment is $2,806 ($115,000 x 2.44% = $2,806). The total interest payment is $42,090. The last three rows of the schedule (labeled "Interest Payment," "Principal Payment" and "Total Payment") show the interest, principal and total (principal + interest) payments occurring each year. The average total (principal + interest) payment is $116,088 per year. Over the next 15 years, total interest payments equal $241,320, total principal payments equal $1,500,000 and total (principal + interest) payments equal $1,741,320. The Internal Rate of Return (IRR), or the discount rate that makes the net present value (NPV) of all cash flows equal to zero, is approximately 1.99%. According to Investopedia.com, this is also known as the True Interest Cost (TIC), or "the real cost of taking out a loan [including] all ancillary fees and costs, such as finance charges, possible late fees, discount points and prepaid interest, along with factors related to the time value of money." After paying an upfront underwriter's discount of $9,000 and upfront issuance costs of $45,000, the City will realize net proceeds of $1.446 million from issuance of $1.5 million in bonds.