9-20-22 FMPFINANCIAL PLANNING AND BONDSCity of ScandiaSeptember 20, 2022
2Goals for this Evening•Recap of April 2021 Financial Management Plan discussion•Discuss financing options for capital improvements•Debt Issuance Process / Options•Answer questions about financing plan and bonds
3April 2021 Recap
4What is a Financial Management Plan?•A multi-year fiscal plan for all tax-supported funds that integrates:Existing DebtCapital Improvement PlansFuture DebtTax base growthFuture operating expenses and staff•Compares entity to standardsGovernment Finance Officers Association (GFOA)Similar entities
5•Includes all:Levies related to existing debtFunding general fund operationsPublic safety, public works, administrationGeneral fund balance policy of 60% of subsequent year’s expendituresInflation on median value home and city tax capacity –2%-4% per yearCapital Improvement planningApril 2021 FMP Assumptions
6April 2021 FMP Assumptions
7•Fund operations, debt and capital with all cash (no debt)oAdjust levy for funding needs, increase or decrease as necessaryoNeed higher cash balances and levies in order to build up cash for future projectsApril 2021 Funding Scenario #1
8•Combination cash and debt financingApril 2021 Funding Scenario #2Grand2021 2022 2023 2024 2025 2026 TotalLocal Road Improvement- - - - 675,000 1,100,000 1,775,000 Park Capital- - - - - - Capital Improvement- - - 950,000 - - 950,000 Equipment Replacement- - 815,000 - - - 815,000 Total - - 815,000 950,000 675,000 1,100,000 3,540,000 Gand2021 2022 2023 2024 2025 2026 TotalLocal Road Improvement915,000 624,000 938,829 736,786 1,055,212 1,332,235 5,602,062 Park Capital40,585 60,408 62,192 89,989 93,589 73,000 Capital Improvement350,000 733,200 438,048 1,226,664 40,945 0 2,788,857 Equipment Replacement52,500 302,640 574,330 67,492 0 0 996,961 Total 1,358,085 1,720,248 2,013,398 2,120,931 1,189,746 1,405,234 9,807,644 Bonding SummaryCapital Outlay SummaryInflated Value36% of capital improvements funded through bonding
9Capital Improvements 2021 - 2026 Amount in PlanParks - Playground equipment, trails $326,000Roads - Sealcoating and road improvements $5,035,000General - Broadband, community center upgrade, various public building maintenance$2,335,500Equipment - Vehicle replacements $934,500Total $8,631,000April 2021 Funding Scenario #3•Constrain levy for a ‘no tax impact’ option•Capital improvements need to be cut•Total dollar amount $3.7M•Cash balances decline
Adopted2021 2022 2023 2024 2025 2026Option I: All Cash Funding Tax Impact Increase (Decrease) in city taxes paid 13.19$ 222.18$ 152.31$ (70.48)$ 41.01$ 97.31$ Five year average impact 88.46$ Option II: Cash/Bond Funding Tax Impact Increase (Decrease) in city taxes paid 13.19$ 31.14$ 29.90$ 31.67$ 37.42$ 39.79$ Five year average impact 33.98$ Option III: No Tax Impact Tax Impact Increase (Decrease) in city taxes paid 13.19$ (0.29)$ (0.23)$ 1.34$ 0.88$ (0.83)$ Five year average impact 0.17$ Projected10April 2021 Tax Impact – Option Comparison
11Capital Improvement Financing
12Why Minnesota Governments Borrow•Administrative & operational•Public safety•RecreationalFacilities•Streets•Utility systems•Sidewalks & trailsInfrastructure•Machinery•Vehicles•Transit assetsEquipment
13•“Pay as you go” Use existing cash & reservesEfficient for short-lived assetsSometimes difficult to save enoughThose who “paid” may not benefitTypes of Municipal Capital Financing
14•“Internal loans” One fund lends to anotherBoth borrowing & lending should be treated fairlyCan create fund balance, cash flow issuesTypes of Municipal Capital Financing
15•Debt issuancePreserve existing cash & resourcesCost of asset amortized over useful lifeAsset paid for & benefited by usersManage & stabilize tax rates, user feesTypes of Municipal Capital Financing
16Debt Issuance Process / Options
17Planning & AuthorizationBond Marketing & SaleClosingDebt AdministrationIssuing Debt: Process & Timing6 weeks to 6 months…or longerApprox. 2 monthsfrom authorization2-4 weeks postsale dateSpans life ofdebt
18What Who•Determine amount to borrow•Structure transaction (type, terms, etc.)•Establish timing of debt sale•Issuer•Municipal Advisor•Establish legal authorityInitial authorization & public noticeReport or study adoption?Referendum?•Determine tax-exempt status•Issuer•Municipal Advisor•Bond CounselPlanning & AuthorizationLegal Documents & Official Statement
19Securities Offering:•Bonds sold in capital markets through underwriter•Official Statement serves as offering documentBond Marketing & Sale: Borrowing Options
20Negotiated UnderwritingCompetitive UnderwritingBonds offered through competitive bidSale awarded to lowest interest cost proposalIssuer works with Municipal Advisor to select underwriterEffective for unique features, new or challenged credit, difficult market conditionsBond Marketing & Sale: Borrowing Options
21Direct Placement:•Banks & other institutions active lenders to public entities•No official statement required•Attractive for smaller issues, unique features•Bank demand changes over timeCompare “all-in” costs to capital market optionsBond Marketing & Sale: Borrowing OptionsStill must follow process when working with local banks!
22State Public Facilities AuthorityLoan programs for sewer & water projectsTransportation loan programsUSDA Rural DevelopmentLoan programs for community facilities, sewer & water projectsBond Marketing & Sale: Borrowing Options
23AQ&