City Council

City of Saratoga Springs City Council Workshop Meeting Monday, September 24, 2007 CITY OF SARATOGA SPRINGS CITY COUNCIL WORKSHOP MEETING CITY COUNCIL ROOM MONDAY , SEPTEMBER 2 4, 2007 3:00 P.M. PRESENT: Valerie Keehn, Mayor Commissioner John Franck, Accounts Commissioner Ron Kim, DPS Commissioner Matthew McCabe, Finance ABSENT: Commissioner Thomas McTygue, DPW Supervisor Cheryl Keyrouze Supervisor Joanne Yepsen STAFF PRESENT: Lynn Bachner, Deputy Commissioner, Finance Michele Boxley, Deputy Commissioner, Accounts Eileen Finneran, Deputy Mayor Michael Englert, City Attorney CALL TO ORDER Mayor Valerie Keehn called the workshop meeting to order at 3:00 p.m. Johnson Controls Mayor Valerie Keehn said that the Council would discuss the contract with Johnson Controls. Bill McTygue said that Commissioner Thomas McTygue could not be at the meeting today, therefore, they would not be discussing the Johnson Controls contract. Commissioner Matthew McCabe said there were a number of questions for Johnson Controls and he hoped there would be a response to those questions before the Council meets with Johnson Controls. Capital Budgets & Bonding Mayor Valerie Keehn said this workshop was set to discuss bonding and financial questions. Christine Gillmett-Brown, Director of Finance, introduced Joan Bleikamp, Walsh & Walsh bond counsel, Marian Walsh, Walsh & Walsh bond counsel and Jeanine Caruso, fiscal advisor. Jeanine Caruso reviewed the list of questions as follows: 1.& 2. How common is it for municipalities to have a 2 percent bonding limit? What is the average bonding limit? Jeanine Caruso said it was not common for a municipality to have a self imposed limit. New York State allows 7 percent as the maximum. She then explained that the bonding capacity is determined by the five year average full valuation and the City can bond 2 percent of that five year average. Mayor Valerie Keehn asked how many municipalities are at 7 percent. Jeanine Caruso said was not aware of any at the 7 percent. Mayor Valerie Keehn asked what was the average bonding limit. Jeanine Caruso said that was complicated. She explained though that many municipalities are at 30 percent for the net contracting debt while the City is at 10 percent – which is below the average. Commissioner Ron Kim asked if the City’s with the higher ratings had self imposed bonding limits. He pointed out that raising the bonding limit does not necessarily mean that the rating will go down. Commissioner John Franck said those cities may not have self imposed bonding limits, however, they may simply be bonding less. Jeanine Caruso agreed noting that there are many factors that make up the bond rating and borrowing is only one small portion of that rating. 3. Does raising the bond limit affect our bond rating? Jeanine Caruso said no. However, if a City is bumping up against their bonding capacity, it could impact the bond rating. 1 of 4 City of Saratoga Springs City Council Workshop Meeting Monday, September 24, 2007 4.& 5. What things affect our bond rating? What caused our bond rating to go down? Jeanine Caruso said there are four major factors in determining bond rating: financial operations, management, and economy and debt profile. She reviewed the City’s bond rating at A2 noting that there were only a few listed above the City. Some of those listed higher than the City include White Plains and Rye both of which have high housing values and high wealth levels. She said the City is in a very good position though. Things such as sales tax, economy, trend of operating losses and fund balance draw downs impact the City’s bond rating. The rating firms also look at unencumbered fund balances. Pension obligations and other benefits have become a stressor on budgets. She said that if the City was to lose a major employer that may also play into the bond rating. Strong management, new strategies and the political environment are also factors. Mayor Valerie Keehn asked if the pattern of drawing down fund balances and the pensions were a part of the reason that the City’s bond rating went down. Commissioner John Franck said that sales tax plays into this as well. Jeanine Caruso said the City had a somewhat of a negative outlook a few years ago, however, went on to say that the situation would improve but when the final numbers came in, the City had drawn down on the fund balance again. That is a factor that rating firms take into account when rating municipalities. She did not believe that the City’s bond rating would remain at A2 for very long because all of the other rating factors were quite strong. The City has a vibrant economy. Commissioner Ron Kim asked what was the alternative to drawing down the fund balance. Jeanine Caruso said the City could have decreased expenditures or increased taxes. Commissioner Ron Kim said therein lies the irony. Christine Gillmett-Brown said the lack of a long range plan is a factor. She said a multi-year plan and drawing the fund balance back to a comfortable level would help in increasing the bond rating. She noted that things are a little more positive this year. The 2007 bond rating is based on the 2006 calendar year. The rating firms asked about the VLT funds, however, the City is not in a position to offer any assurance that the VLT funds will be a continual source of funding. Commissioner John Franck asked about the 2006 audit and deficit. Christine Gillmett-Brown said that there was $165,000 in surplus, however, that is not a significant number. Jeanine Caruso said that to the extent that the City’s bond rating has decreased, there could be a corresponding increase in interest rates for bonding. She said that a long range plan for the City to raise taxes over several years at a lower rate rather than on an occasion would also play a part in the bond rating. She said that a five year plan would be appropriate. 6. What different options/tools for financing are available to undertake a major project like the $17 million Public Safety Facility? Jeanine Caruso said that general obligation bonds were the best way to go. 7. How does the City’s debt compare with outer cities of our size? Jeanine Caruso referred to exhibit three explaining that the City is paying off debt over a longer period of time than the average. She noted that historically water and sewer bonding is over a longer period of time. The direct burden on bonding debt for the citizens of Saratoga Springs is 1.4 percent. The direct burden includes all county debt as well. 8. Who is authorized to issue revenue bonds? Jeanine Caruso said that any public authority can issue revenue bonds. In the City there is the City Center Authority and the City of Saratoga Springs IDA. The County now has a Water Authority. 9. How do revenue bonds work? Jeanine Caruso said revenue bonds are backed by the revenues generated from the operation of the facility and are typically for water, sewer, etc. General obligation bonds are backed by the municipality’s full faith and credit. Revenue bonds are typically more costly. 10. How does the recent reduction of our credit rating affect our bonding? Jeanine Caruso said that typically a rating downgrade results in increased borrowing costs, however, the downgrade for the City from A1 to A2 did not appear to negatively affect the City’s bond sale. Commissioner John Franck said market conditions also play into this and if the market forces are down it could impact the City’s bonding rate. 11. Call/redemption features: What is the shortest call period time frame? 5 or 10 years? Jeanine Caruso said it is typically ten years. The City ahs been told that if we call in our bonds that we would pay substantial penalties, much more than paying off the bond to maturity. Why would we even have a call feature if this was the case? Jeanine Caruso said there are premiums to pay if the bonds are called. She suggested that the City would be in a better position if segregating the unspent funds, earning interest and then paying off the old debt. She noted that the 2006 and 2007 bonds do not have the call premium. 2004 and 2005 have a 1 percent call premium. Commissioner John Franck asked about the call redemption. Jeanine Caruso said it is costly to issue bonds without having the call redemption. She said the City could segregate the unspent funds, place it in an account that does not earn more interest than is being paid on the bond and then use the money to pay the outstanding balance. Commissioner John Franck said the City could put the $6.5 million to the side and 2 of 4 City of Saratoga Springs City Council Workshop Meeting Monday, September 24, 2007 pay the debt over the next 9 years. Jeanine Caruso agreed. She said once the money is bonded, it must be used for the purpose of that bonding. She said though that the other option was to pay off the bond, but that is costly. There must be escrow accounts, a trustee, lawyer, CPA, etc. The interest earned by paying off the bond would be minimal because the bond rate interest is approximately 4 percent. Commissioner John Franck said the City has bonded small amounts since 2000. Christine Gillmett-Brown agreed, noting though that in 2007 there was $9 million bonded with the majority of that going towards the recreation facility. She said the City does not have $9 million available in cash to pay off the bond early. She said the bonds are issued in a lump sum and not for each project. Commissioner John Franck pointed out though that the call/redemption features are available and could be used if the interest rates were to plummet for some reason. Jeanine Caruso said that once the City hits the 10 year mark, the City would not need to call the entire $9 million. Joan Bleikamp said the Adirondack Trust Company is the holder of the 2005 and 2006 bonds and it might be worthwhile for the City to talk to ATC about calling the bonds. 12. What would the interest rate differential be on a bond with the following maturities: 20 years 4.25 percent; 25 years 4.35 percent and 30 years 4.40 percent. 13. Explain arbitrage in layman terms. Jeanine Caruso said there was no easy way to explain arbitrate. She said though that there were some cases where cities were borrowing funds and then placing it in accounts to earn interest. The simplest way to explain it is that any funds from a bond cannot earn interest at a higher rate than the bond interest rate. She said, though , that there are some exceptions to that rule. However, over the life of the project, the interest rate earned must be less than the interest rate being paid. 14. What’s the most we can earn on bonded money not used? Jeanine Caruso said the unexpended proceeds should be invested at a rate not to exceed the arbitrage yield on the bonds. 15. If we vote to bond a project, do we have to issue the bonds by law. Jeanine Caruso said no. 16. If so, how long after the vote? Janine Caruso said the bond would need to be issued within 10 years. Commissioner John Franck asked how long it took to issue bonds. Jeanine Caruso said typically it was between 4 and 6 weeks. She said if the City was in the middle of an audit there could be a slight time delay. Commissioner John Franck asked what was the typical life span of a bond for an EMS facility. Joan Bleikamp said it would depend on the construction of the building. If its fire proof, the bond could be for 30 years, however, if it is fire resistance, the bond could not exceed 25 years. Jeanine Caruso said that it comes down to the bond counsel discussing the matter with the architect. Commissioner John Franck said that Jeanine Caruso noted that the political environment also played a role in bond ratings and asked for an example. Jeanine Caruso said there was a case in another city where a Mayor stated publicly that the city was in financial distress and would not pay the bonds. That would impact the bond rating. She said though that normally it is a distressed City that has those types of concerns. Good management practices and a five year plan are important factors. Commissioner John Franck asked who did the rating system. Jeanine Caruso said it is Moody’s, Standards & Poor’s and Fitch. Commissioner John Franck asked if the City had been higher than A1. Commissioner Matthew McCabe said not since he had been in office. Mayor Valerie Keehn asked what was the time limit to issue bonds once the Council votes to issue them. Jeanine Caruso said it must be done within 10 years. Commissioner John Franck asked if the City could issue general obligation bonds for call redemption. Jeanine Caruso said it could be done if the City issued new bonds to cover the old bonds that also covered the cost of the call premium. She said that depending on the bond to be called, there may or may not be a 1 percent penalty. Commissioner John Franck asked what would the City need to borrow to cover the cost of calling a bond. Jeanine Caruso said that it could be between $200,000 and $300,000 in addition to the bond itself. She said in this market it does not make sense to call a bond because of the negative arbitrage. Michael Englert said that the City could review the way in which it approves and issues bond. He said that typically, the Commissioner of Finance issues the bond for the entire amount once it is adopted by the Council. Jeanine Caruso said in other municipalities, generally there is a bond resolution, architects, bidding and then the bond is issued. She said the City of Saratoga Springs’ process is slightly different by issuing one bond for everything. She said that BANs could be issued for the architect’s fees and then issue the bond when the bid comes in. She said it is a little more costly though. The BANs could be issued directly from the Adirondack 3 of 4 City of Saratoga Springs City Council Workshop Meeting Monday, September 24, 2007 Trust Company. Mayor Valerie Keehn suggested that the Council may want to wait a little longer before issuing the bond. Commissioner Matthew McCabe said that could be discussed. Council members agreed that this had been informative and thanked them for their presentation. Commissioner Matthew McCabe asked for questions from the audience. There were none. ADJOURNMENT There being no further Mayor Valerie Keehn adjourned the meeting at 4:20 p.m. Respectfully submitted, Kathy Moran Clerk Approved: 4 of 4