8.f)2) Equipment Certificates for Fire Rescue Truck Financing Meeting Date: 6/15/2010
Agenda Item: � � a�
City Council Agenda Report '
City of Scandia
14727 209t" St. North
Scandia, MN 55073 (651) 433-2274
Action Requested: Give staff direction regarding the issuance of equipment certificates to
finance the purchase of the fire rescue truck.
Deadline/ Timeline: Equipment will be ready in approximately 45 days, with payment due
upon completion.
Background: • The 2010 budget for the Equipment Replacement Fund and the
2010-2014 Capital Improvement Plan (CIP) anticipate the issue of
$200,000 in equipment certificates to fund the majority of the
$222,644 cost of the new fire rescue truck.
• Equipment certificates are general obligation debt instruments of
the city. The City may borrow money for up to ten years for
certain types of equipment purchases.
• Staff requested quotes from several area financial institutions:
Security State Bank, Lake Area Bank, Wells Fargo and U.S. Bank.
• Security State Bank submitted the proposal with the best interest
rate, with 5, 7 and 10-year amortization options.
• Lake Area Bank submitted a proposal; however,the quote appears
to be for a commercial loan and it seems that they may not
understand that this loan would be a tax-exempt municipal general
obligation. (I believe staff adequately communicated the purpose
of the loan.)
• U.S. Bank and Wells Fargo were contacted but declined to provide
a quote.
• The next step in the process will be to have the city's bond counsel
(Steve Bubul of Kennedy and Graven) prepare the documents for
the Council's approval. The City must first decide whether this
will be a 5, 7 or 10-year issue.
� The fist payments will be due in one year(2011.) Debt service
payments may be a special levy outside of the state levy limit. A
special levy would directly increase the property tax levy.
• A five-year issue would require a debt service payment of
$45,840.00. This is approximately 2.3%of the 2009 total property
tax levy($1,918,647.)
• The city's debt schedule shows that bond payments for the two
Page 1 of 2
06/11/10
outstanding issues will continue at about the current level
($225,000 to $235,000 per year) through 2015, and then decrease
to $125,000 in 2016 and 2017 after which they will be paid in full.
• The Equipment Replacement schedule of the CIP indicates that
there will probably be a need to borrow for several major pieces of
equipment in the next few years: in 2012, for a plow truck and
fire tanker; in 2013, for a fire engine; and in 2014, for another
plow truck. It is possible that additional debt will be also be added
for road improvements within the next five years.
Recommendation: Staff needs direction from the Council on the term of the equipment
certificates. The total interest expense will be minimized by a shorter
term.
The equipment certificates will tentatively be brought back to the
Council for approval at the July 6, 2010 meeting.
Attachments/ • Letter dated June 8, 2010 from Security State Bank.
Materials provided: . Letter dated June l, 2010 from Lake Area Bank
• Summary of Outstanding Bond Issues (6/12/2009)
Contact(s):
Prepared by: Anne Hurlburt, Administrator
(equipment certificates)
Page 2 of 2
06/11/10
June 8, 2010
Colleen Firkus
City of Scandia
Dear Colleen:
Thank you for contacting Security State Bank of Marine regarding the financing
of a fire truck for the fire department. A common method of financing public safety
equipment is with Certificates of Indebtedness which are a general obligation debt
instrument of the City.
Security State Bank of Marine proposes the following terms and interest rates on
$200,000.00 of Certificates of Indebtedness to purchase a fire truck:
5 year term:
$40,000.00 due 1 year from date of issue: @ 220%
$40,000.00 due 2 years from date of issue: @ 2.60%
$40,000.00 due 3 years from date of issue: @ 2.95%
$40,000.00 due 4 years from date of issue: @ 3.30%
$40,000.00 due 5 years from date of issue: @ 3.55%
--------------
$ 200,000.00 Total
7 year term:
$28,000.00 due 1 year from date of issue: @ 220%
$28,000.00 due 2 years from date of issue: @ 2.60%
$28,000.00 due 3 years from date of issue: @ 2.95%
$29,000.00 due 4 years from date of issue: @ 3.30%
$29,000.00 due 5 years from date of issue: @ 3.55%
$29,000.00 due 6 years from date of issue: @ 3.80%
$29,000.00 due 7 years from date of issue: @ 4.00%
--------------
$ 200,000.00 Total
10 year term:
$20,000.00 due 1 year from date of issue: @ 2.20%
$20,000.00 due 2 years from date of issue: @ 2.60%
$20,000.00 due 3 years from date of issue: @ 2.95%
$20,000.00 due 4 years from date of issue: @ 3.30%
$20,000.00 due 5 years from date of issue: @ 3.55%
$20,000.00 due 6 years from date of issue: @ 3.80%
$20,000.00 due 7 years from date of issue: @ 4.00%
$20,000.00 due 8 years from date of issue: @ 4.15%
$20,000.00 due 9 years from date of issue: @ 4.25%
$20,000.00 due 10 years from date of issue: @ 4.40%
--------------
$ 200,000.00 Total
Interest on each of the Certificates of Indebtedness would be due on an annual
basis. It would be the responsibility of the city or city's bond counsel to draft the
Certificates of Indebtedness, subject to our review. We would be happy to provide you
with copies of Certificates we have used in other public financing projects. To aid in
your potential budgeting, an estimated amortization schedule is attached that details your
annual payments due under this financing proposal.
If the above proposal needs to be modified in some manner to better fit your
needs, or if you have any questions, please give me a call and I'll be happy to discuss any
comments or questions you may have. The terms contained within this proposal are valid
for 30 days from the date of this letter. Thank you once again for giving Security State
Bank of Marine an opportunity to offer a financing proposal.
Very truly yours,
Adam Wojtowicz
Sr. Vice President
5 Year Amortization on $200,000 of Certificate of Indebtedness:
Due in year 1: $ 45,840.00 ($40,000.00 prin. + $5,840.00 int.)
Due in year 2: 44,960.00 ($40,000.00 prin. + $4,960.00 int.)
Due in year 3: 43,920.00 ($40,000.00 prin. + $3,920.00 int.)
Due in year 4: 42,740.00 ($40,000.00 prin. + $2,740.00 int.)
Due in year 5: 41,420.00 ($40,000.00 prin. + $1,420.00 int.)
7 Year Amortization on $200,000 of Certificate of Indebtedness:
Due in year 1: $ 34,418.50 ($28,000.00 prin. + $6,418.50 int.)
Due in year 2: 33,802.50 ($28,000.00 prin. + $5,802.50 int.)
Due in year 3: 33,074.50 ($28,000.00 prin. + $5,074.50 int.)
Due in year 4: 33,428.50 ($29,000.00 prin. + $4,248.50 int.)
Due in year 5: 32,291.50 ($29,000.00 prin. + $3,291.50 int.)
Due in year 6: 31,262.00 ($29,000.00 prin. + $2,262.00 int.)
Due in year 7: 30,160.00 ($29,000.00 prin. + $1,160.00 int.)
10 Year Amortization on $200,000 of Certificate of Indebtedness:
Due in year 1: $ 27,040.00 ($20,000.00 prin. + $7,040.00 int.)
Due in year 2: 26,600.00 ($20,000.00 prin. + $6,600.00 int.)
Due in year 3: 26,080.00 ($20,000.00 prin. + $6,080.00 int.)
Due in year 4: 25,490.00 ($20,000.00 prin. + $5,490.00 int.)
Due in year 5: 24,830.00 ($20,000.00 prin. + $4,830.00 int.)
Due in year 6: 24,120.00 ($20,000.00 prin. + $4,120.00 int.)
Due in year 7: 23,360.00 ($20,000.00 prin. + $3,360.00 int.)
Due in year 8: 22,560.00 ($20,000.00 prin. + $2,560.00 int.)
Due in year 9: 21,730.00 ($20,000.00 prin. + $1,730.00 int.)
Due in year 10: 20,880.00 ($20,000.00 prin. + $ 880.00 int.)
DMS09
CITY OF SCANDIA,MINNESOTA
Summary of Outatanding Bond issues
..................................
..,........i..........................................................................................................
:::��::�.::.'..�.'.'..'.'.'.':'.:'To6�f:Bond:Pavmen't's''Tflree•Son�l•lssuea. .• . �.�..•.. .
. .. � .�'::Reveiiue:'Sodities : Ca31� Fla.v:::
...•.•.• ....•......• . . . ...
Statutory Total Special Tax Interest Cash
Mo. Year Principal Coupon Interest Payment 5%Cov'g Required Rates Assessments Levies Earnings Balance
37R,90R
- 20U9 4(0,000 - 80,098 540,098 27,005 SG7,102 0 81,896 380,000 3,1.00 276,802
- 2010 225,000 - 64,335 289,335 14,467 303,802 0 31,640 247,000 2,1.19 199,p07
- 2011 230,000 - 56,123 286,123 14,306 300,429 0 30,287 247,000 1,)90 177,85G
- 2012 235,000 - 47,525 282,525 14,]26 296,651 0 28,934 237,U00 1,779 14R,917
- 2013 235,000 - 38,494 273,494 13,675 287,168 0 27,581 237,OU0 l,489 127,819
- 2014 235,000 - 29,313 264,313 13,216 277,528 0 26,228 227,000 1,278 ]04,79g
- 2015 235,000 - 19,808 254,808 12,740 267,548 0 24,875 219,000 969 g2,p9q
- 2016 125,000 - 10,188 135,188 G,759 141,947 0 23,522 110,000 9 -7,532
- 2017 125,000 - 5,125 130,125 6,506 136,631 0 22,169 106,000 0 -15,991
- 2018 0 - 0 0 0 0 0 0 0 0 p
2,105,000 351.006 2,456,006 122,800 2,578,807 0 297.133 2,010,000 12,834
��� (2) �3) (4) (5) �6) ��) �g) (9) (101
(1) Indicates the total Principal payment due annually for all three bond issues.
(2) Indicates the total lnterest payment due annually for�ll three bond issues. �
(3) Principal and Interest payments due annually for a11 three bond issues.
(4) InAicates the Stalutory 5%debt service covorage requirement for General Obligation debl(es per Minnesota Statutes§475).
(5) Combines the Payment and the 5%Coverage columns for total annual payment requirement.
(6) )ndicates the annual enticipated water rates and sewer rates as a revenue source.
(7) Indicates the annual anticipated apecial assessments as a revenue source.
(R) Indicales the annual anticipated tax levies as a revenue source.
(9) Indicates the annual anticipated level of interest eamings(at 1.0%)on the debt service Fund Balance as a revenue source.
(L O) Indicates the yearend annual debt service Fund Balance following payment of Principal and Interest from expected revenue sources.
Northland SecurlNea,lnc. Dated: 6/12/2009 Page: 1
__ _ . ..__. _---------._�____,...._...._.._... ._...... ._.._.._....._..._.._.--�--_.�___..._...._.,..._.__.�._.. �_..�.._�,._ .. ......... . _ .... ..._.._. ... .. ._. _ . ._... ._... _ ....._..... ... ._.__.
_.__._,. ,.._.__..._.,_._._._,...__._,_..._.,..._._....__.__._ ._._.. __ . .__ ..,,_.
� i
�
� LA1(E AREA BANI�
� �`� Friends Serving Ne�ghbors S�nce 1915
Jw�e Ol,2010
City of Scandia
14727 209'"Street Nortli
Sca�►dla,MN 55073-9408
Dear Friends:
Colleen Tirkus;Treasurer I►as requested o�i bel�al[o[the City Of SCAl1Ij�A�terms for a commercial
loan for purpose of purchasing a lire truck for s� totai amount of$200,000. Lakc Arca Bank would
Ilkc to propose tl�e following for tinancing:
$200,000
rtvc Ycar Amortization witii Annual Priucipal and Interest Payments. Fi�ced at 8.25% for Tl�ree
Ye�rs tl�en variablc,adjustable a��nunll��equal to Lake Arca Bauk Basc Rate plus�54%.
$Zoa,00a
Sevcu Year Amortiz:ttion with Annu�l Principal�nd Intcrest Pa�ments.Fized at 8.875%for Five
Ycars ti�en varlabfe,adjustable annually equal to Lake Arca Bank Basc Ratc plus.75%.
$200,000
Ten Year Amortizat[on�v1th Amival Principal and L�ferest Payments. Fixed at 9.375 for Seven
Years then variabic,adjustable annuall,y equal to Lake Area Dank Base Rate�tus 1.0%.
As of today,Lake Area Bank Base Rate is equal to 6.875%(subject to cl�ange).
Loan to be secured wilh purch�se mone��securit��interest atong tivitli a Commerical Guarantee from
[he Cify of Scandia. Clostng costs�i�ould be a$40.00 UCC fee payable to N�e Secretary of State,
$11.00 Title transfcr fce in additiou to�200.00 documentation fee payable to Lake Arca Bank. All
business tinnncials would be required annually aloug with a deposit relationship wlth Lake Area
Bank.
Please feel free to contact me if you should havc u�►y questions or require additional information�t
(651)213-0220. I look forw�rd to l�earing from you soon and liope this roeets your eapectatlons�vltli
frien�s serving ncighbors. Tl�ank J•ou for your consideration.
5incer 'r
��
� Sl�eryl A.Cat�i pb II
Vice Preside�zt
sc
This offer expires 30 days from abo��e ds►te nnd is subJect to approvll.
Visit Us Online At:ww�v takeareabank.com
Phone Banking 24 hours a day,7 days a week Metro(651)257-1115 Toll Free(888)257-1115 MemUer FDIC
Almetund • Forest I.ake • Harris • Hugo • Lindstrom• Maple�vood • Stillivater • Whtte Bear Lake