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HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 06/01/2010 - RESOLUTION 2010-032 DECLARING THE INTENT OF THE CI DATE: June 1, 2010 AGENDA ITEM SUMMARY STAFF: Darin Atteberry _ T COLLINS CITY COUNCIL Mike Freeman, Josh Birks Resolution 2010-032 Declaring the Intent of the City of Fort Collins, Colorado to Issue Economic Development Revenue Bonds to Provide Financing for a Manufacturing Facility for Palladius, Inc. D/B/A Integware, Inc.; Prescribing Certain Terms and Conditions of Such Bonds; and Containing Other Provisions Relating to the Proposed Issuance of Such Bonds. EXECUTIVE SUMMARY The primary reason for the City adopting an inducement resolution for this project is found in federal tax law. If a municipal borrower or private activity bond beneficiary(e.g., Integware, Inc)desires the ability to reimburse itself out of the tax exempt bond proceeds for expenditures that accrue before the issuance of the bonds,the Internal Revenue Service Code will permit such reimbursement, provided that the public issuer adopts an inducement resolution and the expenditure is accrued no earlier than 60 days prior to the date such resolution was adopted. Accordingly, inducement resolutions are often adopted very early in the bond process to maximize the project costs to which the tax exempt proceeds can be applied. However,as made clear in the resolution,adoption does not create an obligation on the part of the City to authorize the bonds. BACKGROUND / DISCUSSION Palladius, Inc., doing business as Integware Inc., has requested that the City help in expanding its business in Fort Collins and facilitating the construction of a new headquarters facility at the Harmony Technology Park on Harmony Road. The recommendation is to allocate the City's 2010 Private Activity Bond (PAB) allocation (just over$6 million)along with Larimer County's allocation (just over$4 million)to help facilitate the expansion of this important business in the community. The total project cost is around$10 million for a 60,000 to 70,000 square foot headquarters building. The firm currently employs 128 people. The company expects to add employees and have 185 staff by 2013 (two years post construction). The construction milestones are as follows: Vacant Land Purchase and Sale Agreement Execution: April 2010 Project Design/Entitlement Start: May 2010 Project Construction Start: October 2010 Project Certificate of Occupancy: September 2011 The action tonight begins the overall process of allocating and issuing the Private Activity Bonds. The Action recommended does not, at this time, commit the City to issue the bonds. FINANCIAL IMPACT This Resolution has no direct financial impact to the City. The Resolution confirms the intent of the City to issue up to $10,000,000 in Private Activity Bonds for the benefit of Integware, Inc. Once issued, the City has no liability whatsoever for repayment of these bonds. Repayment of the bonds is solely the responsibility of Integware. June 1, 2010 -2- ITEM 23 SUSTAINABILITY: ECONOMIC, ENVIRONMENTAL AND SOCIAL IMPACTS Economic Impacts Under the federal and state laws governing the use of tax-exempt private activity bonds,the City may issue the bonds, but may not use its own revenues to support the project. The project will generate the revenue required to repay the bonds. In the event the project does not generate sufficient revenue,the bondholders may request payment from the letter of credit provider or the insurer of the transaction. The total amount of private activity bonds to be issued will not exceed $10,000,000. The project proponent, Integware, Inc., a Colorado corporation, may use its resources to pay for the bonds or issue additional taxable bonds to finance the project. This project will contribute to the creation of 57 new primary jobs in the software industry cluster group and will contribute significant up-front revenues to the City through development and permit fees. At this time, these figures have not yet been calculated, but figures will be calculated this summer once the project moves into the City planning process. Environmental Impacts At this time, given that the proposed project has not entered the design phase, the environmental impacts are not known. This will be further discussed in the subsequent request for the issuance of the Private Activity Bonds later this summer. Social Impacts This project will create new primary employment and secondary jobs. The impacts from the project have not yet been calculated, but will be completed subsequent to the request for the issuance of the Private Activity Bonds later this summer. STAFF RECOMMENDATION Staff recommends adoption of the Resolution. BOARD / COMMISSION RECOMMENDATION This project has not been considered by a City Board or Commission. However, staff will schedule this item on the June agenda of the Economic Advisory Commission for its consideration and recommendation. The timing of this item precluded hearing this item by the Commission in May 2010. ATTACHMENTS 1. Location map 2. Background Information on Private Activity Bonds ProjectHarmony Technology Park - Site of Integware ..W NOW ION or - . f .—r + .i • ail, • „- wig ZI It Ilk Ilk L fill Oft A FIN IN 4So ron SAW , NIw sh— Jl ' • A � YN , - • - • - Miles ' Harmony • • - Location _ ATTACHMENT 2 Private Activity Bond Background Information What are Private Activity/Industrial Development Bonds? Private Activity Bonds (PAB) are municipal bonds issued by a "municipality" (any city, county, or state) for the purpose of financing land, buildings and/or equipment for manufacturing, industrial, commercial, agricultural or business enterprises. This financing technique may also be used for low and moderate income housing projects, hospital facilities or pollution control projects. PABs are not a financial obligation of the municipality; state law prohibits the municipality from making debt,service payments or from incurring any other monetary liability in connection with the bond issue. The principal and interest on the bonds are paid by the benefiting private company pursuant to a "financing agreement": (e.g. a lease, installment sale or loan agreement) between the municipality and the company. Therefore, it is essential that the company has sufficient financial means to assure prompt payment of the bonds over the life of the bond issue. Since the interest on the bonds is exempt from Federal income taxes, the interest rate is lower than traditional corporate forms of financing. This form of bond financing can provide 100% financing of land, building, equipment and machinery, as well as project development costs, financing costs and other costs incidental to the issuance of bonds. Structure of Private Activity/Industrial Development Bond Issues The principle documents involved in a private activity bond issue are the bonds, financing agreement, trust indenture and official statement. A. The Bonds--The bonds may be issued on a serial, term or a combination serial-term basis. Debt retirement schedules on the bonds can be tailored to suit the company, although it is common to structure the repayment schedule so that the annual debt service payments are level. The maximum maturity of the bonds is 30 or 40 years, depending upon the applicable state statute. The state statutes do not contain maximum interest rate limitations, and the bonds are not required to be sold at a public, advertised sale. B. The Financing Agreement--The basic instrument securing the bond issue is the financing agreement between the company and the local government. This may take the form of a lease agreement, installment sale agreement or, in some states, a loan agreement. Under a lease agreement or an installment sale agreement, title to the project is held by the local government and either leased or sold on an installment basis to the company. The company acquires title to the project when the bonds are retired. Under the loan agreement, title to the project is held by the company throughout the life of the bond issue. There is, however, no property tax exemption if the title is held by the local government. The tax benefits to the company (i.e., depreciation, investment tax credit, etc.) with respect to the project are the same regardless of which type of financing agreement is used. Under all forms of financing agreements, payments are structured to retire the bonds, fund any reserve accounts, and pay any trustee or municipal/county handling charges. The company is responsible for any maintenance costs, taxes, insurance premiums and any other costs incurred with respect to the project. Other matters generally contained in a financing agreement include (1) control and authority of the company in constructing the project; (2) operational control of 1 the project by the company; (3) maintenance and insuring of the project by the company; (4) assignment and leasing or subleasing by the company; (5) consequences or condemnation or destruction of the project; (6) criteria and remedies in the event of default; and (7) prepayment of the bonds by the company. C. The Trust Indenture--The trust indenture is a contract between the local government and a trust company acting as trustee for the bondholders. The trust indenture sets forth the details of the bonds, including interest rates and maturity dates, and provides for the administration of all financial aspects of the bond issue. The trustee is responsible for, among other things, disbursement of bonds proceeds, investment of idle construction funds and reserve account moneys (at the direction of the company), receipt of financing agreement payments made by the company and the payment of principal and interest on the bonds. The trustee's fees are paid by the company. D. The Official Statement--The official statement is a document describing in detail the bond issue prepared by the investment banker, the company and bond counsel. The official statement generally conforms to the disclosure requirements of the Securities and Exchange Commission with respect to corporate securities issues, although it does not have to be registered with the Securities and Exchange Commission or any other federal agency. The official statement summarizes the financing agreement, trust indenture, and the project, and contains a description of the company including its financial statements. The official statement is distributed to potential bond purchasers, state agencies and other interested parties. 2 RESOLUTION 2010-032 OF THE COUNCIL OF THE CITY OF FORT COLLINS DECLARING THE INTENT OF THE CITY OF FORT COLLINS, COLORADO TO ISSUE ECONOMIC DEVELOPMENT REVENUE BONDS TO PROVIDE FINANCING FOR A MANUFACTURING FACILITY FOR PALLADIUS, INC. D/B/A INTEGWARE, INC; PRESCRIBING CERTAIN TERMS AND CONDITIONS OF SUCH BONDS; AND CONTAINING OTHER PROVISIONS RELATING TO THE PROPOSED ISSUANCE OF SUCH BONDS WHEREAS, the City has been duly and regularly organized and is now validly existing as a home rule municipal corporation under and by virtue of the Constitution and laws of the State of Colorado (the "State") and its home rule charter (the "Charter"); and WHEREAS, the City is authorized by its Charter and the County and Municipality Development Revenue Bond Act, constituting Article 3, Title 29, Colorado Revised Statutes, as amended (the "Act"), to finance one or more manufacturing projects (which includes any land, building or other improvement and real and personal properties) to promote industry or other economic activity to mitigate unemployment and secure and maintain a balanced and stable economy; and WHEREAS,the City is further authorized by the Act to issue revenue bonds for the purpose of defraying the cost of financing any project,including the payment of principal and interest on such revenue bonds for not exceeding three years,the funding of any reserve funds which the governing body of the City may deem advisable to establish in connection with'the retirement of such revenue bonds or the maintenance of the project and all incidental expenses incurred in issuing such revenue bonds, and to secure payment of such revenue bonds as provided in the Act; and WHEREAS,representatives of Palladius, Inc. d/b/a Integware, Inc. (the`Borrower"), have met with officials of the City and have advised the City of the Borrower's interest in the acquisition, construction, and equipping of a manufacturing facility for the production of software and related products, and have proposed that the City issue its economic development revenue bonds, in one or more series, to finance its new manufacturing facility (the"Project")to be located near Lot B-5 in the Harmony Technology Master Plan on Precision Drive in the City; and WHEREAS, it is anticipated that the Project will include construction of a multi-purpose manufacturing facility,which facility and property will be owned and operated by the Borrower;and WHEREAS, the Project constitutes a project under the Act, and the City wishes to declare its intention to authorize an issue of its economic development revenue bonds,in one or more series (the "Bonds"), for the purpose of paying the cost of financing the Project, upon such terms and conditions as are contained herein; and WHEREAS, the City has considered the Borrower's Project proposal and, upon the expectation that the Project will mitigate unemployment and promote industry and a balanced and stable economy within the City, the City wishes to declare its present intention to authorize the Bonds for the aforesaid purposes,all upon such terms and conditions as may be agreed upon by the City and the Borrower. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF FORT COLLINS that: Section 1. That in order to benefit the residents of the City, the City hereby declares its intent to authorize the issuance of Bonds in an aggregate principal amount not to exceed $10,000,000, which amounts are estimated to be sufficient: (a) to finance a portion of the Project; and (b)to pay certain costs incurred in connection with the issuance of the Bonds. Section 2. That the City Council hereby finds, determines, recites and declares that the Bonds shall not constitute the debt, multiple fiscal year obligation or indebtedness of the City, the State or any political subdivision of the State within the meaning of any provision or limitation of the State Constitution or statutes or the City Charter and shall not constitute nor give rise to a pecuniary liability of the City or a charge against the City's general credit or taxing powers,nor shall the Bonds ever be deemed to be an obligation or agreement of any Councilmember,officer,director, agent or employee of the City in such person's individual capacity, and none of such persons shall be subject to any personal liability by reason of the issuance of the Bonds. Section 3. That the Bonds shall be special,limited obligations of the City payable solely from the payments to be made by the Borrower to the City under a Loan Agreement to be entered into by and between the City and the Borrower. Section 4. That the City Council hereby finds, determines, recites and declares that the issuance of the Bonds to finance the Project will promote the public purposes set forth in the Act, including, without limitation, industry, mitigation of unemployment and a balanced and stable economy. Section 5. That the City Council hereby finds,determines,recites and declares the City's intent that this Resolution constitute an official indication of the present intention of the City to issue the Bonds as herein provided, subject to: (a)City or municipal zoning approval for the proposed site (which approval shall be subject to the City prescribed procedures); (b) the City's review and approval of the final form of financing documents; (c) receipt of private activity bond volume cap allocation described in Section 7 below; (d) the delivery of an approving opinion of Kutak Rock LLP,as bond counsel to the City;and(e)the adoption of a final bond ordinance by the City Council. Section 6. That this Resolution expresses the City's intent and current expectations as of the date hereof with respect to the issuance of Bonds for the Project, however, future events or extraordinary circumstances beyond the control of the City may result in the Project being financed in a manner or from sources other than the Bonds. The performance of any action necessary to be taken by the City to issue the Bonds shall be in the absolute discretion of the City and passage of this resolution does not constitute a commitment on behalf of the City to issue the Bonds and the Borrower shall have no recourse against the City or any of its Councilmembers, officers, agents or -2- employees if the Council in their sole discretion elect not to the issue the Bonds or otherwise finance the Project. Section 7. That the appropriate officers of the City are hereby authorized to take such actions as contemplated by the Internal Revenue Code of 1986, as amended and by the Colorado Private Activity Bond Ceiling Allocation Act, constituting Article 32, Title 24, Part 17, Colorado Revised Statutes, as amended (the "Allocation Act") that may,be necessary to assist the Borrower in obtaining private activity bond volume cap allocation pursuant to the Allocation Act, including, but not limited to,the execution of the Assignment Agreement with Larimer County,Colorado. The City hereby awards its 2010 private activity bond volume cap allocation to the Project. Section 8. That all actions not inconsistent with the provisions of this Resolution heretofore taken by the City Council or any officer or employee of the City in furtherance of the issuance of the Bonds are hereby ratified, approved and confirmed. Section 9. That if any section,paragraph,clause or provision of this Resolution shall be adjudged to be invalid or unenforceable,the invalidity or unenforceability of such section,paragraph, clause or provision shall not affect any of the remaining sections,paragraphs,clauses or provisions of this Resolution. , Passed and adopted at a regular meeting of the Council of the City of Fort Collins this 1 st day of June A.D. 2010. Mayor ATTEST: City Clerk -3-